The report states that separate individuals were not performing the functions of collecting and recording receipts and recommended that the Lottery Board make an assessment to determine optimal allocation of personnel and adequate segregation of duties and give consideration to establishing a unit to monitor compliance with Lottery Board policies and procedures.

We agree and we have added six experienced staff to the Finance Department since January 1998. Proper checks and balances have been restored and duties have been adequately segregated. The Lottery is focused on implementing the new SOAR financial system, CAPPS, and a new in-house general ledger. Once those tasks are accomplished, emphasis will be placed on the development of increased monitoring and the documentation of accounting procedures.

The OIG notes deficiencies in the Lottery Board's procedures for processing repayment agreements with agents whose accounts are in the nonsufficient funds status (NSF) and recommends instituting written repayment for use only in instances where there is proof of burglary at the agent locations, by police report, or other uncontrollable circumstances, otherwise full payment should be demanded. The OIG also recommends issuing monthly statements to these agents to determine who is current or delinquent and to develop an aging schedule.

We agree that all agreements should be written and have instructed staff not to enter into any verbal agreements. While proof of burglary is a valid reason for entering into an agreement, there are often other instances where an agreement will facilitate the collection effort. We have had some considerable success in collecting funds under an agreement where the agent was negotiating the sale of the business. We are in the initial stages of implementing a computerized receivable system and will consider segregating agents with agreements from the others so different procedures can be followed.

Inconsistency in Issuing Payment Receipts to Agents

The OIG notes that the Lottery Board is not consistent in issuing receipts to agents who make payments on receivables and recommends that procedures be established to secure the complete and consistent issuance of receipts for all amounts collected and that staff comply with this procedure.

We have instituted a procedure where all payments are accompanied by a receipt. (Attachment 1)

Non-Compliance with Agent Bank Account Regulations

The report states that the Lottery Board's procedures for the maintenance of agent bank accounts were not in compliance with DCMR, Title 30, Section 305.4 and 305.6 and recommends that agent bank accounts be designated as trust funds for the Lottery Board and bear the notation "D.C. Lottery Board Trust Fund" and that the Lottery Board be identified as the true owner of the funds.

The Lottery Board has significant business reasons to permit agents to write checks on the Lottery trust account, primarily to permit agents to cash prizes not exceeding $599.99. These withdrawals are consistent with Section 305.4 of the rules which provides that withdrawals shall be made only in accordance with instructions issued by the Agency. We will consider the impact of the designation the OIG recommends on our systems for the deposit of sales proceeds and make adjustments consistent with our business needs.

Failure to Comply with Non-Sufficient Funds (NSF) Policy

The OIG notes that the Lottery Board was not enforcing its NSF policy and recommends immediate deactivation of agent terminals upon notification of NSF and establishing a liaison with the Department of Consumer and Regulatory Affairs (DCRA) to deny renewal of business license to agents owing the Lottery Board for past lottery sales.

We have reinforced and reiterated the NSF policy and been able to reduce the number of NSF's by 50% and the overall balance by almost $100,000 since November 1997. Terminals are deactivated immediately and agents' licenses have been revoked. During FY 1999, we will pursue a liaison with DCRA to insure that our collection problems are communicated to their licensing section.

The report states that for the period October 1996 through September 1997 only three of 14 agents selected at random met the minimum quarterly sales requirement ($12,000 on-line sales and five packs of instant tickets) and that the Lottery Board's Trade Development unit did not perform any reviews to monitor adherence to the requirement. The report recommends that the minimum sales policy be evaluated to consider its practicality, a variable minimum sales requirement be instituted, regular sales reviews be conducted to determine where sales levels can be improved, and procedures be established to aid agents not meeting minimum sales requirements.

The Lottery Board enforces its minimum sales requirement unless there are circumstances where it would be detrimental to the lottery revenue stream, such as an agent whose business is negatively affected by construction or an agent in an area where there is no other convenient lottery outlet. We will revise our policy to account for such circumstances in FY 1999. Currently, the Trade Development Managers conduct quarterly business reviews for each agent to help the agent grow lottery sales. (Attachment 2).

Noncompliance With Provisions of the Online Games Monitoring Contract

The OIG notes that the Lottery Board was not enforcing the terms of its contract with a CPA firm for visits to the Agency's computer control center, which required at least 30 times per year, 15 of which announced only to the Agency's Security Director. The OIG found that only one unannounced and five announced visits were made to the computer control center from February 7, 1997 to February 6, 1998. The OIG recommends that the Lottery Board assures the auditing firm's compliance with the provision of the contract and makes adjustments in future compensation for visits not previously delivered as required by the contract.

The Lottery Board terminated its contract with the auditing firm for default May 1998. The Security Director monitors the successor contract closely.

The report states that the Lottery Board's Finance Department uses spreadsheets and manual subledgers to keep track of agents' receivable balances because the computer software does not produce reports that show cumulative balances of ticket sales and delinquent amounts. The report recommends establishing a time line, with action steps, to insure the installation of the new automated agent ledger system.

The new Oracle general ledger package has been installed. A final testing is scheduled for late September, early October 1998. The package is to be interfaced with both the gaming contractor and SOAR (new FMS).

The OIG notes that the computer software used by the Licensing Unit for maintenance of agent data files did not 1 ) provide adequate information to evaluate an applicant's previous relationship with the Lottery Board; 2) allow the Licensing Unit to obtain financial information; and 3) interface with the databases maintained by other regulatory agencies of the District Government to readily determine agent business licensure status or nontax status.

The OIG recommends a computer software upgrade to enable queries, past and current, interface with other District government agencies and read-only access of agents' financial data in the Licensing Unit.

All agent records from the inception of the Lottery Board are maintained in hard copy form. However, we agree that it is impossible to capture the information manually in order to cross reference new applicants with previous lottery agents. We are researching software to automate this process. The Licensing Unit has read-only access; however, we prefer to continue departmental sign-off on renewals. We agree with the additional finding and the Licensing Unit, along with the MIS Department, have contacted the Department of Consumer and Regulatory Affairs (DCRA) and Department of Finance and Revenue (DFR) to obtain interface capability via D.C. Government Wide Area Network (WAN). MIS will develop and test additional software to incorporate these requirements. This activity will start in FY 1999.

B. Licenses Issued Prior to Completion of Criminal Background Investigations

The report states that there were several instances where the Lottery Board renewed either expiring licenses or issued new licenses, without receiving completed criminal histories from agent applicants and recommends that the Lottery Board's Security Department perform background checks.

We agree with the finding. The Lottery Board's requests for police clearances from Metropolitan Police Department (MPD) and other local jurisdictions were submitted in a timely manner. However, these clearances have low priority with these agencies. Earlier this year we began experimenting with permitting new applicants and existing licensees to secure their own clearances to eliminate these deficiencies. As of October 1, 1998, an independent contractor will provide this service for the Lottery Board.

The OIG reports several findings: 1 ) licensing forms did not always capture necessary information; 2) agent files and numbers were mixed up and multiple numbers and files were assigned and maintained for agents; 3) for some incomplete applications the Licensing Unit neither dated nor stated a deadline in the deficient notice it sent applicants; and 4) the agent bonding requirements are inadequate to cover potential losses as the sum charged to the agents is kept in a self-insurance fund and deposited on account. The OIG recommends: 1) issuing unique identification numbers; 2) develop standardized renewal forms, which requires the specification of business entity type; 3) develop forms reflecting annual requirements for new or renewal licenses; 4) establish a process for tracking applicant responses to deficiency notices; and 5) obtain a bonding contract with a surety company and require agents to pay the premium on the contract in a timely manner.

The standardized forms capture business entity type and reflect annual requirements for new or renewal licenses. In April 1998, the licensing staff made several changes: We added a yearly checklist sheet which lists necessary documentation. We took steps to ensure that all the important documents are deposited in the proper files and have eliminated multiple identification numbers for agents. For deficiency notices, we added a date and indicate a submission deadline date. During Fiscal Year 1999, we will establish a tickler file to monitor non-responses and are researching an automated tickler system.

With respect to agent bonding, we disagree with the finding and recommendation. The bond contract with the District government, the Lottery Board and our agents is valid and is evidenced by a bond issued to the agents (Attachment 3). Claims against the bonds are routinely made up to the amount of the applicable bonds.

Accelerate the Process of Investigating Cancellation Reports

The report states that no investigative reports had been finalized on daily games cancellations and recommends that the Security Department review reports daily and develop investigative reports.

The Security Department currently maintains a daily cancellation report and conducts investigations accordingly.

The report states that new employees are allowed to assume office and have access to the building and facilities prior to the completion of background investigation. The report also states that the Lottery Board does not have a bonding process for employees. It recommends that the Lottery Board comply with D.C. Code, Section 2-2504 regarding fingerprinting employees before and as a condition of employment and implement the provision in the code that allows the Lottery Board to require employees to be bonded, if it so deems.

Since June 1997, the Lottery Board no longer allows new employees to assume positions without a completed background check. The Lottery Board's requests for police clearances from Metropolitan Police Department (MPD) and other local jurisdictions were submitted in a timely manner. (Attachment 4) However, as of October 1, 1998, an independent contractor will provide this service for the Lottery Board. We will take the recommendation to bond employees under advisement.

Lack of Inspection of Agents' Operation Records and Facilities

The OIG notes that during Fiscal Year 1997 lottery agent operation records and distribution center records were not being inspected as provided by DCMR Title 309, Section 306.3, and found that files for previous years were not available. The OIG recommends consistent inspections of agent records and facilities.

The Trade Development Managers make biweekly sales calls to agents to look at overall sales, sell instant tickets, look at displays and make recommendations for improving product positioning. However, we are revisiting ways to achieve non-sales inspections.

In Fiscal Years 1996 and 1997, the OIG had possession of many Lottery Board files. It took some time to secure their return and to review, resort and refile them.