0001 1 2 3 4 5 ****************************************************** 6 7 TEXAS LOTTERY COMMISSION 8 MEETING 9 10 JULY 12, 2006 11 12 13 ****************************************************** 14 15 16 17 BE IT REMEMBERED that the Texas Lottery 18 Commission meeting was held on the 12th day of July 19 2006 from 9:00 a.m. to 1:04 p.m., before David Bateman, 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 6th Street, Austin, Texas 78701, 23 whereupon the following proceedings were had: 24 25 0002 1 A P P E A R A N C E S 2 3 Chairman: 4 Mr. C. Tom Clowe, Jr. 5 6 Commissioners: 7 Mr. James A. Cox, Jr. 8 9 Executive Director: 10 Mr. Anthony Sadberry 11 12 Charitable Bingo Operations Director: 13 Mr. Billy Atkins 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 I N D E X 2 3 PAGE 4 Appearances...................................... 2 5 6 AGENDA ITEMS 7 Item Number I.................................... 5 Meeting called to order 8 Item Number II................................... 63 9 Report, possible discussion and/or action on implementation of the new Charitable Bingo 10 Administrative Penalty Guideline rules 11 Item Number III.................................. 5 Consideration of and possible discussion 12 and/or action on external and internal audits and/or reviews, including the State Auditor's 13 Office audit of Lotto Texas and/or audit of workforce management, relating to the Texas 14 Lottery Commission and/or on the Internal Audit Department's activities 15 Item Number IV................................... 65 16 Report, possible discussion and/or action on GTECH Corporation, including proposed 17 acquisition of GTECH 18 Item Number V.................................... 65 Consideration of and possible discussion 19 and/or action on the lottery operator contract, including whether the negotiation of the lottery 20 operator's contract in an open meeting would have a detrimental effect on the commission's position 21 in negotiations of the lottery operator contract 22 Item Number VI................................... 65 Report, possible discussion and/or action on 23 the procurement of advertising services 24 25 0004 1 Item Number VII.................................. 69 Report, possible discussion and/or action 2 on the agency's contracts 3 Item Number VIII................................. 71 Executive session 4 5 Item Number IX................................... 72 Return to open session 6 Item Number X.................................... 72 7 Consideration of the status and possible Entry of orders in: A. Docket No. 362-06-2051 - 8 USA Travel Center; B. Docket No. 362-06-2050 - Red Flag; C. Case No. 2006-1077 - Moore 9 Supplies, Inc. 10 Item Number XI................................... 69 Report by the executive director and/or 11 possible discussion and/or action on the agency's operational status and FTE status 12 Item Number XII.................................. 70 13 Report by Charitable Bingo Operations Director and possible discussion and/or action on the 14 Charitable Bingo Operations Division's Activities 15 Item Number XIII................................. 70 16 Public Comment 17 Item Number XIV.................................. 79 Adjournment 18 19 Reporter's Certificate........................... 80 20 21 22 23 24 25 0005 1 AGENDA ITEM NO. I 2 CHAIR CLOWE: Good morning. It's nine 3 a.m. The day is July the 12th, 2006. Commissioner Cox 4 is here. My name is Tom Clowe. 5 AGENDA ITEM NO. 3 6 CHAIR CLOWE: We'll call this meeting of 7 the Texas Lottery Commission to order and we'll go to 8 item number three on the agenda, consideration of and 9 possible discussion and/or action on external and 10 internal audits and/or reviews, including the State 11 Auditor's Office audit of Lotto Texas and/or audit of 12 workforce management relating to the Texas Lottery 13 Commission and/or the Internal Audit Department's 14 activities. 15 Ms. Melvin? 16 MS. MELVIN: Good morning, commissioners. 17 For the record, my name is Catherine Melvin, director 18 of the Internal Audit Division. 19 CHAIR CLOWE: I don't think that's on. 20 MS. MELVIN: Let me start over. 21 CHAIR CLOWE: There you are. 22 MS. MELVIN: Good morning, commissioners. 23 For the record, my name is Catherine Melvin, director 24 of the Internal Audit Division. 25 This morning I have no items of update 0006 1 regarding the Internal Audit Division activities. But 2 I am very pleased to have before you today -- I'd like 3 to introduce the state auditor, Mr. Keel. He's here 4 with members of his team to discuss two recently issued 5 State Auditor's Office reports. 6 So with that, I'll turn this over to Mr. 7 Keel. 8 CHAIR CLOWE: Mr. Keel, before you begin, 9 I would like to tell you that we're very appreciative 10 of your presence here this morning and we consider it 11 an indication of your interest in the work that your 12 staff has done for you to be here. 13 And before you make the report that -- or 14 introduction about the report that you're going to, I 15 want to say at the outset that all of the members of 16 your staff were very professional and were appreciated 17 by the staff here at the Lottery Commission. 18 We were interviewed, that is the 19 commissioners we, were interviewed by your staff 20 members. And they conducted themselves in an exemplary 21 manner. And I think it shows a credit to the staff 22 that you've built and the product that you create in 23 how they conducted their audits. 24 I'd just like to state that at the outset 25 and thank you for the good work that they've done in 0007 1 helping us with this product. 2 COMMISSIONER COX: Mr. Chairman, let me 3 say that I concur in all of that. 4 MR. KEEL: I'm John Keel. I'm the Texas 5 State Auditor. I want to thank you for those comments. 6 I'm proud of the work our staff does. I'm proud of the 7 staff. I think the quality of the work they do is very 8 good. 9 As you know, we were asked to do an audit 10 on the human resource management of the Texas Lottery 11 Commission and our own assessment, risk assessment. We 12 determined to do an audit of the Lottery Commission 13 activities. 14 One purpose of these reports we believe, 15 and I believe, is to provide information to the 16 commission, the governor and the Texas Legislature and 17 make them aware of any significant issues. 18 I also believe that the State Auditor's 19 Office has a responsibility to the public. Therefore, 20 I believe an additional purpose of these reports is to 21 provide information to the public on significant 22 issues. 23 We believe through these audits that 24 we've identified some significant findings and, in our 25 opinion, sound recommendations. Our hope and intent is 0008 1 that this information will aid and assist the Lottery 2 Commission in doing a good job. 3 We also hope that our reports and 4 findings will enhance the public's confidence in both 5 the lottery as an agency, the Lottery Commission, in 6 addition, in the games themselves. 7 I would like to introduce our staff who 8 will make the detailed presentation. And I'll remain 9 here and be available for questions at the end of their 10 presentation. 11 Mike Apperley on my right is our 12 assistant state auditor responsible for the audit of 13 the Lottery Commission. Lisa Collier is the audit 14 manager who's on Mike's right. 15 With that, I'd like them to begin the 16 Lotto activity presentation. 17 CHAIR CLOWE: Very good. 18 MR. APPERLEY: Chairman Clowe, 19 Commissioner Cox, thank you for allowing us to brief 20 you on these reports. For the record, my name is 21 Michael Apperley. I'm the assistant auditor with the 22 State Auditor's Office. 23 And I'm going to outline what our 24 objectives were on this audit and then turn it over to 25 Ms. Lisa Collier, who was the audit manager on this 0009 1 project, to give you the overall conclusions and our 2 detailed findings and recommendations. 3 Basically, the objectives of this audit 4 were to determine whether all instances in which 5 advertised jackpot amounts exceeded estimated sales 6 amounts have been identified and to determine whether 7 the jackpot prize payments and transfers to the 8 Foundation School Fund were calculated accurately and 9 in accordance with statutes, commission rules, policies 10 and procedures. 11 With that, I'll let Ms. Collier brief you 12 on the conclusion and the findings and results. 13 MS. COLLIER: Good morning, Chairman 14 Clowe and Commissioner Cox. For the record, my name is 15 Lisa Collier. I'm an audit manager with the State 16 Auditor's Office. 17 In our overall conclusion, we reported 18 that the Texas Lottery Commission has not always 19 accurately advertised Lotto Texas jackpot amounts. 20 In addition, agency management did not 21 consistently comply with policies and procedures 22 regarding the review and approval of jackpot 23 estimations, jackpot prize payments and transfers to 24 the Foundation School Fund. 25 We also determined that agency management 0010 1 could not substantiate the effective dates of these 2 policies and procedures. 3 In our work, we also determined that the 4 agency accurately calculates and pays Lotto Texas 5 jackpot prize payments and transfers to the Foundation 6 School Fund. 7 To summarize our detailed results for 8 you, we identified seven instances in which the agency 9 advertised Lotto Texas jackpot amounts that exceeded 10 estimated sales. In these instances, the advertised 11 jackpot amounts exceeded estimated sales by 12 approximately 4.4 million dollars. 13 In two other instances, the agency did 14 not have documentation enabling us to determine whether 15 the advertised amounts exceeded estimated sales. 16 Agency management did not always fulfill 17 its role in complying or addressing policies that are 18 significant to promoting accountability. We identified 19 a significant number of instances in which agency 20 management did not follow its policies to review or 21 approve documentation related to jackpot estimations, 22 jackpot prize payments or transfers to the Foundation 23 School Fund. 24 We did not identify any errors made by 25 agency staff performing this function and agency 0011 1 management has made improvements in these areas. 2 Agency management could not substantiate 3 the effective dates of policies and procedures in areas 4 such as jackpot estimations, jackpot prize payment 5 calculations and transfers to the Foundation School 6 Fund. 7 Agency management has adopted a policy 8 that addresses the preparation and implementation of 9 new policies, but it also recognizes that further 10 revision is necessary in order to clarify effective 11 games. 12 We also determined that the agency does 13 not appropriately oversee or monitor transactions that 14 are created when an online game ticket are not printed 15 at a retailer's location but the selected numbers are 16 still recorded in the contracted lottery operator's 17 computer system. 18 We refer to these transactions as 19 incomplete transactions. They can occur for a variety 20 of reasons, for example, because of a power outage. 21 Although incomplete transactions are rare 22 and none of the ones included in our review were 23 associated with a high-tier or jackpot prize, we still 24 identified issues with the agency's oversight of these 25 transactions. 0012 1 After a Lotto Texas jackpot prize winner 2 is identified, the agency accurately calculates and 3 pays jackpot prizes in accordance with rules, policies 4 and procedures. Our work in this area addressed 5 whether the agency complied with the Texas 6 Administrative Code and policies and procedures. 7 We did not review the appropriateness of 8 agency management's decisions regarding the 9 methodologies it used or whether jackpot winners were 10 over or underpaid. In the majority of the cases 11 included in our audit scope, the agency paid the 12 advertised amount. 13 Since April 5th, 2000, the agency has 14 made all jackpot prize payments in accordance with the 15 Texas Administrative Code and policies and procedures. 16 We determined that the agency used 17 inconsistent methodologies to calculate jackpot prize 18 payments between July 1st, 1997 and April 4th, 2000. 19 Based on our interpretation of the Texas 20 Administrative Code in place at that time, the agency 21 did not violate any laws because the law allowed for 22 the agency to exercise discretion in calculating the 23 jackpot prize payments. 24 Once we determined that the law allowed 25 for discretion, we then used the policies and 0013 1 procedures as criteria with the expectation that the 2 policies and procedures would clearly define the 3 process for calculating jackpot prizes. 4 Although the agency did comply with the 5 Texas Administrative Code, it did not always comply 6 with policies and procedures. For seven of 90 Lotto 7 Texas winning jackpots during this time period, the 8 agency paid the winners a percentage of sales instead 9 of the advertised amount which was required or 10 preferred by policies and procedures at the time. 11 In these seven instances, the advertised 12 amounts -- the difference between the advertised 13 amounts and the percentage of sales resulted in those 14 winners receiving an additional 4.8 million dollars. 15 We determined that the agency accurately 16 calculates and transfers proceeds from all games to the 17 Foundation School Fund. 18 We also verified that instant ticket and 19 online game sales have contributed more than eight 20 billion dollars to the Foundation School Fund since its 21 inception on September 1st, 1997. 22 We also performed some work in the area 23 of information technology. The results of this work 24 indicated that the agency does not always ensure that 25 access to certain automated systems is restricted only 0014 1 to those individuals who require access. 2 We identified weaknesses with certain 3 Microsoft Excel spreadsheets, the agency's internal 4 accounting system, and the system used by the agency to 5 maintain information on Lotto Texas winners. 6 However, we did determine that the agency 7 has properly established security access rights to the 8 uniform statewide accounting system and the automated 9 clearinghouse system it uses to make direct deposits of 10 prize payments. 11 To address these findings, we recommended 12 that the agency publish all proposed and approved 13 policies affecting Lotto Texas players in the Texas 14 Register and on its Web site, to document the effective 15 dates of all policies and procedures, to comply with 16 policies and procedures and obtain a written and signed 17 approval from the executive director for any exceptions 18 and to provide all final and approved jackpot 19 estimation worksheets to the Legislative Budget Board 20 and the governor's office and to continue publishing 21 its jackpot estimation worksheets on its Web site. 22 Chairman Clowe and Commissioner Cox, this 23 concludes our presentation on our audit on Lotto Texas. 24 We'd be glad to answer any questions you may have. 25 CHAIR CLOWE: Thank you both for your 0015 1 comments and your presentations. Before I ask 2 Commissioner Cox for his questions, I'd like to ask two 3 of my own. 4 First of all, in your work here at the 5 agency and the interface you had with the employees of 6 this staff, were all of your questions answered and 7 were people forthcoming in providing you with 8 everything you needed in order to successfully complete 9 your audit to your satisfaction? 10 MS. COLLIER: Yes, sir. 11 CHAIR CLOWE: And secondly, my 12 understanding is that management has concurred with all 13 of the recommendations you have made and is moving 14 forward with implementation of many of those and some 15 have already been achieved. 16 Is that your understanding? 17 MS. COLLIER: Yes, sir. 18 CHAIR CLOWE: Thank you. Commissioner 19 Cox, do you have some questions? 20 COMMISSIONER COX: Well, I have a comment 21 and maybe one question. 22 I'm really pleased to hear that y'all 23 have found that all of the prize payments since 2000 24 have been made in conformity with the Texas 25 Administrative Code. That has been questioned for 0016 1 years. It's been questioned when I came on this board 2 in 2002. 3 A previous internal audit had done a 4 study and had issued a report, had findings similar to 5 yours. Our present internal auditor had done a report 6 on those and had findings similar to yours. 7 And I'm very pleased that y'all concur 8 that, while everything was not as consistent as it 9 might have been, that it was in conformity with the 10 Texas Administrative Code. Thank you for that. 11 You mentioned that you found seven 12 instances in which the advertised Lotto Texas jackpot 13 exceeded the amount that would be supported by sales. 14 And I know that we have discussed -- I have discussed 15 with the three of you the table that lists those seven 16 instances. 17 And y'all pointed out and it clearly says 18 that three of those were done after we changed the 19 policy to guarantee that advertised jackpots would be 20 paid, whereas with the first four items, those were 21 improperly advertised because we couldn't have paid 22 those jackpots if they had been hit. 23 And yet in the press, I find -- this is 24 the Houston Chronicle. Months after Texas Lottery 25 officials were chastised for inflating Texas Lotto 0017 1 jackpot estimates in a scandal that cost the executive 2 director his job, the agency did it again at least 3 three more times. 4 So I want to be sure that we're all in 5 agreement that the three more times were clearly after 6 we had deliberated and changed our policy and the rules 7 such that, in those cases had those jackpots been hit, 8 we would have been required by law and permitted by law 9 to pay those jackpots as advertised. 10 Would that be consistent with your 11 understanding? 12 MR. APPERLEY: That's correct. Those 13 instances did happen after the administrative code was 14 amended to pay the higher of the sales or jackpot 15 advertised amount. 16 COMMISSIONER COX: So I'm concluding from 17 what I see here in your report and what you just told 18 me, Mike, that those were not inflated. 19 We were advertising jackpots in 20 conformity with a policy that we had approved here, 21 that is that we would start the Lotto Texas jackpot at 22 four million and we would increase it by at least a 23 million until we reached a point where it was supported 24 by sales. Then we would increase it by whatever sales 25 supported. 0018 1 We agreed also that we would monitor that 2 jackpot policy carefully to be sure that it did not put 3 the state at significant risk beyond the obvious risk 4 that was involved in advertising policies as industry 5 practice does it that aren't initially supported by 6 sales, kind of the nature of the Lotto game. 7 So Mr. Chairman, I'm glad that we were 8 able to clarify that point. 9 CHAIR CLOWE: I'd like to go into that in 10 a little more detail, if we may. 11 COMMISSIONER COX: Please. 12 CHAIR CLOWE: And Mr. Keel, you know, we 13 got to do the people's business in public. And I'd 14 like to discuss this with you and with your staff in a 15 little more detail. 16 Are you comfortable with us doing this 17 and can we get into this aspect of it? 18 MR. KEEL: Fire away. 19 CHAIR CLOWE: Okay. I agree with 20 everything that you said and am supportive to it. But 21 Commissioner Cox has asked, you know, about an issue 22 that's been raised outside of the venue of your report 23 and this commission's actions. 24 And I think we'd be chasing rabbits if we 25 tried to answer everything that was said all around 0019 1 different places. But in my mind, it's important for 2 me to have an understanding about the seven instances 3 of sales falling short of the advertised estimated 4 jackpot. 5 My nomenclature is correct in that, is it 6 not? It is an advertised estimated jackpot. 7 When we discovered that the first four 8 occurrences had taken place, it was a very serious 9 concern on behalf of the commissioners. And I 10 testified before the House Licensing Committee when 11 asked about it that, in my opinion, it was a deception. 12 And I was concerned deeply about those instances. 13 Now in my mind, the commissioners 14 addressed that. And I think there was a discussion 15 about it in our November 2005 meeting relative to the 16 openness and the fairness and the payment of the 17 advertised estimated jackpots. And the rules were 18 changed by a commissioners vote so that the higher of 19 the two would be paid. 20 Now in 2006, it's my understanding that 21 that had occurred three times and that in every case 22 the information was in the open, it was public, the 23 worksheet was posted on the Web site, it was brought 24 forward by the staff, the executive director 25 acknowledged and approved it and a commissioner 0020 1 approved it and that, if those jackpots as advertised 2 as approximate had been hit, they would have been paid. 3 So in my mind, there was no deception. 4 There was no similarity between the action that 5 occurred after the commissioners took their action -- I 6 think that was effective in November of '05 -- and what 7 occurred prior to it. 8 That is an important point and I think 9 it's the one that Commissioner Cox was raising. Am I 10 on track in what I've said? 11 MR. KEEL: Mr. Clowe, I think your 12 point's well made that you have guaranteed that you 13 would pay by rule the higher of the estimated sales of 14 the jackpot or the advertised jackpot. 15 But what we have done here and what I 16 consider to be our responsibility and due diligence is 17 we've laid out the facts. 18 CHAIR CLOWE: Right. 19 MR. KEEL: And, in fact, there were seven 20 times that jackpots were advertised that exceeded the 21 estimated sales, the estimates sales that you were 22 aware of and approved. 23 CHAIR CLOWE: Right. 24 MR. KEEL: Now you had the statutory 25 authority to do -- to make the decision and adopt the 0021 1 rule that you did. We haven't questioned that nor have 2 we reported or recommended on that issue. 3 But because of the first -- the first 4 four, it has been a public issue. It has been a public 5 question and a committee question. 6 CHAIR CLOWE: Right. 7 MR. KEEL: And when we identified the 8 four -- the additional three, we did footnote it and 9 say that this would be paid. There were two, of 10 course, we couldn't -- the documentation was inadequate 11 for us to come to a conclusion. 12 We felt a professional obligation to 13 report the facts. And these are the facts without -- 14 without -- we reported the facts on the seven jackpots 15 that were advertised that were greater than the 16 estimated sales. That is your responsibility and 17 that's your authority. We haven't questioned that. 18 I will share with you, as I have before 19 in the past, that you have your vantage point, your 20 conclusions. I believe that others could differ with 21 those with the same set of facts. 22 So what we've done here is laid out the 23 facts as we identified them in this audit. 24 CHAIR CLOWE: And I'm nodding my head in 25 agreement to exactly what you said because I think I 0022 1 agree totally with that. 2 I want to continue on, on this subject, 3 for just a little bit because there's a business issue 4 here that I think the commissioners need to review and 5 we need to bring Director Sadberry in on this 6 discussion. 7 And as you know, Mr. Keel, we have to do 8 this in the public. So we're going to -- we're going 9 to just talk about it for just a minutes if we can 10 prevail on you and your time. 11 MR. KEEL: Please do. 12 CHAIR CLOWE: Commissioner Cox, in my 13 opinion, we're in the gaming business. And the odds 14 are going to favor the house. And if they don't and 15 the house doesn't win, then the game stops. 16 And in order to have a game, you have to 17 ante. You have to start the game. And for a number of 18 years, we've been dealing with the problems of the ante 19 in Lotto Texas. And I may not be using the right terms 20 here. 21 COMMISSIONER COX: I think that's a good 22 analogy. 23 CHAIR CLOWE: Well, it may be more 24 sophisticated to use other terms. But the problem 25 we've been wrestling with is: Shall we start that game 0023 1 when the jackpot is hit at two million or four million 2 or one million? And then how many times can we assure 3 it when it rolls of at least a million and then beyond 4 that? 5 Those were the issues that we dealt with 6 last year in trying to correct what we determined was, 7 in our opinion, improper advertised estimated jackpots. 8 Now there's a sense in my mind that, 9 where possible, it's better to roll the game with a 10 million-dollar increase in the jackpot than it is to 11 leave it flat for the long-term benefit of 12 attractiveness to the players. 13 And if there is a shortfall in sales 14 relative to the estimated advertised jackpot and that 15 jackpot is hit, although on that instance the state may 16 experience a loss, the beneficial result overall will 17 be the continued attractiveness of the game. 18 And over time, I think you measure any 19 game that's offered by the state not on any one 20 individual roll or hit of the jackpot but, in our case, 21 on an annual contribution as a result of these gaming 22 operations to the Foundation School Fund. 23 And I think Mr. Keel and his staff are 24 exactly right in the facts that they've reported. And 25 there are seven instances where, in fact, estimated 0024 1 sales and sales -- I suppose were those actual sales 2 then? Were they confirmed or not? 3 Do we know in those seven instances if 4 actual sales were less? 5 MS. COLLIER: I don't know that off the 6 top of my head. 7 CHAIR CLOWE: That's a question we ought 8 to answer, just -- 9 COMMISSIONER COX: I think, Mr. Chairman, 10 that Kathy Pyka may have the answer to that. I think 11 we prepared a schedule and reviewed it. And do you 12 remember, Kathy? 13 MS. PYKA: I looked at that estimated 14 sales and it's the same data that they used. 15 CHAIR CLOWE: Kathy, you're off mike. 16 And in order to be on the record, you need to come 17 forward. 18 MS. PYKA: For the record, Kathy Pyka, 19 controller for Lottery Commission. 20 And what I did was I reviewed the same 21 data that they looked at, which was estimated sales 22 with the exception on the very first jackpot, the $4 23 million jackpot because, in that case, our previous 24 jackpot estimation would have been based on the next 25 roll. 0025 1 So in the $4 million jackpot, I went back 2 in and I did record the actual sales for that 3 particular jackpot. But we can certainly go back and 4 look at actual sales in each of these scenarios. 5 CHAIR CLOWE: It's a philosophic question 6 that I would like to hear the answer to because I think 7 what the commissioners have to do is make a business 8 decision. But philosophically, I want to get 9 comfortable with the -- the decision that I make. 10 And I'm comfortable with the decision we 11 made in '05 about the rule change and the three 12 instances that occurred in '06 because I think overall 13 it's had a beneficial result to the state. 14 And again, I say Mr. Keel and his staff 15 are exactly right in what they reported. But we're 16 ongoing in this. And we want to make sure that we're 17 continuing to make the right decision relative to those 18 lower jackpots, the rolling of the jackpot, the 19 incremental amount that it's increased, and the 20 long-term benefit to the state. 21 COMMISSIONER COX: Mr. Chairman, I will 22 say this. And I concur with you that I'd like for 23 Ms. Pyka to get that information. 24 But each Wednesday and each Friday, I 25 talk with Ms. Melvin usually by telephone about the 0026 1 jackpot that we're going to advertise. And she 2 describes to me a number of things. 3 And one of the things she describes to me 4 is how the previous draws estimate of sales compared 5 with what the actual sales were. And they are 6 remarkably close. That's one of the things that gives 7 me comfort about our process is our staff is very good 8 at estimating those sales. 9 CHAIR CLOWE: And Commissioner Cox, from 10 time to time when you've been unavailable, I've 11 received that call from Ms. Melvin. 12 COMMISSIONER COX: Yes. 13 CHAIR CLOWE: And she has done the same 14 thing for me. Now I don't want to put you on the spot, 15 but I want to learn from you. And we've got to do this 16 in the public. 17 COMMISSIONER COX: Yes. 18 CHAIR CLOWE: So every time she's called 19 me, estimated sales have been above, maybe just a 20 little bit, what the recommended advertised estimated 21 jackpot was. But apparently three cases in '06 when 22 she talked to you, it was less. 23 COMMISSIONER COX: Okay. That -- what 24 that would say -- was that a question? 25 CHAIR CLOWE: Well, I haven't gotten to 0027 1 it. 2 COMMISSIONER COX: Okay. 3 CHAIR CLOWE: Take me through your reason 4 because where I am is, if I had been faced with that 5 decision, I think I would make a judgment call on what 6 the difference was. And if I felt like it was 7 reasonable, I think I would say all right, let's roll 8 it to the next level. 9 But I want to learn from the experience 10 that you had so I can benefit from it. Can you -- can 11 you tell me your reasoning and your judgmental result 12 there? 13 COMMISSIONER COX: Yes, sir. You say 14 that in no instance that you have personally signed off 15 on were the jackpots that would have been supported by 16 sales greater than the advertised jackpots? 17 CHAIR CLOWE: No. In every case when she 18 has contacted me for my approval, estimated sales 19 exceeded the amount recommended for the estimated 20 jackpot, advertised estimated jackpot. 21 COMMISSIONER COX: Okay. So what that 22 says to me is that you haven't received that call when 23 the jackpot was under 12 or 13 million dollars. 24 CHAIR CLOWE: I think that's right. 25 COMMISSIONER COX: Okay. 0028 1 CHAIR CLOWE: I think that's right. 2 COMMISSIONER COX: So let's start at four 3 million. 4 CHAIR CLOWE: Okay. 5 COMMISSIONER COX: Okay? At four 6 million, even though we know we're going to advertise 7 four million because that is the policy that this 8 commission has approved, and even though we know that 9 it is very unlikely that the sales in the next three 10 days or four days are going to support that jackpot, 11 Catherine calls me and says we're going to advertise 12 four million. 13 And what I say to that is, well, that's 14 the policy, isn't it. Our policy is to start the 15 jackpot at four million after someone has won. And she 16 says, that's right. 17 And then I say let's advertise four 18 million. And she signs for me after the six people, 19 including her and Director Sadberry, that had 20 previously signed off approving that jackpot. 21 CHAIR CLOWE: May I ask you a question 22 then at that level? Are any of those instances, Mike, 23 included in the three in '06 that you reported on? 24 MR. APPERLEY: We looked at the fifth 25 roll, fifth and subsequent rolls. So any of the first 0029 1 four rolls we did not look at. And my understanding is 2 that none of those are supported by sales. It's been a 3 commission decision to advertise at four with a roll of 4 one million. 5 CHAIR CLOWE: That -- that's correct. 6 But, in fact, if the jackpot's hit on four million, in 7 every case -- maybe I shouldn't say in every case. In 8 most every case, sales are below four million and we 9 say we lose money. Is that not correct? 10 COMMISSIONER COX: If our greatest risks 11 and I'm going to ask -- this is a question for Kathy. 12 I believe that our greatest risk is advertising four 13 million. We would incur the greatest loss at that 14 level. 15 CHAIR CLOWE: Right. 16 COMMISSIONER COX: I believe that our 17 second greatest risk is at five million. Our third 18 greatest risk is at six million and our fourth greatest 19 risk is at seven million. 20 Kathy, do the numbers support that? 21 MS. PYKA: Yes, sir. They do. And I'm 22 looking at the most recent roll cycle which we started 23 back at four million in April of 2006. The $4 million 24 roll, the risk was 2.1 million. 25 COMMISSIONER COX: Based on what sales 0030 1 actually turned out to be? 2 MS. PYKA: Correct. And then the risk 3 declines on each of those incremental rolls, based on 4 the sales data that we were experiencing at that point 5 in time. 6 CHAIR CLOWE: And Kathy, in every 7 instance when we advertise a $4 million jackpot, do 8 sales fall short of that level? 9 MS. PYKA: Based on the history that we 10 have here, yes. 11 CHAIR CLOWE: Okay. 12 COMMISSIONER COX: So then we go to five 13 million and Catherine will tell me what sales were for 14 the four million draw. And they will be -- they will 15 not have supported. And we will know in our hearts 16 that at five million they will not support the 17 advertised jackpot either. 18 But I say it's the policy, isn't it. And 19 she says yes, it's the policy. And so she signs for me 20 then as the seventh signature on that sheet, because I 21 don't get a call until the first signatures have 22 already been made and been given to Ms. Melvin to 23 contact me, similarly with six and seven. 24 Now when we get to eight, things start to 25 get interesting because, at the $8 million level, we 0031 1 are often covering a significant portion of our 2 variable costs. 3 At the $9 million level, we typically 4 cover all of our variable costs and are into our fixed 5 costs. 6 By the $10 million level, we tend to have 7 covered all of our variable costs and all of our fixed 8 costs and be making a profit but not our full margin. 9 And right now, as we -- as Lotto 10 jackpot -- Lotto Texas sales are at this point at 11 11 million, we are covering our full margin. In other 12 words, at 11 million, we are able to pay as a 13 percentage of sales the jackpot that we're advertising. 14 Now in this roll cycle -- Kathy, correct 15 me if I'm wrong on any of this -- we broke even with 16 our full margin or we covered our full margin at 11 17 million. 18 MS. PYKA: And the last one was actually 19 at 10. The first one -- 20 COMMISSIONER COX: Okay. 21 MS. PYKA: -- was 11, the second -- 22 COMMISSIONER COX: Okay. 23 MS. PYKA: -- one at 10. 24 COMMISSIONER COX: So it's eleven in the 25 roll cycle that state auditor addressed. 0032 1 MS. PYKA: Right. 2 COMMISSIONER COX: And in our most recent 3 one, which is after the matrix change, we actually 4 covered with our full margin at 10. 5 MS. PYKA: 10. 6 COMMISSIONER COX: Mr. Chairman, this is 7 one of the things that I watch very carefully because 8 one of the charges that this commission gave the 9 agency, and I consider it my charge, is to continually 10 monitor the appropriateness of increasing by one 11 million, starting at four million and increasing by one 12 million because certainly it is possible, given that 13 Lotto Texas is a declining revenue game, that there 14 will come a time when that policy just doesn't make 15 sense. 16 And if we reach that point, I want to be 17 able to listen to Director Sadberry, who will have 18 spotted it before it gets to me, and his recommendation 19 that we need to review this policy. 20 But I would point out that, as -- or 21 amplify what Kathy said that, before the three 22 instances the state auditor has indicated here that are 23 after the November rule change, there were four others, 24 the four, five, six and seven million level where we 25 advertised jackpots that were not supported by sales. 0033 1 And Director Sadberry, what are we 2 advertising right now? Seven million? 3 MR. SADBERRY: The current? 4 COMMISSIONER COX: The current. 5 MR. SADBERRY: I'd have to defer to 6 Kathy. 7 MS. PYKA: Seven. 8 MR. SADBERRY: Seven million? 9 CHAIR CLOWE: Nobody in here can buy a 10 ticket. 11 COMMISSIONER COX: That's right. But I 12 would point out that we -- right now the last three 13 sheets that I signed off on, I signed off on 14 advertising jackpots that were not supported by sales 15 but were in conformity with our policy. 16 CHAIR CLOWE: Okay. And I want to keep 17 on this subject now because I want a full 18 understanding. 19 In the three instances that occurred 20 after we changed the rules in '06, what was the 21 difference between estimated sales and the advertised 22 estimated jackpot? Give us those numbers. 23 MS. PYKA: Starting with the first roll 24 or the first -- which would be the fifth -- roll, 25 advertised was eight million. High end of estimated 0034 1 sales was 6.9 million. 2 MR. KEEL: May I join the conversation? 3 CHAIR CLOWE: Sure, John. 4 MR. KEEL: 6.9 million mathematically 5 does not round to eight million dollars. It is a 6 mathematical error to say that it is eight million 7 dollars. 8 CHAIR CLOWE: Uh-huh. 9 MR. KEEL: Now we've reported the facts. 10 That's a fact. We've pointed out that the state I 11 believe -- the state, in fact, was at risk to pay these 12 advertised jackpots and the money would have had to 13 come from the other, both past or future sales of 14 lottery tickets. 15 CHAIR CLOWE: Correct. 16 MR. KEEL: Those are both facts. 17 COMMISSIONER COX: Absolutely. 18 MR. KEEL: Your ability statutorily to 19 set and determine policy is not being questioned by us, 20 but we have laid out the facts. And the readers and 21 the users and the public and the members of the 22 legislature can make their own determination on what 23 they believe is the best public policy. 24 CHAIR CLOWE: Absolutely. 25 COMMISSIONER COX: We agree. 0035 1 CHAIR CLOWE: Then what was the 2 difference? 3 MS. PYKA: The difference on that 4 particular advertised jackpot was a 1,809,860. 5 The sixth rolled advertised jackpot was 6 nine million. The high end of estimated sales was 7 8,214,836, the difference between 785,164. 8 The seventh roll advertised jackpot 10 9 million, high end estimated sales 9,921,297, a 10 difference of 78,703. 11 And our next roll, the eighth roll, we 12 advertised 11 million, high end estimated sales now are 13 at 11,262,290, a difference of 262,290. 14 CHAIR CLOWE: Okay. Good. I understand 15 that. 16 COMMISSIONER COX: Mr. Chairman, final 17 part of the answer to your question, after we reach the 18 point at which sales support the jackpot, we are 19 playing then a different game. 20 And what I look for there is, if we are 21 advertising 13 million, let's say, that the estimated 22 sales comfortably support 13 million. If the estimated 23 sales would support 13 million and one thousand 24 dollars, my experience had been that the recommendation 25 would be advertising still 12. 0036 1 And the place where I feel comfortable is 2 when estimated sales are at least 150 or 200 thousand 3 dollars more than the advertised amount. And I think 4 my experience, when Gary was acting executive 5 director -- and I don't know if we've had one that's 6 been that close since Anthony was in that role -- was 7 that, by the time it got to me, the decision had 8 already been made to take it to the lower level, to not 9 take the risk. 10 Once we get past the point where we're 11 making it a Lotto game by starting at four and getting 12 to one, we are very conservative in what we advertise. 13 MS. PYKA: Mr. Commissioner, in that 14 scenario, that same roll cycle we did have an instance 15 of that. Our 14th roll we advertised 19 million. The 16 high end of sales supported 20,025,231. So we elected 17 to stay with the 19. 18 CHAIR CLOWE: Anything further? 19 COMMISSIONER COX: No, sir. 20 CHAIR CLOWE: Mr. Sadberry, what would 21 you like to say to add to this conversation at this 22 point? 23 MR. SADBERRY: Well, to attempt to 24 anticipate what might be received as helpful, both to 25 the commissioners and the auditors and the public, as 0037 1 we understand those are important components of the 2 discussion, going back to, chairman, your comments 3 about when the policy I think that's being addressed 4 here was deliberated -- you and Commissioner Cox both 5 indicated that occurred. 6 We have pulled that and looked at that 7 carefully. That will be found in the transcript of the 8 meeting of the commissioners on October 31, 2005. At 9 that point, in reaction I believe to the four that's 10 been identified that were not guaranteed sales -- I was 11 not here. I'll have to make certain of my -- the 12 accuracy of my comments. 13 But my understanding is that, except for 14 the first four rolls which were guaranteed already, the 15 sales were being held constant at the $8 million level 16 and not moving forward until sales supported an 17 increase in the roll of at least a million dollars. 18 That was by practice. And what was 19 presented to you as commissioners in that meeting was 20 the experience factor that had resulted from that 21 practice as -- as it impacted sales. 22 I think Mr. Tirloni, who is here today, 23 made a presentation to you, and a general discussion on 24 the sales trend is a standing item on the agenda, and 25 indicated that a recommendation had been made to -- at 0038 1 that time, Acting Executive Director Grief to recommend 2 to the commissioners that, even at that level, let's 3 say the $8 million level when the jackpot is not 4 guaranteed and the -- up to that point in our 5 discussion, the rolling forward was being held study 6 until sales supported an increase of a million dollars, 7 that the sales had remained flat and that the results 8 were potentially detrimental to the game. 9 And certainly put the other -- in the 10 other respect, the game's potential was not being 11 realized, as far as the increase in the sales that we 12 would hope to see that would be the result of increase 13 in jackpots, which had been studied and that it had to 14 do with some of the matrix changes and other things 15 that had been done with the game. 16 So in that meeting, the October 5, 2005 17 meeting, the deliberation of the commission was whether 18 to adopt, in addition to the rule, the amendment to the 19 administrative code that guaranteed the jackpots as 20 advertised from the fifth roll forward, whether in 21 addition to that to adopt a policy that would support a 22 practice of the agency to increase the roll by one 23 million dollars at each successive jackpot estimation 24 whether or not guarantee -- whether or supported by 25 sales but, as I think Commissioner Cox has spoken to, 0039 1 have the process of the commissioner involved and the 2 oversight of the commission operate with the agency in 3 a manner that monitors the results to balance the 4 business risk, the business judgment. 5 In fact, in that -- in that meeting, 6 comments of the nature of deficit financing, the 7 business adjustment, the risk inherent in the game, 8 etcetera, were vented. 9 And so in adopting the rule to guarantee 10 the jackpots beyond the fifth -- beyond the fourth 11 roll, the policy of the commission was to also adopt a 12 practice of the agency to carry out rolling forward in 13 the $1 million increments but to have that practice 14 monitored closely and carefully by staff of the agency, 15 as well as the ultimate oversight of the commissioners 16 so that it doesn't get out of hand and work to the 17 detriment of the state. 18 That's the policy that led to the 19 practice that operated with respect to the three rolls 20 that I believe are under discussion today. 21 If it -- if you might ask what would I 22 look at, it would be what's reflected in the auditor's 23 data that, in each instance and I think Commissioner 24 Cox spoke to this as well as Ms. Pyka, the risk is 25 decreasing significantly, progressive going forward 0040 1 basis. 2 Were you to see the opposite of that, a 3 trend where it's not -- the sales are not increasing, 4 therefore, the risk is increasing or, if you see some 5 unexplained inexplicable phenomenon that needs to come 6 to the attention of the agency and the commission, the 7 safety valve is that the commissioner catches that. 8 It will be caught by the staff before 9 that point. But for whatever reason should that not 10 occur, then the ultimate catch is the commissioner does 11 not approve an estimated jackpot that is unrealistic in 12 the overall scheme of things. 13 What I would say to that, commissioners, 14 is what you did in October 2005 is exercise the 15 stewardship and the type of fiscal analysis that goes 16 with balancing the risk inherent in the game with the 17 ultimate objective, and that is to generate the maximum 18 possible contribution to the Foundation School Fund, 19 which is a result of the overall combination of all 20 these factors that go into the analysis. 21 For example, what the staff was seeing in 22 October 2005 is, if you were at eight million and you 23 are not hit and you do not roll forward, your sales 24 would not automatically go beyond the $8 million level. 25 They would possibly even decline. 0041 1 And so you might, by a decision or a 2 policy to be static and hold firm in the jackpot until 3 you're absolutely assured of covering it, you might 4 ultimately have the long-term result that less money is 5 transferred to the Foundation School Fund. 6 I think that's what basically, chairman, 7 you mentioned is the overall impact and effect of that. 8 So I believe what -- what is at play here is what 9 you're doing now. 10 And I would endorse -- the fact that it's 11 being -- it's occurring now, it's an appropriate topic 12 of discussion in view of the well laid out facts 13 contained in the auditor's report, which lays all of 14 this out, by the way, is looking to see if in 15 reflection, now that we have had the experience of a 16 roll cycle that had these -- these events included in 17 them at the five-plus roll level, if that policy in 18 retrospect is solid, should be revisited, altered, 19 changed or left in place as-is. 20 I think it's a perfect -- an appropriate 21 opportunity to do that. And that's what's occurring 22 here, as I hear. Staff has the function, the duty to 23 carry out the policies of the commission and to assist 24 the commission with respect to those policies. 25 And that's what staff has done, I would 0042 1 say in my experience, very well. And you should know 2 that the process of this occurring is very 3 collaborative and diligent process. 4 And in this occurrence, what I did is 5 collect the teams and talk, in terms of what's our 6 practice here, what is the underlying principle 7 involved, what should be the proper result, realizing 8 that that would have ultimate oversight by the 9 commission. 10 So your policy is an appropriate topic of 11 discussion, I believe. I believe that's what you're 12 doing. And the staff is here to assist. We'll carry 13 out the policies of the commission. And we'll follow 14 its directions. 15 CHAIR CLOWE: Mr. Keel, I have two other 16 questions. I'm familiar with the recommendations that 17 your staff has made and that you've made. 18 But I'm looking for, and particularly in 19 this area, the benefit of your examination and the time 20 and effort you've put into this audit. Would you or 21 any members of your staff have any suggestions for the 22 commission to consider at this time or at a later time 23 relative to this process that we've been discussing? 24 MR. KEEL: From an auditor's standpoint, 25 we'd like to see the documentation, the accurate 0043 1 documentation on a timely basis, individuals 2 responsible for making those decisions improving. 3 I think that's in the best interest of 4 the commission and the state. I think that -- that we 5 have made some sound recommendations. We've tried to 6 be very constructive with those recommendations in both 7 reports, I might add. 8 I think it will take a strong commitment 9 from the commission and from the executive director to 10 implement these and improve the overall processes 11 and -- and again, I hope to enhance the public's 12 confidence in the Lottery Commission. 13 It will take a continuing commitment in 14 the future. And I think that's an effort worthwhile 15 for all of us to make. 16 CHAIR CLOWE: And thank you for that. 17 And in that spirit, you and I spoke informally before 18 the meeting was convened about this and I'd like to ask 19 you about it again now. 20 What methodology can we employ that will 21 allow you to come back and visit with us and monitor 22 and help us in some form so that we can continue to 23 benefit from the time and effort you've put in on this 24 and keep engaged with you? 25 MR. KEEL: I think there are a couple of 0044 1 important things we can do. One is I would like our 2 staff to sit down with your staff, whoever Mr. Sadberry 3 and y'all feel appropriate, and go through every detail 4 of this report, not just the ones that were in the 5 newspaper. I think that would be helpful. 6 Our staff, the audit managers and the 7 assistant state auditors will be available upon request 8 to come back here and visit with your staff on 9 particular items. 10 We will continue to maintain our 11 independence. We're not in the consulting business. 12 But we want to make -- I will make this staff available 13 to work with your staff on implementing these on a 14 continuing basis and any other items that might come up 15 that will improve the process. 16 CHAIR CLOWE: Now that pleases me very 17 much because my sense is that there's a lot of work to 18 be done here and that it can be accomplished better, 19 more efficiently and more timely with the kind of 20 follow-up visit that you've just described. 21 And with that willingness expressed by 22 Mr. Keel, Mr. Sadberry, if you would take that up and 23 see to it that that process is initiated and that the 24 follow-through is there so that we can achieve the best 25 possible result from this audit, I think that's where 0045 1 the commissioners want it to go. 2 COMMISSIONER COX: That's where I want to 3 go. 4 MR. SADBERRY: Mr. Chairman, I can 5 certainly say it would be appropriate I would like to 6 have my concurrence to the observations already made by 7 you and Commissioner Cox concerning the collaborative 8 and working relationship between our respective staffs 9 and recognizing the independence and objectivity that 10 each must bring to the process but, by the same token, 11 that also suggests that we can work together to achieve 12 the maximum efficiency and best results in a 13 collaborative approach. 14 And that is one of the things we place 15 significance on from our agency standpoint. And, of 16 course, this audit is how we address the entire process 17 to get the best out of it, if you will, from our 18 combined resources and energies and input. 19 That's the approach we took. And that's 20 resulted, in my opinion, a very good product that's 21 going to be very helpful to the agency. And we are, 22 from the staff's standpoint, very appreciative and I'm 23 very appreciative of the staff commitment that's 24 already been made to this process that I think reflects 25 us in the best possible posture of working with the 0046 1 State Auditor's Office in mutual objectives of the best 2 lottery, the best process, the best systems that we can 3 have. 4 We are addressing these already. We 5 will -- we will give them high priority, continue to do 6 that. And this will be a tool for us to work toward 7 what we all want to see, is the best lottery we can 8 have. 9 We have the staff in place to do that. 10 From our agency standpoint, we have found that equally 11 reflected in the auditor's staff. I look forward to 12 that process. You can be assured that we will continue 13 to go forward in that spirit. 14 And I'm very positive in my estimation of 15 the results that we will see from that. 16 COMMISSIONER COX: Very good. 17 CHAIR CLOWE: Anything further? 18 COMMISSIONER COX: No, sir. 19 CHAIR CLOWE: I just want to thank you 20 both very much for the time and effort you put into 21 this. You did a great job and we're most appreciative. 22 COMMISSIONER COX: Sure are. 23 CHAIR CLOWE: I think that's Lotto Texas, 24 unless you have anything to add. 25 MR. KEEL: Not at this time. 0047 1 CHAIR CLOWE: Okay. We'll move on to the 2 second audit. 3 MR. KEEL: I have with me this morning -- 4 I have with me this morning Sandra Vice, assistant 5 state auditor. I have Ms. Chris Bailey, who is a human 6 resource expert in our office and Walt Persons, who was 7 the project manager for the human resource management. 8 As you know, we put an enormous effort 9 into this audit, in term -- including making available 10 to every single -- every single employee at the Lottery 11 Commission a unique and anonymous number so they could 12 respond to a survey instrument on our Web page. 13 So with that, I'd like to ask our staff 14 to walk through those findings and recommendations. 15 CHAIR CLOWE: Very good. 16 MS. VICE: Good morning, Chairman Clowe, 17 Commissioner Cox, Mr. Sadberry. For the record, my 18 name is Sandra Vice. I'm an assistant state auditor at 19 the Auditor's Office. 20 And we are here at your invitation to 21 present the results of the audit which we released 22 yesterday. 23 The objectives of the audit were twofold: 24 First, to determine whether the Texas Lottery 25 Commission's organizational design and human resources 0048 1 processes protect the agency from business and 2 financial risk; and second, to determine whether the 3 agency appropriately classifies employees. 4 During the audit, we also followed up on 5 prior audit findings related to workforce management. 6 At this time, I'd like to ask Mr. Persons to present 7 the findings and recommendations. 8 MR. PERSON: Good morning, Chairman 9 Clowe, Commissioner Cox. 10 Our overall conclusion from this audit 11 is -- thank you. Our overall conclusion from this 12 audit is that the Texas Lottery Commission has 13 significant weaknesses in its employee relations 14 practices, including a lack of policies and procedures 15 for employee grievances and complaints, inconsistent 16 disciplinary actions, inadequate documentation of 17 terminations and inconsistent employee performance 18 evaluations. 19 The agency has significant weaknesses in 20 its training of supervisors and its recruitment and 21 hiring of new employees. As a result, the agency has 22 not established positive work environment for all 23 levels of its employees and it is not managing the 24 potential risk that employee relations actions can pose 25 to the agency and to the state. 0049 1 I'd like to summarize four findings from 2 our report. 3 The first finding is that the agency does 4 not have formal policies and procedures in place for 5 employee complaints and grievances, including policies 6 and procedures regarding how employees should initiate 7 complaints. 8 Without a formal grievance policy, 9 employees do not know with whom to file their 10 complaint, which may increase the risk that they will 11 take the complaints and grievances outside the agency. 12 The agency also has not adopted other 13 significant employee relations policies and procedures 14 and does not consistently follow the ones it has 15 adopted. 16 The second finding that I would like to 17 discuss is that a significant proportion of the agency 18 employees do not trust management and they fear that 19 they may experience retaliation if they raise 20 significant issues, concerns or complaints. 21 This was identified in an SAO survey, 22 which indicated that many employees feel intimidated 23 and do not believe the agency handles conflict in a 24 tactful and professional manner. 25 We surveyed the agency's employees in 0050 1 February of this year and we received responses from 2 approximately 66 percent of the employees. 3 A third finding is that the commission 4 has been operating as a two-member governing board 5 since September of 2005 when the third commissioner 6 resigned. In addition, the agency has not had 7 stability in executive director position since its 8 inception in 1993. 9 As a result, the agency does not have the 10 breadth of knowledge, experience and stability that an 11 organization as large and complex as this agency could 12 have in its leadership. 13 We also found that the agency correctly 14 classified 88 percent of the 287 employment positions 15 that we reviewed. 16 To address our finding on the lack of 17 policies and procedures for employee complaints and 18 grievances, we recommend that the agency adopt an 19 employee grievance policy to ensure consistency in how 20 to address the grievances. 21 The policy should cover the initiation, 22 documentation, investigation and resolution of all 23 employee grievances, as well as communication with all 24 parties involved. 25 To address our finding on employees' lack 0051 1 of trust and fear of retaliation, we recommend that the 2 agency create an employee ombudsman position that 3 reports directly to the executive director with access 4 to members of the commission. 5 The ombudsman should ensure that the 6 agency implements the employee grievance policy. And 7 the ombudsman should also facilitate a confidential and 8 neutral process for resolving employment-related 9 concerns in a fair and equitable manner. 10 And the ombudsman should meet 11 individually with employees to address issues before 12 they become formal grievances. 13 We also recommend that the agency survey 14 employees at least every two years to determine whether 15 changes made by management are having the desired 16 effect and to identify new issues that may negatively 17 affect the workplace. 18 Chairman Clowe, Commissioner Cox, this 19 concludes my summary of the audit report. I'm happy to 20 answer any questions you have. 21 CHAIR CLOWE: I would ask the same two 22 questions that I asked on the other audit to begin 23 with. 24 First, did you get complete and full 25 cooperation from every member of the staff and all 0052 1 those that you came in contact with relative to your 2 request for information and data to help you in your 3 audit? 4 MR. PERSONS: Yes, sir. I did. 5 CHAIR CLOWE: There was no holding back 6 or anything like that? 7 And then it's my understanding that 8 management has concurred with every recommendation that 9 you have made and that many of these recommendations 10 are underway, some have been implemented but there is 11 concurrence from management and Mr. Sadberry is fully 12 prepared to go forward with everything that you've 13 recommended? 14 MR. PERSONS: Yes, sir. 15 CHAIR CLOWE: Commissioner Cox, do you 16 have a question or a comment before we call on Director 17 Sadberry? 18 COMMISSIONER COX: Well, I have a very 19 general question. 20 CHAIR CLOWE: Okay. 21 COMMISSIONER COX: Mr. Chairman, this -- 22 this report is very thorough, very professional and we 23 thank you for it. 24 I must say that I had taken some 25 confidence on some of these issues from the results of 0053 1 our Survey of Organizational Excellence that didn't 2 bear out when you got into the detail of things. 3 And maybe you can help me with the 4 difference between what the Survey of Organizational 5 Excellence might be intended to do and what it says and 6 how that was different from the work you did in your 7 audit. 8 MR. PERSONS: I'd like to defer that 9 question to Ms. Bailey, who handled our survey. 10 MS. BAILEY: For the record, my name is 11 Christine Bailey. I'm a senior classification analyst. 12 The main difference between the survey 13 that we conducted and the survey that's conducted by 14 the University of Texas, ours was very specific to 15 issues, events and topics that we identify during our 16 risk assessment process of this agency. 17 Both types of survey are obviously 18 intended to gauge opinions and feedback from employees. 19 The information of the Survey of Organizational 20 Excellence is very broad and covers a lot of topics. 21 And in many cases, I think where you were 22 seeing a discrepancy between our survey and the results 23 of UT's survey, it was the fact that most of their 24 items were rolled up into general categories. 25 If you look at the actual details of the 0054 1 information, if you look at the specific questions that 2 were related to questions that we asked in our survey, 3 we actually found a lot of similarity. 4 So they trended. So I think it's not 5 that the surveys were different. I think you probably 6 were looking at them from two different points. Survey 7 of Organizational Excellence, you were looking at a 8 much broader range and at topics that had been rolled 9 up and ours were very specific. 10 COMMISSIONER COX: So if we -- it was 11 there or some of this information was there in the 12 Survey of Organizational Excellence. But I'm -- I'm 13 thinking that, Mr. Chairman, at the level it was 14 presented to us, we didn't see it. 15 MS. BAILEY: That would be a fair 16 assessment. 17 COMMISSIONER COX: And Mr. Chairman, I'd 18 like to ask that, next time that's done, we see the 19 level of detail to where, if it's there, it jumps out 20 at us. 21 CHAIR CLOWE: Well, and I think here 22 again we need to call on the State Auditor's Office to 23 help us with that and participate in the construction 24 of the survey so that it is self-revealing and a 25 meaningful result comes from the work that's done in 0055 1 the survey. 2 And I'm not sure that I agree with every 3 two years. I -- let me ask you. I don't want to do -- 4 overdo it. But what would be wrong with surveying the 5 employees every year? Is that too much? 6 MR. KEEL: Not in my opinion. 7 CHAIR CLOWE: I like annual surveys. I 8 really do. And -- and you got 56 percent 9 participation, you said. 10 MS. BAILEY: 66. 11 CHAIR CLOWE: 66? That's pretty good 12 participation, isn't it? 13 MS. BAILEY: (Nodding) 14 CHAIR CLOWE: Okay. I'd like to call on 15 them. 16 COMMISSIONER COX: Yeah. 17 CHAIR CLOWE: Did that answer your 18 question? 19 COMMISSIONER COX: Yes, sir. 20 CHAIR CLOWE: Mr. Sadberry, did you have 21 a comment or a question? 22 MR. SADBERRY: Well, I have a comment. I 23 would again state I believe your initial observations 24 of the appreciation of the auditors that worked on the 25 Lotto Texas audit was intended to extend to this one, 0056 1 this phase as well. 2 And I would concur and share in that and 3 again state the approach that staff has taken is to, as 4 I believe I hear the tone coming from each of you, is 5 to use this process as an opportunity to end up with an 6 objective and fair and, if you will, even critical, 7 some -- that can be helpful -- product that results in 8 a working tool that we don't put on the shelf, we use 9 to go forward. 10 And as you pointed out, we have already 11 used this process to help us already have in place 12 significant implementation of suggestions. For 13 example, the personal handbook that has already been 14 adopted, you adopted the overarching guiding principles 15 at the June 28 meeting. 16 That same day I sent out an e-mail to 17 staff indicating the formal adoption of the policy, 18 which included a grievance policy and procedure, 19 complaint policy and procedure. 20 And if you have a chance to review those, 21 that even provides for opportunities for review of the 22 agency action outside the agency by objective 23 independent hearing examiners. I verified in my own 24 process that that's a first for this agency. 25 And the process of the audit helped us to 0057 1 realize potential that we can gain from having the 2 implementation of those types of measures. 3 And in like manner, the ombudsman and 4 other recommendations that we wholeheartedly endorse 5 and embrace in the letter and the spirit of this report 6 will be used for the overall objective that we hope 7 will be reflected, we expect to be reflected, in the 8 survey and not only that, in just the general culture 9 that's experienced in the agency, of improvement. 10 And that's the -- that's the objective we 11 have, improvement. By that, I mean in the -- in the 12 general workplace both in reality and perception, which 13 are both equally important to us. 14 I believe we're well on the way and this 15 report and the working relationship that is a function 16 of no doubt will head us, has already headed us in the 17 right direction. 18 Again, I in my own mind are very positive 19 what we will get from this. It's very helpful. It's 20 very timely for this to occur. 21 And so commissioners, I say to you that 22 the combination of these audits will move us in a good 23 direction. And we accept it in good spirit and 24 appreciate the objectivity, the thoroughness and 25 professionalism and the fairness we believe in which it 0058 1 is presented to us. 2 And we will in like manner not hesitate 3 to call upon the offers for extended assistance on an 4 objective basis that is available to us. So again, 5 this is helpful to us. 6 CHAIR CLOWE: Mr. Keel, I want to thank 7 you and your staff again for this audit. I see this in 8 a little different light than the audit that we just 9 discussed about Lotto Texas. 10 To me, that is more certain. It is facts 11 and figures. It is a record. It is business decisions 12 and some judgmental calls. And I -- I see that as a 13 separate issue. This audit to me is one that involves 14 the culture of this agency, the greatest asset that we 15 have, which is our people. 16 And I can't thank you enough for the 17 indepth recommendations that you have taken the time to 18 give us. And I can assure you that Anthony Sadberry is 19 going to be the standard bearer for what is a culture 20 change here that you are recommending. 21 I've known him for a number of years, 22 served with him on this board. And we are very, very 23 fortunate to have him in the role of executive 24 director. And he has done more than I ever anticipated 25 in the way of improving the work environment here and 0059 1 achieving the culture change than I ever imagined that 2 he would when he came on board. 3 It doesn't happen overnight. You can ask 4 people to change and trust me, but you have to earn 5 their trust and you have to demonstrate change in order 6 to receive that confidence that comes over a period of 7 time. 8 Now that doesn't mean that it's going to 9 be all fun and games to work at the Lottery Commission. 10 You know, everybody won't be able to do everything they 11 want to every day. We have rules. We have discipline. 12 We must produce. We have requirements. 13 But dignity and respect are what I think 14 has been lacking and what you have reported to us is 15 lacking. And you can work and produce and follow the 16 rules and receive dignity and respect and have a very 17 positive work environment involving fairness and 18 equities to employees. 19 And that's the charge that the commission 20 has given Anthony Sadberry. And I'm very confident 21 that he will achieve that over a period of time. 22 I would like to tell you that you 23 mentioned a couple of things in your audit that I think 24 come to the commissioners and go beyond Anthony's 25 scope. And one of them you mentioned was this empty 0060 1 chair. 2 And I want you to know that I have 3 fulfilled my responsibility and that I have been to the 4 appointments department or office of the governor and I 5 have reminded them that this chair is empty. And they 6 have told me they are dealing with that issue. And so 7 I want you to know that I've done a thing that I think 8 you told me I should do. 9 I would also tell you that I told them 10 I've been in this chair for eight years. And I also 11 recommended that you would make a fine chairman based 12 on your experience and knowledge. You know, I don't 13 miss an opportunity. You gave me one, so I took 14 advantage of it. 15 I also commented on the cap on the 16 executive director's pay of 115 thousand dollars, which 17 you mentioned in your audit. And you were right on 18 target. We're very fortunate to have Director Sadberry 19 at that level. We're getting more than that out of 20 him. But my hope is that we'll get some legislative 21 relief on that, which is what we need. 22 There are a number of people in this 23 agency that make more money than he makes. And there's 24 the issue of internal equity. And when you have a 25 capped position, that's all you can do with it. But 0061 1 you certainly don't hold down others because of that 2 cap. 3 But I think the comments you made was 4 spot-on about the turnover in executive directors. 5 Where longevity is a benefit in a situation like this 6 in establishing a culture, it's -- it's very disruptive 7 when you don't have the kind of stability that we 8 haven't had in this agency relative to the executive 9 director's position. 10 And that doesn't mean that anybody has a 11 life-long commitment. But we're talking about good 12 performance. 13 So I wanted to tell you where I thought 14 you were focusing as some suggestions for the 15 commission, the board itself, that action has been 16 moved ahead. 17 I can't thank you enough. I think it's 18 an excellent piece of work. We're going to follow it. 19 We're going to work on the changes. We have that 20 commitment from Director Sadberry. 21 And again, Mr. Keel, we want to come back 22 to you and to have meetings with your staff and have 23 the help. We've identified one thing on the employee 24 survey. Maybe there will be some other items where you 25 can help us and we can benefit from the work that 0062 1 you've done here. 2 Anything further? 3 COMMISSIONER COX: Yes, sir. The 4 observation that y'all made that we have experienced 5 instability at the executive director level has been my 6 life here. I came here in 2002. 7 Shortly after that, the executive 8 director resigned in less than favorable circumstance. 9 We had an acting executive director. We had a new 10 executive director who resigned last year in an 11 unfavorable circumstance. We had an acting executive 12 director, another acting executive director and finally 13 Director Sadberry as our new executive director. 14 That's not only tough for the agency. 15 That's tough for the commissioners because it causes us 16 to step into roles sometimes and assume 17 responsibilities sometimes that we don't want to assume 18 and weren't intended to assume. 19 The day Director Sadberry walked into 20 this place, he indicated a commitment to fairness here. 21 And everything I have seen since then says that that is 22 more than lip service, that he is totally in everything 23 he does committed to fairness. 24 And what I read, if I were to summarize 25 your report in one word, is we need to be more fair. 0063 1 So I think we're on the right track. And I want to 2 thank you for helping us get on that track. 3 CHAIR CLOWE: Mr. Keel, do you have 4 anything to add? 5 MR. KEEL: I think you have a lot of 6 talented employees at the Lottery Commission. I think 7 that the recommendations we made will improve the 8 environment for the employees. I realize that our 9 report recognizes that they are at-will employees. 10 Based on some of my experience with state 11 government, I can tell you the most important word in 12 that is employee. They're your employee. They deserve 13 your support and your fairness. 14 I appreciate the kind of comments you 15 made and look forward to working with you. 16 CHAIR CLOWE: Thank you very much. 17 COMMISSIONER COX: Thank you very much. 18 CHAIR CLOWE: We'll be recessed for 10 19 minutes. 20 (Recess from 10:19 a.m. to 10:31 a.m.) 21 AGENDA ITEM NO. II 22 CHAIR CLOWE: We'll come back to order. 23 We'll go to item number two on the agenda: Report, 24 possible discussion and/or action on the implementation 25 of the new Charitable Bingo Administrative Penalty 0064 1 Guideline rules. 2 Mr. Atkins? 3 MR. ATKINS: Thank you, commissioners. 4 There are just a few items that we wanted to update you 5 on relating to the implementation of the expedited 6 administrative penalty rule. 7 In addition to the various notifications 8 to licensees that I reported to you at your June 7th 9 meeting, we've finalized letters to all licensees that 10 is scheduled to be mailed out on or before July 13th. 11 Division staff have completed their 12 review of changes to new and existing procedures and 13 forms. These items have also been submitted to other 14 divisions for their comments. However, I understand 15 that as of June 29th we have not received comment on 16 these items. 17 Internal staff training as it relates to 18 the expedited administrative penalty rules is currently 19 scheduled for the week of July 24th. 20 Finally, we've been working with 21 Information Resources staff on the changes needed to 22 our internal operating systems. They have received the 23 detailed requirements needed to begin the programming 24 process for the ACDS. 25 Their plan is for user acceptance testing 0065 1 to occur simultaneously with the development of 2 individual -- I'm sorry -- as the development of 3 individual modules are completed. 4 Our staff met with agency staff on July 5 6th also to discuss modifications to the CAMP system. 6 And our intern -- our Information Resources staff 7 estimates three weeks for development, which should be 8 close to our scheduled August implementation date. 9 I'd be happy to answer any questions you 10 may have. 11 CHAIR CLOWE: Thank you, sir. 12 AGENDA ITEM NOS. IV AND V 13 CHAIR CLOWE: Mr. Sadberry, do you have 14 anything relative to item number four or five on the 15 agenda? 16 MR. SADBERRY: I do not, chairman. 17 CHAIR CLOWE: Pass those items. Item 18 number six, report -- is that all right with you, 19 commissioner? 20 COMMISSIONER COX: Of course. 21 AGENDA ITEM NO. VI 22 CHAIR CLOWE: Then item number six: 23 Report, possible discussion and/or action on the 24 procurement of advertising services. 25 Mr. Jackson? 0066 1 MR. JACKSON: Good morning, 2 commissioners. For the record, my name is Tom Jackson. 3 I'm the purchasing and contracts manager for the 4 agency. 5 Commissioners, this morning I have an 6 update on the status of the advertising RFP that was 7 issued on February 16th, 2006. The evaluation 8 committee completed their assignment and provided a 9 written recommendation to executive. 10 Executive has reviewed the recommendation 11 and approved the naming of DDB Dallas and the Cultura 12 Group as the apparent successful proposer. Anthony 13 Sadberry appointed a committee of lottery staff to 14 begin negotiations with representatives of the two 15 groups and to negotiate a single contract for general 16 and minority market advertising services. 17 I'd be happy to answer any questions. 18 COMMISSIONER COX: Okay. I heard you say 19 DDB and Cultura. Those are the two agencies we're 20 presently using. 21 MR. JACKSON: That's correct. 22 COMMISSIONER COX: And I heard you say a 23 single contract. 24 MR. JACKSON: That's correct. 25 COMMISSIONER COX: That would be 0067 1 different from the present setup, wouldn't it? 2 MR. JACKSON: That's correct. 3 COMMISSIONER COX: And was the single 4 contract a recommendation of the University of Texas 5 when they came in and looked at this with us? 6 MR. JACKSON: I don't believe they made 7 that recommendation at first. They -- they wrote the 8 report. They were directly involved with the 9 evaluation committee in looking at all RFP proposals. 10 And their final recommendation, yes, was 11 a single contract. 12 COMMISSIONER COX: Okay. You indicated, 13 I think, that the UT folks were involved in the RFP 14 process as well. 15 MR. JACKSON: That's correct. 16 COMMISSIONER COX: Could you tell me a 17 little bit about what their involvement was? 18 MR. JACKSON: They -- we hired them as 19 consultants for the entire project -- 20 COMMISSIONER COX: All right. 21 MR. JACKSON: -- to work with us on the 22 drafting of the RFP. 23 COMMISSIONER COX: This was Dr. Neil 24 Burns. 25 MR. JACKSON: Dr. Neil Burns, correct. 0068 1 And then at a later date they brought on two more 2 consultants to help them with the process. 3 COMMISSIONER COX: And those two were 4 related to the minority advertising if I remember 5 right. 6 MR. JACKSON: Yes. 7 COMMISSIONER COX: Okay. 8 MR. JACKSON: And they were involved in 9 the process -- evaluation process, as well, provided 10 their recommendations, their comments. They were 11 involved very closely with the entire process. 12 Initially they issued a report, phase one 13 of the project, that made the recommendations, as far 14 as the way we do the RFP. Once again, they assisted in 15 the drafting of it and then in the evaluation process. 16 COMMISSIONER COX: Mr. Chairman, I think 17 this is an excellent example of our using the agency's 18 general expertise and contracting and supplementing it 19 with specialized expertise as needed. I think it -- 20 I'm very pleased with this process. 21 CHAIR CLOWE: Very good. Anything 22 further? 23 COMMISSIONER COX: No, sir. 24 CHAIR CLOWE: Thank you, Mr. Jackson. 25 AGENDA ITEM NO. VII 0069 1 CHAIR CLOWE: You have the next item 2 number eight -- sorry -- number seven: Report, 3 possible discussion or action on the agency's 4 contracts. 5 MR. JACKSON: Yes, sir. Once again, my 6 name is Tom Jackson. 7 In your notebooks under agenda item 8 number seven is an update of the report, a spreadsheet 9 on a prime contract. I would be happy to answer any 10 questions you may have with that report. 11 CHAIR CLOWE: No questions. Thank you, 12 sir. 13 AGENDA ITEM NO. X 14 CHAIR CLOWE: Next item 10, consideration 15 of status and possible entry of orders in Dockets 16 represented by the letters A, B and C. 17 Ms. Joseph? She's not here. 18 AGENDA ITEM NO. XI 19 CHAIR CLOWE: We'll go next to item 11, 20 report by the acting executive director and/or 21 possible -- well, that's the executive director. 22 COMMISSIONER COX: Absolutely. 23 CHAIR CLOWE: And/or possible discussion 24 and/or action on the agency's operational status and 25 FTE status. 0070 1 Mr. Sadberry? 2 MR. SADBERRY: Commissioners, there are 3 materials in your notebooks for your review regarding 4 status of positions as of July 5, 2006. 5 Other than this, I have nothing further. 6 CHAIR CLOWE: Thank you, sir. 7 AGENDA ITEM NO. XII 8 CHAIR CLOWE: Next item 12, report by the 9 Charitable Bingo Operations director and possible 10 discussion and/or action on the Charitable Bingo 11 Operations Division's activities. 12 Mr. Atkins? 13 MR. ATKINS: Commissioners, I have 14 nothing to add to what's included in the notebook but 15 would be happy to answer any question. 16 CHAIR CLOWE: Thank you, Mr. Atkins. 17 AGENDA ITEM NO. XIII 18 CHAIR CLOWE: Is there anyone wishing to 19 make public comment to the commission? 20 We will defer the item 10 that I called 21 until after executive session. 22 Commissioner Cox, with your permission 23 I'm going to move that we go into executive session at 24 this time. 25 COMMISSIONER COX: Yes, sir. 0071 1 AGENDA ITEM NO. XIII 2 CHAIR CLOWE: I move the commission meet 3 in executive session to deliberate the duties and 4 evaluations of the executive director and/or deputy 5 executive director pursuant to Section 551.074 of the 6 Texas Government Code, to deliberate the duties and 7 evaluation of the Internal Audit director pursuant to 8 Section 551.074 of the Texas Government Code, to 9 deliberate the duties and evaluation of the Charitable 10 Bingo Operations director pursuant to Section 551.074 11 of the Texas Government Code, to deliberate the duties 12 of the general counsel pursuant to Section 551.074 of 13 the Texas Government Code, to receive legal advice 14 regarding pending or contemplated litigation and/or to 15 receive legal advice pursuant to Section 551.071(1)(A) 16 or (B) of the Texas Government Code and/or to receive 17 legal advice pursuant to Section 551.071(2) of the 18 Texas Government Code, including but not limited to 19 Cynthia Suarez versus Texas Lottery Commission, Shelton 20 Charles versus Texas Lottery -- Texas Lottery and Gary 21 Grief, Stephen Martin versus Texas Lottery Commission, 22 employment law, personnel law, procurement law, 23 contract law, evidentiary and procedural law, general 24 government law. 25 Is there a second? 0072 1 COMMISSIONER COX: Second. 2 CHAIR CLOWE: All in favor, please say 3 aye. 4 COMMISSIONER COX: Aye. 5 CHAIR CLOWE: Aye. 6 The vote is two-zero. 7 The time is 10:39 a.m. Today is July the 8 12th, 2006. 9 (Executive Session from 10:40 a.m. to 10 12:55 p.m.) 11 AGENDA ITEM NO. IX 12 CHAIR CLOWE: We will come back to order. 13 The commission is out of executive session. It is 14 12:55 p.m. 15 Is there any action to be taken as a 16 result of executive session? 17 AGENDA ITEM NO. X 18 CHAIR CLOWE: If not, we will return to 19 item 10: Consideration of status and possible entry of 20 orders in dockets represented by the letters A, B and 21 C. 22 Ms. Joseph? 23 MS. JOSEPH: Thank you, chairman. For 24 the record, my name is Sandy Joseph, assistant general 25 counsel. 0073 1 Item A concerns USA Travel Center, Inc., 2 license number 141692. SOAH Judge James Norman has 3 issued a proposal for decision recommending that the 4 commission revoke lottery sales agent license number 5 141692 issued to USA Travel Center, Inc. doing business 6 as USA Travel Center of Dallas. 7 The licensee did not appear at the 8 hearing that was conducted on May 11, 2006. Judge 9 Norman found that the licensee failed to have 10 sufficient funds available to cover an electronic 11 transfer of funds to the commission's account on five 12 occasions and owed the commission a total of $5,060.74 13 for the sale of lottery tickets. 14 The licensee did not file exceptions to 15 the proposal for decision. I recommend that you sign 16 the order adopting the findings of fact and conclusions 17 of law in revoking the license issued to USA Travel 18 Center. 19 CHAIR CLOWE: Move the adoption of the 20 staff recommendations. 21 COMMISSIONER COX: Second. 22 CHAIR CLOWE: All in favor, please say 23 aye. 24 COMMISSIONER COX: Aye. 25 CHAIR CLOWE: Aye. 0074 1 The vote is two-zero in favor. 2 MS. JOSEPH: Item B is a similar case 3 concerning Rickey Phally Nop, agent doing business as 4 Red Flag, license number 141575. SOAH Judge James 5 Norman likewise issued a proposal for decision 6 recommending that the commission revoke lottery sales 7 agent license number 141575. 8 The licensee did not appear at the 9 hearing that was conducted on May 11th, 2006. Judge 10 Norman found that the licensee failed to have 11 sufficient funds available to cover electronic transfer 12 of funds to the commission's account on four occasions 13 and owed the commission a total of $12,260.14 for the 14 sale of lottery tickets. 15 The licensee did not file exceptions to 16 the proposal for decision. And again I recommend that 17 you sign the order adopting the findings and 18 conclusions in revoking the license issued to Rickey 19 Phally Nop. 20 COMMISSIONER COX: So move. 21 CHAIR CLOWE: Second. 22 All in favor, please say aye. 23 COMMISSIONER COX: Aye. 24 CHAIR CLOWE: Aye. 25 The vote is two-zero in favor. 0075 1 MS. JOSEPH: Item C concerns the matter 2 of Moore Supplies, Inc. This matter had previously 3 been presented to you and was -- you asked that it be 4 returned for further consideration. 5 Amy Tabor, attorney for Moore Supplies, 6 has requested by letter that this case be rescheduled 7 for the commission meeting scheduled for August 2nd due 8 to the fact that she is in trial this week and cannot 9 travel outside of Houston until that case has resolved. 10 In addition, Danny Moore is out of the 11 state until later this month. I recommend that her 12 request to postpone consideration of this be granted. 13 CHAIR CLOWE: Is there objection? 14 COMMISSIONER COX: No, sir. 15 CHAIR CLOWE: Pass. We'll sign the 16 orders. 17 COMMISSIONER COX: Mr. Chairman, I have a 18 couple of questions. 19 CHAIR CLOWE: Yes, sir? 20 COMMISSIONER COX: These are general 21 questions. I don't know whether they're for Ms. Joseph 22 or Director Sadberry. 23 I think I asked it the last meeting. Is 24 it possible, in these open-and-shut cases where they've 25 got four different NS -- or four different occasions 0076 1 where we've tried to pull the money out of their 2 account and it wasn't there, I mean, clearly grounds 3 for revocation of the license and I think I asked, do 4 we still have to go to the -- to the SOAH? And I think 5 I was told yes. 6 MS. JOSEPH: Yes. That's -- that's 7 correct. 8 COMMISSIONER COX: There's just -- 9 notwithstanding the fact that anyone can look at it and 10 say slam dunk, we still have to let him say slam dunk 11 or her? 12 MS. JOSEPH: Yes. And I want to check 13 with Kristen. 14 MS. MITCHELL: Yes. 15 MS. JOSEPH: Yes. 16 COMMISSIONER COX: Okay. Is it possible 17 for us to delegate the entry of the order implementing 18 the SOAH judge's finding to the executive director? 19 MS. JOSEPH: I would need to look at 20 that. I have not looked at that question specifically. 21 I don't know -- and I'm speaking to Kristen Mitchell, 22 enforcement attorney. 23 Have you looked at that question, 24 Kristen? 25 MS. MITCHELL: I haven't. I can look -- 0077 1 I'll have to look into that and get back to you. 2 CHAIR CLOWE: Give her answer on the 3 mike, please, ma'am. 4 MS. JOSEPH: Yes. Kristen Mitchell, 5 assistant general counsel and enforcement attorney, has 6 responded that she'd be happy to look into that matter 7 and get back with the commissioners, report back on 8 that. 9 COMMISSIONER COX: And the third question 10 is: These people, at the time we move to revoke their 11 license, owe us money. Do we go after that money 12 notwithstanding any procedures or do we just write it 13 off? 14 MS. JOSEPH: I'm not aware that these are 15 referred to Attorney General for collection. But 16 again, I would like to call on Kristen Mitchell. 17 MS. MITCHELL: Good afternoon, 18 commissioners. My name's Kristen Mitchell. Usually 19 the cases -- 20 CHAIR CLOWE: Turn your mike on, please. 21 MS. MITCHELL: Is it on now? 22 Okay. Thank you. My name's Kristen 23 Mitchell, enforcement attorney for the commission. 24 The cases that the Attorney General 25 collects on, they usually don't collect on cases that 0078 1 are of this amount, even though it is a large amount in 2 our -- in terms of what we see. 3 The -- usually what they end up 4 collecting on, from my understanding of their policies, 5 are 30, $40 thousand issues. It is possible that we 6 could attempt to talk to the AG's office and see if 7 they would be interested in collecting on this. But I 8 suspect they wouldn't be. 9 COMMISSIONER COX: I guess my question 10 really didn't go to the AG because I didn't know that 11 they did this. 12 My question was: Does the agency make 13 collection efforts? And is the answer yes, no, or we 14 don't have the authority to? 15 MS. MITCHELL: I'd have to check with the 16 Lottery Division to see what they do. I mean, I'm sure 17 if they were to try to get relicensed, that would come 18 into play. 19 COMMISSIONER COX: I see Mr. Grief 20 shaking his head back there. Maybe he has the answer 21 to that. 22 MR. GRIEF: For the record, Gary Grief, 23 deputy executive director. I can't speak to the case 24 specifically. 25 But I can tell you that, yes, the Lottery 0079 1 Commission has the full collection authority that the 2 State Controller's office has for tax debts. So we 3 certainly pursue all delinquencies with bank account 4 freezes, levies, seizures of different kinds, etcetera. 5 COMMISSIONER COX: Great. That was my 6 question. Thank you. 7 CHAIR CLOWE: If you'll sign these 8 orders, please, sir. We'll sign your orders, Sandy. 9 MS. JOSEPH: Thank you. 10 CHAIR CLOWE: Thank you. Is there any 11 further business to come before the commission? 12 AGENDA ITEM NO. XIV 13 CHAIR CLOWE: If not, we are adjourned at 14 1:04 p.m. Thank you very much. 15 (Meeting adjourned at 1:04 p.m.) 16 17 18 19 20 21 22 23 24 25 0080 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, David Bateman, RPR, Certified Shorthand 7 Reporter in and for the State of Texas, do hereby 8 certify that the above-captioned matter came on for 9 hearing before the Texas Lottery Commission as 10 hereinafter set out, that I did, in shorthand, report 11 said 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 16 Witness my hand this the 19th day of July, 17 2006. 18 19 ___________________________________ 20 David Bateman, RPR, Texas CSR #7578 Expiration Date: 12/31/07 21 Wright, Watson & Associates Firm Registration No. 225 22 1801 North Lamar Boulevard Mezzanine Level 23 Austin, Texas 78701 (512) 474-4363 24 25 JOB NO. 060712DPB