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Mashpee Wampanoag Tribe’s past accounting practices faulted

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Mashpee Wampanoag Tribe’s past accounting practices faulted

By Tanner Stening
Posted Feb 1, 2019

MASHPEE — As the Mashpee Wampanoag Tribe struggles to secure its reservation lands and save an embattled casino project already saddled with a mountain of debt, a recently published 2016 audit has raised additional concerns about its finances and accounting practices.

The audit of the tribe’s government services department sent to the tribal council on June 27 by Arizona-based Walker and Armstrong LLP outlines a myriad of deficiencies and weaknesses in internal controls, including accounting policies and procedures more than a decade out-of-date, discrepancies in the pay rates of employees, and lack of regular inventory of capital assets. The report pointed to practices that left the tribe open to potential theft and fraud.

The government services department includes human services, education, historic preservation, natural resources, housing, public works, health services, public safety, planning and development and tribal administration, according to the 30-page report, which was posted to a publicly accessible database maintained by the federal government.

Representatives from the auditing firm did not return messages requesting comment.

Although the document identified numerous record-keeping flaws, the audit does not point to any instances of financial impropriety or violations of law.

The audit identified “material weaknesses and significant deficiencies” in the tribe’s internal control over its financial reporting and over major programs paid for by federal grants.

Those problems include the use of an accounting manual from 2003 — which auditors warn heightens the risk of “material misstatements, fraud and an inefficient accounting and reporting process” — to failing to submit a single audit reporting package required by the federal government within nine months of the year’s end due to “numerous reporting errors in prior years that required significant analysis and correction.”

The audit cited a lack of internal controls over payroll processing. For two of 40 transactions tested, employee pay rates used did not match what was listed in personnel files. Auditors also couldn’t locate authorized pay rates for employees in nine of 40 transactions tested.

“Furthermore, management is not reviewing the payroll registers prior to processing and recording payroll in the general ledger,” the report says.

Tribal finance officials kept stocks of check in an unlocked cabinet during the day and signature stamps used to sign checks were not kept in a secure location, creating opportunities for employees to “initiate unauthorized transactions that could go undetected,” according to the report.

Tribal officials did not monitor the provisions of vendor contracts to verify that contractors complied with the wage requirement for Indian Housing Block Grants, the report says. The grants provide a range of affordable housing activities on Indian reservations and Indian areas, according to the U.S. Department of Housing and Urban Development.

Weaknesses and deficiencies in the audit are typical of accounting departments in smaller organizations that are not well managed, according to Timothy Mitchell, associate department chairman for accounting at the Isenberg School of Management at the University of Massachusetts Amherst.

“Those ... weaknesses demonstrate that there is opportunity for fraud, but not that fraud occurred,” Mitchell said Friday.

The financial statements provided to the auditor by the tribe reflect only transactions from each major fund across 2016, and do not show year-over-year changes with respect to the tribe’s financial position or its cash flows. The tribe’s government services department receives roughly 19 percent of its revenue from federal sources, according to the audit.

The Mashpee Wampanoag Tribal Gaming Authority had accumulated $375 million in debt as of January 2017, the report says. The audit describes the gaming authority, a five-member board charged with overseeing the tribe’s long-stalled gaming operation planned for 150 acres in Taunton, as a “discretely presented component of the tribe.” In 2016, the authority transferred more than $17 million in cash and real estate to tribal operations.

The tribe has been fighting a multiyear legal battle to secure its reservation. Neighbors of its planned $1 billion resort casino sued the U.S. Department of the Interior after the federal agency took 321 acres of land into trust on the tribe’s behalf in 2015 under the Obama administration, effectively creating the reservation and seemingly paving the way for the gaming facility. A federal judge sided with the neighbors and sent that decision back to the Interior Department, which declined to take additional action, putting the future of the casino project at risk.

U.S. Rep. William Keating, D-Mass., has reintroduced a bill in Congress that would secure the land and bar future legal challenges to its status but it faces stiff opposition from a variety of interests.

The tribe is under no contractual agreement to repay the authority debt based on an outside legal review, according to the audit. Additionally, the tribe has not guaranteed the payment of the debt or any other gaming authority obligation.

But if the Taunton land is taken out of trust, the tribe would have “contractual exposure” for the authority’s debt obligations associated with any liens, created by the tribal mortgage, on the property.

“This leak of confidential financial information is clearly an attack on our Tribe, designed to raise suspicion with non-Tribal partners and allies and sow discord within the Tribal Citizenry,” the tribe’s treasurer Gordon Harris wrote in a statement emailed to the Times on Thursday. “It’s difficult enough to fight for our land and combat the assaults on our sovereign rights without having to deal with leaks intended to undermine the hard work and credibility of dedicated, committed tribal servants.”

But the audit is publicly available information on the Federal Audit Clearinghouse website. All nonfederal entities spending more than $750,000 in federal awards must be audited, according to the federal Office of Management and Budget guidelines. Tribes may opt out of making their reporting packages publicly available on the website, according to an official with the Federal Audit Clearinghouse.

Harris acknowledged that there were “financial reporting, accounting and internal control areas that need improvement,” but said the findings by Walker and Armstrong were “typical” of audit reports.

“Once notified of these audit findings, the tribe and its management immediately developed and is implementing corrective action measures to effectively address each audit finding,” Harris wrote. “The implementation of these corrective measures addresses each of the audit findings.”

The tribal government is committed to strengthening its internal control over its accounting, he wrote. The audit report included a corrective action plan prepared by the tribe that was to be completed by Dec. 31. It is unclear from Harris’ statement whether the plan has been implemented.

The tribe’s comptroller was listed as the contact for the majority of the plan.

But findings from the audit appear to contradict earlier statements from the tribe’s chairman, Cedric Cromwell, who was recently stripped of control over the tribe’s finances after a Times story about his personal financial problems.

Cromwell previously said the tribe’s financial record-keeping is subject to “regular outside audits to ensure we maintain best practices in terms of accounting.”

Last week, the tribal council voted 7-0 to strip Cromwell of his fiduciary duties as chairman and in his role as president of the gaming authority, according to sources present at the time. The council also took a vote of no confidence in Cromwell, 9-0, with one abstention, signalling a lack of faith in his leadership. The move to limit Cromwell’s control and influence came after revelations that he and his wife, council member Cheryl Frye-Cromwell, owe the IRS roughly $37,000 in unpaid taxes.

Since Cromwell’s rise to power in 2009, the tribe has racked up $440 million in debt to its financial backer, Genting Malaysia, which recently wrote off its investment in the tribe as a loss. Financial records detailing that debt, the repayment of which tribe leaders say is contingent on the success of the Taunton casino, have been kept out of public view, and even from tribe members, although the Walker and Armstrong audit sheds some light on the flow of money through the gaming authority to the tribe.

More recent financial information show the tribe’s financial situation has deteriorated dramatically since the period covered by the audit. Expenditures from Jan. 1 to Dec. 31 of 2018 left the tribe with $83,670 in its general fund, according to a statement of its expenses and revenue for the year obtained by the Times.

The tribe began 2018 with $6,369,258 in the fund, and spent $6,285,589 as of the end of the year, the document shows. Those figures were roughly equal to what the tribe had in cash or cash equivalents in 2016, according to the audit.

Of the total allocated for general spending purposes for fiscal year 2018, $5.4 million came from loans issued by Genting, a figure that is about half of what the tribe received from the international casino developer in 2017.

It is unclear what the tribe currently has in its coffers. Tribal financial records are typically not publicly available.

“Obviously it’s concerning that they owe $440 million and don’t have a productive asset to show for it,” Mitchell said. “You don’t borrow money for things that don’t produce income in the future.”

In response to the mounting financial pressure, the tribe laid off 31 employees in the past year, and Cedric Cromwell has warned that more layoffs and service cuts were likely this year.

— Follow Tanner Stening on Twitter: @tsteningCCT.

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