Expert review of company’s financials, state records show ‘severe’ issues since 2015 but inaction by licensing agency until 2020
By JESSICA BRICKER
Several farming families will have multiple days of hearings with an administrative law judge in Indianapolis next month as they continue to question the state’s handling of a 2020 grain elevator failure in the area.
And according to the state’s own records, the grain elevator in question had been in violation of licensing laws since at least 2015 but the state did not take action.
According to documents provided to the News-Banner, the judge’s review will be centered around the date that the Indiana Grain Buyers and Warehouse Licensing Agency used to established the failure of Salamonie Mills. The date has been crucial to farmers because it triggers a “look back” period of 15 months, which defined in state law is the window of reimbursement of losses out of the state’s grain indemnity fund.
“However, the issue of whether (the agency) should have initiated the claims process set out in Indiana Code … earlier than it did is not a question before the undersigned ALJ,” the order said. “As a result, petitioners may not present evidence concerning an alleged failure on the part of (the agency) to begin the claims process earlier than it did.”
The failure date that has been used is March 2020, but documents have shown that the company was in financial trouble for months — if not years — prior to that failure date, causing the farmers’ losses to add up while the grain elevator was able to continue operating.
An order from the Office of Administrative Law Proceedings said the state contends the director of the agency “has the discretion to select the date of failure” and that March 2020 is the most appropriate date. The farmers, however, argue Salamonie Mills “failed no later than Dec. 31, 2018.”
“The parties may present evidence concerning (Salamonie Mills’) financial history, when the claims process set out in Indiana Code … began, and what steps (the agency) took during the claims process,” said the notice for the upcoming hearings.
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Part of the evidence that is expected to be presented by expert witnesses on behalf of the farmers is a financial review of Salamonie Mills and a related analysis of compliance with state law. It was conducted by two Ohio-based accountants last September and a copy was provided to The News-Banner.
Some of the documents the accountants reviewed were reportedly internal documents maintained by the licensing agency.
The analysis concludes that after reviewing financial statements and grain license application documents from year-end 2015 to year-end 2019, it “revealed multiple instances of noncompliance with state statutes.”
For all the years reviewed, Salamonie Mills allegedly failed to maintain required metrics defined in state law for asset-to-liability ratios and a minimum positive net worth.
“The shortfall in each of these metrics was materially significant and from 2017-2019 we saw a significant further deterioration in these metrics. The financial statements from this time period also include problematic footnote disclosures warning about the company’s noncompliance with debt covenants and substantial doubt about the company’s ability to continue as a going concern,” the document said. “The combination of the financial results from this period and the conditions reported in the footnotes to the financial statements are severe and include repeated indications of very poor financial position and significant solvency concerns.”
The noncompliance of those laws supported a suspension or non-renewal of the license for each of those years, the accountants concluded.
Instead of increasing oversight, which would be typical in these instances in the experience of the accountants, it appears the state didn’t even inspect the company in 2019 following multiple inspections in 2018.
The 2018 visits “acknowledged significant issues, including observed grain shortages and borrowing issues.” Then the next audit came in early 2020 immediately proceeding the suspension.
“Had a state grain inspection been performed by the agency during 2019, deficiencies would likely have been noted leading up to the February 2020 failed inspection. In addition, (one of the exhibits) highlights the agency’s awareness of significant financial reporting shortfalls for the company from their internal recordkeeping,” the review concludes. “This evidence supports a long-standing history of issues and non-compliance by the company, acknowledged by the agency’s own records, and a lack of administrative action.”
The hearings are set for July 6, 7, 8, 14, and 20.
‘Undisputed facts’
In an order dated April 2022 from the Indiana Office of Administrative Law Proceedings, the following figures were presented under a section titled “undisputed facts,” citing the state’s own license renewal reports for Salamonie Mills.
• At year-end 2015, the company had a negative net worth of more than $4.7 million.
• At year-end 2016, the company had a negative net worth of more than $4 million.
• At year-end 2017, the company had a negative net worth of more than $5.2 million.
• At year-end 2018, the company had a negative net worth of more than $6.6 million.
• In September 2019, the company began “bouncing checks for insufficient funds.”
• At year-end 2019, the company had a negative net worth of more than $10.2 million.
jessica@news-banner.com
