Review of tribe's $100 million business shows shaky outlook

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By ANNA JO BRATTON / The Associated Press

OMAHA — 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.

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 is dated Feb. 12 and has not been released to the public, but was provided this week by a tribal member 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 Friday 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 Friday morning.

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."