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Ontario Lottery Corp. ignored claims of corruption

Mar 27, 2007, 7:44 am

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Ontario Lottery and Gaming CorporationOntario Lottery and Gaming Corporation: Ontario Lottery Corp. ignored claims of corruption

Scandal runs deep and wide; shoddy paperwork and turning a blind eye helped permeate corruption

Ontario retail store owners and their families claimed about $100 million in lottery wins between 1999 and 2006, including tens of millions of fraudulent claims ignored by the public lottery corporation, the provincial ombudsman said yesterday.

In a scathing report, Andre Marin said the Ontario Lottery and Gaming Corporation is more fixated on profits than the integrity of its lottery games and has turned a blind eye to allegations of corruption.

"We were able in 90 days to piece together five cases where retailers claiming tickets were liars," Mr. Marin said. "They lied about being retailers, they lied about where they got the tickets. That represents about $15-million paid to internal fraudsters. It's likely that over the course of the years, there's tens of millions of dollars paid to internal fraudsters."

Since 1999, there have been 247 major lottery wins — ranging between $50,000 and $12.5 million — by lottery retailers, their employees and their families, as well as OLG employees, according to the report.

The problem is not isolated to Ontario.

The Atlantic Lottery Corp. recently conducted a review that found retail owners have been winning prizes at 10 times the rate of the average person, a rate it couldn't explain.

But following the first revelations of impropriety at OLG, Western Canada Lottery Corp., which covers Alberta, Saskatchewan, Manitoba and the three territories, conducted a review of every major prize won in a three-year period and found retailers won at a rate that was within the expected range.

The intense focus on Ontario's lottery operations began with the story of Bob Edmonds, a 78-year-old resident who lost a $250,000 prize.Primary among the ombudsman's 23 recommendations is an immediate end to the OLG's dual role as owner and regulator of the lottery system, a role that left ordinary ticket buyers shut out in favor of retailers.

"There was way too much hanky-panky between retailers and the OLG," Mr. Marin said. "When investigations were done, they were more friendly than purposeful, with officials dropping hints to help insiders prove their case rather than subjecting them to serious questioning."

The report, which ministry officials viewed last week, resulted in the firing on Friday of chief executive Duncan Brown. Yesterday, officials revealed Mr. Brown was given a severance package worth $720,000, equivalent to two years' salary.

Chief marketing officer Alan Berdowski, who earned about $220,000 annually, was also fired, although OLG officials did not respond to e-mailed inquiries on the value of his severance package.

Asked if any more executives at OLG will be fired, chairman Michael Gough replied, "If it is appropriate they will be, yes."

He also noted, however, that lottery-ticket sales had risen since a damaging television investigation was broadcast in October, a reflection, he said of the "basic trust" Ontarians have in the OLG.

The report identifies several methods retailers used to cheat customers, including "pin pricking," a technique whereby an instant-win ticket is lightly scratched with a pin to reveal winners.

More commonly, retailers keep free tickets generated by winning lottery numbers.

The revelations prompted calls for Public Infrastructure Minister David Caplan's resignation.

"It's very clear — the rot was widespread," said NDP leader Howard Hampton.

"There were officials in lottery and gaming going to higher officials and saying, 'Look, there's a problem.'

"Everyone was being told: 'Close your eyes, hold your nose and just take the money.' So there's got to be a very thorough housecleaning here from top to bottom, starting with the Minister."

Mr. Caplan, whose portfolio includes responsibility for the OLG, told reporters he learned about problems with the "insider" wins about 10 days before the televised airing of an investigation into the OLG and shrugged off calls for his resignation.

"I have taken responsibility," he told reporters.

He later added he has asked the police to look into Mr. Marin's report.

"If he is alleging that there is a fraud, then it should all be turned over to the Ontario Provincial Police for their review and they'll take the appropriate steps,'' Mr. Caplan said.

But the step came too late for Conservative leader John Tory, who grilled the Liberal Minister for what he called "pathetic" inaction on the file.

"You acted after you got caught," he said in the assembly. "It's the Dalton McGuinty way — stick your head in the sand, pretend you don't hear anything and hope you don't get caught."

Mr. Marin was doubtful a police investigation would lead anywhere, citing the corporation's shoddy record-keeping.

"The problem is there's no paper trail," he said.

The intense focus on the province's lottery operations began last October with the story of Bob Edmonds, a 78-year-old Coboconk, Ont., resident who was swindled out of a $250,000 lottery prize by a dishonest store owner.

Mr. Edmonds' story was featured in a televised news investigation that prompted Mr. Marin's interest.

The small-town store owner simply pocketed Mr. Edmonds' winning ticket and gave him a free one. When Mr. Edmonds alerted OLG officials to the fraud, he was stonewalled at every turn.

The OLG subsequently spent $629,600 in legal costs fighting Mr. Edmonds in court.

They eventually paid him $200,000 to settle the case.

Ontario lotteries took in about $2.4 billion in fiscal 2005-06.

That same year, there were 31 wins by OLG "insiders" (26 of them retailers) including three over $1 million.

Mr. Marin said the corporation made "mind boggling" payouts even in suspicious circumstances.

"We've concluded that the OLG's oversight on retailers is nonexistent, that the OLG has turned a blind eye to allegations of crime for many years, that there's likely in the area of tens of millions of dollars paid to unscrupulous retailers," he said.

Among the other 23 recommendations made in yesterday's report are: mandatory criminal background checks on retailers, a corps of "secret shoppers" to check the integrity of store clerks and a beefed up policy on insider wins.

Mr. Marin, however, stops short of banning retailers from playing the lottery games.

"I mean retailers have been stealing for one good reason — because they can," he said. "It's like saying [that since] people speed all the time, let's ban driving. "We need to start enforcing."

The government said yesterday it will implement all the recommendations.

OLG by the numbers

  • $2.3 billion — The OLG's average annual gross revenue from lotteries.
  • 78 — The number of retail owners to win major lottery prizes between 1999 and November, 2006, according to the OLG's own figures.
  • 131 — The number of retail employees to win major lottery prizes between 1999 and November, 2006, according to the OLG's own figures.
  • More than 400 — The number of complaints about OLG the ombudsman?s office received from the public after announcing an investigation.
  • 25 — The number of complainants interviewed either face-to-face or on the phone, in addition to Bob Edmonds, after the ombudsman announced his investigation.
  • 53 — The number of banker's boxes full of OLG documents the ombudsman and his staff received.

Source: National Post

Case one

Bob Edmonds, a Coboconk senior, was cheated out of a $250,000 jackpot by a clerk at a Fenelon Falls variety store. Mr. Edmonds' saga began on July 5, 2001, when, at age 78, he bought a Super 7 ticket from a Coboconk convenience store. On July 13, 2001, Mr. Edmonds validated his ticket at a store in Fenelon Falls. He won a free ticket and added a dollar to play the Encore. A few weeks later, on July 27, 2001, he returned to the store to see if either of his tickets were winners. A female clerk ran the tickets through the lottery terminal and Mr. Edmonds listened as the machine jingled twice — meaning he had won twice. The clerk, however, told him all he had won was a single free ticket. Three days later, the female clerk and her husband, who owned the store, went to the Ontario Lottery and Gaming Corporation's (OLG) Toronto Prize Office to claim Mr. Edmonds's win as their own. At first, the OLG had reservations about awarding the couple the cash. The pair could not say where or when they had bought the winning ticket and the couple could not produce a slip proving they themselves played those numbers in the past — until an OLG investigator visited the store. At that point, the female clerk dug an old ticket out of her purse bearing the right numbers. It turned out the clerk and her husband, who were friends of Mr. Edmonds', had tricked him into handing over a few of his old tickets under the guise he would be entered in a special promotion at the variety store. Relying on the old ticket as evidence, the OLG awarded the $250,000 lottery prize to the clerk and her husband. Mr. Edmonds called police and on March 1, 2002, the couple were charged with theft over $5,000. The charges were dropped three years later when Mr. Edmonds settled a $150,000 civil claim with the couple.

Case two

Despite the lies a Burlington lottery insider told the OLG, she was still awarded a $12.5 million Super 7 prize. She told the prize office that she was claiming the free play ticket on behalf of her brother, who owned the ticket. When she arrived at the OLG prize office, she told officials she was not affiliated with a retailer and had lied about her brother owning the ticket to guard her privacy. Her brother was also the clerk who had generated the free play ticket. The lottery corporation waited until the ticket expired, then paid the woman her multi-million-dollar prize.

National Post

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