State Auditor General Eugene DePasquale announced a new performance audit of the Pennsylvania Lottery Wednesday, with a special emphasis on studying the state-run gaming franchise's protections against being ripped off by players or retailers who are intentionally gaming the system.
"Last fiscal year, Pennsylvania Lottery players bought $4.5 billion in game tickets and claimed more than $2.9 billion in prizes," DePasquale said in announcing the new review at the state Capitol. "Seniors, lottery players and the general public deserve to know if every dollar of those prizes was claimed in accordance with the law."
DePasquale said his interest in the subject has been piqued by news investigations in 2017 that looked into high-frequency wins by hundreds of lottery players in several states that, in some cases, showed the potential to be rooted in illegal activity. Those reports also found weak or non-existent oversight of those irregular win patterns in many lotteries.
In one of the most egregious cases highlighted in the "Defying the Odds" reports, Massachusetts resident Clarence Jones wound up pleading guilty to federal tax evasion charges in a scheme where he would buy winning tickets from lottery players at a discount for cash. The real winners would keep the cash and not pay taxes on their winnings.
Jones would then claim the prize from the Lottery, report the winnings on his tax returns and report enough alleged gambling losses on his taxes to offset the Lottery prizes.
Prosecutors said Jones — who received a two-month federal prison sentence in September — cashed out about 4,670 tickets between January 2013 and December 2016 to total winnings of approximately $6.3 million, prosecutors said.
Small numbers of high-frequency winners were also discovered in Pennsylvania.
DePasquale said Wednesday it's time to make sure that similar frauds aren't being perpetrated here, and that state lottery officials have the safeguards in place to detect and stop them if they are. Similar audits in other states have already resulted in recommendations for tighter security procedures in their games.
Since the 2017 news reports, DePasquale noted, the Pennsylvania Lottery has actually become bigger, with Keno and Internet-based games that have only increased the opportunity for cheats.
"I appreciate it when the Lottery says that they are doing everything they can (to prevent fraud)," DePasquale said, "but for seniors who count on Lottery-funded programs, and the players, I want to dig deeper and do an independent review to make sure they are doing exactly that... It could be that some people are just luckier than others, but as the Auditor General I am not paid to believe in coincidences."
The Pennsylvania Lottery provides more than $1 billion in proceeds annually to state coffers to help support a variety of benefits for senior citizens, including price breaks on prescription drugs, rebates of property taxes, and a home care services designed to help older Pennsylvanians stay in their homes.
DePasquale said his audit team will also be looking at two other specific areas:
- An ongoing procurement process to select a third-party contractors to run the state's terminal-based games and design its immensely popular instant lottery tickets. The state has already spent $1.3 million in evaluations of bids from two competitors in a process that has gone into two rounds.
"We certainly have the right to make sure that all appropriate procedures were followed during this procurement, and to ask why that dollar figure is (so high)..." DePasquale said. "There may be a good answer for it, but we'll certainly be asking that question."
- Sexual harassment policies in place at the state Department of Revenue, which oversees the Lottery. In the wake of "#me-too" inspired revelations of taxpayer-funded payouts to settle sexual harassment claims, DePasquale last year had announced that he would make reviews of agency sexual harassment policy and procedures a standard part of his audits.
"In 2016, state taxpayers paid $900,000 to settle a sexual harassment lawsuit against a former Revenue Department regional manager," DePasquale said Wednesday. "I want all state agencies to learn from that case and put an end to sexual harassment once and for all."