DENVER – The state Department of Revenue that oversees multiple agencies received another scathing audit for its failure to oversee the Colorado Lottery, which was approved by voters with the understanding the profits would fund public education and other projects.
The department’s lack of oversight led to 10 years of scorching audits for mismanagement and shortchanging millions of dollars for beneficiaries such as Colorado Greater Outdoors, the Conservation Trust Fund, Parks and Wildlife, capital construction and public schools.
Over the past three years, those beneficiaries where underfunded by more than $30 million simply because the Colorado Lottery has not been operated as a competitive, cost-effective and efficient entity, the audit said.
Instead, the Colorado Lottery awarded nearly $400,000 in bonuses to some of its 38 sales representatives and regional managers last year as “incentives” to increase lottery ticket sales and recruit new retail outlets to market lottery scratch-off and jackpot gambling tickets.
There are no definitive guidelines for employees to earn the bonuses and no documentation of who actually received the money. Allotted equally across the board it would amount to $12,000 – $13,000 per employee.
Legislative Audit Committee Chairman Sen. Steve King (R-Grand Junction) said he found it appalling that the bonuses for Colorado Lottery sales staff increased 500 percent during the recession while other workers were being laid off or endured pay freezes and salary cuts.
King said that his constituents on the Western Slope expressed dismay over the misuse of funds because their school teachers are “working overtime and paying out of their own pocket for supplies. And we have kids who are doubling up on their text books – sharing the books.”
“Instead of helping them, we’re giving $394,000 in bonuses” to lottery sales representatives, King said.
King requested a list of bonus payouts in October from Department of Revenue Executive Barbara Brohl, who agreed to send it six months ago but has yet to deliver the list.
The Colorado Lottery reported $566 million in sales, laid out $345 million in winning prizes and gave $135 million to the designated beneficiary groups in the 2012-2013 fiscal year.
The remaining $86 million was spent on lottery operations overhead – a $10 million increase over the previous year – that included staff bonuses and salaries as well as ticket sale commissions paid to retailers.
A study comparing 40 states shows that Colorado overpaid recipients of winning lottery tickets and over compensated retailers who were awarded up to seven percent in ticket sales.
The audit noted that the Colorado Lottery under the Department of Revenue moved its manual system of ticket reorders and delivery to computerized orders and UPS stock deliveries four years ago, but it has failed to redefine sales jobs, eliminate unnecessary positions and downsize the staff vehicle fleet which costs $390,000 a year.
“This is the third audit that I have seen from the (Colorado) Lottery – and every single one of them has been terrible,” said Sen. Lois Tochtrop (D-Thornton), who has served on the Legislative Audit Committee for more than a decade.
“Whenever we get an audit from (the Department of) Revenue, they’re not good,” said Tochtrop, who didn’t mention last year’s brutal audit of medical marijuana.
Tochtrop said the committee unanimously supports Senate Bill 126 sponsored by King to reclassify the Colorado Lottery as a “Type 1” category that would give greater oversight powers to the state Lottery Director Abel Tapia, a former Democrat legislator from Pueblo.
The Senate passed that measure Tuesday on a 28 to 7 bipartisan vote over the objections of the five-member Colorado Lottery Commission, who deemed the bill “ill advised and not in the best interests of the Colorado Lottery.”
The commissioners were appointed by Gov. John Hickenlooper and include Margie Martinez Perusek, former district judge Robin Wise, Charles Dennis Maes, Dana Franzen and Frances Koncilja.
The letter, according to King who read excerpts on the Senate floor, stated “Because the lottery director works daily with vendors and needs to maintain a good relationship with them, the lottery director (is) placed in an untenable position filled with conflicts of interest. Vendors could capitalize on these conflicts and attack to improperly influence the director by paying for extravagant gifts and trips.”
“Although the law governing ethics of the state officials prohibits this type of behavior, it only takes one incident of perceived or actual integrity abuse to damage the public trust in the lottery.”
“That is an insult,” King said. “This commission failed to read their governance. Your job is to maximize those proceeds to beneficiaries,” not to over-compensate staff, retailers or others.
Tapia said employee bonuses will be cut by 50 percent next year, positions may or may not be eliminated, and studies of other state lottery commissions paid to retailers and prizes awarded to winning tickets are being conducted.