The Minnesota State Lottery spends more money and provides less to the state than comparable lotteries and should revisit its ties to the St. Paul-based marketing company Media Rare Inc., auditors reported Thursday.
Legislative Auditor James Nobles released the audit of the lottery about three weeks after former Lottery Director George Andersen died, apparently by suicide. Andersen had met with auditors about the review the day before he was found dead.
"We found many things to question and criticize. ... We did not find evidence of criminal wrongdoing," Nobles told a legislative panel. He emphasized that the review "was never an investigation. It was always an evaluation."
The 143-page audit recommended that the lottery reevaluate its relationship with Media Rare, which it said had never competitively bid on a contract with the lottery. The audit also said the lottery had overpaid the marketing company in several instances.
The marketing firm was founded by Andersen's friend Michael Priesnitz, who sold the company four years ago. Their relationship dates to the early 1990s, shortly after the lottery began and Priesnitz has since hired their son to work as a laborer at a cement manufacturing company he started.
The lottery has been the largest ongoing client for Media Rare.
Media Rare was involved in several of the costly projects questioned by the auditors, including the lottery's $400,000-a-year sponsorship of a bass tournament run by the company. Auditors found the tournament to have "limited value."
An avid bass fisherman, Nobles questioned whether Andersen's judgment might have been clouded as to the true value of sponsoring the tournament.
Media Rare also produces the television show "Environmental Journal" and leases the so-called Environmental Experience vehicle. Auditors reported the lottery spent $1.4 million over five years for the vehicle, which is "infrequently used and is of questionable value."
The truck, which features a log-cabin like interior with a large video screen and interactive touch-screen video exhibits, provides information to the public on the lottery's contributions to environmental projects in Minnesota.
The lottery in 2002 signed a five-year lease with Media Rare to lease the trailer tractor for five years at $4,000 per month. In addition to the $240,000 for leasing, the lottery spent about $769,000 on improvements - almost double what was initially budgeted.
Nobles said it would have been cheaper for the state to buy the vehicle outright.
Likewise, the auditors reported that the weekly television show, which was played both on broadcast and cable access channels, cost the lottery $1.2 million a year and had "limited benefits."
In a written statement on Thursday, Media Rare officials said they "look forward" to "continuing our work to promote the many benefits that the Lottery brings to Minnesota's environmental and natural resources." The statement didn't address any of the specific allegations, though officials in the past have defended their work for the lottery.
When the auditors examined the overall operations of the lottery, they reported that they found that the lottery had spent 66 percent more of its sales revenue on its own operations than comparable lotteries.
Auditors also found "significant problems with the lottery's spending and procurement practices," to the point that the report recommends the Legislature and governor consider reducing the lottery's budget beyond cuts made last year. They also recommend that the state general fund absorb $2.5 million in unclaimed prize money.
In all, the lottery had considerably more office space, 50 percent more staff and higher production costs than eight other comparable lotteries.
Auditors questioned many spending decisions, from flowers sent to funerals to the lottery's former practice of providing free coffee to employees and visitors.
Some expenses were deemed particularly inappropriate. Specifically:
- Until recently 11 employees were allowed to use lottery vehicles to commute to and from work, a violation of state law.
- Travel expense advances to Andersen violated state policy and "were not promptly settled."
- The lottery spent $4,200 to send the former director and three other employees to a fishing tournament that provided little promotional value to the lottery.
- Andersen and another employee fished for free, possibly violating state law against giving gifts to public officials.
Auditors also questioned the lottery's practice of giving out free tickets. In at least two cases, the lottery gave lottery tickets to police officers who attended training sessions on gambling enforcement at the lottery headquarters. The forums were run by the Department of Public Safety.
The auditors also recommended that the Legislature give the governor more discretion in removing the director. A bill to do just that was introduced in the Legislature on Thursday. Andersen had unusual autonomy and could only have been removed for a handful of reasons specified in law.
He was the only director the lottery had in its nearly 15-year history.
Acting director Michael Vekich has already begun making changes. He canceled the lottery's sponsorship of the bass fishing tournament, among other things.
"Everything is on the table," he told lawmakers, vowing that he'll lead the lottery in a transition from Andersen's more intuitive, entrepreneurial style of management to a style more reflective of a large business.
Nobles told lawmakers that initially, his office considered taking out all references to the former director in its report.
"In the end, we left those references in the final report. ... "We did not remove any findings related to George Andersen. We hope this will not be taken as disrespectful to George Andersen and his family."
Andersen's mistakes, Nobles said, should be viewed on the order of someone speeding or overstaying a parking meter: "I definitely wouldn't call George Andersen's behavior as having engaged in criminal activities."
He said he doesn't see anything in the report that would have caused Andersen to take his life, and he still wonders why he did. "I don't think any of us will ever know the answer to that."