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By Anna Jo Bratton
Omaha, Nebraska (AP) 3-08
A $113 million American Indian business that’s often lauded as a shining example of tribal enterprise is on shaky ground, according to a financial review.
Ho-Chunk Inc., the Nebraska Winnebago tribe’s economic development vehicle, appears to be in poor financial condition and isn’t generating enough cash to pay off its debt, according the review by Deloitte Financial Advisory Services in Los Angeles.
The review comes as tensions in Winnebago build. The tribe has fallen
on tough times, with ever-decreasing revenue from its Iowa casino
contributing to scrutiny of how the tribal businesses operate. The
tribe operates WinnaVegas Casino near Sloan, Iowa.
In August, the Ho-Chunk board suspended the company’s top two
executives for refusing to provide information to the board, then
reinstated them eight days later, although the matter wasn’t resolved.
In October, tribal members voted to remove the entire Ho-Chunk board
and the tribal council selected a new board.
The financial review was requested by the Winnebago tribal council,
which appoints Ho-Chunk’s board of directors. It has not been released
to the public, but was provided to The Associated Press.
The financial review does not provide a complete picture because
Deloitte said Ho-Chunk executives refused to answer questions or
provide information, including salary and wage reports.
But it raises serious questions about Ho-Chunk, and Deloitte recommends
that Ho-Chunk consider shutting down some of the least profitable
businesses.
Ho-Chunk employs nearly 600 people in six states, Mexico, Iraq and
Afghanistan. It relies heavily on government contracts and millions of
dollars in loans guaranteed by the Bureau of Indian Affairs.
Ho Chunk posted revenues of $113 million in 2006, up from $22.9 million
in 2000. Assets have grown to $42 million from $8 million in that time,
and the company now includes some 16 subsidiaries.
The company recorded $660,000 in net profits in 2006, the most recent
figures available, and returned about $86,000 to the tribe. Tribal
members in Nebraska and other states say that’s far too little.
Deloitte questioned the company’s accounting practices and said its
annual reports don’t accurately reflect its actual condition. The
Ho-Chunk board was not provided the information it needed to monitor
the business, Deloitte said, allowing CEO Lance Morgan to make
decisions with limited oversight. Morgan “often displayed disregard”
for both the board and the tribal council, Deloitte said.
A message left with Deloitte wasn’t immediately returned.
Morgan, a Harvard graduate and tribal member who’s been at the helm of
Ho-Chunk since 1994, furiously denounced the review Friday, saying it
was “a load of crap” and “obviously a slanted document.” He provided
the AP with a 35-page document Ho-Chunk has prepared for the board of
directors and tribal council, questioning the review’s methods and
results.
But Winnebago tribe member Prosper Waukon said the results of the
review show what tribal members have long suspected. The review hasn’t
been given to tribal members, who Waukon said have a right to know what
the tribal council knows.
“Lance has always been calling the shots with them,” Waukon said. “It’s
very patronizing ... to assume we would not understand the financials.”
Tribal council chairman Matt Pilcher didn’t immediately return a message left for him.
Morgan said the company’s debt – about $13 million – is high but
manageable, and the company hasn’t missed any payments and is
generating the cash needed to pay current debt.
But Deloitte said the company and its subsidiaries keep taking on
long-term debt even as net income decreases, and the company is
dependent on borrowing more money to stay afloat. Company officials
appear to have shifted money between subsidiaries to pay the bills,
Deloitte said.
As the tribe struggled, Ho-Chunk may have been paying dividends to
third-party investors, Deloitte said, including thousands of dollars
apparently paid to “Smokin” Joe Anderson, a New York tobacco
manufacturer who owned large portions of several Ho-Chunk subsidiaries.
Morgan said Anderson’s contributions were critical to the success of
certain subsidiaries. Morgan said Anderson sold his stake back to
Ho-Chunk at a loss in August because of the controversy.
Ho-Chunk relies heavily on federal government contracts, which give preference to companies with American Indian ownership.
In an e-mail obtained by Deloitte, Morgan writes other executives: “We
have basically bet the company on government contracting. It is working
fantastic but requires cash to feed the machine.”
If the company has trouble getting contracts in the future, Deloitte
said, it could place Ho-Chunk in serious financial hardship.
Ho-Chunk and its subsidiaries have millions of dollars in loans as part
of the Bureau of Indian Affairs Guaranteed Loan Program, which backs up
to 90 percent of some loans.
The bureau has not yet provided records of the guarantees to AP in
response to a Freedom of Information Act request made in November.
Bureau of Indian Affairs officials said in February they would consult
with Ho-Chunk and then decide whether to provide the requested
information.
The tribe has about 4,350 enrolled members, with some 1,400 living on
the reservation. Ho-Chunk has about 135 American Indian employees –
company officials say they hope to keep hiring more, but can’t always
find tribal members with the appropriate skills.
Tribal council member Kenny Mallory, who’s also on the Ho-Chunk board
of directors, said the board wanted time to review the report before it
was made public. He said many of the conclusions are inaccurate, and he
worries that the review will be misinterpreted and hurt Ho-Chunk.
“When you bad-mouth your own organization, you can’t expect someone to
finance your casino,” Mallory said. “We cut our nose off to spite our
face when we do that stuff.”
But tribal elder Nicky Solomon said the tribe needs to know where it stands.
“Every tribal member should be informed about what’s going on,” Solomon
said. “It’s our reservation. It’s our land. It’s our company.”
On the Net:
Ho-Chunk Inc.: www.hochunkinc.com
Winnebago Tribe of Nebraska: www.winnebagotribe.com
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