Lottery scammers have cheated North Carolina out of an estimated $7 million in back taxes and delinquent child support since 2009, a non-partisan arm of the General Assembly said.
At the request of a state legislator, the Fiscal Research Division teamed up with a UNC-Chapel Hill statistician to calculate the loss following an Observer investigation that found dozens of players winning the lottery so often that their luck defies logic.
Highlighted in the Observer's series was a lucrative secondary market for winning lottery tickets. In it, players resell tickets to avoid automatic withholdings, such as back taxes and child support. Buyers collect the prize and sellers remain anonymous, the Observer found.
Some players may be undocumented immigrants wanting to avoid government scrutiny, said an attorney for the lottery.
The division's analysis was the first time the state tried to estimate how much it was losing to players who resell winning tickets.
The estimated loss nearly matches the $11.5 million the state has automatically withheld from winners who owed debts since 2006.
"Seven million is a big enough loophole to plug," said Rep. Paul Stam, a Wake County Republican who asked the research division to investigate. "Unless they (legislators) are just in love with the lottery, I'd say almost unanimously, they'd want to plug that loophole."
Stam is retiring from the General Assembly but said he's spoken with a senior legislator who plans to introduce a bill next session that would make ticket reselling "a low-grade misdemeanor."
Alice Garland, the lottery's executive director, said she would like to see the specific legislation before saying whether lottery staff would support the proposal.
Indiana, Florida and Iowa have laws against reselling tickets. Here, it's against lottery policy for retailers or employees to buy resold tickets. Regular players are free to do so, even though North Carolina Education Lottery officials acknowledge it can hurt taxpayers and single parents.
Statisticians who reviewed lottery data for the Observer's series said they recognized trends that suggest fraud or reselling tickets.
A simple online search shows just how easy it can be. Two weeks ago, a lottery winner from Morganton offered to sell on Craigslist a winning $1,000 scratch-off ticket for $750.
"Need money now!!!," the ad read.
Jan Hannig, the UNC statistics professor who helped the research division, said his analysis took a conservative approach by only looking at the most prolific winners. It's likely, he said, the state was missing out on much more debt set-off payments.
Lottery Commission chair Kim Griffin Jr. said he was aware of the $7 million estimate but has yet to form an opinion on it.
"I don't know if we're able to say if it's accurate or if it's bull," he said.
But consider the Observer's findings:
- Many players beat baffling odds for months at a time, raising red flags about how they won. For instance, a High Point woman hit winners nine times in a four-month span, overcoming odds of 1 in 5,000, 1 in 40,000, 1 in 70,000 and 1 in 120,000. She collected $21,000 that year from scratch-off tickets, data show.
- Most big-prize winners won once or twice. But the number of repeat big winners — some of whom won on 15 or more scratch-off tickets in a single year — has surged since the lottery began in 2006, far outpacing the growth in total winners.
- Dozens of retailers or their employees — the gatekeepers to potential fortunes — have beaten improbable odds time and again to collect significant prizes at their own stores.
Lottery critics say allowing retailers and employees to play where they work creates too much temptation. Some North Carolina workers have been caught stealing winning tickets from their customers and then claiming the prize for themselves.
In 2010, a store owner in Dunn told a player that her ticket was a loser, then pocketed her winning ticket worth nearly $90,000. The retailer was caught more than a year later when he tried to claim the prize, which was returned to the original ticket buyer.
Workers at two stores recently tried to steal an undercover agent's fake winning ticket, the lottery announced Tuesday. The lottery terminated their license to sell tickets. The lottery suspended the license of a third store after a worker bought a fake ticket from an officer for a discounted price.
The tickets, used during security checks at 138 locations statewide, looked like real winners. The lottery celebrated the results, saying that 98 percent of those checked were truthful to the undercover officers.
"We wish all retailers who were checked had passed the test," Garland said. "Every lottery player who has the good luck to win a lottery game deserves to get the prize they won and we will continue efforts such as this to ensure that happens."
Also Tuesday, the commission made it a best practice for retailers and employees to only buy lottery tickets where they work while they're off duty and the purchase is made through another employee. A spokesman said the lottery will emphasize the new policy at upcoming retailer training sessions.
Griffin called the change "very reasonable" but added that he's open to looking at other options, too.
Stam said the change doesn't go far enough.
"It ought to be totally prohibited," he said.
Indiana is the only state that prevents retailers or employees from buying tickets where they work.