Report: Minnesota Lottery needs to tighten up how it regulates retailers
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The Office of the Legislative Auditor (OLA) has found that while the Minnesota State Lottery “generally complied with legal requirements,” the state agency needs to tighten up how it regulates retailers.
In a 66-page report, the auditor found that the Lottery did not always perform necessary background checks, allowed expired retailers to continue selling without the proper paperwork and sometimes did not charge retailers for missing or stolen scratch-off tickets.
The Lottery offers two types of games: lotto games (like Gopher 5, Mega Millions, Pick 3 and Powerball) and scratch games.
The findings were published in a report on Thursday.
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OLA found the Lottery’s criminal background checks of retailers were not always performed properly. Anyone who has a felony or misdemeanor related to fraud, misrepresentation or gambling within five years is disqualified from being involved with retail sales of lottery tickets.
According to the report, the Department of Public Safety (DPS) said the Lottery did not obtain consent to perform background checks. After DPS stopped performing these checks for the Lottery, the Lottery still did not change its requirements of getting permission for these checks through the application process.
Instead, the Lottery performed its own criminal background checks using what the report said was “a public state records search.” The Lottery’s search did not include records from outside the state or records using an individual’s social security number.
Another issue identified by OLA: a retailer must have a current contract signed by the Lottery in order to be eligible. These contracts are good for one year. According to the report, the Lottery allowed retailers with expired contracts to continue selling tickets.
Eight of the 40 retailers OLA tested did not renew one or more contracts before their existing contract expired and continued operating as a retailer. These eight submitted renewal applications between 13 and 71 days after their contracts expired.
The report suggests the Lottery create a system where retailer contracts are renewed prior to their expiration date.
OLA also found that the lottery did not always charge retailers for lost or stolen scratch-off tickets. Investigators tested a random sample of 25 of 156 scratch games that were sold during the scope of the audit. It identified that 755 retailers reported a total of 39,667 lost or stolen tickets. The Lottery did not charge 387 retailers for 22,915 of these tickets, OLA found.
According to the report, the Lottery told OLA that Minnesota’s rules do not require the Lottery to charge retailers for these lost or stolen tickets. Instead, the Lottery said they have “discretion to charge retailers based on a retailer’s level of responsibility.”
OLA disagrees.
“Agencies do not have authority to disregard or selectively enforce their own rules, once adopted,” the report states.
Other key findings included the documentation of security incidents, information technology administration, management and workplace culture.
Adam Prock, Minnesota State Lottery executive director, said the Lottery was pleased to see that there were no issues with the integrity of lottery games, proceeds or drawings. There were also no findings about the underlying security of lottery financial or operational systems.
However, Prock acknowledged did the need to make some changes to the way the Lottery oversees its gambling operations.
“Lottery leadership is committed to promoting a healthy culture and will work to implement the OLA’s recommendation for change,” Prock said in a statement.
The lottery contributes about $196 million in revenue to the state budget. $105.7 million went to the state’s general fund, $88.9 million went to Minnesota’s Environment and Natural Resources Trust Fund and it paid $1.5 million toward responsible gambling programs.