State gaming regulator testifies in casino case Regulator Linda Minash said a Green Bay firm overlooked clear warning signs of embezzlement By Jessica La Plante News-Chronicle Calling the absence of financial firewalls at a Crandon-area casino one of the worst cases of negligence she had ever seen, state gaming regulator Linda Minash testified Thursday that a Green Bay accounting firm hired to balance the books for a Northern Wisconsin Indian tribe didn't do its job. In a two-week trial that kicked off Monday, attorneys for the Sokaogan Chippewa Community asked a Brown County jury to find a team of Green Bay accountants - Shinners, Hucovski and Co. - liable for damages in excess of $1.8 million. The tribe claims the accounting firm, which is now part of Appleton-based Schenck, was negligent for allegedly letting an embezzlement scheme slip through financial reports it prepared for state gaming regulators. The plaintiff's attorney, Brian Smigelski, said the $370,000 embezzlement scheme cost the tribe an additional $1.43 million in loses when government regulators forced the casino to shut down in 1997 and 1998. Testifying Thursday, Minash said the accounting firm should have caught the embezzlement scheme sooner, since the data compiled by the firm was ultimately the same evidence used by FBI agents to convict former tribal planner Richard DuWayne Derickson, of embezzlement. Federal court records show that between 1995 and 1997, Derickson embezzled $370,000 through a scheme that involved submitting false invoices for a septic system project the casino was undertaking. Eventually, tribal leaders caught onto the scheme and called Minash's office for help. Minash said the same financial discrepancies that caused state and federal investigators to question why a $150,000 septic system project was running nearly $400,000 over budget should have raised red flags for the accounting firm. In addition, she said the firm had a duty to disclose an unorthodox accounting practice used by the casino which made its funds more vulnerable to embezzlement. According to the complaint, the accounting firm allowed revenues from the casino, which was a separate legal entity from the tribe, to be transferred directly to the tribe's third-party creditors and vendors without being reviewed by the tribe first. Minash said she felt the accountants should have disclosed that information on the financial audits it forwarded to the state. "If you gave me that statement, it would be something we'd want to look into," Minash told attorney Winston Ostrow, who represents the Green Bay firm. "We would have looked into what the transfers were in accordance with the Indian Gaming Act," she said. Minash said when the state and federal gaming boards closed down the casino in 1997, a government audit revealed the casino lacked basic checks and balances to safeguard its profits. For example, she said the casino's management couldn't provide auditors with the key to access computer chips embedded within the gaming machines. The chips are designed to keep tabs on the transactions and revenues of each gaming machine. On cross-examination, Ostrow questioned whether state regulators would have acted differently if they had access to the same body of information the accountants possessed at the time. During opening statements Monday, Ostrow said the accountants questioned the septic system project as soon as the expenses started getting out of hand. He said the firm should not be faulted for reporting those discrepancies to Paulette Smith, the casino's former general manager, who was incidentally a co-conspirator in the embezzlement scheme. Ostrow showed the jury a copy of correspondence written by Minash's office to Smith, advising the former general manager about deficiencies in the casino's financial records. He asked Minash to explain why she directed the communications to Smith. Minash said Smith wasn't the only person the state was communicating with during its investigation. In dealing with sovereign nations, "we try to identify all personnel within the tribe that should be copied on any of our correspondence," Minash said. Additionally, Ostrow questioned whether the state overestimated its troubleshooting ability by claiming extra detail on the audit reports would have led to a full-scale investigation. When the tribe fell three years behind on its financial records, the state office responded by sending out a cordial letter of reminder. He asked Minash why the state regulators didn't take a firmer stance to elicit compliance if it placed so much stock in the audit reports. Minash said friendly negotiations are always the first step to problem-solving. "If the differences cannot be worked out, then you have to go to federal court ... a long and expensive process for both parties," Minash said. As the tribe rested its case late Thursday, Smigelski said he felt the testimony by Minash proved the accountants breached their duty to both the tribe and gaming regulators. "They misstated what was going on," Smigelski said. "Had they accurately reported it, (Minash) would have investigated sooner." He said the firm was getting paid $200,000 to keep the casino's finances on track and shouldn't have stood by while "the (casino's) internal controls were in a state of disarray." To prove the firm acted reasonably, Ostrow said he plans to call a full line-up of accountants on Monday, when testimony is scheduled to resume. He said the testimony will show the Green Bay accountants acted within the ethical guidelines of their profession to address the tribe's bookkeeping problems. The witnesses will include a lead accountant with the Green Bay firm as well as experts from the national board of certified public accountants.