containing OS X, on the internal hard drive.

You say that the previous owner pulled the drive for data destruction. Was the drive replaced?

If it was, did anyone install OS X on it?
If it wasn't, then that is the problem.

The flashing folder icon means that the iMac did not find a working System Folder on the drive or that it did not find a drive at all.

I wonder why the previous owner felt it necessary to remove the drive instead of destroying the contents with a Secure Wipe App.