Two big time lottery winners are facing arraignment on fraud charges Thursday after the state auditor found that they collected welfare benefits during the same period that they won hundreds of thousands of dollars from the lottery.

James T. Casey Jr. of Waltham did not tell welfare officials that he has won more than $700,000 since 2009, Auditor Suzanne Bump found, a period in which Caset has collected $12,157 in MassHealth benefits and $1,553 in food stamps. Casey, who had just been released from jail when he started collecting welfare, was recently indicted on child sexual abuse charges in Middlesex ­Superior Court.

Also facing charges is Frank Basile of Belmont, who collected MassHealth benefits despite having cashed in more than $316,000 in winning lottery tickets over four years.

"What we're looking at is people who consistently fail to report significant lottery winnings in order to claim a public benefit to which they are not entitled," said Bump, whose ­office is investigating about a dozen other lottery winners for possible fraud.

Casey could not be reached for comment. But Basile, who received $17,500 in MassHealth benefits over four years, called the charges "a mistake." He said he was not planning to attend his arraignment.

Basile, who considers himself a professional gambler, ­argued that he is eligible for benefits because his net income is low after adding in his gambling losses, he said.

State welfare officials "get a copy of my tax forms every year," he said. "They look at how much you make in a year, but I lost as much. You win $100,000 and you lose $125,000."

Basile predicted that his case will be dismissed, saying, "Ninety-nine percent of the gamblers lose more than they win."

He did not say whether he has nongambling earnings.

Casey and Basile are suspected of being among a group of lottery customers who cash in other people's winning tickets to help them avoid paying taxes on the winnings or child support. These "10 percenters" — so-called because they keep around 10 percent of the proceeds — have been targeted by the state auditor's office for more than a decade.

However, Basile vehemently denied that he cashes other people's winning tickets.

"I'm no 10 percenter," he said, before hanging up the phone. "They [state officials] can think whatever they want."

As far back as 1999, A. ­Joseph DeNucci, then the state auditor, said professional ticket cashers were costing the state and federal government millions of dollars a year in lost taxes and child support.

Normally, taxes are taken out of lottery winnings when the tickets are cashed. But the 10 percenters, who stockpile losing tickets that frequently have been discarded by other gamblers, claim gambling losses to offset their winnings.

They end up paying no taxes on the winnings or get back ­refunds.

In fact, Casey did not file taxes at all in 2007, 2008, or 2010, years in which he won $623,900, according to state revenue officials.

Bump said even though lawmakers have tried to eliminate the 10 percenters a number of times, she hopes the charges against Casey and Basile will "compel them to look at it again so we can find a way to put an end to this activity."

Health and Human Services Secretary JudyAnn Bigby, who oversees the agencies that provide medical care and food assistance for low-income people, called the allegations outrageous.

"MassHealth and the ­Department of Transitional ­Assistance serve important missions and are critical pieces of the social safety net," Bigby said. "People who try to scam these programs threaten the very existence of that safety net and must be held accountable. We are working closely with the auditor's office and will assist law enforcement in their investigation in anyway we can."

Benefit recipients are ­required to report any change in their monthly income, officials said. Even if a gambler had no net annual income, he would be required to report his earnings any month he had winnings, according to Alec Loftus, spokesman for the Executive Office of Health and ­Human Services.

The alleged fraud was not detected until now because current law does not require the lottery to disclose winners to MassHealth. Other agencies, including the Department of Revenue and the Department of Transitional Assistance, get a list of the biggest prize winners.

Loftus said state officials are going to work to change the law so the lottery must share its list of winners with MassHealth.

Transitional Assistance, which administers the Supplemental Nutritional Assistance Program already has used the list to throw 54 recipients off public assistance this year and cut benefits to 359 others, ­Loftus said. Starting in 2014, MassHealth will have access to tax records, he said.

Lottery spokeswoman Beth Bresnahan said her agency already runs Social Security numbers of people who win more than $600 against state databases to determine whether the winners owe back taxes or child support.

If there is an outstanding debt, the amount is deducted from the prize.

In addition, she said, the lottery reports suspected 10 percenters to law enforcement and tax agencies.

But last year, the state's ­Appellate Tax Board sided with perhaps the most successful reputed 10 percenter, Clarance Jones of Lynn, who had ­redeemed more than 10,000 tickets worth a total of more than $18 million. When the ­Department of Revenue tried to collect taxes on his winnings, Jones appealed and won. The appeals board said that, instead of Jones owing the state money, the state owed Jones more than $200,000 which the lottery had withheld.

Casey and Basile, who are expected to be arraigned in ­Boston Municipal Court on felony larceny charges and misdemeanor charges of failure to disclose their winnings, face up to five years in prison and fines of up to $25,000.

Casey, who served 90 days in jail in 2009 after pleading guilty to six counts of possessing child pornography, was on probation when he was charged with two more crimes this year. He was indicted in March, charged with indecent assault and battery on an 8-year-old in 2011 and rape of an 11-year-old several years ago.

He said he was indigent and was assigned a public defender, Middlesex authorities said.

Thanks to PERDUE for the tip.