SF Special: A Constant Battle for Beef Checkoff Transparency
It all started when former Kansas City Star investigative reporter Mike McGraw overheard a conversation at the 2012 National Cattlemen’s Beef Association (NCBA) Convention in Nashville, Tennessee. Five years later, he’s unsure exactly what he heard and can't locate his notes from the convention, but it was enough that the Organization for Competitive Markets (OCM) started balling its fists and marching toward the Cattlemen’s Beef Promotion and Research Board (CBB), also known as the beef checkoff. That battle is still being fought, and another hearing takes place tomorrow.
“I overheard a discussion of the upcoming report from the office of the inspector general (OIG) that raised questions in my mind about whether the inspector general investigation was watered down or at least run by some of the people that had a dog in the fight,” says McGraw.
If you ask Fred Stokes, who was the OCM president at the time, he’ll tell you exactly what he thinks happened that day — although he wasn’t actually there.
“(McGraw) overheard a conversation between an NCBA guy and an Agricultural Marketing Service (AMS) guy,” Stokes says. “The AMS guy said, ‘I’ve seen the draft report and there’s some really bad stuff in there, but don’t worry. I fixed it.’”
Cue the hysteria.
Back in 2010, the USDA conducted an independent audit of the beef checkoff program that took about 15 months to complete. A year or so after it was completed, the USDA released a 17-page report that supposedly summarized the whole 3,000-plus pages of the audit materials. If current OCM president Mike Weaver has anything to say about it, it’s that the report should be 100 or 200 pages in total – not 17.
The initial report summary included a paragraph using language that essentially said there was no reason to question the NCBA and nothing was found to incriminate the organization: “The OIG determined that the relationships between the Cattlemen’s Beef Promotion and Research Board (beef board) and other industry-related organizations…complied with legislation.”
That didn’t sit well with OCM — partly because of the group’s ongoing distrust of checkoff programs, but also because two independent audits conducted by CBB around the same time period resulted in the NCBA returning hundreds of thousands of checkoff dollars to the CBB after multiple checkoff fund misuses were uncovered.
In early April 2013, a month after the audit report was released, OCM submitted a Freedom of Information Act (FOIA) request for records dating from 2010 that related to the audit. After nearly four years, OCM still hasn’t received all of the documents it requested after a series of delays and the NCBA entering the case as an intervenor just last year. However, the information-gathering phase of the case is likely coming to a close in 2017, which puts OCM members one step closer to understanding just what happened during the audit of the CBB in 2010.
What Is the OCM?
The OCM prides itself on being an organization made up of a select group of producers that is in no way controlled by companies. According to Weaver, there’s only one other comparable organization: R-CALF, a group that spends time “fighting for the U.S. cattle producer,” according to the organization’s website. OCM and R-CALF have a shared distrust and frustration with the NCBA and the beef checkoff. This isn’t new, but hearing what the Kansas City Star reporter heard and seeing the first draft of that 2010 audit report set the groups over the edge.
“We think that the documents will prove that they’ve been using our own checkoff money against us to lobby for the big meatpackers and not for the farmers, like it’s supposed to be used for,” Weaver says. OCM believes that checkoff funds are being misused by the NCBA.
Ever since national checkoff groups originally formed in the early 1980s, there have been producers who hate the idea that a portion of the profit they make on every bushel, animal, or carcass goes straight to a national organization that the USDA is supposed to oversee. That money, $1 per head for beef producers, isn’t as closely monitored as it should be, according to groups like R-CALF and the OCM.
To be clear, checkoff money cannot legally be used for lobbying or influencing government policy or action of any kind. That money is responsible for consumer-facing promotional campaigns like Beef. It’s What’s for Dinner. How that funding is monitored can be a hazy area if you look too closely, OCM members believe.
Close to $80 million is generated each year through the Cattlemen’s Beef Board, according to Polly Ruhland, CEO of the CBB. Half of that sum goes to state beef councils; the other half goes directly to the CBB based in Centennial, Colorado.
Neighbors Working Hand In Hand
About 100 NCBA employees also work out of a Centennial office. NCBA is made up of two parts that are both called NCBA, but they have separate bank accounts and are somewhat split between two different cities. The policy division has lobbyists based in Washington, D.C., while the research and promotion employees are set up across the street from the CBB. The NCBA is the CBB’s primary contractor.
All checkoff contractors, organizations that take on requested CBB research projects and promotional campaigns, must be national organizations that are nonprofit and producer-driven (which is industry-governed). The tricky part is that any contracting organization taking on a CBB project must do all of the work, absorb all of the costs, submit the work, and then apply for reimbursement.
“The pool of eligible contractors is actually fairly large, but the list of contracting organizations willing to risk not getting reimbursed if they cannot meet our requirements is small,” says Ruhland.
It’s a lot to ask of some organizations. Plus, any contracting organization is audited regularly by the CBB and annually by an independent auditor.
Audits on Audits on Audits
Each year, the CBB was audited by an external auditing firm. A different external auditing firm also audits each of the CBB’s contractors annually and submits its findings to the CBB. The CBB itself currently has nine full-time employees with over 50 years of auditing experience on staff.
“We do a lot of auditing of the NCBA. I’d say we’re over there almost every day with an audit,” says Ruhland, who adds that the CBB is diligent about auditing contractor organizations monthly, which was a voluntary initiative implemented by the current CBB management team.
The NCBA returned funds to the CBB in 2010 when “miscodings in accounting” were found by an independent auditing firm working with CBB auditors, Ruhland says. According to the U.S. Cattlemen’s Association (USCA), that number was over $200,000 in returned funds in 2010. In June 2011, the CBB revealed that the amount of money needed from the NCBA exceeded $305,000 after followup CBB audits revealed additional findings that were then corrected.
The above numbers weren’t officially confirmed by the CBB and aren’t available publicly, as the audit wasn’t conducted by the Agricultural Marketing Service (AMS) or the OIG. However, Ruhland did acknowledge the errors that were found.
“I’m not comfortable going back and dragging that up again,” says Ruhland. “But the OIG audit did not require the NCBA to return any funds. That was our audit…we find errors in accounting and require (contractors) fix them.”
A Conflict of Interest or Rule-Abiding Board?
OCM also struggles with the idea that much of the CBB is made up of so many NCBA members — a major conflict of interest, according to Stokes. The CBB consists of 100 cattle ranchers who are elected by state officials and approved by the U.S. Secretary of Agriculture. The group then meets independently to decide how checkoff funds should be used.
“I can tell you anecdotally that many of our board members hold dual or triple organizational affiliations — NCBA, Farm Bureau, Farmers Union, dairy co-ops, state cattle organizations, state dairy organizations, etc.,” Ruhland says. “Our board members are industry leaders and usually are widely involved in service to the industry.”
That’s true in that each one of the 100 members must have his or her résumé approved by the USDA Secretary and then can be appointed by the board to a leadership role. One of the ranchers who was voted into a CBB leadership role in recent years was Tom Jones of Arkansas. He took on the role of CBB chairman in January 2011 and resigned with a telling letter sent to the board just six months later.
Although he cited his father’s fight with ALS and time needed on his own cattle operation, Jones also made statements about the integrity of the board he led. “Some board members put their allegiance to their chosen association before their oath of obligation to serve all producers who pay the checkoff. This is a dangerous position to take,” he said in the letter. “It will also be impossible to defend those attitudes if or when this program is challenged.”
That was in 2011, right after the CBB had announced the significant sum that the NCBA needed to return to the CBB. Right before Jones resigned as chairman, Tom Ramey resigned from his hired role as CBB CEO. The resignations and rumors that the NCBA pressured the leaders triggered a reaction from the USCA, which sent a letter to then USDA Secretary Tom Vilsack pushing for an investigation by the AMS of emerging checkoff contractor compliance, funding management issues, and factors that led to Ramey’s resignation.
In a press release, USCA president Jon Wooster stated, “The beef checkoff’s majority contractor has engaged in a public campaign attacking the CBB staff and leadership, demanding their resignations or involuntary removal . . . We now find ourselves in a situation where NCBA has apparently decided that its best defense is offense and that includes fostering a culture of hostility and distrust.”
David Wright started his term on the Cattlemen’s Beef Board in 2011, right as everything shook out. If you ask him to explain how he, an incredibly skeptic Nebraska cattle rancher with a high school education, got voted onto the board, he’ll tell you it was all about politics and the arrogance of the system.
“It became obvious very quickly that there were people on the CBB who were wanting accountability and then there were the NCBA members who didn’t want things to change at all because they were winning contracts,” says Wright. “When you put that many millions of dollars on the table, people become corrupt very quickly.”
Wright was moved from committee to committee on the CBB after he questioned the process of each one.
Actually, Wright has been on the inside for years. After being elected as a director of the Nebraska Beef Council in the early 2000s, he got involved nationally by default. Because of his leadership role, Wright took a seat on the Federation of State Beef Councils (a group that represents 44 qualified state beef councils and is housed under the NCBA), and he got a front-row seat for the very influential Beef Promotion Operating Committee (BPOC) meetings. The BPOC chooses what organizations are awarded contracts funded by checkoff dollars and is made up of 10 federation members and 10 CBB members.
When serving on the federation, Wright asked for a show of hands to gauge just how many committee members were NCBA members. According to him, it was nearly all of them. Instead, he asked to see who were not members and only had two others besides himself raise their hands. All of those federation members sit on CBB committees.
“It’s such an old boys’ network . . . But where I come from, we’re always just about broke in the cattle industry,” says Wright. “So if you’re taking my checkoff dollars to make the NCBA stronger as opposed to making cattlemen stronger, I have a real problem with that.”
The Case: OCM v. OIG + Surprise Guest NCBA
Back in August 2012, attorney Dan Owen of Polsinelli Law Firm in Kansas City, Missouri, offered to represent OCM pro bono in suing the NCBA directly for conflicts of interest. After moving forward a bit with the case, the firm withdrew the offer. If you ask Stokes, the esteemed firm was pressured by meatpackers to back out of the case. When Owen was contacted in February, he was unable to comment.
During that time, Stokes of OCM was working closely with the lead investigator of OIG as the audit of the beef checkoff was being completed. Stokes trusted the investigator when he said the report would likely be released in March 2012. Instead, the report was released in March 2013. One month later, OCM submitted a Freedom of Information Act request for records dating from 2010 that related to the audit.
“We know there were some early drafts that provoked a lot of controversy, and we want those,” Stokes says. “We would also like to have the investigator’s report.” OCM knows there were early drafts of the final report because of emails released to the group after the initial FOIA request was made. Some emails made reference to the report as reworked and “transformed” after initial complaints were made.
Editor's Note: The above and following email screenshots were provided by Matthew Penzer and were originally released to OCM through a FOIA request.
By July, the OIG had retracted the report, halted OCM’s FOIA request, and it did not rerelease a final version of the report until January 2014.
In a surprising twist, the Humane Society of the United States (HSUS) got involved — offering up HSUS lawyer Matthew Penzer’s services to represent OCM for no cost at all.
“We recognize that there are things that we disagree about – we speak candidly about that – but we speak to each other with respect and integrity about the issues we can work on together,” Penzer says.
Historically, hearing the name HSUS left something of a bad taste in cattle producers’ mouths. “I have taken unbelievable flack for being ‘in bed with the Humane Society,’ ” Stokes says.
OCM accepted the offer and appreciates the generosity and heart that HSUS brings to the case. Stokes even goes as far as to call Penzer a champion in the case and exceptionally conscientious.
“I think checkoff reform helps and serves our mission, since checkoff abuse is such a danger for animals,” Penzer says. “If nothing else, spending on transparency for these programs will benefit not only animals but also issues that OCM is involved in.”
In November 2014, an official complaint was filed with the U.S. District Court for the District of Columbia after 18 months of limited information releases from the OIG, even after the government entity admitted over 10,000 pages of information had originally been collected.
“Our objective is to determine whether checkoff funds have been used improperly and to induce some transparency into the way that checkoff funds are spent,” says Weaver. “We think the documents will prove that they’ve been using our own checkoff money against us.”
“Let’s just say that the reports are truthful, show us the results. If untruthful, all the more reason to show us,” says Penzer. “Two conflicting audit reports scream for transparency.”
The entire case has seen a series of delays. Delays in releasing the report, delays in rereleasing it, delays in getting information to OCM, delays in the court case, etc. After years of holdups, two weeks ago, another delay was thrown into the mix when the judge rescheduled a hearing just one day before it was to take place.
“Our position is as basic as what we learned in third-grade math: If you want to get credit, show your work. And that’s FOIA,” says Penzer.
Just two days after an uneventful hearing in August 2016, the OIG informed the OCM that it had located 9,000 new pages of information that related to checkoff funds and would likely be relevant to the case. Suddenly, a new group filed a motion to intervene.
When the NCBA threw its hat in the arena in September 2016, the court restricted not only the organization’s role in the case, but also how much information the court would consider to be private.
“The court said it was going to be very conservative about what it would declare is private information,” Stokes says.
The NCBA claims to have been unaware that the FOIA request filed by OCM for the collection of beef checkoff documents relating to previous audits was even happening from 2013 to 2016.
“NCBA did not become aware until August 2016 that certain of its documents were among the documents requested by OCM’s FOIA request, and NCBA only became aware the following month that there had been litigation about the FOIA request for two years,” says John Robinson, NCBA executive communications director.
According to the NCBA, it comes down to privacy.
“Like most businesses, NCBA normally does not disclose its confidential business information to the public and, as the Court determined, NCBA has substantial interest in not disclosing such information to its competitors,” says Robinson.
The NCBA, like any commodity association, isn’t a fan of giving up its strategies and internal documentation to the public. Because membership organizations like the NCBA, the National Pork Producers Council, the American Soybean Association, etc., aren’t government entities, they usually don’t have to give up information. However, situations get sticky when the associated checkoff groups get FOIA requests and many of the documents they must turn over end up with the membership organizations’ data and communications interwoven.
This is a feeling shared by membership organizations. In fact, 14 different commodity membership groups wrote a letter to Congress last year requesting that their associated checkoff groups not be subject to FOIA requests anymore as they are, technically, not government entities (although monitored by the government). In theory, that request would have nothing to do with those membership groups, but consistently the organizations’ information is exposed through the requests.
“Communications between checkoff employees, who are not government workers, shouldn't be subject to requests made under the FOIA, which only applies to communications involving federal entities and federal employees,” says Dave Warner, spokesperson for the National Pork Producers Council. “We don't need activist groups trying to make a big deal out of the internal communications of private-sector workers.”
Internal communication was a trigger for Warner, who simply doesn’t see the point of having so much subject to FOIA requests when there are instances of personal producer information being released accidentally through the requests as well as many requests filed by activist groups.
Budget information and communications between the checkoff groups and the USDA would always be subject to FOIA.
On March 22, the parties involved in the case between OCM and OIG will come together for a hearing intended to wrap up the information-gathering stage on the case, which means the NCBA will be in attendance, as well.
For more information on the case going forward, watch the video below.
Checkoff background: If ranchers are upset about having to pay a fee to checkoff for each animal sold, the checkoff can be dissembled by 10% of total U.S. producers petitioning to hold another referendum and passing it. Producers are also able to request that the full sum contributed to checkoff go to the national checkoff, rather than half going to the state councils.