Quapaw Audit Asks a $34 Million Question

Quapaw Audit Asks a $34 Million Question
Quapaw Nation Tribal Chairman Joseph Byrd and his predecessor, John Berrey

The Quapaw Nation of Oklahoma, owner of the Saracen Casino Resort in Pine Bluff, says a forensic audit expected to be completed this month indicates that $34 million in tribal casino profits from Oklahoma were misspent by the previous tribal business administration.

The tribe said in a Feb. 2 news release that it is “looking closely into potential criminal conduct on the part of several former employees and tribal officials, including former Quapaw Nation Tribal Chairman John Berrey.” Berrey denies any wrongdoing and is a plaintiff in a lawsuit challenging the accusations.

Allegations of impropriety and potential embezzlement apply only to individuals, the tribe said, and not to general gaming operations or to efforts to legalize gambling in Arkansas, the release said. In addition to the Saracen, the tribe operates the Downstream Casino Resort and the Quapaw Casino, both in northeast Oklahoma.

The audit, conducted by Innovative Gaming Solutions of Lebanon, Missouri, was initiated before a tribal vote last July that replaced Berrey as the tribe’s business chairman. Concerns about certain spending, including gifts to the Razorback Foundation by Berrey, a University of Arkansas graduate, surfaced just before Joseph Byrd succeeded him.

Innovative Gaming’s owner, Michael Crump, told the tribe in its general council meeting in October that the preliminary audit showed “casino funds identified as being misappropriated are in excess of” $34.1 million. The meeting was posted to YouTube in December.

Downstream Development Authority, the board of the tribe’s Downstream Casino Resort, was obligated to spend money “in the best interest of the tribe,” Crump said. “However, there appears to be a clear pattern of abuse for personal gain and violation of their fiduciary duties. This is not a final figure. As the investigation continues, these numbers are growing daily.”

Crump said questionable spending included donations to the Razorback Foundation, which supports University of Arkansas athletics, and more than $4.8 million in payments to Barry Switzer, the Crossett native and former coach of the Oklahoma Sooners and the Dallas Cowboys, and to Switzer’s LLC. Crump also said his inquiry, which covers 2017 through 2020, flagged $17 million in bonuses and raises to Berrey that weren’t authorized, according to tribal documents. Berrey denied any wrongdoing and said all his moves were appropriately approved by the tribe. “It’s political, to make me look bad,” Berrey told Arkansas Business last week. “It’s just smoke and mirrors as far as I can see.”

He said the casinos are “highly regulated” and subject to repeated audits. “We followed all the rules,” Berrey said. “Everything is reported.”

He also denied receiving $17 million. “If I had made that much money, I wouldn’t be talking to you now. I’d be trout fishing in Montana,” he said.

Suit Seeks Apology

Berrey, Switzer and others sued Byrd and Crump in Oklahoma state court in February, seeking an apology for the allegations made during the meeting.

Beyond calling the allegations of financial misdealings false, the suit noted that Crump said during the presentation that the investigation was incomplete and that “specific information from the investigation and the individual targets of the investigation must remain confidential.” However, the suit continues, “Defendants published the false criminal allegations against Plaintiffs on the World Wide Web.”

Crump’s presentation didn’t mention that Switzer had a talent services agreement with the Quapaw that was approved by the tribe, according to the lawsuit filed by George Freedman of Spencer Fane LLP of Oklahoma City, who is representing all the plaintiffs except Switzer.

Switzer’s lawyer is Armando Rosell of the Rosell Law Group LLP of Oklahoma City. Rosell didn’t return a telephone call seeking comment, but the suit said payments to the former coach were reasonable for his services and below what the market was paying for similar celebrities’ promotional efforts.

Meanwhile, profits have hit records at the tribe’s flagship casino since Byrd was elected. Downstream Casino increased its operating income nearly 40% in the quarter that ended Dec. 31, compared with the same period the previous year. On a per-game basis, revenue also increased 26% year over year. The casino wouldn’t release other financial details.

“The Saracen, Downstream, and Quapaw enterprises are well positioned for ongoing success despite the potentially devastating actions of former leadership,” Guy Barker, secretary-treasurer of the tribe’s Business Committee, said in the February news release. “All too often this sort of arrogance and selfishness in business leads to the demise of an enterprise.”

Berrey’s History

During his nearly 20-year tenure as chairman, Berrey played a key role in persuading Arkansas voters in 2018 to approve an amendment to the state Constitution allowing casinos in Arkansas. He also led the effort to build the tribe’s $350 million Saracen Casino Resort in Pine Bluff. In the fall of 2019, the Quapaw Nation opened its Saracen Annex and Q-Store, on the east side of Pine Bluff just off of U.S. Highway 65B. The casino itself opened in October.

Other success followed Berrey. In 2018, the Native American Finance Officers Association named him Tribal Leader of the Year. Berrey said that during his time as chairman “we created a huge infrastructure of economy for the tribe.”

But questions surfaced about improper bonuses being paid to tribal leaders and casino employees. In June, a majority of the tribe’s elected officials asked for a forensic audit, said Byrd, who was sworn into office in August.

“That’s really what triggered this chain of events,” Byrd told Arkansas Business last week.

Innovative Gaming Solutions’ Crump told the tribe on Oct. 24 that his investigation led to the discovery of the unauthorized salary increases and severance payments. At that point, the probe revealed that more than $15 million in unauthorized raises, bonuses and severance payments were made to “certain tribal leaders and casinos’ executives,” Crump said.

“It is important to note any and all compensation … is supposed to be approved by the [tribe’s] Business Committee,” he said. But after triple-checking, Crump or the auditors couldn’t find any documentation for the payments, Crump said.

Crump also said the amount of contributions and donations seemed “unusually high.”

“Tribal governing documents are very clear on dollar amounts, authority levels and the process for making charitable contributions and donations,” he said. “Records indicate certain tribal leaders and executives regularly made unauthorized charitable contributions and donations. And many of those donations have the appearance to be for personal benefit, and no direct benefit to the nation.”

He said he found more than $10 million in donations that were not in accordance with the tribe’s governing documents.

Crump said $523,000 went to the Razorback Foundation.

Byrd told Arkansas Business that while it’s important to keep the relationship with the University of Arkansas, he couldn’t justify that amount.

Berrey told Arkansas Business that Downstream Casino spent about $30 million a year in marketing, and it has “a lot of players that come from northwest Arkansas.” The tribe received a lot of marketing value at the Downstream Casino and the Saracen as a result of its relationship with the university, Berrey said.

Crump said he also found other problems with the books. Executives frequently waived hotel bills and meals for personal benefit, not business purposes. In a four-year period, that amount totaled more than $260,000, he said.

“Several tribal leaders abused the privilege consistently as well as an executive,” he said.

Crump said he has been in the forensic audit industry for 17 years, and that when wrongdoing has been uncovered at an organization, it was because of a lack of transparency or accountability with the organization.

Without those, “what you find is, people tend to develop a sense of entitlement,” he said. “And once people develop that sense of entitlement, typically bad things happen.”

Financial Improvement

Byrd said safeguards and internal controls have been introduced to prevent funds from being misappropriated. As a result, profits at the tribe’s casinos have increased since he took office in August.

Byrd, who earned a law degree from the University of New Mexico in 2017 and has a master’s degree in Indian law from the University of Tulsa College of Law, said he cut expenses, resulting in an increase in profitability at the casinos. The audit showed that the total executive-level payroll for the 2019-20 fiscal year at the Saracen Casino was $6 million, while the Downstream Casino had an executive-level payroll of $2 million.

Byrd said the previous administration’s payroll was “pretty high. And we’re to a point now where we’re seeing all of these expense savings, not just with payroll but in other areas of operations such as donation, such as charitable contributions.”

The Saracen in Pine Bluff opened on Oct. 24 and has seen its terminal wagers rise from $84.5 million in October to $115.9 million in January, according to the Arkansas Department of Finance & Administration. During that period, the casino had $387 million in terminal wagers, resulting in $27.7 million in revenue.

“We are turning the page on a 20-year administration,” Byrd said. “The sun is shining on us right now, and we are on a tremendous trajectory.”

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