Mo. auditor: Regulators’ inadequate procedures slowed spotting problems in 2 grain dealers

State auditor reviews Mo. grain regulators

JEFFERSON CITY, Mo. — Problems with two northern Missouri grain dealers that cost farmers millions, could have been spotted sooner and addressed faster if state regulators had followed better procedures, the state auditor’s office concluded Thursday.

Missouri agriculture officials asked the auditor’s office to review its Grain Regulatory Services program after grain dealers in Gallatin and Martinsburg became insolvent in February 2009. The state Department of Agriculture says they are the largest failures in state history and cost producers more than $32 million. Over the previous 20 years, farmers have lost $3 million from grain dealer insolvencies.

Auditor Susan Montee said Thursday that regulators could have spotted problems quicker in the Martinsburg case by verifying details like dates, grain type and the amount involved in the transaction matched on canceled checks and receipts from when the dealer delivers grain to be sold. She estimated the delay increased losses by $11.4 million.

In the other case, the auditor’s office reported that regulators allowed assets not directly related to the grain dealing operations to be counted. That slowed the taking of regulatory action such as increasing how much the grain dealer must set aside in bonding.

“We’re really not blaming this on the Department of Agriculture,” Montee said. “These people were frauding up there numbers, but we are saying had they had tighter procedures they could have maybe caught it earlier. These people were lying on their financial statements and there’s only so much digging underneath that you could do.”

Both cases have led to criminal charges.

Cathy Gieseker, of Martinsburg, received a nine-year federal sentence on mail-fraud charges after pleading guilty. She also received a 10-year concurrent sentence after pleading guilty to state felonies for stealing and filing false statements with state officials. Seven other state charges were dropped.

Prosecutors say she was operating a Ponzi scheme and promised farmers that she had contracts with Archer Daniels Midland Co. that would give them returns of 50 to 100 percent above market.

Instead, prosecutors say, Gieseker sold the grain at spot prices and would sometimes pay inflated returns to some farmers as false evidence that she really had a contract. Others earned nothing.

In the Gallatin case, still pending against Danny Froman are numerous felony charges filed by the Daviess County prosecutor of stealing grain and filing false financial statements.

To prevent future problems, the auditor’s office recommended that regulators review sales revenue records including bank deposits and require companies to use pre-numbered contracts, receipts and other documents to help ensure financial records are complete.

Agriculture Department Director Jon Hagler said Thursday his agency already has improved its practices and plans to continue implementing new safeguards.

“Protecting the farmers who are the backbone of Missouri’s agriculture industry is the department’s top mission,” Hagler said. “We will use this opportunity to strengthen and reinforce the tools we use to protect our farms and farmers in the future.”

In its written responses attached to the audit, the Department of Agriculture largely agreed with the auditor’s office’s recommendations. However, it said it is impossible to calculate by how much farmers’ losses could have been reduced.

Agriculture officials say they would work with lawmakers to consider increasing how much grain dealers must set aside in bonding and create an indemnity fund to cover future losses.

For evaluating grain dealers financial strength, the department said only grain dealing related assets would be counted. It also is developing requirements for those seeking grain licenses to submit audited financial statements. Currently, those statements only must be reviewed by an accountant.