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HomeNewsArchivesLatest Audit Puts Dark Cloud Over V.I. Lottery

Latest Audit Puts Dark Cloud Over V.I. Lottery

From missing tickets to the "excess spending" of public money, the latest V.I. Inspector General’s audit uncovered gaping holes in the local Lottery system’s operations from fiscal years 2004 through 2009.

Started in 2008, the audit tried to determine if: the Lottery’s operations during this time were "effectively and efficiently administered; contracts were properly procured, authorized and monitored; and donations and contributions to local organizations and individuals were done lawfully. The audit did not cover the Lottery’s control of games under contract with private contractors of lottery games, to include video lottery terminal games.

The general findings of the audit were summed up in a general sentence included at the front of the report in a transmittal letter from V.I. Inspector General Steven van Beverhoudt to V.I. Lottery Commission Chairman Angel Dawson: "Our audit disclosed that the Commission and the Executive Director did not effectively administer the operations of the Lottery," the letter said.

Specifically, the findings of the audit revealed that there were missing tickets, fraudulent payouts, and a failure to properly monitor dealers or collect on more than $10,000 in bounced checks. Dealers were also allowed to write additional checks before collections were made on their initial bounced checks, the report said.

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The Lottery also bent local procurement laws when hiring vendors, incurred more than $2 million in costs not supported by contracts, and paid nearly $375,000 for contract work that was not completed, according to the audit.

Out of the 46 vendors polled by auditors, 54 percent were paid without a written contract in place. One of the vendors was paid as much as $676,530, the report said.

At least another $6,100 in revenue was lost from dealers that were not in compliance with agency requirements, the report said.

The report also noted that 14,251 tickets, valued at $330,734, could not be accounted for from the Lottery’s ticket inventory from fiscal years 2008 and 2009. Eight unsold tickets with a prize value of $430,000 were also missing from the agency’s files. The report said that of the 48 drawings held during this time, the number of tickets missing per drawing ranged from seven to 1,240, with most of the missing tickets tied to the St. Thomas sales office.

At least $9,460 was also paid on winning tickets that appeared to be unsold, while cash advanced to sales offices to pay prizes on winning tickets were not properly accounted for or reconciled, the report said.

"As a result, the Lottery was susceptible to fraud because of the loss of control over its ticket sales operations," the report said.

Referencing improper safeguards for cash and unsold tickets, the audit also said that there were instances where it was found that cash advances to sales officers were not kept in safes, but in the supervisors’ desk drawers.

"For example, during our surprise cash counts at the St. Thomas and Sunny Isle (St. Croix) sales offices, we found cash totaling $5,300 and $21,480, respectively, in supervisors’ desk drawers," the report said. "The supervisors informed us that the cash was routinely stored in their lockable desk drawers overnight until depletion or the end of the drawing period. Supervisors also indicated that they did not store the cash in the sales offices’ safes because they were primarily used to store lottery tickets."

According to law, Lottery’s revenues are divided between the Department of Education, the Office of Veterans Affairs, the Disabled Persons Special Fund, the Small Business Development and Loan Fund, the Textbook Reimbursement Revolving Fund, the local youth summer employment program, and the Pharmaceutical Assistance to the Aged Program. The revenues are brought in from Lottery’s traditional ticket sales and proceeds from games contracted by the Lottery with private companies, including video lottery terminal games.

The report said that the Lottery’s profitability was "negatively" impacted by its management’s spending habits, which included: using public money to fund "questionable" organizations and causes and exceeding approved budget amounts for advertising and promotions on contracts that were not approved by its commission.

Of the nearly $1.1 million “in excess advertising, promotions and donations made during the audit scope period, $977,812 (or 96 percent) was related to fiscal years 2008 and 2009," the report said. "The excess made over that period contributed to declining profits and a [$2.49 million] net loss the agency suffered in Fiscal Year 2009."

The audit referenced donations of: $15,000 to help cover costs associated with hosting a Democratic Governor’s Association meeting on St. Thomas in November 2008; $12,500 to a private association for field preparation and maintenance for a major sporting event on St .Thomas; $69,000 from 2007-2009 for airtime for a radio program; and $120,000 to a local nonprofit organization for a children’s health program.

"While we do not question the community value of these events, we do question the Lottery’s authority to use funds for these purposes," the report said.

The report also says a breakdown in the relationship between the Lottery Commission and the Lottery system’s management helped contribute to the situation. According to law, the Lottery system’s executive director is appointed by the governor but is also overseen by the Lottery Commission, a seven-member board made up of the Finance commissioner, director of the Office of Management and Budget, and five other members.

The report said that during this time, the commission lacked the authority to hire its executive director and was "ineffective in the monitoring and supervision of management."

The report said that the Lottery Commission did take steps to deal with the situation in October 2007, when a letter was sent to Gov. John deJongh Jr. recommending that the former executive director, who is not named in the report, be fired for "alleged improprieties and mismanagement related to the administration of the Lottery."

The report said that the Lottery system’s current management has been working on fixing the issues included in the report. In a response to the audit, Dawson said, "As it is set out in specific audit responses, this audit of prior Lottery administrations was very helpful to current management in identifying much needed personnel and process improvements that are now well on their way to completion."

Dawson also discussed the ongoing implementation of a new automated ticketing system that is designed to safeguard against potential fraud.

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From missing tickets to the "excess spending" of public money, the latest V.I. Inspector General's audit uncovered gaping holes in the local Lottery system's operations from fiscal years 2004 through 2009.


Started in 2008, the audit tried to determine if: the Lottery's operations during this time were "effectively and efficiently administered; contracts were properly procured, authorized and monitored; and donations and contributions to local organizations and individuals were done lawfully. The audit did not cover the Lottery’s control of games under contract with private contractors of lottery games, to include video lottery terminal games.


The general findings of the audit were summed up in a general sentence included at the front of the report in a transmittal letter from V.I. Inspector General Steven van Beverhoudt to V.I. Lottery Commission Chairman Angel Dawson: "Our audit disclosed that the Commission and the Executive Director did not effectively administer the operations of the Lottery," the letter said.


Specifically, the findings of the audit revealed that there were missing tickets, fraudulent payouts, and a failure to properly monitor dealers or collect on more than $10,000 in bounced checks. Dealers were also allowed to write additional checks before collections were made on their initial bounced checks, the report said.


The Lottery also bent local procurement laws when hiring vendors, incurred more than $2 million in costs not supported by contracts, and paid nearly $375,000 for contract work that was not completed, according to the audit.

Out of the 46 vendors polled by auditors, 54 percent were paid without a written contract in place. One of the vendors was paid as much as $676,530, the report said.


At least another $6,100 in revenue was lost from dealers that were not in compliance with agency requirements, the report said.


The report also noted that 14,251 tickets, valued at $330,734, could not be accounted for from the Lottery's ticket inventory from fiscal years 2008 and 2009. Eight unsold tickets with a prize value of $430,000 were also missing from the agency's files. The report said that of the 48 drawings held during this time, the number of tickets missing per drawing ranged from seven to 1,240, with most of the missing tickets tied to the St. Thomas sales office.


At least $9,460 was also paid on winning tickets that appeared to be unsold, while cash advanced to sales offices to pay prizes on winning tickets were not properly accounted for or reconciled, the report said.


"As a result, the Lottery was susceptible to fraud because of the loss of control over its ticket sales operations," the report said.


Referencing improper safeguards for cash and unsold tickets, the audit also said that there were instances where it was found that cash advances to sales officers were not kept in safes, but in the supervisors' desk drawers.


"For example, during our surprise cash counts at the St. Thomas and Sunny Isle (St. Croix) sales offices, we found cash totaling $5,300 and $21,480, respectively, in supervisors’ desk drawers," the report said. "The supervisors informed us that the cash was routinely stored in their lockable desk drawers overnight until depletion or the end of the drawing period. Supervisors also indicated that they did not store the cash in the sales offices’ safes because they were primarily used to store lottery tickets."


According to law, Lottery's revenues are divided between the Department of Education, the Office of Veterans Affairs, the Disabled Persons Special Fund, the Small Business Development and Loan Fund, the Textbook Reimbursement Revolving Fund, the local youth summer employment program, and the Pharmaceutical Assistance to the Aged Program. The revenues are brought in from Lottery's traditional ticket sales and proceeds from games contracted by the Lottery with private companies, including video lottery terminal games.


The report said that the Lottery's profitability was "negatively" impacted by its management's spending habits, which included: using public money to fund "questionable" organizations and causes and exceeding approved budget amounts for advertising and promotions on contracts that were not approved by its commission.


Of the nearly $1.1 million “in excess advertising, promotions and donations made during the audit scope period, $977,812 (or 96 percent) was related to fiscal years 2008 and 2009," the report said. "The excess made over that period contributed to declining profits and a [$2.49 million] net loss the agency suffered in Fiscal Year 2009."


The audit referenced donations of: $15,000 to help cover costs associated with hosting a Democratic Governor's Association meeting on St. Thomas in November 2008; $12,500 to a private association for field preparation and maintenance for a major sporting event on St .Thomas; $69,000 from 2007-2009 for airtime for a radio program; and $120,000 to a local nonprofit organization for a children's health program.


"While we do not question the community value of these events, we do question the Lottery’s authority to use funds for these purposes," the report said.


The report also says a breakdown in the relationship between the Lottery Commission and the Lottery system's management helped contribute to the situation. According to law, the Lottery system's executive director is appointed by the governor but is also overseen by the Lottery Commission, a seven-member board made up of the Finance commissioner, director of the Office of Management and Budget, and five other members.


The report said that during this time, the commission lacked the authority to hire its executive director and was "ineffective in the monitoring and supervision of management."


The report said that the Lottery Commission did take steps to deal with the situation in October 2007, when a letter was sent to Gov. John deJongh Jr. recommending that the former executive director, who is not named in the report, be fired for "alleged improprieties and mismanagement related to the administration of the Lottery."


The report said that the Lottery system's current management has been working on fixing the issues included in the report. In a response to the audit, Dawson said, "As it is set out in specific audit responses, this audit of prior Lottery administrations was very helpful to current management in identifying much needed personnel and process improvements that are now well on their way to completion."


Dawson also discussed the ongoing implementation of a new automated ticketing system that is designed to safeguard against potential fraud.