Lottery pushes back against stricter auditing processes for potential fraud
By Kate Northrop
The Pennsylvania Lottery is butting heads with Pennsylvania Auditor General Tim DeFoor on whether stronger controls are needed to monitor frequent lottery winners.
An audit conducted on Pennsylvania Lottery winners of prizes between July 1, 2017 through Jan. 26, 2021 revealed that the Lottery gathers data on players who claim prizes of $600 and above solely for tax-related purposes but does not evaluate the same data for suspicious winning patterns.
There are certain stops in place to monitor for fraudulent claims, but the auditor general is asserting that the Lottery is simply not doing enough.
One of those protocols involves triggering "a flag for the lottery to investigate," should a lottery retailer were to play and file 50 or more wins for themselves, Communications Director for the auditor general April Hutchinson told the Pittsburgh-Post Gazette.
However, the audit found that the same type of checks and balances are not in place for regular players.
Between July 1, 2017 and March 2, 2020, the audit singled out 17 non-retailer players who filed 50 or more prize claims over $600, accounting for over 1,300 claims and adding up to nearly $2.7 million in winnings.
"As far as the frequency of winning, it's something that caught our attention," DeFoor said. "It kind of defies the odds and warrants [the state Department of Revenue] to investigate this further."
One of the 17 frequent claimants spotted by the audit was the spouse of a retailer who had submitted 88 claims. While lottery retailers are identified for review, spouses of retailers are not.
According to DeFoor, these are the types of claims that should be added to the Lottery's parameters for investigation into potential fraud so that retailers may hold as much accountability as Lottery and Department of Revenue employees.
"This analysis would help determine if someone is claiming prizes for a prohibited player or engaged in illegal activity such as avoiding paying taxes or child support," DeFoor argued.
In response to the auditor general's conclusions that the Lottery's processes are not thorough enough, Lottery officials labeled them "misguided assertions" and argued that his office was missing several key pieces of context in the data.
"Those who conclude that the small subset of lottery players who are perceived to win too frequently are somehow committing fraud often fail to consider essential factors, such as how frequently those players play and the way in which they play certain games," the Lottery responded to DeFoor's office in a letter. "Without considering those factors, it is impossible to conduct a fair and reasoned analysis."
In a formal statement, the Lottery contended that frequent claims do not explicitly indicate illegal activity.
"We strongly disagree with the performance audit's assertion that frequent wins by lottery players are an indication of illegal activity on the part of the players," the Lottery said. "From our perspective, this unfounded assertion relies upon the same flawed methodology that others have relied on to erroneously raise questions about the perceived statistical improbability of certain lottery players' wins."
After delving into the 17 frequent winners, the Lottery concluded that every single claim has a reasonable explanation that a high-level overview of data cannot uncover.
For example, one player had purchased 68 identical tickets for one Pick 4 drawing. Rather than cash in all their winning tickets all at once, that individual spread out their claims over the next few months, racking up the total number of prize claims.
"Our agency agrees with the majority of the DAG's findings and recommendations," the Lottery continued in a statement. "The reality is the Pennsylvania Lottery is a leader in its industry and utilizes a number of security measures and internal controls to validate the wins of players."
Another issue that the Lottery had with the auditor's conclusions was the concern that it would negatively impact sales and lottery revenue-funded programs. While it disagrees with the claim that their controls are not set up to catch every instance of potential fraud, it says it will take every bit of the findings into consideration.
"We take this responsibility very seriously and will continue to take the appropriate steps so that Pennsylvania Lottery players have the utmost confidence that our games are operated fairly and securely."