Indiana HBPA Dodges Benevolence Bullet
by Tom LaMarra
Date Posted: 6/26/2014 7:00:56 PM
Last Updated: 6/27/2014 8:42:53 AM

The Indiana Horse Racing Commission June 26 approved an application by the Indiana Horsemen's Benevolent and Protective Association to be recognized as the representative horsemen's group at Indiana Grand Race Course, but not before a lengthy hearing on an investigation into the finances of the group's benevolence trust.

The probe conducted by the IHRC stemmed from allegations involving misuse of trust funds, shoddy accounting practices, and cronyism. The primary trigger was an e-mail from Kim Hobson, a member of the Indiana HBPA board of directors, to IHRC chairman William Diener in October 2013.

The Indiana HBPA's application was denied last fall pending the probe. The IHRC must approve expenditure of revenue from racetrack slot machines, a percentage of which goes toward benevolence programs for horsemen's groups.

The IHRC examination resulted in eight "corrective action" steps the Indiana HBPA must take going forward, though Mike Brown, executive director of the association, said changes already have been made. The probe recommended no sanctions against the organization or individuals, though one attorney who testified June 26 indicated the case is ripe for investigation by other state agencies such as the Indiana Board of Public Accounts and the state Attorney General's Office.

The IHRC investigation highlighted five areas of concern: eligibility requirements and program administration, program participation and dissemination of information, attorney fees, conflict of interest violations, and transparency and accountability. It states much of the complaints centered on former Indiana HBPA president Randy Klopp and Lisa Stephens, who administered the benevolence trust.

The Indiana HBPA board of directors will now oversee expenditures.

The Indiana HBPA in 2013 received about $1.1 million in slots revenue, with about $633,000 set aside for benevolence. The remainder was used for administration, promotion, and equine welfare programs.

The IHRC staff report says Klopp, an owner and trainer, employed at least six relatives as part-time grooms, and also had several full-time, non-family employees. From 2010-12, Klopp's relatives received more than $55,000 in benevolence funds, the report says.

Indiana Owner and Breeder Protection, a racing industry watchdog group, didn't participate in the June 26 hearing but on its website cited information gleaned from the Open Public Records Act that showed Klopp at one point had about 20 licensed grooms, a high number given the average of about one groom per five horses. The group said the IHRC should have gotten a full accounting of how much money went to the Klopp hires.

The staff report outlines the case of owner and Indiana HBPA member Roger Spiess, who purchased a yearling at the Indiana breeders' auction only to return it because of alleged unsoundness. The sellers declined, however, and the Indiana HBPA proceeded to pay its attorney to represent Spiess until Steve Stults, the former director of the benevolence trust, suspended the payments because they violated policy.

IBOP, in its summation of the records' examination, noted two $2,500 scholarships, one to Stephens' daughter and the other to her sister but both—for the Alabama School of Sleep Medicine and Technology—were not reported to the Internal Revenue Service on the 2011 tax return for the benevolence trust.

Brown, who testified June 26, defended the benevolence program and said changes have been made in advance of the IHRC edict.

"We believe these recommendations will make the program more transparent and effective," he told the IHRC. "We recognize we have a responsibility. It pains me to say we have done a poor job in communication. We haven't done a good job communicating what we do and why we do it."

Brown said he believed the IHRC investigation was thorough, and he said "many of the allegations (of mismanagement or misuse of funds) had not been supported in the past."

HBPA director threatened

Hobson in her testimony said she ran for the Indiana HBPA board of directors at the urging of some members who "hoped I could clean up the mess and clean up cronyism." She won the seat in the fall of 2012.

"It became immediately obvious to me the HBPA was not run properly," Hobson said. "The majority of staff and board refuse to follow the bylaws unless they can use them for their personal benefit. I was never allowed to see records. I'm on the finance committee, and to my knowledge it has never had a meeting."

Hobson said two veterinary tech students, one of whom is her daughter, applied for scholarships three consecutive years from 2010-12 and were repeatedly denied. She then said members of the starting gate crew received funds from the benevolence program even though they are racetrack employees.

Hobson's complaint apparently didn't sit well with some HBPA members. One individual with knowledge of the situation said Hobson's truck tires were slashed on three occasions.

"I have endured threats, flat tires, and personal expenses," Hobson told the racing commission. "My goal has been to make sure HBPA funds are being spent properly. But the people who control the funds are corrupt and acting in their own self-interest. In my opinion they are all guilty.

"You need to hold these people accountable. No action is not in the best interest of horse racing."

Diener, the racing commission chairman, asked Hobson if she believed the changes mandated by the IHRC will correct the problems.

"My concern is that when I sit on the (board of directors) and ask questions, I'm told to quit dwelling on the past and move forward," Hobson said. "We couldn't change anything that happened, but when I heard stories it became clear nothing had changed. Do I think things will change if people aren't reprimanded for inappropriate behavior? No."

Possible ramifications
 
John Shanks, an attorney who represented Hobson before the IHRC, said the commission "should shine a lot of light on this not going forward, but going backward." He said if the IHRC doesn't, maybe the Attorney General's office will pick up the case.
 
"This is a very deep and contentious set of issues," Shanks said. "Perhaps the state Board of Accounts should do it. I think there has been a lot of misuse of public funds."
 
The ramifications are broad, and not just for Indiana. Even allegations of the misuse of statute-directed funds in racetrack gaming states can give lawmakers ammunition should they desire to shift gaming funds from racing to other programs.
 
Though the IHRC opted not to impose sanctions on the recommendation of staff, it issued eight steps the Indiana HBPA must undertake: revise benevolence guidelines, revise the application for benefits, revise the application review process, establish a written policy on attorney fees, establish a written marketing plan, establish a written policy on access to information, establish a written policy on addressing complaints, and provide additional conflict of interest statements and registration certification.
 
At the urging of Diener, the Indiana HBPA also must begin collecting membership dues.
 
Though the IHRC is charged with approving the groups that get slots funds, officials expressed displeasure with the fact the commission had to deal with the case. They said the IHRC shouldn't be in the business of micro-managing activities of horsemen's groups.
 
"There's no action to take regarding these people that received funds," IHRC executive director Joe Gorajec said. "They applied for and got the money. What was happening was they weren't enforcing eligibility. What do you do? It's two, three, or four years later.
 
"A lot of things in this complaint are things the racing commission shouldn't be involved in, period. The (Indiana HBPA) board should take care of its own business."


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