Lack of internal controls could present problems for cattle industry

August 12, 2010

You know it’s gonna’ be a bad day when you open your e-mail and see that day’s New York Times’ sports your picture pleading over why your organization… well, here’s how the Aug. 2 Times explains it:

“An influential cattle industry group misused money raised from ranchers and farmers for promoting beef sales and violated federal rules by spending some of it to support lobbying activities, according to an outside financial review.”

Misuse of money

The “influential cattle group” is the National Cattlemen’s Beef Association. The “misused” money came from the beef checkoff.

Cowboys’ prediction

The picture is of Forrest Roberts, NCBA’s chief executive officer. The “federal rules violated” is what the U.S. Department of Agriculture, major farm groups and thousands of checkoff-paying cowboys predicted might happen when NCBA announced a new “governance” structure earlier this year: NCBA, the checkoff’s prime contractor, is so tightly tied to the checkoff that it’s often impossible to distinguish where NCBA ends and checkoff’s Cattlemen’s Beef Board (CBB) begins.

Small review

In fact, the “outside financial review” — actually, only a quick peek at about 1 percent of the paperwork for the more than $100 million of checkoff money that flowed through NCBA from October 2007 through February 2010 — showed “at least $90,000 in questionable or poorly documented transactions,” according to auditing firm Clifton Gunderson.

NCBA reacted angrily to CBB releasing the results, noting that previous reviews and audits went to USDA where they were quietly forgotten.

Access denied

True, but most reviews were conducted by CBB staff. This time, NCBA denied CBB access to records and requested an outside auditor for the work.

CBB hired Clifton Gunderson; that burned another $70,000 of checkoff cash. NCBA then spent late July downplaying the review.

Unclear rules

Its officials, explained the Times, “acknowledged some mistakes [but] said guidelines on how the marketing money should be spent were often unclear.”

Oh, unclear as in charging the checkoff $3,592 for Roberts’ wife’s travel to New Zealand and, again, for her and their son to accompany Roberts to San Antonio?

Long history

It’s confusing because, while both are clear violations of checkoff rules, in reality, NCBA Prez Steve Foglesong explained to the Times, “(T)hat’s not anything different than what’s been going on for a long, long time.”

How long has NCBA been spending checkoff money under its “long-long-time” rules rather than federal law?

Hard to say, but since the checkoff was instituted in 1986, it has collected and spent more than $1.5 billion of producer money.

NCBA’s lack of internal controls and inadequate accounting of checkoff dollars is just the $54 million part — the amount of checkoff cash estimated will flow to the group this year — of the iceberg you see.

Conflict

Just below the surface, however, is the bigger, clearer conflict-of-interest between NCBA and the checkoff.

For example, many members of the CBB, appointed by the secretary of agriculture, are also long-time members of its chief contractor, NCBA.

Another key player in both the NCBA and checkoff is the Federation of State Beef Councils. By law, state councils control 50 cents of every checkoff dollar.

Like the CBB, most state councils contract with NCBA to run some, maybe much, of their checkoff programs. And, like many CBB members, most Federation members are NCBA members, also.

How can these multi-hatted CBB, Federation and NCBA members vote one penny of checkoff spending to NCBA and it not be a conflict of interest? It’s a crucial question now that NCBA publicly joined its packer pals to fight proposed USDA rules for fairer, more transparent livestock markets.

NCBA can, of course, lobby for any policy its members choose. What it cannot do, however, is use checkoff dollars in the effort.

The just-released results of the compliance review casts doubt on that not happening because, clearly, it’s happened — often — in the very recent past.

But even if it cleans up its act, why do cattle producers continue to spend 75 cents of every checkoff dollar with NCBA when it represents only 1 of every 33 producer and wants to kill rules to strengthen markets for all 33?