April 3, 2009 — After peppering V.I. Lottery officials with about five hours worth of questions Friday, senators said it was clear that most of the major issues raised in a 2007 federal audit of the territory's video lottery system still have not been resolved.
The almost two-year old document turned up some serious deficiencies, ranging from a lack of adequate financial documents to the improper monitoring of VLT cash collections. The 37-page report also explored what was called a "flawed" contract between the government and Southland Gaming of the Virgin Islands, the company in charge of VLT operations on St. Thomas and St. John. (See "Federal Audit of Lottery System Shows Serious Deficiencies.")
The contract lays out what percentage of VLT revenues goes to Southland Gaming, but does not say what percentage is supposed to be remitted to the lottery system, Deputy Solicitor General Paul Paquin explained during Friday's Appropriations and Budget Committee hearing. And since the central hub of the VLT operation is located within Southland Gaming, there's no way for Lottery officials to really know what the company is collecting, V.I. Lottery head Lenyse Shomo added.
Lottery hopes to have its own hub — a central system that monitors all aspects of VLT operations — installed within three months, following the issuance of a request for proposals within the next two weeks, she said.
Meanwhile, there's an ongoing dispute over approximately $20 million that Southland could owe the government, officials said. Senators looked for ways to get the government out of the contract, but Paquin explained that the Attorney General's Office plans to meet with Southland representatives to resolve the money issue and attempt to amend the document to close up the gaps.
"If that doesn't work, then we'll consider other options," he said. "Southland has an interpretation of the contract that's different from the Attorney General's Office."
The original contract term was for five years, with two five-year options to renew. But because of the way the document is written, the first renewal automatically kicked in once the first five years was up, V.I. Lottery head Lenyse Shomo added later.
Southland Gaming representatives didn't attend Friday's Appropriations and Budget Committee meeting, but the company's attorney Arturo Watlington Jr. sent a written statement, saying that Southland has remitted approximately $38.5 million in VLT collections to the lottery system since the contract was executed in 2003.
The Attorney General's Office and Southland Gaming are also at odds over whether Southland or its retailers are subject to gross receipts taxes. (See "Tax Questions About Video Lottery Terminals Dominate Senate Hearing."). An opinion from the government says the company has to pay, but the Internal Revenue Bureau has not yet "confronted" Southland about what's owed, Paquin said.
"So, in other words, Southland Gaming to date — despite an opinion and mandate from the Attorney General, has said they're not paying the taxes owed back to 2003, and the Attorney General's Office has passed the buck to IRB to determine what actions should be made to force payment," said Sen. Usie R. Richards.
"I don't agree with the phrase 'pass the buck,' but otherwise, that's correct," Pacquin said.
The Appropriations and Budget Committee reserves the right to have the issue investigated by the Inspector General's Office, said committee chairman Sen. Louis P. Hill.
"We got out in the open information I thought was necessary for the public to know," Hill said later. "But the Interior Department did an audit two years ago and gave specific recommendations on what has to be done with the video lottery operations. But other than a couple of small items that have been resolved, the major issues are still outstanding."
When an audit is conducted, the government has to look at the findings and "aggressively" address the recommendations, he added.
Senators also approved a bill Friday paying Winston Todman Construction $47,640 for work done at the Massac Nursing Home on St. Thomas.
Present during Friday's hearing were Sens. Craig W. Barshinger, Carlton "Ital" Dowe, Hill, Terrence "Positive" Nelson, Richards and Patrick Simeon Sprauve.
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