0001 1 * * * * * * * * * * * * * * * * * 2 3 4 TEXAS LOTTERY COMMISSION 5 MEETING 6 7 APRIL 5, 2006 8 9 * * * * * * * * * * * * * * * * * 10 11 12 13 14 15 16 17 BE IT REMEMBERED that the TEXAS LOTTERY 18 COMMISSION meeting was held on the 5TH of APRIL, 2006, 19 from 8:30 a.m. to 1:50 p.m., before Brenda J. Wright, 20 RPR, CSR in and for the State of Texas, reported by 21 machine shorthand, at the Offices of the Texas Lottery 22 Commission, 611 East Sixth Street, Austin, Texas, 23 whereupon the following proceedings were had: 24 25 0002 1 APPEARANCES 2 Chairman: Mr. C. Tom Clowe, Jr. 3 Commissioners: 4 Mr. James A. Cox, Jr. 5 General Counsel: Ms. Kimberly L. Kiplin 6 Acting Executive Director: 7 Mr. Anthony J. Sadberry 8 Charitable Bingo Executive Director: Mr. Billy Atkins 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 INDEX - April 5, 2006 2 PAGE 3 Appearances.................................... 2 4 AGENDA ITEMS 5 Item Number I.................................. 6 6 The Texas Lottery Commission will call the meeting to order 7 Item Number II................................. 6 8 Report, possible discussion and/or action on 4th quarter and calendar year 2005 bingo conductor 9 information 10 Item Number III................................ 13 Consideration of and possible discussion and/or 11 action, including adoption, on new rules 16 TAC Sections 402.706 and/or 402.707 relating to 12 Standard Administrative Penalty Guideline and Expedited Administrative Penalty Guideline 13 Item Number IV................................. 72 14 Consideration of and possible discussion and/or action relating to the continuation of the Bingo 15 Advisory Committee 16 Item Number V.................................. 72 Consideration of and possible discussion and/or 17 action, including proposal, on amendments to 16 TAC 402.102 relating to the Bingo Advisory 18 Committee 19 Item Number VI................................. 72 Consideration of and possible discussion and/or 20 action, including adoption, on amendments to 16 TAC 402.600 relating to the Bingo Reports 21 Item Number VII................................ 72 22 Consideration of and possible discussion and/or action on the Bingo Advisory Committee work plan 23 24 25 0004 1 INDEX - CONTINUED - April 5, 2006 2 PAGE 3 Item Number VIII............................... 73 Report, possible discussion and/or action on the 4 Agency's Strategic Plan for 2007-2011 5 Item Number IX................................. 76 Consideration of and possible discussion and/or 6 action on external and internal audits and/or reviews relating to the Texas Lottery Commission 7 and/or on the Internal Audit Department's activities 8 Item Number X.................................. 76 9 Report, possible discussion and/or action on GTECH Corporation 10 Item Number XI................................. 77 11 Consideration of and possible discussion and/or action on the lottery operator contract, including 12 whether the negotiation of the lottery operator's contract in an open meeting would have a 13 detrimental effect on the Commission's position in negotiations of the lottery operator contract 14 Item Number XII................................ 78 15 Report, possible discussion and/or action on the agency's contracts 16 Item Number XIII............................... 78 17 Consideration of and possible discussion and/or action on the appointment and employment of an 18 Executive Director 19 Item Number XIV................................ 79 Commission may meet in Executive Session 20 Item Number XV................................. 80 21 Return to open session for further deliberation and possible action on any matter discussed in 22 Executive Session 23 Item Number XVI................................ 80 Consideration of the status and possible entry 24 of orders in Dockets A through D 25 0005 1 INDEX - CONTINUED - April 5, 2006 2 Item Number XVII............................... 86 3 Report by the Acting Executive Director and/or possible discussion and/or action on the agency's 4 operational status, and FTE status 5 Item Number XVIII.............................. 90 Report by the Charitable Bingo Operations Director 6 and possible discussion and/or action on the Charitable Bingo Operations Division's activities 7 Item Number XIX................................ 90 8 Public comment 9 Item Number XX................................. 92 Adjournment 10 11 Reporter's Certificate......................... 93 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0006 1 APRIL 5, 2006 2 CHAIRMAN CLOWE: Good morning. It's 3 8:30. Today is April 5th, 2006. Commissioner Cox is 4 here. My name is Tom Clowe. We'll call this meeting 5 of the Texas Lottery Commission to order. 6 The first item on the agenda, number 7 two, report, possible discussion and/or action on the 8 fourth quarter and calendar year 2005 bingo conductor 9 information. 10 MR. SANDERSON: Good morning, 11 Commissioners. For the record, I'm Phil Sanderson, 12 Assistant Director of the Charitable Bingo Operations 13 Division. As requested, the 1994 to 2005 comparison 14 summary slide that was presented at last week's 15 meeting has been adjusted for inflation. Items of 16 interest to note are that the reported amounts for the 17 conductors reporting occasions, attendance, and 18 average number of players were not adjusted. The 1994 19 amounts for gross receipts, prizes, rent payments, 20 mortgage payments, total expenses, charitable 21 distributions, required distributions, and average 22 spend per player have been adjusted to reflect 2005 23 dollars. 24 The first column is the 1994 actual 25 numbers, the 19 -- the second column is the 1994 0007 1 adjusted numbers to 2005 dollars. And, of course, the 2 2005 is what was reported for last year. According to 3 the U.S. Department of Labor, the 2005 Consumer Price 4 Index average is 195.3. And the 1994 CPI average is 5 148.2. This results in an average decrease of 24.12 6 percent from '94 to 2005. Although actual gross 7 receipts, prizes, and rent payments were relatively 8 flat from 1994 to 2005, once they were adjusted for 9 inflation, the 2005 amounts reveal the decline of 10 approximately 24 percent. Total expenses for 2005 11 were 17.8 percent higher than the 1994 actuals. 12 However, when the '94 dollars are adjusted, the 2005 13 total expenses have decreased by 10.6 percent. 14 The average amount spent per player 15 remains higher in 1994. The revised presentation 16 reveals an increase in 2005 by almost 28 percent over 17 the adjusted 1994 amount. The average amount spent 18 per player was previously reported as 68.3 percent 19 over the 1994 actuals. Charitable distributions and 20 required distributions for 2005 remain lower than the 21 1994 adjusted amounts, although the reported 22 distributions are consistently greater than the 23 required amount. 24 Additionally, Commissioners -- 25 COMMISSIONER COX: Phil, let's go back 0008 1 to that for just a second to ask a question. The rent 2 payment decline is remarkably similar to the gross 3 receipts and the prizes decline. Are these largely 4 percentage rents? 5 MR. SANDERSON: By statute they can't 6 be based on percent. 7 COMMISSIONER COX: They cannot be. 8 That's a remarkable coincidence, isn't it? Thank you. 9 MR. SANDERSON: Okay. 10 Commissioner Cox, you had wanted to know whether or 11 not the decline in the conductors was attributed to 12 attrition. We looked at the same time period and as a 13 result of unit accounting being implemented at the 14 beginning of 2005, data at the conductor level does 15 not adequately compare with the 1994 data, so we only 16 looked at the time period 1994 to 2004. Here you have 17 1,060 conductors that continuously operated between 18 1994 and 2004. This number is an average -- is the 19 number of conductors that are reporting as it 20 declines, and like -- there were 2,186 conductors 21 reporting in 1994. Of those, 2,017 stayed in 22 operation the next year, 1854 continued operation, 23 1557, you know, continued in 1998, and it decreases 24 down to where -- and like in 2004, there were 1,060 25 conductors that remained in operation throughout that 0009 1 11-year period. 2 And this is the number of conductors 3 reporting each year. From 2,186 in '94, it increased 4 to 2,007, and then began its decrease down to 1682 5 conductors reported bingo operations in 2004. 6 This is the length of an operation of 7 bingo. Over this 11-year period, there were 282 8 organizations that were in operation for one year, 9 four quarters or less; there were 299 organizations 10 that were in operation for two years or eight quarters 11 or less; and then 292 organizations for three years. 12 So, basically, almost 900 organizations were in bingo 13 only for a three-year period. And then the number 14 starts to decline a little bit each year after that. 15 Now, comparing the organizations, those 16 1,060 that continuously operated through this 11-year 17 period to the actual reported amount each year of the 18 11-year period, you can see that the gross receipts 19 for the organizations that operated during the period 20 increased 11.4 percent, while the operations during 21 this period for all conductors reporting decreased 4.5 22 percent. Total prizes for the conductors continuously 23 operating increased 11 percent, while total prizes for 24 all conductors reporting decreased 5.7 percent. The 25 net receipts, which is gross minus prizes, decreased 0010 1 for all -- for the continuous operations 9.1 percent, 2 and it decreased 20.2 percent for all operations. The 3 total expenses for the continuous operations increased 4 39.62 percent, and the total expenses for all 5 operations increased 17.7 percent during this time 6 period. 7 The net revenue for the continuous 8 operations decreased 36 percent, while the net 9 revenues for all operations decreased 39 percent. 10 COMMISSIONER COX: What happened in 11 1998? 12 MR. SANDERSON: There was a -- it was 13 an adjustment to some lease income in '97 -- or not 14 lease income, lease payments to distributors. '96 and 15 '97 is when the electronic card minders began 16 operations, and I believe in '98 the sales started 17 picking up and the -- and the cost of goods for those 18 equipment started decreasing a little bit. And that's 19 where that spike came in. 20 And then charitable distributions for 21 the continuous operations has declined 30.6 percent, 22 while the distributions for all operations declined 23 38.3 percent. 24 And that concludes the presentation I 25 have prepared for you today. I'll be glad to answer 0011 1 any questions. 2 COMMISSIONER COX: Phil or Billy, what 3 do you observe from all of that? 4 MR. ATKINS: I think the first thing we 5 observed, Commissioner Cox, is there does seem to be 6 what -- I believe you referred to it at the last 7 meeting -- as a core group of organizations conducting 8 bingo that have been in business for an extended 9 period of time that seem to have, if you will, their 10 business down pretty good. 11 The other thing that stuck out, to us 12 anyway, I think, and I'll, of course, let 13 Mr. Sanderson add anything he may have, is the number 14 was organizations that came into and went out of 15 business within that three-year period. It does 16 appear that there is very high probability of failure 17 within a three-year period for organizations getting a 18 bingo license. "Failure" may not be an accurate word. 19 It may be there is a high probability of them 20 discontinuing their operations within that three-year 21 period, and then you do see a pretty significant drop 22 after that three-year period. So it looks like that's 23 about how long it takes an organization to get in and 24 really get their operation going. 25 COMMISSIONER COX: If you were to look 0012 1 at halls, rather than conductors, would you find that 2 the stability is related to the hall, rather than the 3 organization itself? 4 MR. ATKINS: I don't think that we have 5 done that analysis specifically, Commissioner Cox. My 6 tendency would be to say, yes. We do think that, you 7 know, just -- I just know of halls where the same 8 organizations have been conducting for 20 years. And 9 also, I think that there is an added stability that a 10 new organization, of course, gets from existing 11 organizations, as opposed to an organization that 12 starts up an entirely new game at their own facility, 13 et cetera. 14 COMMISSIONER COX: What could we do to 15 gather some information on -- on that point? About -- 16 information about whether there is any turnover, let's 17 say, or how much turnover there is in the better 18 halls. Are the new organizations doomed to failure, 19 if you will, because they're at marginal locations and 20 can't really penetrate the good locations because 21 those charities aren't turning over. 22 MR. AKINS: I'm looking to 23 Mr. Sanderson to see if he can do that analysis on a 24 location level as opposed to an organization level. 25 MR. SANDERSON: I will have to check 0013 1 with our IT people. I believe the information is 2 there, and with the new system that we've got, there 3 is -- each location has its own number, so it should 4 be able -- fairly easy to tie those organizations to a 5 location and see if they continued at that same 6 location over a period of time. 7 COMMISSIONER COX: Thank you, 8 Mr. Chairman. 9 MR. ATKINS: And we'll also, 10 Commissioner Cox, be happy to make this same 11 presentation to the BAC at their next meeting and get 12 their input on that question that you asked. 13 COMMISSIONER COX: Good. 14 CHAIRMAN CLOWE: Thank you. Next, item 15 number three, consideration of and possible discussion 16 and/or action, including adoption, on new Rule 16 TAC 17 402.706 and/or 402.707 relating to Standard 18 Administrative Penalty Guideline and Expedited 19 Administrative Penalty Guideline. Ms. Joseph. 20 MS. JOSEPH: Good morning, 21 Commissioners. My name is Sandy Joseph, Assistant 22 General Counsel. 23 Before you for your consideration are 24 two rules pertaining to administrative penalties for 25 violation of the Bingo Enabling Act and/or the 0014 1 Charitable Bingo Administrative Rules. The staff 2 recommends adoption of bingo Rule 16 TAC Section 3 402.706, Standard Administrative Penalty Guideline, 4 and 16 TAC Section 402.707, Expedited Administrative 5 Penalty Guideline, with some changes to the proposed 6 text. 7 The bingo industry has been afforded 8 numerous opportunities to comment on the proposed 9 rules at various meetings, both prior to and during 10 the formal comment period. Three lengthy workgroup 11 meetings were attended by representatives of the bingo 12 industry during the informal period. In addition, the 13 draft rules and a concept were presented to the BAC on 14 six different occasions. Furthermore, the rules have 15 been presented to you at public meetings on four 16 different occasions, the first being almost a year 17 ago, April 6th, 2005. During the formal comment 18 period, a public hearing was conducted and attended by 19 members of the industry. During the informal period, 20 the staff did make changes to the draft proposed rules 21 in response to comments and suggestions that were made 22 by industry representatives. In addition to being 23 presented at the meetings that I've just summarized, 24 the proposed rules were available on the Commission's 25 and the Secretary of State's websites with notice of 0015 1 opportunity to submit comments. The proposed rules 2 were published for public comment in the Texas 3 Register on November 18th, 2005, and the public 4 comment period was open for 30 days. This was the 5 formal comment period. That period ended on 6 December 19th. During that period, one written 7 comment was received. At the public hearing that was 8 conducted on November 30th, to receive formal 9 comments, 15 individuals spoke against adoption of the 10 rules. Nine others appeared, but indicated they did 11 not wish to make comments other than to state that 12 they were against adoption of the rules. 13 In response to the formal comments that 14 were received and further staff review, some changes 15 have been made to proposed rules to correct clerical 16 errors and to clarify and simplify the rules somewhat. 17 Again, we recommend adoption of the 18 rules. We'll be happy to answer any questions you may 19 have. 20 CHAIRMAN CLOWE: Anything to add, 21 Mr. Sanderson? 22 MR. SANDERSON: No, sir, I have 23 nothing. 24 CHAIRMAN CLOWE: Mr. Atkins? 25 MR. ATKINS: No, sir. 0016 1 CHAIRMAN CLOWE: Commissioner, there 2 are two appearance forms filed. Mr. Bresnen has filed 3 against this item, but indicates he does not wish to 4 make any testimony. And Mr. Fenoglio has filed 5 against this and I believe he wishes to speak. 6 Is that correct. 7 MR. FENOGLIO: Yes. 8 CHAIRMAN CLOWE: Please. We call on 9 you now. 10 MS. KIPLIN: And Mr. Chairman, this is 11 where, as the general counsel, I have to put on the 12 record that the comment period is over, so 13 Commission's decision whether they want to hear 14 comment, if the comment that they hear is not comment 15 that was received into the record, then the -- that 16 comment, that new comment would need to be summarized 17 and an agency response provided. And so -- 18 CHAIRMAN CLOWE: And I think 19 Mr. Fenoglio is aware of that. 20 Aren't you, Mr. Fenoglio? 21 MR. FENOGLIO: Yes, Your Honor, I -- 22 CHAIRMAN CLOWE: And can you promise to 23 stay in the record? 24 MR. FENOGLIO: I would like to stay 25 outside -- go outside the record for one comment, but 0017 1 I understand what the Commission rule is and I 2 understand it's your prerogative. 3 CHAIRMAN CLOWE: Okay. I'll ask you, 4 then, to stay in the record and to be brief, if you 5 will, so that -- this is ripe for decision making and 6 you don't want to damage that. 7 MR. FENOGLIO: Sure. You bet. With 8 that in mind, I was going to read the record so I 9 would make double sure that I stayed inside the 10 record. Unfortunately, the record is not on the 11 Commission's website, which I find a little odd, since 12 the December 19th, 2005 public comment hearing was on 13 the website, as well as the February 8th, '06 public 14 comment period -- public comment hearing was. And 15 this hearing was 11-30, so I -- my intent is to stay 16 entirely inside the record, but I don't have the 17 advantage of the transcript. 18 CHAIRMAN CLOWE: We'll appreciate your 19 effort. 20 MR. FENOGLIO: My clients believe the 21 intent, from the staff's perspective, is to be 22 punitive with the implementation of the rule. There 23 is a response that it's not, but the practice has been 24 that the staff starts out with a monetary penalty 25 first in informal negotiations. 0018 1 The comment about volunteer time -- I 2 believe every organization that conducts bingo -- and 3 I was one of the commentors to that, and I was talking 4 not only about the workers at the particular bingo 5 hall, but the volunteers who run the agencies, the 6 board members who run the agencies who are true 7 volunteers. And they are charged with, as board 8 members, ensuring that all their operations are 9 compliant with law. And that would include bingo. 10 And, again, those are good citizens who have decided 11 to step up to the plate and be volunteers, and I think 12 it's unfair, when the nature of charitable bingo, from 13 the organization's standpoint is run by, again, the 14 board of directors, which is volunteers, that you have 15 an administrative penalty rule that is remarkably 16 similar to an administrative penalty rule at other 17 agencies that is directed at for-profit organizations. 18 Finally, the 20-day period in the 19 Expedited Administrative Penalty Rule 402.707(e), and 20 I -- Mr. Cox and I have had a couple of conversations 21 about that, that it's too short. And I did introduce, 22 at the rule hearing, a time line where the staff can't 23 work within a 20-day period, yet under 402.707(e), the 24 charitable organization, including its board, has to 25 decide within a 20-day period to accept an expedited 0019 1 penalty proposal or reject it. And if it rejects it, 2 then it starts a hearing process. And I believe the 3 fair reading of the statutory provision is under 4 the -- under subchapter M of the Bingo Enabling Act 5 that it's a minimum -- there is a 20-day period, but 6 that doesn't keep -- 20-day period to do a notice and 7 a -- notice of hearing, you've got 20 days to respond, 8 but that doesn't bind the agency to have a longer 9 period of time for this nonprofit organization to 10 decide, if its board members meet monthly or 11 quarterly, for its -- to give that organization 12 additional time. 13 Those are my three overarching 14 comments. Thank you, Mr. Chairman, Commissioner Cox, 15 and I'll be happy to answer any questions. 16 And for record, my name is 17 Stephen Fenoglio. 18 CHAIRMAN CLOWE: Thank you, 19 Mr. Fenoglio. 20 Any questions, Commissioner? 21 COMMISSIONER COX: No questions, no, 22 sir. 23 CHAIRMAN CLOWE: Counselor, we have 24 received a letter from Mr. Bresnen. This was, I 25 think, received yesterday at the Commission. And I 0020 1 received an e-mail copy of it last night and I have a 2 hard copy this morning. Can this letter be made a 3 part of this record? 4 MS. KIPLIN: I would defer to 5 Ms. Joseph to be able -- and Mr. Sanderson to let me 6 know whether these comments were part of the comment 7 that was received into the -- the rulemaking record. 8 And if not, then I think it's outside the comment that 9 can be considered without having to be summarized. At 10 the same time, I think there is nothing wrong with 11 y'all reading it and then, based on where Ms. Joseph 12 and Mr. Sanderson are, you can say, well, I've read it 13 but I'm not -- not going to consider that because it 14 wasn't received during the comment period, or I've 15 read it and it's part of the comment period. 16 CHAIRMAN CLOWE: Ms. Joseph, what would 17 you say? Have you read this letter? 18 MS. JOSEPH: Yes, I have. 19 CHAIRMAN CLOWE: What is your reaction 20 to it? Is it in the record or out of the record? 21 MS. JOSEPH: I don't -- I don't believe 22 there is anything new that had not previously been 23 presented as far as pertaining to comments on the 24 rules themselves. 25 CHAIRMAN CLOWE: I thought Mr. Bresnen 0021 1 made one comment that was worthwhile, and that was the 2 request that the implementation of this procedure, 3 these rules be monitored, and that it be actually 4 evaluated in an ongoing sense so that the results 5 could be determined and it wouldn't be just, as he 6 said, put out there and forgotten about. 7 Commissioner Cox, do you have any 8 comments or questions? 9 COMMISSIONER COX: Well, as to 10 Mr. Bresnen's letter, I think the last two paragraphs 11 are -- are persuasive and helpful. And I think that 12 it's the kind of thing that we're doing. The Internal 13 Audit Department is working very closely now with the 14 bingo folks looking at just this kind of issue. So I 15 think that, in addition to the reports that we'll get 16 from the bingo folks, that we have Ms. Melvin and her 17 folks looking at that kind of thing too on an ongoing 18 basis, and so I think we will be able to do that 19 better than we've ever done it before. 20 CHAIRMAN CLOWE: And the last two 21 paragraphs cover, in your mind, the comment, I guess, 22 that I made about the monitoring and then -- what 23 would your comment be on the final paragraph? 24 COMMISSIONER COX: I think monitoring 25 and taking action on anything we observed during the 0022 1 course of the monitoring. 2 CHAIRMAN CLOWE: Okay. And if we were 3 to vote to institute this in some form or fashion, 4 would you have a schedule in mind to ask that the 5 reports come back to the Commission on a timely basis 6 in regard to the results of this? 7 COMMISSIONER COX: I think that would 8 be a good idea, and I think I would first ask 9 Catherine how she could help us set a baseline with 10 the work she's doing right now. And then how she 11 could -- how the bingo staff could monitor against 12 that baseline and Catherine could audit against that 13 baseline. 14 CHAIRMAN CLOWE: And would you come 15 forward, Ms. Melvin. 16 You've heard Commissioner Cox's comment 17 and question, inferred question, I think. And I would 18 ask you to comment on that, and are you currently or 19 about to begin an audit of the intern -- of the audit 20 function of the bingo division? Does that memory ring 21 true in my mind? 22 MS. MELVIN: Yes, sir. For the record, 23 my name is Catherine Melvin, Director of the Internal 24 Audit Division. 25 Chairman, that is exactly right. We're 0023 1 actually in the midst of a planned audit. We're 2 auditing the regulation of bingo, and more 3 specifically, we are looking at the audit function 4 within the charitable bingo division. And so I think 5 the comment that Commissioner Cox made about, could we 6 start at a baseline and then evaluate efforts moving 7 forward against this penalty chart, we certainly will. 8 My audit is set to conclude within the next month. We 9 are winding down our work, but I think we have 10 thoughts for the charitable bingo division regarding 11 their efforts in moving forward. And that certainly 12 would be one of our recommendations, is to look at the 13 monitoring of the implementation of this penalty 14 chart. I met with both folks from the bingo division 15 and legal in looking at this specific proposal, these 16 rules, and asked a lot of questions, and they were 17 very helpful in providing some background and some of 18 their analysis about how they arrived to this point. 19 So I'm comfortable in, knowing that, moving forward, 20 we would look at how this is actually implemented, how 21 it's used. I think that Mr. Bresnen makes a very good 22 comment that when you send -- when you propose a rule 23 like this or you implement a rule like this, that it's 24 not just something that's out there and forgotten, 25 that we actually look at how it's utilized and ensure 0024 1 some manner and method of consistency. 2 COMMISSIONER COX: And isn't that part 3 of the focus of your audit, that -- that there be a 4 basis for any violations, that it be clear that if 5 something was violated, that there be consistency in 6 the application of those things? 7 MS. MELVIN: Yes, sir, exactly so. 8 COMMISSIONER COX: And isn't that the 9 kind of thing that rules would be help -- written 10 rules like this would be helpful for? 11 MS. MELVIN: Yes. I mean, I just -- I 12 think the way we're approaching this audit is that 13 when you're a regulatory entity, you have a 14 fundamental responsibility to be very clear about what 15 the rules are, what the requirements are, up front. 16 That that's good for you as the person regulating the 17 business, and then for those businesses knowing what 18 they must comply against. I guess it's no different 19 than saying, hey, before I play this game, what are 20 the rules of the game. And before I sit at the table, 21 can I know what's required. 22 CHAIRMAN CLOWE: I would like to make a 23 comment about that in a general sense, Ms. Melvin, in 24 regard to the audit -- of the auditing practice. As 25 one who has been audited more than been on the 0025 1 auditing side, consistency and uniformity is key in my 2 mind to the fairness of the audit. And I have seen 3 instances in my past lives where I would be audited by 4 a State agency, and others in the same business would 5 be audited and the results would not be similar, based 6 on interpretations I perceived by the auditors of what 7 the rules were. And that's very disconcerting to a 8 member of the public, a regulatee. And I'm hoping 9 that you will focus on that in your activities of 10 auditing our auditing function so that we can achieve 11 what Commissioner Cox was pointing out, uniformity and 12 consistency, which is, as I say, is, in my mind, the 13 basis of fairness to those who are being regulated. 14 And in that sense, you've answered his question, which 15 was my question about would this help. 16 I would hope that you could -- if the 17 Commissioners vote favorably on this, and we haven't 18 discussed it, I don't think, to the extent that we're 19 ready to vote at this time. But if they do vote 20 positively on this, I think Mr. Bresnen's suggestion 21 is one that has merit, of reporting back to the 22 Commissioners the results of this, because this is 23 something new that we haven't done and it is something 24 that we want to monitor and make sure that the results 25 are what we anticipate, and that is, better auditing 0026 1 on some basis. 2 What would you think would be the kind 3 of schedule that could be achieved? And I'm going to 4 ask you and then I'm going to ask Phil or Billy, 5 whoever is appropriate, to give their opinions as 6 well. And I'm thinking every three months, every six 7 months? What -- what is your sense of that? 8 MS. MELVIN: Well, I think we're in 9 line with one another. I was thinking something 10 within a three to six-month period, myself. Yeah, we 11 wouldn't want to go too far out, I think, but you 12 would want enough time to allow for auditors to use 13 the new rule and see how it worked and that way you 14 would have some measure of how the application is 15 being handled. But, you know, I was thinking 16 something perhaps even quarterly. 17 CHAIRMAN CLOWE: Do you think you could 18 do it quarterly? 19 MS. MELVIN: Yes, I think we could. 20 CHAIRMAN CLOWE: Phil, what is your 21 thought? 22 MR. SANDERSON: Commissioner and 23 Chairman, my thought is that I think we have two or 24 three performance measures currently that deal with 25 administrative actions and administrative sanctions, 0027 1 the number of organizations that we've taken action 2 against, or initiated action against, and I believe 3 the percentage of organizations that have 4 administrative actions. So -- and we do those on a 5 quarterly basis already at the end of each fiscal 6 quarter. So we could probably have something -- you 7 know, additional information also at the same time on 8 a quarterly basis. 9 COMMISSIONER COX: Let me ask about 10 those performance measures. And, Kathy, I don't -- I 11 know you've been looking at our performance measures. 12 This may be for you. Is it good to have more? 13 MR. SANDERSON: Good to have more? 14 COMMISSIONER COX: Of these sanctions 15 applied and -- and are we -- are these performance 16 measures incentivizing in your operation to find more 17 violations? 18 MR. SANDERSON: I don't believe so. I 19 believe it's more to show exactly what our performance 20 is. And they -- they go in -- hand in hand with other 21 measures that we have about training and education. 22 And so we're hoping that by training and education, 23 those percentages do come down. 24 COMMISSIONER COX: Kathy, do you want 25 to comment on that? 0028 1 MS. PYKA: For the record, Kathy Pyka, 2 Controller for the Lottery Commission. 3 I think it is difficult when you're a 4 regulatory agency and you're looking at performance 5 measures. I think when you look at things like that, 6 you're almost policing. And in that area, I think 7 it's helpful to have those as an explanatory measure 8 so that you are not being measured on like an output 9 measure of, well, are we policing better or are we 10 policing worse, but more about, this is public 11 information about how we're doing against that pure 12 regulatory measure. So, I mean, I think when you look 13 at it, it's difficult as a regulatory agency. 14 COMMISSIONER COX: Well, I would like 15 to think that it is as Phil said, and that is, that it 16 should go down as a reflection of our educational 17 process and informing the folks and helping the folks, 18 et cetera. And yet, when I see that kind of measure, 19 I wonder if there are folks who say, gosh, that went 20 down. You're not regulating as well as you used to 21 regulate. 22 MS. PYKA: And within that regard, I 23 believe that the key there is setting an accurate 24 performance measure target. And then if it does go 25 down, ensuring that we explain clearly that negative 0029 1 performance, which would be the general description, 2 is positive for the State of Texas. We have improved 3 upon that particular performance. 4 MS. MELVIN: And, Commissioner, I would 5 like to make a comment on that. In our audit, we are 6 also looking at those performance measures and how 7 they naturally drive the functions and operations of 8 the audit section, because there is actually a number 9 of measures that I feel impact the work of the 10 auditors. But I want to say -- not having it before 11 me, I want to say, we actually have both outcome and 12 output measures related to this. And the distinction 13 is, output is just, you know, number of widgets. I 14 mean, it's just a measure of how much productivity. 15 You know, not necessarily more or less is good or bad, 16 it's just a sense of -- I think it's a sense of, you 17 know, if we fund you this amount of dollars, how much 18 work can we expect you to accomplish. So we might 19 say, well, part of that entails and -- you know, X 20 number of audits or X number of reviews. And I want 21 to say that there is such an output measure related to 22 violations, but I think there is also an outcome 23 measure where there is a standard that -- where less 24 is better. And I think it might be the number of 25 violations compared against the number of licensees, 0030 1 you know, something to that effect. 2 MR. SANDERSON: That measure is the 3 percentage of organizations that had administrative 4 sanctions. 5 MS. MELVIN: Okay. 6 MR. SANDERSON: And we have seen that 7 number decrease over the years. Prior to the operator 8 training program being implemented, and it decreased, 9 you know, fairly quickly the first couple of years, 10 and then it's kind of stayed level the last couple of 11 years. So that is an outcome measure. 12 COMMISSIONER COX: Okay. So we already 13 have some baseline information that we can monitor 14 against? 15 MS. MELVIN: Well, yes and no. I guess 16 the measure that Phil is mentioning, one thing I -- 17 we -- probably the way I might measure that is more, 18 the number that we actually reviewed compared to the 19 number that received sanctions, rather than taking it 20 as a -- as the total population of licensees against 21 those that received sanctions. Because, you know, I 22 guess you could say, well, I'll do less reviews to 23 keep my numbers low. So I think the better number 24 might be the number reviewed against the number that 25 received sanctions. 0031 1 COMMISSIONER COX: Okay. 2 CHAIRMAN CLOWE: I think you're on the 3 right track, Commissioner Cox, and I would like to add 4 that it's not a situation where we are saying, we want 5 you to write more speeding tickets, and that's a 6 measure of good performance. In fact, we hope there 7 will be less speeding tickets, if that's a proper 8 analogy, but there will be observations that will 9 indicate there isn't speeding going on. And to that 10 end, Commissioner Cox, if I may, I would like to 11 comment that I think I'm in favor of these rules and 12 these penalties. Relating back to the speeding ticket 13 example, if you get a ticket -- I'm told, I don't have 14 any personal experience about this, but -- if you get 15 a ticket, on the back of the ticket is the schedule of 16 penalties. And I just wonder, you know, how many 17 people going up and down the highway, you see breaking 18 the law, would not be doing that if they were aware of 19 that schedule of penalties. If you go 25 miles over 20 the speed limit and get a ticket, it's very, very 21 expensive. And when I was being audited by another 22 State agency, I never knew, if I was cited for a 23 violation, what the penalty would be. It was always a 24 question mark. There was no schedule like we're 25 talking about here. And I -- you know, my sense is 0032 1 that I would kind of like to try this and see if it's 2 helpful to those being regulated as well as those 3 regulators, and it creates this uniformity and 4 consistency that might be the result -- I hope would 5 be the result. So I'm inclined to vote for this and 6 to give it a try for some period of time and see how 7 it works. Then, maybe adjust it if -- if need be in 8 some way. 9 I have one problem, Commissioner Cox, I 10 would like to bring up now, if it's timely. And that 11 is, one of the points that Mr. Fenoglio made, and I 12 know it's on the record because I've been in work 13 sessions where it was discussed and it was made in the 14 comments. This 20-day response period bothers me. 15 And, you know, I just -- I think that's too brief. I 16 just wonder what it would be like -- and Ms. Joseph, 17 maybe you could comment and help me on it -- if the 18 Commission determined that they change it to 30 or 45 19 days. Does that throw a monkey wrench in the works? 20 Some of these entities I really don't think can get 21 their boards together and -- and make a decision on 22 what to do and how they're going to do it in 20 days. 23 Could you comment on that aspect of it? 24 MS. JOSEPH: Yes. Yes, sir. We have a 25 statute that says that the organization will respond 0033 1 not later than the 20th date after the date the person 2 receives the notice. So the 20 days is in the 3 statute. What we have done in the rules to provide 4 some more leeway there is to state that they'll have 5 60 days to actually pay. So what we envision is the 6 possibility that someone on the scene might have 7 authority to go ahead and, in certain circumstances as 8 determined by their board, to agree or not agree 9 within that 20 days. However, if they say, yes, we 10 accept the penalty, and after the 20 days, the board 11 gets together, prior to the time that 60 days rolls 12 around, additional 60 days, they could decide not to 13 pay. And in other words, kind of decide, no, this 14 wasn't a good decision we made up front. And what 15 would happen then is that they -- it would go into the 16 regular process, leading to a hearing. So making that 17 decision, we would hope that that could be a firm 18 decision, a good decision that the organization would 19 want to -- to keep. But if not, for some reason, 20 then -- then that deal is off, and it would go into 21 the regular process. 22 CHAIRMAN CLOWE: And you're saying the 23 20-day response period is in the Bingo Enabling Act? 24 MS. JOSEPH: Yes, sir. 25 CHAIRMAN CLOWE: Is that your 0034 1 interpretation, Mr. Fenoglio? This is a new aspect of 2 this discussion that I don't believe I've heard 3 before, although this was discussed at sessions that I 4 attended. What -- what is your reaction to 5 Ms. Joseph's statement? 6 MR. FENOGLIO: Twofold. Number one, if 7 you read the print in the rule, if they don't agree to 8 that, they have got the 60-day period, then the agency 9 has in its hammer, its hand, the big hammer that says, 10 we can impose a higher penalty on you. So on that 11 issue, there is a statutory requirement of a 20-day 12 notice that you can't change that in the rule, but the 13 real issue, where the rubber meets the road is, okay, 14 the 20-day period, there has been -- this maximum 15 notice. We're going to head down this path. The 16 charity says, we can't decide. Okay? We're going to 17 start the hearing -- we're going to start the formal 18 legislative-mandated process of going to a hearing. 19 On the 45th day, the agency gets its act together and 20 says, we accept. There is nothing that stops -- 21 precludes the agency from saying, okay, fine. We're 22 going to accept that because we -- our hearing date is 23 90 days out. You have still got plenty of time, the 24 agency hasn't incurred a lot of administrative 25 overhead during this period of time while the charity 0035 1 board is getting together, and so at that 45th or 2 46th-day period, the charity makes the decision -- and 3 my avocation is for 60 days, not 45 -- but the charity 4 makes the decision, we accept, and everything comes 5 back together and everything is fine. The way the 6 rule is drafted, though, what I believe happens is, 7 the regulator is banging on the charity, saying, it's 8 over. You have to pay the higher penalty. So 9 statutory, you can't change the 20-day, but what can 10 change is the agency's negotiation in that period of 11 time, still agreeing to hold open -- let's say, it's a 12 300 dollar penalty. Administrative penalty, we caught 13 you speeding, we don't think it's a big deal, pay 300 14 dollars. The agencies -- the charity says, we can't 15 decide if that's a good deal or not, because we can't 16 get our board together, and no one at the bingo hall 17 has the authority to agree or disagree, because in 18 addition to just paying the 300 dollar penalty, we've 19 now got a, quote, black mark on our record of 20 speeding. So we can't decide or not. We can -- and 21 by the 45th day or the 60th day we agree, everything 22 comes together, and we take the 300 dollar penalty. 23 The way the -- the way I read the staff's rule is, 24 that option is taken off the table, because now we're 25 going into a hearing process. The agency has plenty 0036 1 of legislative authority to continue that negotiation 2 process, but I don't think the rule gives -- gives the 3 Commission that luxury. I hope I answered your 4 question. 5 CHAIRMAN CLOWE: Do you understand his 6 answer? 7 COMMISSIONER COX: Well, I see 8 Ms. Joseph shaking her head. 9 CHAIRMAN CLOWE: Yeah. I think there 10 is disagreement, but do you understand Mr. Fenoglio's 11 answer? 12 COMMISSIONER COX: No, because I'm 13 not -- I don't know enough about this rule, I don't 14 think, to understand that. I would like to ask Sandy, 15 does she understand it, and should we have a concern 16 about that? 17 CHAIRMAN CLOWE: Now, before you answer 18 it, let me work on Mr. Fenoglio's answer just a little 19 bit. What I understood him to say was that he doesn't 20 agree with you. And he feels that the agency -- the 21 regulatee, the person who is cited in the violation, 22 has 20 days. And if they don't respond, then at that 23 point, they're committed to dealing with the agency in 24 what we would call a contested hearing, not being able 25 to deal with the agency under these proposed rules. 0037 1 As I understood it, your interpretation was that any 2 time during the 60-day period, if they didn't respond 3 positively during the first 20 days, they could come 4 back and respond positively and accept the offer of 5 the expedited handling, I'll call it, and go forward 6 on that basis. There is the difference, I thought, in 7 the two answers that we received. Have I perceived 8 that correctly or incorrectly? 9 MS. JOSEPH: In order to utilize the 10 expedited penalty chart per se, I believe that we are 11 requiring a -- a response within 20 days. 12 CHAIRMAN CLOWE: And we're bound by the 13 Bingo Enabling Act on that point? 14 MS. JOSEPH: Yes. However, I would 15 like to point out that if the ex -- if there is not 16 the opportunity or the -- the election to use the 17 expedited penalty chart, what that does is throw you 18 over to the standard administrative penalty chart. 19 And I would like to note that, you know, all of the 20 violations there, the penalties begin with a warning 21 on up to some certain amount as specified. So I 22 disagree with Mr. Fenoglio, when he says that, 23 necessarily, if someone did not choose the option of 24 accepting the expedited penalty that automatically, 25 there would be a higher penalty. I don't believe that 0038 1 to be, you know, set out in the rules and -- 2 CHAIRMAN CLOWE: And, Steve, did you 3 say that? Was that part of your answer? 4 MR. FENOGLIO: Yes. And that's where 5 the rubber meets the road, when the charity says, we 6 can't decide. The staff -- and this was a comment I 7 made, the staff then says, okay, we're going on the 8 other rule and we can assess penalties of up to 1,000 9 dollars. 10 COMMISSIONER COX: Okay. But let me 11 ask a question here. I'm sorry. 12 CHAIRMAN CLOWE: Go ahead. You're 13 right on. Go ahead. 14 COMMISSIONER COX: Okay. We send out a 15 notice day one that somebody has 20 days to respond 16 to. What does that notice say? 17 MS. JOSEPH: It states the nature of 18 the violation that was observed. 19 COMMISSIONER COX: Okay. 20 MS. JOSEPH: And sets out the violation 21 and the proposed expedited penalty. 22 COMMISSIONER COX: Okay. 23 MS. JOSEPH: And gives the option, I 24 guess, you know, a space to sign, do you agree to 25 accept this, or do you wish to pursue a hearing, or do 0039 1 you wish to dispute this. 2 COMMISSIONER COX: Okay. So it sets 3 out a penalty? 4 MS. JOSEPH: Yes. 5 COMMISSIONER COX: Okay. That they can 6 agree to or not agree to. Okay. Day 20 comes, they 7 say, we agree. Day 45 comes, the board meets and 8 says, we don't agree. What happens? 9 MS. JOSEPH: Then we would send out a 10 regular notice of violation, and then would proceed 11 down the path of seeing if they respond -- how they 12 respond to that and if -- it would be a combination, 13 notice of violation, an opportunity to show 14 compliance. So at that point, they would have an 15 opportunity to present their side, so to speak, 16 informally, and there could be opportunity for 17 settlement negotiations. If it was not settled, it 18 would proceed on to notice of a hearing. Be set for a 19 hearing. 20 COMMISSIONER COX: Okay. So let's go 21 back and change the facts. Let's say that we send 22 this thing out and it says, there is a penalty, and 23 some representative of the charity, but not the board 24 itself, says, no, we don't want that. And then come 25 45 or 60 days, whichever, the board meets and says, we 0040 1 do want that. Can they get it? 2 MS. JOSEPH: It would not fall under 3 the expedited penalty rule per se. However, there 4 would be, certainly, the option for the bingo -- or 5 the enforcement staff for bingo division to agree to 6 that penalty, because it would -- depending on what 7 the circumstances -- of course, you know, if we didn't 8 meet -- I can see the staff saying, we'll still accept 9 that penalty. 10 COMMISSIONER COX: You could see the 11 staff saying that, but it isn't required to, and I 12 think that's Mr. Fenoglio's point. 13 MS. JOSEPH: No, it's not required to. 14 COMMISSIONER COX: Okay. Is there 15 anything in the statute that would preclude it being 16 the way Mr. Fenoglio wants it? 17 MS. JOSEPH: I'm not positive how he 18 wants -- I'm not sure if he is wanting us to change 19 the 20 days. 20 COMMISSIONER COX: What I'm hearing him 21 saying is that this 20 days of statutory, he knows we 22 can't change that, but he would like to have some kind 23 of a second chance, between day 20 and day 60 or day 24 45, that says that the board, the official body of 25 that charity, could override the decision made by a 0041 1 person on the 25th day to -- and could go back and 2 accept the expedited penalty. 3 Is that -- did I say that right. 4 MR. FENOGLIO: You did. But there is 5 another caveat to all of this, and that's found in the 6 statute. And the -- I want to stop there and finish 7 your train of thought, Commissioner Cox. But there is 8 another factor that no one has talked about that's 9 embedded in the statute. And I can do it now or I can 10 finish your train of thought. 11 CHAIRMAN CLOWE: Let's finish this 12 train of thought. 13 MR. FENOGLIO: Yes, Commissioner Cox. 14 COMMISSIONER COX: Okay. So that -- 15 was the, yes, that there is a way to do this? 16 MR. FENOGLIO: Yes. 17 COMMISSIONER COX: Within the statute? 18 MR. FENOGLIO: Yes. 19 COMMISSIONER COX: And, Sandy, do you 20 agree? 21 CHAIRMAN CLOWE: She doesn't know what 22 it is, I don't think. 23 COMMISSIONER COX: Well, it is the 24 second chance to accept the lower penalty, or if 25 you -- the originally-offered penalty, if you will, at 0042 1 some such time as the governing body and the charity 2 meets, within 45 or 60 days, as the case may be. 3 MS. JOSEPH: That's some -- I have a 4 problem with that because the statute does say they 5 must -- you know, they may accept within 20 days. If 6 the Commission did choose to adopt something 7 different, I doubt if anybody would ever challenge it, 8 I will say that. 9 CHAIRMAN CLOWE: The problem I see 10 there, Commissioner, is that the statute says 20 days. 11 And if you get the second bite at the apple, the way 12 Sandy has described it, you would be hard pressed to 13 put that in a rule, in my mind, because it does not 14 follow the statute. And I think you would be subject 15 to challenge and to litigation on that. 16 The other side of that coin is, someone 17 would say, well, just plead guilty automatically to 18 every violation that's filed, within the 20 days, and 19 then if you don't like it within the 30 day -- the 20 90 -- the 60 days, plead not guilty. Well, I don't 21 like that, because I don't think that's the way you 22 want to do your business. 23 Do you all agree or disagree with what 24 I've laid out there? 25 MS. JOSEPH: I agree. 0043 1 CHAIRMAN CLOWE: Does that answer a 2 concern that you have? 3 COMMISSIONER COX: Yeah. I'm looking 4 at -- Mr. Chairman, if I could go down a rabbit trail 5 here, probably. I'm looking at -- this is -- Kim, 6 what am I looking at? 7 MS. KIPLIN: Commissioner Cox asked me 8 to show him the statute, and it's the Texas 9 Occupations Code 2001 point -- I believe, it's 604. 10 And y'all correct me if I'm showing the wrong -- 11 MR. FENOGLIO: Yes, that is correct. 12 That should be what he is looking at, A and B. 13 COMMISSIONER COX: Okay. A and B. Not 14 later than the 20th day after the date the person 15 receives the notice, the person may, (1), accept the 16 recommendation of the Director, including the 17 recommended administrative penalty, or make a written 18 request for a hearing on the determination. If the 19 person accepts the Director's determination, the 20 Director, by order, shall approve the determination 21 and impose the proposed penalty. 22 MS. JOSEPH: It's the phrase, "not 23 later than the 20th day," that gives me pause. 24 COMMISSIONER COX: Is there no room in 25 there to allow them to review that decision and 0044 1 possibly change it within some period of time? It 2 says -- I know it says what it says, but it doesn't 3 seem to say that they can't change it or that there 4 might not be another procedure in addition to that. 5 MR. FENOGLIO: I'll be happy to 6 respond. I know -- I know you're looking to the -- 7 your counsel. May I respond? 8 CHAIRMAN CLOWE: Sure. But Sandy has 9 already responded to that, in my opinion, by saying, 10 there is a period where they can come back within the 11 60 days, if I understood your answer to that question 12 earlier, correctly, and they can say, oh, well, the 13 board has met now, we do want to accept that. And 14 your sense of the intent is that they would be able to 15 accept it at that time. Is that what you've told us? 16 MS. JOSEPH: No. No, sir. 17 CHAIRMAN CLOWE: Okay. Correct me. 18 MS. JOSEPH: No, no. I said -- what I 19 intended to say was, I believe that if it was accepted 20 initially, and the board met and decided they did not 21 want to -- 22 CHAIRMAN CLOWE: That's right. 23 MS. JOSEPH: -- they could choose not 24 to pay the penalty. 25 CHAIRMAN CLOWE: I had it turned 0045 1 around. 2 COMMISSIONER COX: But not the reverse. 3 CHAIRMAN CLOWE: Not the reverse. And 4 that's good clarification. Thank you. 5 MR. FENOGLIO: And the problem with 6 that analysis is subparagraph B of what you just read. 7 If you accept -- and let's assume the charity accepts 8 and then they want to change their mind on the 45th 9 day. Under B, the Director, by order, shall approve. 10 Now, Commissioner Cox, jump to 201.607, which says, 11 the Director has got basically a period of time to 12 enter the order. That's Mr. Atkins. Not later than 13 the 30th day at the date on which the order becomes 14 final, the person shall, (1), pay the penalty; (2), 15 pay and file a petition for review or, without paying 16 the penalty, file a petition for judicial review 17 contesting the finding that a violation occurred, the 18 amount of the penalty, or both. Those are the 19 charity's only options as I read this subparagraph. 20 That's the problem with that 20-day window. If you 21 agree, if the charity agrees, Mr. Atkins or someone 22 acting in his stead has to enter the order. That is 23 what the statute, as I read it, says. Then the 24 charity says, on the 45th day, we've got our board 25 together, we don't agree. Under the statute, the 0046 1 charity has -- their options are extremely limited. 2 And I know Ms. Kiplin has had experience on judicial 3 review. It's a very high standard for that charity to 4 overturn that. 5 By the way, also, is -- under 6 subparagraph B of 607, within that 30-day period, you 7 can stay enforcement of the penalty by paying the 8 penalty to the court, or giving the court a 9 supersedeas bond. All of this adds cost and expense 10 to the charity. When I sit down and explain to the 11 charity -- and if I'm wrong in my analysis, I'm sure 12 Ms. Joseph will correct me -- but if I'm -- but if -- 13 when I explain all this to the charity, it's going to 14 cost several thousand dollars to file the lawsuit, 15 they're going to say, well, so we might as well just 16 pay the penalty. And from a cost-benefit analysis, 17 Commissioners, I can't argue with them on that. 18 COMMISSIONER COX: Well, what I hear 19 you saying, Mr. Fenoglio, is you don't like the 20 statute. 21 MR. FENOGLIO: I don't. Well, I don't 22 like that provision of the statute, but I think there 23 is an option in the rule that says that you -- we 24 can't change the 20-day period. The question is, if 25 the charity doesn't agree -- and by the way, there is 0047 1 another provision, 605, that says, if they don't 2 agree, this hearing process begins. Okay? So the 3 charity doesn't -- doesn't sign and indicates, we 4 would like more time, so they don't sign, and so this 5 process begins. On the back end of that, we've -- we 6 can't change that 20-day period, but on the back end 7 of that, the agency can say, you have got an 8 additional -- y'all pick the time -- to get your act 9 together, come forward. We will agree to hold this 10 open while we're continuing going down this hearing 11 process, this road. We're not going to stop, we're 12 going to keep the -- the gun to your head. The time 13 clock is ticking. We're going to -- we're going to 14 set, on that 21st day, a hearing 90 days out. I mean, 15 internally, I think that's what the staff is probably 16 going to do. They're going to pick a number. If they 17 haven't heard a response, they are going to go to the 18 State Office of Administrative Hearings and set a 19 hearing date. But what we're telling you, charity, 20 you've got an additional 25 days to get your act 21 together. The offer stays open administratively if 22 you can guys can get your act together and come back 23 within that 25-day additional period. If you don't, 24 we're still heading down this road of a hearing. 25 MS. JOSEPH: I would like to add 0048 1 something when I have a chance. 2 CHAIRMAN CLOWE: Sure. 3 MS. JOSEPH: Well, I would just like to 4 point out or mention that the primary purpose, I 5 believe, for the expedited penalty rule was to address 6 those violations that could be simply and quickly 7 addressed. And if we extend the time periods, et 8 cetera, then we haven't really accomplished anything. 9 We don't -- we don't have an expedited penalty process 10 now. This is something new that was intended to 11 benefit both the organizations and the Commission. 12 And it was -- in taking into account the fact that 13 resources for all parties could be saved if there 14 could be simple, quick agreements on certain types of 15 observable violations. So if we make the expedited 16 penalty lengthy and stretch it out a couple of months, 17 then we haven't really accomplished what we set out to 18 do with that -- with that rule. 19 CHAIRMAN CLOWE: I think that's a good 20 point. Thank you for making it. We're discussing, if 21 I understand correctly, a procedure that is 22 established by statute that we can't change. And I 23 think the point that Ms. Joseph just made is 24 important. And the further thing I would like to say, 25 and correct me if I'm wrong, is that what we're doing 0049 1 with your proposal is not changing the procedure at 2 all, simply enumerating what the penalties are. 3 MS. JOSEPH: Yes, sir. 4 CHAIRMAN CLOWE: And they haven't been 5 laid down or pointed out in the past. They've been 6 available, but they have not been codified. 7 MS. JOSEPH: Yes, sir, not in a rule. 8 It's been on a case-by-case basis through orders of 9 the Commission. 10 CHAIRMAN CLOWE: Okay. It's been 11 practice. 12 MS. JOSEPH: Yes. 13 COMMISSIONER COX: Billy, are we 14 talking about anything substantive here or is this all 15 procedural? You're going to send out that letter that 16 gives them 20 days to accept or decline the -- the 17 penalty. Is it always the case, never the case, 18 sometimes the case, that if they don't accept it, the 19 proposed penalty is going to be higher? 20 MR. ATKINS: I would not say it's been 21 in every case. Now, when you're talking about sending 22 out the notice, the practice, as I understand it, 23 that's envisioned under this rule is, there wouldn't 24 necessarily be a notice sent out through the mail. 25 The notice would be delivered at that time that the 0050 1 violation was observed. 2 COMMISSIONER COX: When an auditor is 3 out in the field, an auditor observes a violation and, 4 in effect, hands the operator a citation? 5 MR. ATKINS: Effectively. 6 COMMISSIONER COX: Ms. Melvin, that 7 sounds more like a policeman than an auditor. Have 8 you looked at that issue? 9 MS. MELVIN: Commissioner, as part of 10 my audit, I am looking at the role of the auditor, in 11 realizing that in other regulatory agencies that 12 auditors do play different roles. And, of course, one 13 of the things that I'm always concerned about when 14 looking at the role of any auditor is the sense of 15 independence that that auditor has from whatever 16 they're looking at. I haven't come to any conclusions 17 yet on that, but I do have questions about, should it 18 be the auditor that is making those assessments versus 19 recommending them, and it's actually another party 20 that makes that type of assessment. 21 COMMISSIONER COX: Do you see the 22 possibility that you may be recommending that the 23 auditor might notify the licensee that they're writing 24 up a violation, but that it would need to be reviewed 25 down here before any kind of citation, if you will, 0051 1 could be issued? 2 MS. MELVIN: Yes. 3 COMMISSIONER COX: And, Sandy, if that 4 were to happen, would that give the charity more 5 notice in that the person who was given the piece of 6 paper from the auditor said, hey, we're going to get 7 written up. And Billy, let's say, the write up takes 8 30 days before they actually get the piece of paper in 9 the hands and that would trigger the 20-day, then, 10 response period, give them 50 days in my case. Does 11 something like that make any sense? 12 MR. ATKINS: It certainly makes sense. 13 I would go back, Commissioner Cox, to what Ms. Joseph 14 said earlier and the intent of the rule and dealing 15 with these matters expeditiously. You know, what 16 we're starting to do is incrementally add pieces of 17 time to it. Is it -- is it possible? Yes, I 18 certainly think it's possible. I'm going to look to 19 Mr. Sanderson to tell me if it's not. 20 MR. SANDERSON: Yes, it is possible. 21 COMMISSIONER COX: Well, Mr. Chairman, 22 the last thing I want to do is fiddle with the 23 legislature's law. 24 CHAIRMAN CLOWE: Well, we're not going 25 to do that. That's for sure. 0052 1 COMMISSIONER COX: While I'm 2 sympathetic with the concern that Mr. Fenoglio has, 3 I'm not sure we can help him. 4 CHAIRMAN CLOWE: I think that's a 5 dilemma, certainly, that in this discussion we have 6 highlighted. I think you -- your question brought out 7 an interesting point. I would like to go back to 8 that, in that the auditor is functioning, in the 9 analogy that we've been discussing, as the policeman. 10 And, in fact, that auditor is writing a citation and 11 saying, here is the penalty, at the time of the visit. 12 And that's not, as I understand what I've heard, 13 subject to review. It just is done right then and 14 there. And that goes back to a point both 15 Commissioner Cox and I made of uniformity and 16 consistency. We need to double check on that to make 17 sure we're really on the same page in every audit. 18 COMMISSIONER COX: Exactly. And if 19 they're going to issue it right then and there, I 20 don't see how we could be. 21 MR. SANDERSON: May I offer a comment? 22 The expedited penalty rule, the violations that are -- 23 that are noted and fall under those are, for the most 24 part, sight seen violations. If you walked into the 25 bingo hall and there is not a sign posted that's 0053 1 required to be posted. It's either there or it's not 2 there. The person that is running the bingo games is 3 not an authorized operator. They are or they aren't. 4 Prizes were offered in excess of what the statutory 5 limits are. That's what the majority of these 6 violations are. 7 CHAIRMAN CLOWE: So you're saying they 8 are violations to which, in your judgment, I think -- 9 and you're bringing this up to be helpful to us, but I 10 think persuasive as well -- that there shouldn't be 11 any extenuating circumstances that could be argued. 12 Is that -- 13 MR. SANDERSON: Yes, sir. 14 CHAIRMAN CLOWE: When you said, either 15 the sign is there or it isn't there -- 16 MR. SANDERSON: Or it isn't there. 17 CHAIRMAN CLOWE: -- there is no debate 18 about whether a sign is on the wall or not. 19 MR. SANDERSON: That is correct. 20 CHAIRMAN CLOWE: And that's the sense 21 of your comment. 22 MR. SANDERSON: Yes, sir. 23 COMMISSIONER COX: Okay. So I'm am an 24 auditor and I go in to this -- I'm a new auditor, 25 brand new, and I go in the bingo hall and there is no 0054 1 sign on the wall. What do I do? 2 MR. SANDERSON: Ask the operator if 3 they have the sign. You know, it may be on the other 4 wall. 5 COMMISSIONER COX: Okay. 6 MR. SANDERSON: And so they ask them, 7 you know, do you have this sign posted? 8 COMMISSIONER COX: And they say, no, we 9 don't have a sign. 10 MR. SANDERSON: They say, we don't have 11 a sign. Well, that's a violation of the rule such and 12 such. 13 COMMISSIONER COX: Well, what do I do? 14 MR. SANDERSON: As an auditor? 15 COMMISSIONER COX: Uh-huh. 16 MR. SANDERSON: The you just fill out 17 that form that we've got, the notice of the violation, 18 that would indicate the violation, the standard 19 penalty for, you know, not having the sign, and then 20 present that to the operator. 21 COMMISSIONER COX: Okay. And how do I 22 know that the previous auditor hasn't found them 23 without a sign 70 times? 24 MR. SANDERSON: They -- the -- one of 25 the processes in the -- or the procedures in the audit 0055 1 function is to review previous history of violations 2 before they go out to these locations. 3 COMMISSIONER COX: Okay. So they will 4 know. 5 MR. SANDERSON: Yes. 6 COMMISSIONER COX: And then, given that 7 it's the 71st time, will they assess a different 8 penalty? 9 MR. SANDERSON: Well, our chart only 10 goes to -- through the third offense, so... 11 CHAIRMAN CLOWE: Presumably, yes. 12 MR. SANDERSON: That does increase -- 13 that does increase with each offense, yes, sir. 14 COMMISSIONER COX: Okay. But only up 15 to three. So after that you have maxed out. 16 MR. SANDERSON: Well, it's -- I guess 17 we did three because the rule does have a -- I guess, 18 as Mr. Fenoglio has referred to, a look-back period of 19 36 months. So if the other 60 times were five years 20 ago, then they wouldn't be considered. 21 COMMISSIONER COX: Okay. Now, you said 22 that's what happens in the majority of the cases. 23 Tell me about the minority. 24 MR. SANDERSON: Probably one of the 25 minority cases would be dealing with the operator. 0056 1 The person may be on a worker registry, they may be 2 authorized to be a worker. The organization felt like 3 that they had already filed the -- the supplemental 4 information naming this individual as an operator. We 5 didn't have it on our record. So they could -- you 6 know, at that point they could, you know, say that, 7 you know, we -- you know, we did send this in or 8 prove -- you know, show documentation that they sent 9 it in. Now, whether or not it's persuasive enough to 10 alleviate that problem, then that would be part of the 11 negotiation process. 12 CHAIRMAN CLOWE: You could -- you could 13 sort of get into a question about why that transcript 14 isn't on the website that Mr. Fenoglio was looking 15 for. It ought to be there, but it isn't. 16 MR. SANDERSON: Yes, sir. 17 CHAIRMAN CLOWE: And that is subject to 18 debate. I am not going to ask anybody why it isn't 19 there. I'm curious about it, though. 20 MS. KIPLIN: Would you like an answer? 21 Because I've been e-mailing -- 22 CHAIRMAN CLOWE: No. I don't think 23 it's germane in this. Mr. Fenoglio just mentioned it, 24 he didn't complain about it. 25 COMMISSIONER COX: Well, I'm kind of 0057 1 curious, Mr. Chairman. 2 CHAIRMAN CLOWE: Okay. Okay. 3 MS. KIPLIN: Well, I'll accept 4 responsibility. It came out of my division . It was 5 human error. It was posted under a different place, 6 as I understand it, in the Bingo Advisory Committee 7 page on -- and I asked that we go back and look at 8 that process. If there is not a checklist, create a 9 checklist and get a second reviewer. It is on the 10 agency's website. It's just not under a tab that I 11 can -- would be most convenient, to Mr. Fenoglio's 12 criticism. But at the same time, we do have it in a 13 paper format, and I'm not aware that there has been a 14 request that's been made on that. We would certainly 15 have provided it had we known, or had it been brought 16 to our attention, we certainly would have corrected 17 the errors that we made. 18 CHAIRMAN CLOWE: So it is, I think, 19 illustrative of what you were looking for, 20 Commissioner Cox. It's one of these situations where 21 it's there, but it isn't there. 22 COMMISSIONER COX: Yes. 23 CHAIRMAN CLOWE: And a -- a person who 24 is the recipient of that kind of a complaint could 25 argue that, well, I sent it in, but -- well, we got 0058 1 it, but we haven't got it in the right place. And I 2 think that's an excellent point that you make. 3 Mr. Bresnen, I think, has now changed 4 his mind. 5 MR. BRESNEN: Again. 6 CHAIRMAN CLOWE: Are you off or on 7 again? 8 MR. BRESNEN: No, I'm on. 9 CHAIRMAN CLOWE: Okay. I'm going to 10 ask you again, as we asked Mr. Fenoglio, and because 11 you're an attorney and understand, just stay within 12 the record and be brief if you will, please. 13 MR. BRESNEN: My name is Steve Bresnen. 14 I'm here on behalf of the Bingo Interest Group, and I 15 am intending to stay completely within this 20-day -- 16 this issue. 17 If you will look under -- the version 18 that I have is on page 14 of the proposed Rule 707. 19 Subsection B says, the list of statutory violations in 20 the Expedited Administrative Penalty Chart is not an 21 exclusive list of the violations that may be 22 expedited. 23 So while I agree with Phil that some of 24 the items in the list are sort of, you either see it 25 or you don't, there is either a sign posted or you 0059 1 don't, the entire Bingo Enabling Act and all of the 2 rules are subject, at the discretion of the director 3 of the division, to the expedited penalty rule. And 4 so as soon as you get past those things like, is a 5 sign -- was a sign posted or not, you're off into the 6 difficulties that I think are partially responded to 7 by this sort of suggestion that people on the scene 8 writing tickets, maybe that doesn't constitute the 9 notice. In a speeding ticket -- I happen to represent 10 some defensive driving people, so I know that the 11 ticket does constitute at least notice to appear. 12 CHAIRMAN CLOWE: And then you get ten 13 days to either plead and pay or ask for a trial. 14 MR. BRESNEN: Well, it just depends on 15 the time of notice. And that's frequently set by the 16 relationship between the officer and the JP or 17 wherever you may be going to do -- so it fits in with 18 the docket of the municipal courts or the JP. 19 CHAIRMAN CLOWE: But back to the 20 example that we've sort of run down. You get ten 21 days, that's the normal notice when you get the 22 ticket. 23 MR. BRESNEN: Well, I hate to -- I hate 24 to verify that, because -- 25 CHAIRMAN CLOWE: Well, let me 0060 1 represent -- 2 MR. BRESNEN: -- because I'm not the 3 judge. 4 CHAIRMAN CLOWE: Let me represent to 5 you that in the City of Waco, when you get a ticket -- 6 MR. BRESNEN: I was going to say, that 7 might be a McLennan County example, Mr. Chairman. 8 CHAIRMAN CLOWE: It is definitely. I 9 have some knowledge, not myself, but a close friend, 10 you get ten days. And I will represent to you that -- 11 and I think this is germane to the discussion. 12 MR. BRESNEN: Yes, sir. 13 CHAIRMAN CLOWE: You get a letter from 14 the court that is sent out on the next business day 15 with an envelope. 16 MR. BRESNEN: Yes, sir. 17 CHAIRMAN CLOWE: And so you have got 18 ten days to either plead and pay or ask for a trial. 19 MR. BRESNEN: And it's from the court. 20 And that is the critical point that I'm trying to 21 make. And here is the problem that I've seen. And 22 I -- you know, Steve handles these in the 23 administrative process. I just hear of complaints. 24 I've seen over of the years a number of times where 25 there is a boilerplate description of a violation. It 0061 1 is impossible to know from that description what the 2 specifics of the violation are. This might be true, 3 for example, about comments at -- that the quarterly 4 report failed to, you know, show some required 5 information. Well, you may not -- you may not know 6 that. And it takes some degree of time to inquire. 7 I'm suggesting that part of this problem -- it may not 8 be in this rule to be embedded in this rule, but part 9 of the problem that I've had with this rule all along 10 is that the two don't dovetail together, because it's 11 not an exclusive list. How could it be consistent if 12 you can't refer back to a -- an exclusive list. But 13 also, because of the problem of not knowing all the 14 times what the violation is. 15 I'm dealing with a very similar 16 situation over at the TABC right now, on a Standard 17 Administrative Penalty Rule that -- it gives a 18 boilerplate, failed to teach the course as required by 19 the rules. Well, in what regard? If you tell me I 20 left out section A or B, then I might could defend 21 myself against that. If I'm a board member of an 22 organization and I can go back and do some inquiry and 23 get with the other board members and know specifically 24 what I'm charged with, I have a much better -- in 25 fact, I really have noticed at that point. I question 0062 1 whether these notices frequently constitute real 2 notice. So I think if the actual notice were to be 3 issued from Austin, number one; and, number two, if 4 there was a requirement of specificity in the notice, 5 that people would have real notice, it would enable 6 them to expedite their own inquiry as to whether they 7 have actually been in violation, and give the board an 8 opportunity to make a decision one way or the other. 9 And my final comment on this is, the 10 statute authorizes you to set penalties. This 11 standard administrative penalty regimen and the 12 expedited penalty regimen are all things that are 13 created out of whole cloth and fit within this 14 statutory 20-day process. And I think it's a 15 well-established principle of law that you have 16 prosecutorial discretion to withdraw or grant the 17 agreement to a settlement or an non-settlement at just 18 about any time during the process. All they have to 19 do is notify you within 20 days that they either 20 accept the deal or they're going to go to a hearing. 21 I suggest you -- I suggest -- my advice to people 22 would be to go to a hearing every time, because that 23 would preserve their discretion, then, to go out and 24 find the answer and find -- do a reasonable inquiry. 25 These people have fiduciary duties not to just go, 0063 1 well, it's 300 bucks, I'm going to go pay it, Because 2 it affects their license. It's a cloud on their 3 license. It costs them money. So they should be 4 under a duty to inquire before they make a payment. 5 Thanks and I'm sorry I'm genetically 6 unable to sit quietly. Thanks. 7 CHAIRMAN CLOWE: I think this 8 discussion has, again, been helpful. Every time we've 9 discussed this, we've gotten additional information. 10 It seems to me that this proposal came 11 from staff as an attempt to clarify and expedite 12 penalties, make the industry more aware of what would 13 be the lesser penalties that could be dealt with in an 14 expedited way. It was an attempt on the staff's part 15 to help the industry understand what the rules of the 16 road were. As a result of so much of our discussion, 17 we have -- and I accept that concept. I am in favor 18 of that. But we have now discussed implementation 19 problems relative to our sense of timing, which I 20 think, from both your comments and mine, we both feel 21 that 20 days is pretty quick for organizations like 22 this to be able to respond. And we want an element of 23 fairness there, but we have no leeway in that regard 24 under the current rules. 25 And then additionally, we have 0064 1 determined, in discussions with Ms. Melvin, questions 2 about practices within our division that she is 3 looking into that maybe we would like to know more 4 about. 5 COMMISSIONER COX: Yes. 6 CHAIRMAN CLOWE: And for that reason, I 7 think this discussion has been very beneficial and 8 helpful. And now I'm wondering what your pleasure 9 would be about going forward with this with some 10 unanswered questions maybe before us. 11 COMMISSIONER COX: Well, it's -- I 12 think we've searched for answers to those questions 13 and we've found that they don't necessarily have 14 answers that will please everybody. 15 CHAIRMAN CLOWE: Well, that's true. 16 COMMISSIONER COX: And I have one more 17 question of Ms. Melvin. 18 Catherine, I know that you have gone 19 through these very carefully and there have been some 20 changes made a result of suggestions you have made. 21 Are there any things here that you think an auditor in 22 the field isn't qualified to write up? Are these 23 objective enough that, by golly, if you see it, you 24 saw it. Okay? And you can write it -- write down 25 what you saw, it isn't going to any better than that 0065 1 by review in Austin? 2 MS. MELVIN: Commissioner, are you 3 referring to the expedited chart or both charts? 4 COMMISSIONER COX: Yes. This chart 5 right here. 6 MS. MELVIN: The last chart, the 7 expedited -- 8 COMMISSIONER COX: The last chart, the 9 expedited penalty chart. 10 MS. MELVIN: I believe, as 11 Mr. Sanderson stated, that most of these violations 12 are black and white. And I do believe that when an 13 auditor is in the field doing compliance-type review, 14 many things are -- they are or they aren't. However, 15 having said that, I do think that there are still 16 opportunities where a licensee might have some 17 additional information, explanatory information that 18 they might wish to present, to consider. Probably the 19 one that stands out to me is the very first one, and 20 that's conducting bingo outside the licensed time. 21 That seems very straightforward. That seems very 22 black and white. But I would argue that there has 23 been -- I think even in prior Commission meetings, 24 much discussion as to what that means and from where 25 that requirement lies. 0066 1 COMMISSIONER COX: And I'm glad you 2 raised that one. That's one that -- I looked at the 3 law with one of y'all the other day, and it doesn't 4 say that they have to operate within the license time. 5 It says -- tell me -- help me, Sandy, what it says, or 6 Catherine. 7 MS. JOSEPH: Well, that -- that 8 violation, I think, stems basically from the 9 requirement that you are required to have a license to 10 conduct bingo. It's not written, you know, in these 11 words. 12 COMMISSIONER COX: Yeah. And it -- the 13 law doesn't say that. 14 MS. JOSEPH: No. It's implied. 15 COMMISSIONER COX: And it's one that 16 I'm quite concerned about, because I think that there 17 can be overriding considerations that would cause it 18 to be appropriate to operate outside a licensed time. 19 MS. JOSEPH: And I agree that there 20 certainly could be other considerations, and that's 21 why no one is required to pay these penalties. They 22 have the option of choosing not to go the expedited 23 route so that there is the full opportunity to explain 24 the circumstances, and for that to be fully looked 25 into. 0067 1 COMMISSIONER COX: Well, Mr. Fenoglio 2 says that costs a lot of money, and I suspect it does 3 cost a lot of money. And I think we heard a case last 4 month, or the month before, where 15 minutes was 5 involved. And I expect those people spent a bunch of 6 money doing just what you said, trying to establish 7 that 15 minutes was okay. But they had to go to an 8 administrative law judge and he said it was okay, and 9 then we affirmed his view that it was okay. That's a 10 lot of work for something that, to me, doesn't seem 11 like much of a violation. 12 MS. JOSEPH: Well, certainly, the 13 Commission can decide on a policy of, you know, what 14 the parameters should be. And that can be adjusted 15 according to what the Commission believes is the 16 proper interpretation and application of the law. 17 COMMISSIONER COX: Well, I don't think 18 this is probably the time to visit that one, 19 Mr. Chairman, but I think -- I would like to talk more 20 about that rule. Because I think it's arguable that 21 if the Boy Scouts don't have a representative here at 22 7:00 o'clock at night, and the Girl Scouts do, that 23 even though it wasn't the Girl Scouts' time, they were 24 able to operate and raise more money for charity. So 25 who was hurt? It was a licensed organization, and 0068 1 everything was done by the book, except for the fact 2 that they weren't licensed to operate at that time. 3 Well, why should that matter, I would argue. 4 CHAIRMAN CLOWE: Well, and I think 5 you're exactly right. We probably need to put that on 6 the agenda and hear those arguments, and it would be 7 an interesting thing to hear about. 8 COMMISSIONER COX: And, Catherine, any 9 others that you identify that are in that category? 10 Not necessarily now, but when you get your audit done, 11 I hope that you will bring our attention -- bring to 12 our attention those things that you think maybe have 13 arisen over time based on precedent, interpretation, 14 or whatever, that really don't serve the best 15 interests of the State, which are to raise money for 16 charity operating bingo. 17 MS. MELVIN: Yes, sir. Our focus for 18 this audit is the statutory -- for the purpose 19 outlined in the statute. 20 COMMISSIONER COX: Thank you, 21 Mr. Chairman. 22 CHAIRMAN CLOWE: Anything further? 23 COMMISSIONER COX: Well, I think we 24 ought to try this, but I think we ought to watch it 25 real close. 0069 1 CHAIRMAN CLOWE: I'm inclined to agree 2 with you. And it's certainly not perfect. We have 3 had a good discussion about our concerns, and I think 4 we made it clear in our deliberations that we do have 5 concerns. But my sense is, you've got to back away 6 from it and, on balance, determine whether it's good 7 enough to try, and if so, watch very closely, or say, 8 no, let's don't do it. And I fall on the side of 9 let's implement it and watch it and see how it goes, 10 and if we can improve it, we'll do it so. 11 COMMISSIONER COX: If that's a motion, 12 I will second it. 13 CHAIRMAN CLOWE: And I would make that 14 motion to take the staff's recommendation, with the 15 additional condition that we receive a report on this 16 in the public meeting every quarter. 17 And, Catherine, I will put your name on 18 that as an internal audit function to audit the 19 auditing section of the bingo division, so that we can 20 watch that. 21 MS. MELVIN: Yes, sir. 22 CHAIRMAN CLOWE: Is that acceptable? 23 COMMISSIONER COX: With it being clear 24 that you'll remain independent. That they'll prepare 25 that information and you will audit it. 0070 1 MS. KIPLIN: Mr. Chairman, can I step 2 in on your motion? Can I have a clean motion that is 3 not conditioned and then the directive to the staff on 4 the monitoring? And the motion, I'm thinking, would 5 be that you are making a motion to adopt the rules as 6 amended from that which was published in the Texas 7 Register. And I'm worried that you put a condition on 8 it, and I want to make sure I've got an order that we 9 don't have any issues with. 10 CHAIRMAN CLOWE: Well, I want to tie it 11 together. And based on your comment and your concern, 12 can we have a motion to adopt and then a motion to 13 review on a quarterly basis? 14 MS. KIPLIN: Yes, sir. 15 CHAIRMAN CLOWE: Because I would like 16 to have it on the record that the Commission, more 17 than a direction, but as a motion, wanted to hear on a 18 quarterly basis. Okay. 19 Then I move adoption of the staff 20 recommendation. 21 COMMISSIONER COX: Second. 22 CHAIRMAN CLOWE: All in favor, please 23 say, aye. The vote is two-zero. 24 Then I move that in regard to the 25 motion just adopted by the Commission that we direct 0071 1 the internal audit function to audit the audit section 2 of the Charitable Bingo Division, and report to the 3 Commission in public meeting, quarterly, as to the 4 results of this activity. 5 COMMISSIONER COX: And may I ask a 6 question clarifying that? I'm envisioning that 7 Catherine is going to be auditing some kind of 8 quarterly report that doesn't currently exist that the 9 bingo staff will be preparing. Is that consistent 10 with your motion? 11 CHAIRMAN CLOWE: Yes, sir. 12 COMMISSIONER COX: Okay. Second. 13 CHAIRMAN CLOWE: All in favor, please 14 say, aye. The vote is two-zero. Thank you all. 15 MS. JOSEPH: I have an order for your 16 signature approving adoption. 17 CHAIRMAN CLOWE: Yes. And thank you, 18 Mr. Bresnen, and Mr. Fenoglio, for your comments. 19 They have been helpful. They've been positive. And 20 it's this kind of input from industry that results in 21 a better product, in my mind, of an agency, and we 22 look forward to your continuing comments on this. You 23 have some concerns, and I think the Commission 24 expressed some concerns. And we want to work with the 25 industry to make this the best regulatory scheme 0072 1 possible. 2 MR. BRESNEN: Thank you. 3 COMMISSIONER COX: Absolutely. 4 Mr. Bresnen, the point that you made about working for 5 another agency where you were cited for a violation 6 but you didn't know why you violated or what you 7 violated, that's exactly what we don't want to happen. 8 MR. BRESNEN: Yes, sir. 9 CHAIRMAN CLOWE: We'll take a 10 ten-minute recess, please. 11 (RECESS.) 12 CHAIRMAN CLOWE: We'll come back to 13 order now and take up item number four, consideration 14 of, possible discussion and/or action relating to the 15 continuation of the Bingo Advisory Committee. 16 Billy, is there action under this item? 17 MR. ATKINS: No, sir, there is not. 18 You addressed this at your -- at the last meeting. 19 CHAIRMAN CLOWE: Very good. I thought 20 so. 21 MR. ATKINS: And Mr. -- 22 CHAIRMAN CLOWE: How about the next 23 item? 24 MR. ATKINS: Items four, five, six, 25 seven, stopping at seven, were items that you 0073 1 addressed at your last meeting. They were just put on 2 this agenda in an overabundance of caution. There is 3 no action staff is seeking at this time. 4 CHAIRMAN CLOWE: Very good. So we will 5 pass all of these items as published on the agenda and 6 go to number eight, report, possible discussion and/or 7 action on the agency's Strategic Plan for 2007 through 8 20011. Mr. Grief. Oh, he is not here and -- did we 9 cover this? 10 MR. ELROD: We have got a few updates 11 to give you. 12 CHAIRMAN CLOWE: You have some 13 material. Okay. Fine. 14 MR. ELROD: More than a few. 15 CHAIRMAN CLOWE: Good. 16 MR. GRIEF: My apologies, 17 Commissioners. 18 CHAIRMAN CLOWE: That's all right. 19 That's all right. I just wanted to make sure you had 20 something new for us under this item. 21 MR. GRIEF: Yes, sir, we do. For the 22 record, my name is Gary Grief, Deputy Executive 23 Director for the Lottery Commission. 24 And Mr. Elrod is here to give you an 25 update on our progress with the agency's strategic 0074 1 plan. 2 MR. ELROD: Good morning, 3 Commissioners. I'm Robert Elrod with the Media 4 Relations Division. 5 And I did attend the directors weekly 6 meeting yesterday to receive feedback on our first 7 draft. That feedback was very positive and helpful. 8 We also identified our next steps in the process, and 9 toward that end, we're scheduling some work sessions 10 over the next couple of weeks to help us improve the 11 document. We remain on schedule and anticipate 12 bringing you drafts in time for you to consider the 13 document over two Commission meetings in June. And 14 unless have you any questions, that concludes my 15 report. 16 COMMISSIONER COX: I don't have any 17 questions specifically about that, Mr. Chairman. 18 CHAIRMAN CLOWE: All right. Thank you, 19 Robert. 20 MR. ELROD: Thank you. 21 CHAIRMAN CLOWE: Do you have any 22 questions? 23 COMMISSIONER COX: Gary, what -- where 24 are we on the business plan as opposed to the 25 strategic plan, and how do these two processes fit 0075 1 together? 2 MR. GRIEF: They're very different, 3 Commissioner, and the business plan, I -- just late 4 last month I provided you with an update on the action 5 plans that are incorporated within the business plan. 6 We continue to monitor those on a regular basis in the 7 formal process, every six months, to determine our 8 progress, the feasibility, et cetera, of all of those 9 action plans. 10 The strategic plan is a government 11 mandated plan that we must submit that ties back to 12 our appropriations, to our performance measures, all 13 of the things that make us a part of State government. 14 The business plan is much more unique. I don't 15 believe any other agency has such a plan in place. 16 And it focuses more on what we're doing as we're 17 trying to generate revenue for the State of Texas and 18 market our products more effectively, position our 19 products more effectively, et cetera. 20 COMMISSIONER COX: Are the processes 21 well enough linked that we don't have any 22 inconsistencies one from the other? 23 MR. GRIEF: Yes, they are. 24 COMMISSIONER COX: So while we're doing 25 different things -- we're talking about different 0076 1 things here to here, we're not -- they're a different 2 set, but we're not taking different -- trying to take 3 different actions or conflicting actions. 4 MR. GRIEF: They're complementary. 5 COMMISSIONER COX: Okay. That's -- 6 thank you. That's the word I was looking for. 7 Thank you, Mr. Chairman. 8 CHAIRMAN CLOWE: Thank you. Thank you, 9 gentlemen. 10 Now, Catherine, do you have something 11 new for us this morning? 12 MS. MELVIN: I don't. 13 CHAIRMAN CLOWE: Then we will pass item 14 number nine, which involves the internal audit 15 department's activities. 16 The next item is number ten, report, 17 possible discussion and/or action on GTECH 18 Corporation. Mr. Sadberry. 19 MR. SADBERRY: Mr. Chairman. At a 20 previously Commission meeting, I provided you with a 21 status update on the proposed acquisition of the 22 lottery operator, GTECH -- of the lottery operator, 23 GTECH, by Lottomatica. I wish to inform you that 24 communications are ongoing, and the agency and the 25 parties for the proposed acquisition continue in this 0077 1 process. We have the legal services contracts under 2 which the Office of the Attorney General has approved 3 of the ongoing activities of the Graves, Dougherty law 4 firm, and that firm is proceeding in its due diligence 5 review. We continue to be an assistant in the due 6 diligence process by the Department of Public Safety. 7 At this time, subject to your questions, there are no 8 further substantive information or matters to be 9 reported to you, but I will continue to keep you both 10 advised of our progress. 11 COMMISSIONER COX: Nothing. 12 CHAIRMAN CLOWE: Thank you, sir. 13 Next is item number 11, consideration 14 of, possible discussion and/or action on the operator 15 contract -- lottery operator contract, including 16 whether the negotiation of the lottery operator's 17 contract in an open meeting would have any detrimental 18 effect on the Commission's position in regard to 19 negotiations of the lottery operator contract. 20 Mr. Sadberry, what is your pleasure on 21 this item? 22 MR. SADBERRY: Mr. Chairman, this item 23 was on the agenda at the March 29th, 2006, Commission 24 meeting, and was addressed and dealt with at that 25 time. I have nothing further at this time to report 0078 1 to you. 2 CHAIRMAN CLOWE: So you do not need to 3 discuss this with us in executive session for any 4 reason? 5 MR. SADBERRY: That is correct. 6 CHAIRMAN CLOWE: Very good. Next is 7 item 12, report, possible discussion and/or action on 8 the agency's contracts. 9 Mr. Jackson, do you have anything for 10 us this morning in this regard? 11 MR. JACKSON: No, sir, I do not. 12 CHAIRMAN CLOWE: Any questions for him 13 on any of the contracts? 14 COMMISSIONER COX: No, sir. 15 CHAIRMAN CLOWE: Thank you. 16 Next, consideration of, possible 17 discussion and/or action on the appointment and 18 employment of an Executive Director. 19 My name is there on the agenda and I 20 have no further comments, other than those I made at 21 our last meeting. 22 Commissioner Cox, do you have any 23 comments? 24 COMMISSIONER COX: No, sir. 25 CHAIRMAN CLOWE: Commissioner Cox, with 0079 1 your permission, I am ready to move that we go into 2 executive session, unless you have any other items on 3 the public agenda you want to us to cover before we do 4 that. 5 COMMISSIONER COX: No, sir. 6 CHAIRMAN CLOWE: At this time, I move 7 the Texas Lottery Commission go into executive 8 session: To deliberate the appointment, employment, 9 evaluation, and/or other duties of the Executive 10 Director, Acting Executive Director, and Deputy 11 Executive Director. 12 To deliberate the duties and 13 evaluations of the -- evaluation of the Charitable 14 Bingo Operations Director and Internal Audit Director, 15 to deliberate the duties of the General Counsel, 16 pursuant to Section 551.074 of the Texas Government 17 Code. 18 Counselor, are you going to want to 19 discuss any of these cases with us? 20 MS. KIPLIN: No, sir. 21 CHAIRMAN CLOWE: Then I'm going to 22 move, as part of this motion, to receive legal advice 23 regarding pending or contemplated litigation and/or to 24 receive legal advice pursuant to Section 551.071(1)(A) 25 or (B) of the Texas Government Code and/or to receive 0080 1 legal advice pursuant to Section 551.071(2) of the 2 Texas Government Code, including but not limited to 3 employment law, personnel law, procurement and 4 contract law, evidentiary and procedural law, Bingo 5 Enabling Act, and general government law. To 6 deliberate -- no, strike that. 7 Is there a second? 8 COMMISSIONER COX: Second. 9 CHAIRMAN CLOWE: All in favor, please 10 say, aye. The vote is two-zero. The Texas Lottery 11 Commission will go into executive session. The time 12 is 10:22 a.m. Today is April 5th, 2006. 13 (EXECUTIVE SESSION.) 14 CHAIRMAN CLOWE: The Texas Lottery 15 Commission is out of executive session. The time is 16 1:28 p.m. Today is April 5th, 2006. 17 Is there any action to be taken as a 18 result of the executive session? If not, let's move 19 on to item 16, consideration of the status and 20 possible entry of orders in cases represented by the 21 letters A through D. 22 MS. KIPLIN: Commissioners, I have 23 notified the Enforcement Chief to come over, but -- 24 and I think he is on his way, but let me just go ahead 25 and lay these out. One is an agreed -- they're all 0081 1 bingo cases. First off, one is a -- an agreed order. 2 I don't think there is anything that would be unusual 3 to report. And I'll defer to Mr. Atkins if he wants 4 to weigh in on that. The other three are contested 5 case proceedings. All three of these matters have to 6 do with the Registry of Approved Bingo Workers. There 7 are some that have to do with removal -- thank you, 8 Mr. White. 9 Mr. Chairman, do you mind if I pass the 10 baton over to Mr. White? 11 CHAIRMAN CLOWE: Not at all. 12 MR. WHITE: Good afternoon, 13 Commissioners. For the record, my name is 14 Stephen White -- 15 MS. KIPLIN: Is your mike on? 16 MR. WHITE: Thank you. Good afternoon. 17 For the record, my name is Stephen White. I'm the 18 Chief of Enforcement. 19 Under tab 16 you have four orders 20 before you, proposed orders. Actually, one is an 21 agreed order and three proposals for decision. Under 22 subtab A is an agreed order involving Cedar Creek Lake 23 Optimist Club, a bingo conductor organization. The 24 agreed order is the result of the -- not having a 25 conductor present during conducting of bingo -- excuse 0082 1 me. A bingo operator present during the conducting of 2 bingo. The agreed order calls for a 200 dollar 3 administrative penalty, and staff recommends that you 4 adopt that proposed agreed order. 5 Under subtab B, there is a proposal for 6 a decision involving a mass bingo worker hearing, 7 involving six persons who applied to be on the 8 Registry of Bingo Workers. The administrative law 9 judge recommended that you deny their applications 10 based upon disqualifying convictions. 11 Tab C is a -- was another mass bingo 12 hearing, involving 22 persons who applied to be on the 13 Worker Registry. Again, the administrative law judge 14 recommended that you not -- deny their applications 15 based upon disqualifying criminal convictions. 16 And tab D is another PFD involving 17 bingo workers who are already on the Worker Registry. 18 In that case, the administrative law judge recommended 19 that 12 people be removed from the Worker Registry, 20 based upon criminal convictions. And the staff would 21 recommend that you adopt the proposals for decision in 22 all three of those cases. 23 CHAIRMAN CLOWE: Any questions? 24 COMMISSIONER COX: I do have a 25 question, Steve. Why does this have to go to the 0083 1 administrative law judge? 2 MR. WHITE: It's been the 3 interpretation of the agency, which -- I mean, in the 4 past, that before you can remove somebody or deny an 5 application to be in the Worker Registry, you have to 6 go to hearing. Even though -- I mean, it's the way 7 the statute reads. It says, after a hearing, the 8 Commission may remove a worker or deny an application. 9 I mean, it could be a different interpretation that 10 after providing an opportunity for a hearing, we may 11 remove them, but we haven't taken that to policy 12 decision so far. It's been discussed internally that 13 maybe we can do that with or without a rule. That 14 what the statute really means is that these workers 15 are -- have an opportunity for a hearing, to request a 16 hearing. But -- if that answers your question. 17 COMMISSIONER COX: Well, the -- the 18 criteria for getting on that list are pretty 19 objective. 20 MR. WHITE: Yes, sir. 21 COMMISSIONER COX: And I'm not familiar 22 with another instance where a regulatory agency really 23 only has an investigative authority as opposed to a 24 licensing authority. Maybe I should be. 25 MS. KIPLIN: Do you mind if I chime in? 0084 1 There is a statute, and I think the -- where you're 2 coming from is, why a hearing at all. Why can't we 3 just say, look -- 4 COMMISSIONER COX: There is a 5 conviction. 6 MS. KIPLIN: -- there is a conviction. 7 That's it. You're -- you know, you're out of luck and 8 that's the end. It really has to do with basic due 9 process. And where -- where Mr. White was going was 10 the -- is due process met by notice and opportunity 11 for a hearing, or is due process met by notice and a 12 hearing. So it's -- you can never get away from, at a 13 minimum, an opportunity for a hearing. And we are 14 revisiting that issue on whether we ought take a 15 different approach, and instead of noticing these up, 16 which one could make the argument, noticing them up 17 for a hearing and having a hearing gave them the 18 opportunity for a hearing. If they didn't show, they 19 didn't show. Another interpretation -- and somebody 20 could claim that there is a denial of due process if 21 you adopt a rule that says, we're going to notice 22 this -- we're going to tell you that we're -- you have 23 been criminally -- you had a criminal conviction that 24 we believe is disqualifying, and unless you request a 25 hearing -- in other words, we put the burden on that 0085 1 person -- unless you request a hearing, then we're -- 2 we're moving forward and you're off. We're just going 3 to take you off. And there -- there could be a 4 challenge that putting the burden on somebody else to 5 request a hearing, you know, in light of what the 6 statute says, and the statute, in particular, says -- 7 if I can find it. I think it was after notice -- 8 yeah. 9 The Commission may refuse to add a 10 person's name to or remove a person's name from the 11 registry established by this section if, comma, after 12 notice and a hearing, if the person is finally 13 determined to have been convicted of an offense listed 14 under this particular provision. 15 So the -- can you just say, criminal 16 conviction, that's it, we're taking you off? No, I 17 don't think due process would be satisfied in that 18 regard. Can you say, criminal conviction, notice, 19 we're telling you right now where we're coming from, 20 and if you don't request a hearing within 30 days from 21 the receipt of this letter, then that's it? That's 22 what we're -- we're looking at right now. And if we 23 do go forward on that in saying that or that that is 24 sufficient to provide due process in terms of notice 25 and the opportunity for a hearing, then we'll, more 0086 1 likely than not, want to request the Commission to 2 consider a rule that sets it out for those people to 3 note it. 4 COMMISSIONER COX: Thank you. 5 MS. KIPLIN: Does that address the -- 6 COMMISSIONER COX: That's all I have. 7 CHAIRMAN CLOWE: I move the adoption of 8 the staff recommendation in cases represented by the 9 letters A through D. 10 COMMISSIONER COX: Second. 11 CHAIRMAN CLOWE: All in favor, please 12 say, aye. Opposed, no. The vote is two-zero. 13 Thank you, Mr. White. 14 MR. WHITE: Thank you. 15 CHAIRMAN CLOWE: Next, item 17. 16 Director Sadberry, do you have anything 17 this afternoon. 18 MR. SADBERRY: Mr. Chairman, very 19 briefly. Anthony Sadberry, acting Executive Director. 20 As you know, we had our strategy 21 meeting on March 30th, 2006. We do, again, appreciate 22 the Chairman's attendance and also to have the 23 materials provided Commissioner Cox. We'll have 24 follow up on the items that were discussed and 25 selected for the business model to be developed for 0087 1 implementation on the strategies. In addition to 2 that, Billy -- Bobby Heith and I attended the Texas 3 Publishers Association 20th annual convention here in 4 Austin. We made a brief appearance at their breakfast 5 and the initiation-of-business meeting. I offered, at 6 their invitation, a few remarks during that session, 7 and that had to do with the fact of our availability 8 as an agency to view their concerns and their comments 9 and a suggestion. This has to do with the 10 representation of their membership in the minority 11 print media and their advertising efforts in relation 12 to our advertising contract. The fact that we, of 13 course, have the RFP process working now, and we know 14 that they've raised concerns. And this was in 15 addition to the visit I had with them previously, and 16 the correspondence and communications that we've had 17 with their organization. And we'll -- we continue to 18 have that open dialogue with that group, and we will 19 make ourselves available to them. And we'll keep you 20 updated on the progress in that regard. 21 While there, we heard a presentation 22 made by Reverend Parker concerning the Texas 23 Congregations United Effort of Empowerment, Inc., 24 which is a local initiative that that group is 25 involved in. After that, Bobby and I departed. 0088 1 And as I have previously informed you, 2 I am planning to attend the LaFleur's 11th Annual 3 Lottery Symposium Program, which will be held in 4 Washington, D.C., April 9th through 11th. This 5 symposium is one that we have participated in 6 previously as an agency. This will be the first time 7 that I will attend such a symposium or program in my 8 acting capacity. I am looking forward to that, and my 9 understanding is that it will provide helpful 10 information and opportunities for us to be kept 11 abreast of the developments in areas such as on-line, 12 any new developments in integrated advertising, 13 Internet sales, and otherwise. And Bobby Heith will 14 attend the symposium with me. One of the protocols, I 15 think, is helpful for me to be accompanied by someone 16 in his capacity so that he we have the opportunity to 17 capture the full event and activities and 18 representation of the agency. However, we're also 19 mindful of the travel priorities and expenditures 20 related to same, and for that reason we are limiting 21 the list of attendees to the two of us. 22 CHAIRMAN CLOWE: Be sure and tell them 23 we still want to join Powerball. 24 MR. SADBERRY: I will have a chance to 25 do that in Washington, D.C. next week and also again 0089 1 at a Mega Millions meeting that is scheduled for May 2 in Boston. So -- 3 CHAIRMAN CLOWE: We haven't forgotten. 4 MR. SADBERRY: They know that, I think. 5 We continue to make -- my staff and 6 through Nelda's staff and their efforts, continue to 7 make me and other members of the agency available as 8 requested to attend meetings at the request of our 9 leadership, members of the legislature. And for your 10 information, at the request of Senator Mike Jackson, I 11 am scheduled to speak at the Leadership Pearland Group 12 program, which will be at the Capitol on April 13. We 13 are responsive to those invitations and requests as 14 they come in and do our best effort to continue to be 15 available, figuring that anything we can do to address 16 what the lottery is doing and how it might be a 17 positive impact to the State, and on the local levels, 18 so that there is a -- hopefully, a greater 19 appreciation to be gained from the agency's 20 standpoint, respective of our work. So we'll keep you 21 posted on these opportunities as they occur. 22 That's all I have, Mr. Chairman. 23 CHAIRMAN CLOWE: Very good. 24 Any comments. 25 COMMISSIONER COX: No, sir. 0090 1 CHAIRMAN CLOWE: Mr. Atkins, do you 2 have anything under your item to report to the 3 Commission at this time? 4 MR. ATKINS: Commissioners, just very 5 briefly. There is not a lot to update from my report 6 to you from last week. We do have one additional user 7 who is registered with the Bingo Services Center. We 8 had two additional interactive forums that are 9 currently being tested for posting to the website. 10 And also, just to give you an update. I mentioned it 11 last week. We did, on Friday, celebrate bingo's 12th 12 year of being at the Lottery Commission. Bingo 13 Division staff had the opportunity to have a luncheon 14 out in the courtyard, enjoyed fellowship, and then at 15 1:00 o'clock, we were able to invite all of the agency 16 employees to the auditorium to share in some 17 anniversary cake and snacks. 18 CHAIRMAN CLOWE: Very good. Any 19 questions? 20 Is there anyone wishing to make public 21 comment before the Commission at this time? 22 Commissioner Cox and Director Sadberry, 23 I would like to point out to you that it is about 24 1:43 p.m. and we have now concluded the agenda posted 25 for this meeting. We're ending earlier on this 0091 1 meeting than we have for a number of meetings, and I 2 hope you're satisfied with the agenda we've covered. 3 Our next meeting is scheduled for the 4 19th of this month, which is the third Wednesday, I 5 believe. I wanted to ask you both how you felt about 6 the starting time of 8:30. Is that suitable to you or 7 would you like to change it in some way, in light of 8 the two months -- two meetings per month schedule? 9 COMMISSIONER COX: Mr. Chairman, you 10 drive further than we do. I would suggest that you 11 set it when you would find it most convenient for you. 12 CHAIRMAN CLOWE: Well, thank you very 13 much. It would give me a little bit more of a comfort 14 factor if maybe we could start at 9:00. I -- it took 15 me about two and a half hours to get down here this 16 morning due to traffic, and I think I could have a 17 little more comfort factor if 9:00 a.m. suits 18 everybody. Would staff be okay with that? 19 MR. SADBERRY: I think that would be 20 fine. 21 CHAIRMAN CLOWE: Billy, are you okay 22 with that? 23 MR. ATKINS: We're going to be here 24 any, Mr. Chairman. 25 CHAIRMAN CLOWE: Well, I would hope so. 0092 1 But, you know, if we start at 9:00, and we have an 2 agenda somewhat similar to what we've had today, we 3 can finish up in time that you all can get some work 4 done, and I think that's a good thing. I don't like 5 it when it goes on until 5:00, 5:30, and you're, I 6 know, working into the night to get your day's tasks 7 accomplished. 8 So then our next meeting will be on 9 Wednesday, the 19th of April, and we will be commence 10 at 9:00 a.m. 11 Anything further to come before the 12 Commission? Thank you all. We are adjourned. 13 14 15 16 17 18 19 20 21 22 23 24 25 0093 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, BRENDA J. WRIGHT, Certified Shorthand 7 Reporter for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing 9 before the TEXAS LOTTERY COMMISSION as hereinafter set 10 out, that I did, in shorthand, report said 11 proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 Witness my hand on this the 14TH day of 16 APRIL, 2006. 17 18 19 BRENDA J. WRIGHT, RPR, 20 Texas CSR No. 1780 Expiration Date: 12-31-06 21 WRIGHT WATSON & ASSOCIATES Registration No. 225 22 Expiration Date: 12-31-07 1801 N. Lamar Boulevard 23 Mezzanine Level Austin, Texas 78701 24 (512) 474-4363 25 JOB NO. 060405BJW