FARGO -- Financial stresses on farmers and grain elevators should make board members for agriculture-related cooperative more vigilant in their duties, experts say.
A September 2018 grain elevator cooperative embezzlement scandal that cropped up at Ashby, Minn., and other instances of malfeasance should awaken companies to the challenges, says John O. Christianson, a certified public accountant and managing partner of Christianson PLLP, at Willmar, Minn.
Jerry Hennessey, the manager at Ashby Farmers Elevator Cooperative, is accused of stealing nearly $5 million over a 10-year period, in part to support his family’s big game hunting and taxidermy passion. Some hunting-related vendors were paid individually with co-op checks, and masked as for the purpose of buying corn or soybeans. There were no annual financial audits of the co-op for at least the past 10 years.
Christianson says the first step to avert problems is for board members to take an active role in leading your cooperative or company. “Board members must be leaders of strategy for the company by their board governance,” he says. Their leadership role can define their board governance through four factors which include:
Stuart Letcher, executive director of the North Dakota Grain Dealers Association, says his association is including a presentation on financial responsibilities at the company’s upcoming annual meeting. Dave Barrett, a Dublin, Ohio, lawyer and former general counsel for the National Grain and Feed Association, will speak in Fargo on Jan. 21.
“With tariffs and the stress on financial statements, It seems this is a timely topic,” Letcher said.
Christianson urges co-op boards to define expectations which need to be set and clearly understood in all areas important to the company, which include ethics; financial performance; operational performance; market position; and innovation.
Four specific musts are:
- Segregating duties. Policies should a.) commit to the transaction; b.) Record the transaction; c.) reconcile transactions, and d.) report transactions.
- Reviewing risk management policy. The company should a.) provide training on policy; b.) monitor and audit policy compliance annually.
- Ensuring integrity of the financial statements. This includes a.) internal and external financial reporting; b.) understanding significant estimates and selected accounting policies; c.) discussing any regulatory changes with management and analyze impact; d.) communicating findings with external auditors; e.) inquiring about staff competency and training.
- Overseeing organization’s internal controls, using a risk-based approach. This means a.) reviewing internal control procedures and documentation; b.) analyzing gaps in internal control structure and formulate corrective action plans with management; c.) reviewing reporting from external auditors on internal control deficiencies and weaknesses and ensuring appropriate safeguards are established; and d.) considering an internal audit or external audit of internal controls, dependent on risk.
Christianson says the primary role of the board is to safeguard the assets of the company. “Boards must seek the training they need to be confident in their leadership position,” he says. “The board must also be confident to be inquisitive and ask the probing questions when they do not get the answers they understand.
“Management needs to be able to break down any execution of an action plan into understandable terms for the board of directors. The boards of the future bear much responsibility and importance for their member owners.”