Organization for Competitive Markets v. Office of Inspector General (Checkoff Lawsuit)

In 2010, an audit of the equivalent of just nine days of beef checkoff program spending found more than $200,000 in improper spending by the National Cattlemen’s Beef Association (NCBA), including the use of tax dollars for lobbying and overseas vacations. USDA then performed a full audit of the program but did not release it to the public, claiming it would cause embarrassment for USDA and cause fracturing of the beef industry if the details were made public. We have been fighting the USDA’s Office of Inspector General (OIG), and now NCBA which has intervened, in federal court over a Freedom of Information Act request since 2014 to see the spending details of these federal tax dollars.

Documents

• OCM v. OIG Complaint for Injunctive Relief (11/12/14)
• OIG’s Motion to Modify Briefing Schedule (7/11/17)
• Plaintiff’s Response to Defendant OIG’s Motion to Modify Briefing Schedule (7/13/17)
• Plaintiff’s Status Report (1/12/18)
• Defendant-Intervenor NCBA’s Motion to Stay Summary Judgment Briefing Schedule (2/16/18)
• Defendant’s Notice to the Court (2/23/18)
• Plaintiff’s Response to Filings of Defendant OIG and Intervenor NCBA as to Motion to Stay (3/2/18)
• Court Order Recounting OIG’s History of Delay (4/12/18)
• Defendant OIG and Defendant-Intervenor NCBA’s Joint Motion for Order Requiring Return of Documents (5/29/18)
• Defendant-Intervenor NCBA’s Motion for Reconsideration of the Joint Motion for an Immediate Protective Order Pendente Lite Against Distribution or Publication of Information (5/31/18)
• Plaintiff’s Response to Defendant’s Joint Motion (6/14/18)
• Judge’s Order 6/14/18
• Defendant’s Notice to the Court, 8/31/18

Background

In 2010, the Clifton Gunderson Accounting Firm performance review, commissioned by the Cattlemen’s Beef Board, examined one percent of expenditures and personnel time cards charged by the National Cattlemen’s Beef Association (NCBA) to the Beef Checkoff Program over a 29-month period ending in 2010. This was in effect the equivalent of nine days of activity. Numerous irregularities were uncovered which resulted in the NCBA being required to return to the National Beef Board more than $200,000. These irregularities included improper payment for expenses such as spousal travel, policy work, and golf tournaments.

Concerned about the findings of the Clifton Gunderson partial audit, Organization for Competitive Markets, along with others, pressured the U.S. Department of Agriculture (USDA) Office of Inspector General (OIG) to audit the Beef Checkoff Program. OIG agreed, and in 2011 began its audit of USDA Agriculture Marketing Services (AMS), the agency that is responsible for overseeing the checkoff programs. The investigative phase of the audit was completed in December of 2011, with the final report expected by March of 2012. An audit report was finally released in March of 2013, 15 months after completion of the investigation.

This first “final” audit report concluded that NCBA had properly expended all Beef Checkoff Program funds and that the relationship between the Beef Checkoff Program’s Cattlemen’s Beef Board (CBB) and the NCBA complied with U.S. law. Because this audit report flew in the face of the Clifton Gunderson 2010 audit and screamed of a whitewashing of the facts, OCM promptly filed a request under the Freedom of Information Act (FOIA) for an extensive list of records pertaining to the audit report.

The contents of emails released to OCM after the FOIA request was made show there were early drafts of the final report. Some emails made reference to the report as reworked and “transformed” because the findings were too “crazy” to publish.

Another USDA email from January, 2013 establishes that the audit had turned up issues that would give USDA “heartburn” and would “reflect poorly on USDA (as a whole) if released as is,” but these issues seem to have been scrubbed from the first final report.

The OIG FOIA office initially responded by releasing 101 heavily redacted pages of printed documents, and denied release of the 3,120 pages of report drafts and 125 pages of related emails under a claim of exemption. OCM challenged this claim. At about the same time, R-CALF USA filed a complaint against this first final audit report. Under this pressure, this first final audit report was withdrawn in July 2013.

On January 31, 2014 OIG issued a corrected final report, some 36 months after the initiation of the audit. This corrected final report withdrew OIG’s conclusions that the NCBA had properly expended all Beef Checkoff Program funds and that the relationship between the Beef Checkoff Program’s Cattlemen’s Beef Board (CBB) and the NCBA complied with U.S. law. What evidence was OIG trying to cover up on behalf of NCBA in the first final report?

Meanwhile, when the audit report was not issued when it was expected in March of 2012, OCM prepared to file a lawsuit. OCM engaged one of Kansas City, Missouri’s large law firms to assist; however, NCBA and its big agribusiness partners pressured the firm, causing it to withdraw. Then, through one of OCM’s members, OCM reached out to seek the legal assistance of The Humane Society of the United States (HSUS). HSUS agreed to help OCM bring this cloud of contradictions to light, with the resources to provide the needed legal representation to assist OCM in filing the OCM FOIA complaint on November 12, 2014 to force USDA to turn over the documents related to the audit.

OCM has reason to believe that the OIG, because of outside industry pressure or just in an effort to cover its tracks, “rebooted” its initial findings that would have exposed vulnerabilities in the checkoff. Further, a central finding of an early draft audit report by OIG determined that as much as 25% of checkoff funds were “vulnerable to misuse” and that “producers lack assurance” that the Beef Board could protect those funds. After inter-agency concerns were expressed that such a finding could be seen as reflecting negatively on USDA and that it could result in increased “fracturing” of the agency’s relationship with the beef industry, the publicly released audit report omitted these central findings and substituted watered down, harmless language instead.

OCM simply wants to know the truth: is NCBA properly expending the beef checkoff dollars it is contracted, and what is being done about the conflict of interest issues that exist between the Cattlemen’s Beef Board and NCBA?

Four years after OCM’s lawsuit was filed, March 31, 2017 was the USDA’s court-ordered deadline to turn over the records from the audit initiated in 2011. Out of a total of 12,341 pages of financial records from the audit sought by the OCM, USDA released less than 175 pages, most of which are already public tax forms. The remaining nearly 12,200 pages of checkoff-related records, however, were completely blacked out—USDA is claiming they are confidential. The bottom line is that USDA is withholding a staggering 98.5% of federal Beef Checkoff Program spending records from the cattle producers who are required to pay into the government program.

USDA appears committed to helping NCBA conceal checkoff records, rather than assuring transparency for the producers it is supposed to be accountable to. NCBA entered the case last year after learning that financial ledgers relating to checkoff funds were among the records OCM was seeking to make transparent.

The bottom line is that USDA is withholding a staggering 98.5% of federal Beef Checkoff Program spending records from the cattle producers who are required to pay into the government program.

While USDA and NCBA continue to try to cover up checkoff program misconduct, OCM intends to challenge the refusal to disclose records for what is supposed to be a government program accountable to the farmers who fund it. OCM’s challenge will include both the refusal to release the checkoff financial records and the audit records that USDA has also refused to disclose.

There is evidence NCBA used beef checkoff funds to grow and develop its organization and its influence on policy, a clear conflict of interest that is prohibited by law. Through the advancement of its policies, NCBA has almost single handedly destroyed the cattle price for U.S. cattle producers. NCBA lobbied to abolish Country of Origin Labeling on behalf of packers so cheap imported South American beef could be co-mingled with U.S. beef. NCBA appears to have supported USDA’s recent ruling to allow possible foot-and-mouth disease infected South American beef to be brought into our domestic markets. NCBA also fought the GIPSA rules that would have ended predatory market practices which are driving independent cattle producers out of business and off the land. Since NCBA has been administering the lion’s share of beef checkoff funds, the U.S. has lost nearly half of its cattle producers.

OCM will continue to pursue every avenue possible to ensure family farmers and ranchers no longer fund their own demise through their checkoff dollars.