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 7                   TEXAS LOTTERY COMMISSION
 8                        PUBLIC HEARING
 9   
10                      DECEMBER 13, 2004
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17             BE IT REMEMBERED that the TEXAS LOTTERY
18   COMMISSION held a Public Hearing on the 13th day of
19   December, 2004, at 8:00 a.m., before Kimberlye A. Furr,
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, Auditorium, Austin,
23   Texas, 78701, whereupon the following proceedings were
24   had:
25   
0002
 1                         APPEARANCES
 2   Chairman:
 3              C. Tom Clowe, Junior
 4   Commissioners:
 5             Rolando Olivera
 6             James Cox, Junior
 7   Charitable Bingo Operations Director:
 8             Mr. Billy Atkins
 9   General Counsel:
10             Ms. Kimberly Kiplin
11   Executive Director:
12              Mr. Reagan E. Greer
13   Deputy Executive Director:
14              Gary Grief
15   
16   APPEARANCES ...................................      2
17   
18   AGENDA ITEMS
19   Item Number 1 .................................      4
20   Item Number 2 .................................      4
21   Item Number 3 .................................     48
22   Item Number 4 .................................     68
23   Item Number 5 .................................     71
24   Item Number 6 .................................     71
25   Item Number 7 .................................     75
0003
 1   Item Number 8 .................................     92
 2   Item Number 9 .................................     92
 3   Item Number 10 ................................     95
 4   Item Number 11 ................................     98
 5   Item Number 12 ................................    101
 6   Item Number 13 ................................    102
 7   Item Number 14 ................................     26
 8   Item Number 15 ................................    106
 9   Item Number 16 ................................    106
10   Item Number 27 ................................    107
11   Item Number 28 ................................    147
12   Item Number 19 ................................      9
13   Item Number 20 ................................    152
14   Item Number 21 ................................    163
15   
16   Reporter's Certificate ........................    164
17   
18   
19   
20   
21   
22   
23   
24   
25   
0004
 1                      DECEMBER 13, 2004
 2                  TEXAS LOTTERY COMMISSION
 3                      AGENDA ITEM NO. 1
 4                  CHAIRMAN CLOWE:  Good morning.  The time
 5   is 8:05 a.m.  Today is December the 13th, 2004.  We
 6   call this meeting of the Texas Lottery Commission to
 7   order.  Mr. Cox is here.  My name is Tom Clowe.
 8                      AGENDA ITEM NO. 2
 9                  CHAIRMAN CLOWE:  We'll begin by taking
10   up Item 2 on the agenda:  Report by the Bingo Advisory
11   Committee chairman, possible discussion and/or action
12   regarding the Bingo Advisory Committee's activities,
13   including the November 17th, 2004 committee meeting.
14                  Ms. Suzanne Taylor, good morning.
15                  MS. TAYLOR:  Good morning.  My name is
16   Suzanne Taylor.  I'm the Chair for the BAC.  It's great
17   to be here this early.  You do have the report that I
18   sent on to Billy, and I believe it's included in your
19   notebooks, on our last meeting, November 17.  If you
20   have any questions, I'd be glad to answer them.  If you
21   want me to expand on any of these items, I will be glad
22   to do that, too.
23                  CHAIRMAN CLOWE:  Commissioner Cox, do
24   you have any questions?
25                  COMMISSIONER COX:  I do not.
0005
 1                  CHAIRMAN CLOWE:  Do you have anything
 2   that you want to elaborate on outside of your written
 3   report?
 4                  MS. TAYLOR:  One thing that I didn't put
 5   in here -- I didn't want to quote you because I didn't
 6   have the minutes at that time, so I was careful about
 7   what I put in the report that you each had to say from
 8   my notes -- the Bingo Enabling Act is 20 years old.
 9   Bingo is suffering because of the Act being 20 years
10   old.  Anything that was entertaining, that would draw
11   people into the bingo halls 20 years ago, there's not a
12   lot of things that are 20 years old that would make
13   people want to go to bingo.  And I know that the
14   public, the BAC continues to talk about legislative
15   issues, but because the Bingo Enabling Act, being the
16   age it is and the things that are in there and the
17   restrictions that we have in bingo, we're suffering.
18   Bingo is suffering.  Every day bingo suffers.  I watch
19   it go down and down.
20                  I watch the attendance.  I looked at the
21   attendance five years ago in our hall and we had an
22   average attendance of 280 people.  With 280 people and
23   the price that we were able to charge, we were getting
24   by and we were still doing okay.  I look at the very
25   same hall today, and if we have 180 people, we're doing
0006
 1   real good.  150 is more accurate.  If we didn't have
 2   the event tabs that we have at this time, we would be
 3   out of business.  And I'm not justing talking about my
 4   hall; I'm talking about three or four of the five big
 5   halls in Corpus would be out of business without our
 6   event tabs.  Our attendance is horrible.  There is
 7   nights when we have 100 or 130, so, until we have some
 8   things that can pull in a greater attendance and
 9   interest more people in bingo, it's going to go down
10   and more and more halls are going to continue to go out
11   of business, and, unfortunately, it is a legislative
12   issue.
13                  So, we continue to talk about
14   advertising.  Well, we have over $20 million that could
15   be spent to promote bingo and help bingo and, of
16   course, that's not part of what's in the legislative
17   package; it's not in the Bingo Enabling Act, so if we
18   could add those two words "to promote," then maybe we
19   could see a difference in bingo.  And if we could be
20   more innovative and bring in more of the progressive
21   bingo and satellite bingo or linked bingo, that would
22   bring in more people; you bring the jackpots up.
23                  Since the lottery's inception and you've
24   got jackpots up there at $250 million, you know, to say
25   you can come here and win $753 doesn't interest a lot
0007
 1   of people.  And I understand many, many charities don't
 2   want to raise the prize board above the $2,500, and I
 3   understand that totally.  You know, I'm pretty antsy
 4   about doing that myself, because there's a lot of
 5   nights that we don't bring in $2,500 from our bingo
 6   games.  The event tabs are helping to pay the games to
 7   the players, so to raise it, I understand that, but to
 8   put progressive or linked in somewhere that we're not
 9   actually helping to put more money into that pay out
10   would be an awesome thing, so, yeah, it's a legislative
11   issue.
12                  But if you or the people that the
13   legislators want to talk to can explain to them how
14   much we need this and how much we need the changes if
15   we're going to continue bingo.  And bingo in the state
16   is for a great cause.  These charities do wonderful
17   things.  You've heard from many, many charities the
18   things that they do.  One of the charities supports the
19   Kiddy Foundation in dialysis machines from bingo, but
20   they're not going to buy one next year because they're
21   not going to make that much money.  We're going to be
22   very lucky, if things continue on the same track, that
23   we're in business in another two years.
24                  Anyway, I know it's the same harping
25   that people continually do to you, but because it is so
0008
 1   near and dear to us and because we're there every day
 2   in the trenches and we see it, it's scary.  It's very
 3   scary when you use your petty cash in the deposits
 4   because you have checks and you can't cover it.  It's
 5   scary to know that you lose $1,000 in a bingo session
 6   because it takes a lot of bingo sessions to make $1,000
 7   and to lose that in one evening is very scary, and
 8   that's why we continue to talk about these things.
 9                  CHAIRMAN CLOWE:  Thank you.  And I think
10   that you opened up a subject that probably Billy wants
11   to talk about in his report, and I'll ask the
12   commissioners.
13                  Commissioner Olivera has joined us, for
14   the record, and we have all commissioners present now.
15                  If the commissioners have any comments
16   in response to your remarks, I'll ask them, and then
17   following that, I'm going to ask Billy to make his
18   report under Item 19 on the docket.  I'll ask you to
19   stay there if you would, please.
20                  Commissioner Cox, do you have any
21   comments?
22                  COMMISSIONER COX:  No.
23                  CHAIRMAN CLOWE:  Commissioner Olivera?
24                  COMMISSIONER OLIVERA:  No.
25                  Billy, then we'll go to Item 14 and that
0009
 1   is --
 2                  MR. ATKINS:  Commissioners, Mr.
 3   Chairman --
 4                  CHAIRMAN CLOWE:  Let me read, if I
 5   may -- you're ready to go, I can tell.
 6                  MR. ATKINS:  Well, actually, I wanted to
 7   touch on a couple of items under this item.
 8                      AGENDA ITEM NO. 19
 9                  CHAIRMAN CLOWE:  All right.  We'll also
10   take up Item 19:  Report by the Charitable Bingo
11   Operations Director and possible discussion and/or
12   action on the charitable bingo operations and divisions
13   activities as well.
14                  And you're free to move back and forth
15   between these two items.
16                  MR. ATKINS:  Okay.  Thank you, Mr.
17   Chairman.  Good morning, Commissioners.
18                  Real quickly, just to update you on some
19   of the things Suzanne had in her report.  I understand
20   from our legal services division enforcement department
21   that they are nearing the completion of the background
22   investigation for Mr. Thomas Weekly, who is the BAC's
23   recommendation to fill a vacancy on the BAC.  Once that
24   completed background has been done, we will, of course,
25   contact each of you, consistent with past practices,
0010
 1   about meeting with Mr. Weekly before we bring him
 2   before the full commission for consideration.
 3                  Also, there are three terms on the BAC
 4   that are due to expire in February of next year.  We
 5   have been publicizing those vacancies on our web site
 6   and through the Bingo Bulletin, but I understand that,
 7   so far, we have not received any nominations for those
 8   positions.
 9                  The meetings on December 6th that
10   Suzanne mentioned in her report relating to the
11   Administrative Penalty Rule and the revisions through
12   the quarterly report forms, those meetings did occur
13   and I've been informed that they were very productive
14   and the staff continues to move forward on those
15   initiatives.
16                  The staff also continues to work with
17   the Internal Revenue Service to develop a video IRS
18   presentation that can be provided for us to see at our
19   operator training program.  We have not been successful
20   so far in getting a time that we can get with the IRS
21   and actually develop that video.
22                  Finally, under Suzanne's report, the
23   work group study, alternative styles of bingo and
24   Internet gaming, did meet on December 7th and I
25   understand that Danny Moore, who is the chair of that
0011
 1   work group, will be providing a more detailed report of
 2   that meeting when the Lottery Commission and the BAC
 3   meet jointly on the 20th.
 4                  Just briefly, there was a discussion of
 5   Internet gaming and it's potential impact on charitable
 6   bingo as well as discussions on progressive bingo,
 7   linked bingo, alternative sales venues for the pull
 8   tabs, and instant bingo card-minding devices.
 9   Additionally, the work group began a discussion of a
10   number of what I had started to call joint gaming
11   opportunities, that is, looking at existing games that
12   might be suitable to a bingo hall environment.  Some of
13   those included charity card games or tournaments, other
14   charitable activities such as casino nights, and they
15   also discussed the possibility of, in combination with
16   pari-mutuel tracks, bingo halls serving as off-track
17   betting locations.  Finally, that group did discuss the
18   possibility of seven lottery games, such as Keno that
19   might be suitable in a bingo hall environment as well
20   as the sale of lottery products themselves.  And,
21   again, I understand Danny will provide more information
22   at the meeting on the 20th.
23                  Under my report to the commission, some
24   things I would just point out is, we continue to seek
25   qualified candidates to fill a vacant audit position in
0012
 1   our Dallas regional office.  The division did make
 2   allocations for the third quarter of 2004 on
 3   November 19th, and there is a detailed memo in your
 4   notebook on that.
 5                  Also, I just wanted to update you,
 6   commissioners, you had asked for some more detailed
 7   analysis of bingo data, and I wanted to report to you
 8   that the staff from the Charitable Bingo Division and
 9   financial administration had held three meetings
10   regarding the analysis of bingo data, and a status
11   report meeting is scheduled for this Friday,
12   December 17th, regarding their initial recommendations
13   on the analysis of data and presentation of
14   information, and it's our intent to have more detailed
15   information to present to you at our next quarterly
16   report as well as some historical figures.
17                  Finally, as --
18                  CHAIRMAN CLOWE:  Billy, on that, can you
19   have some information for us by the 20th of this month
20   that would be helpful in that meeting venue, even if
21   it's preliminary?
22                  MR. ATKINS:  Well, since you bring it
23   up, commissioners, one of the things that we had
24   intended to provide in the notebook to the
25   commissioners in the Advisory Committee were updated
0013
 1   graphs that the staff had prepared for the 20th annual
 2   report, and it gives a -- it gives a picture of
 3   charitable bingo figures, really, from the inception of
 4   bingo, and that was information that we had planned on
 5   providing to the members.  I did, finally,
 6   commissioners, as part of my report to you on the
 7   activities of the Charitable Bingo Division, want to
 8   talk a little about the plans for the joint lottery
 9   commission BAC meeting that's scheduled for Monday,
10   December the 20th.  The agenda has been filed with the
11   Texas Register and is posted on the agency's web site.
12                  And in order to make this meeting as
13   productive and meaningful as possible, the staff has
14   reached out to Carol Lauder.  Carol was recommended to
15   us by Sandy Joseph in our legal services division, and
16   I wanted to thank Sandy for her recommendation because
17   Carol has been a tremendous resource to us.  Carol is a
18   26-year employee of the comptroller's office.  She
19   currently serves as the manager of the tobacco grant
20   project.  For four years, she oversaw the comptroller's
21   renaissance project and interagency wide business
22   process re-engineering program.  Carol became a
23   certified professional facilitator this past June
24   through the International Association of Facilitators.
25   Carol has served as a formal facilitator for over 200
0014
 1   meetings.  Carol has served as a facilitator for
 2   organizations such as the Texas Water Development
 3   Board, the Texas Rail Road Commission, the Texas
 4   Workforce Commission, the Human Resource Director
 5   Workshop for the State Auditor's Office, and the
 6   Suzanne G. Coleman Breast Cancer Foundation.  Finally,
 7   in the summer of 2002, Carol participated in the event,
 8   Listening to the City, in New York City where she
 9   served as one of many who facilitated a roundtable
10   discussion concerning the rebuilding of Ground Zero.
11                  And I'd like to ask Carol to provide you
12   with some of the information and suggestions we've
13   discussed in order to facilitate your discussion of
14   this agenda item and any direction you may want to
15   provide to me or the Charitable Bingo Division as it
16   relates to the meeting scheduled for the 20th.
17                  MS. LAUDER:  Good morning,
18   commissioners.  As Billy mentioned, my name is Carol
19   Lauder.  I work for the Texas Comptroller's Office and
20   I am a professional facilitator.  I had an opportunity
21   to visit with Commissioner Clowe and Billy concerning
22   the joint meeting and they shared with me their goals
23   for the meeting and the outcomes that they would like
24   to see from that meeting, and I was very much going to
25   ask the same questions of Commissioner Cox and
0015
 1   Commissioner Olivers, what you would like to see as the
 2   outcomes of the joint meeting, if you would be willing
 3   to share some of your thoughts so that I could assist
 4   in designing a format that -- or, contributing some
 5   ideas to see if they're accepted to try to make the
 6   meeting as affective as possible.
 7                  COMMISSIONER COX:  I think probably, for
 8   me, the most important thing is that we have a strong
 9   agenda.  Just to meet is not my idea of something that
10   would be worthwhile, but -- and I think, while we have
11   concluded that we're going to have this meeting, to me,
12   that is with the assumption that there will be a strong
13   agenda, and so I think that's critical to going
14   forward.
15                  MS. LAUDER:  Thank you.
16                  COMMISSIONER OLIVERA:  In summation, I
17   think we need to organize, in addition to a strong
18   agenda, which I concur, is a strategy in how to better
19   communicate the deficiencies of the Bingo Enabling Act,
20   and that is -- that is actually a theme that we
21   consistently use here, but yet, it seems to be a
22   message that is not getting through to the legislature,
23   so that is something that I think we need to organize.
24   And I look forward to hearing from you.
25                  MS. LAUDER:  Would this be an
0016
 1   appropriate time for me to share some of my thoughts?
 2                  In hearing your comments and in visiting
 3   with Commissioner Clowe and Billy, my suggestion would
 4   be to have a section of the agenda that speaks to the
 5   roles of each of the four different units that really
 6   make up the support for bingo, and that would be the
 7   Commission, of course, the Bingo Advisory Committee,
 8   the staff here, and then the public, slash, industry.
 9   And I would like to suggest that each of those four
10   entities, if you will, share what they see as their
11   roles in this project, if you will, and talk about
12   goals as well for each of those entities, and then we
13   can look at some gap analysis and see where people
14   within their authority can assist in reaching some of
15   those goals and what some of the limitations could be,
16   if any, and how we could move forward with a good to-do
17   list for each of those units to try to accomplish
18   common goals that you reach.
19                  CHAIRMAN CLOWE:  Commissioners, and
20   Suzanne, as Chair of the Bingo Advisory Committee, and
21   Billy, as director of the Charitable Bingo Division,
22   under your duties, what we're discussing now is the
23   agenda and the plan for the meeting on the 20th, and I
24   think we should have some agreement, if possible, today
25   to make that meeting a week from today as productive as
0017
 1   possible.
 2                  The format that I think we must follow
 3   is that we plan to meet at 9:00 and we would call the
 4   Lottery Commission to order and we would call the Bingo
 5   Advisory Committee to order and those meetings would
 6   run concurrently on the record.  These are public
 7   bodies and this is a public, public meeting and we will
 8   need to make a record that will be a public record.
 9                  Within that frame work, I felt like, and
10   Billy suggested, Ms. Lauder help us as a facilitator,
11   and I think she can move the discussion along and
12   provide the assistance that a facilitator enables, but
13   at the same time, it is a public meeting that must be
14   formally conducted by the Lottery Commission and by the
15   Bingo Advisory Committee.
16                  I like the suggestion she made to have
17   those four entities identified and try to have some
18   form to the identification of those issues which she's
19   going to help us talk about in this meeting.  It's an
20   attempt to be artful in combining the structure of a
21   formal public meeting and a somewhat informal
22   facilitated meeting where people express themselves,
23   and yet, you keep order and you keep moving along.
24   Where, in the past, in the private sector, I've had a
25   facilitator assist me in a corporate environment, it
0018
 1   can get way out in left field or way out in right field
 2   and you wonder if you're ever going to get back to the
 3   pitcher's mound, and finally, if you've got a good
 4   facilitator, you do.
 5                  We're going to try not to have it quite
 6   get that freeform, I guess you might say, by having
 7   these four entities identified and go in a specific
 8   order; and yet, we want people to come forward with
 9   their thoughts and their ideas -- the commissioners,
10   the staff, the Bingo Advisory Committee, and the
11   public, and we're going to group the industry in there
12   at the same time.
13                  The seating will be different than it is
14   here this morning; it will be more representative of
15   the people in attendance.  And, you know, we're setting
16   aside about maybe four or five hours, and we're going
17   to ask people to be brief and concise in their remarks
18   and not have redundancy, if that's possible, in
19   covering these subjects.  But the hope that I have as
20   one commissioner is that we can get these parties
21   together in this public meeting and hear completely,
22   openly, and with some degree of better understanding
23   that we've ever had in the past, what the role of the
24   Commission is, the staff, and the Bingo Advisory
25   Committee within the Bingo Enabling Act, hear from the
0019
 1   public in the industry, if they wish to participate to
 2   some extent, and leave with a better understanding of
 3   what the needs and the capabilities are of each of
 4   these entities.  And if we could achieve that, then I
 5   think we will have done a public service for this
 6   Commission, for the staff of the Charitable Bingo
 7   Division, the public, and we will, perhaps better than
 8   ever in the past, help the Bingo Advisory Committee
 9   members understand what their role is and what the
10   capabilities of the Commission are.
11                  Carol does that sum up what was
12   generally my comments to you in our discussion with
13   Billy?  And is there something that you'd like to add
14   to that which might be helpful to the commissioners and
15   to Suzanne?
16                  MS. LAUDER:  I think that does sum it
17   up, commissioner.  One thing I would like to add is, I
18   don't know that just walking away that day after we've
19   done this exercise will be the end of processing the
20   information that we obtain.  My recommendation would be
21   that we go back and we try to identify where some of
22   the gaps are in roles and goals and try to identify the
23   entity most likely to accomplish any gaps, or most
24   appropriate to accomplish any gaps, so it would require
25   a little bit of followup from that one meeting, so I
0020
 1   just wanted to be full disclosure; ideally there would
 2   be a little bit of followup.
 3                  CHAIRMAN CLOWE:  There will be a lot of
 4   followup.
 5                  MS. LAUDER:  A lot of followup, that's
 6   better stated.
 7                  CHAIRMAN CLOWE:  If it's an effective
 8   effort.
 9                  MS. LAUDER:  Correct.  Thank you.
10                  CHAIRMAN CLOWE:  Commissioners, any
11   further thoughts?
12                  Billy?
13                  MR. ATKINS:  Again, one thing that I
14   believe you pointed out very affectively at our meeting
15   with Carol, Commissioner Cox, is the identification
16   that each of those parties that Carol identified -- the
17   Commission, BAC, the staff, the public, slash,
18   industry -- each of them come to the table with
19   different goals and expectations and the benefit in
20   identifying those.  And the three of us discussed, you
21   know, the staff's goal, which is to help make sure that
22   there is a clear understanding between the Lottery
23   Commission and the BAC on what the expectations of each
24   other are, but that's something that will help the
25   staff in facilitating that.
0021
 1                  Other individuals in this group, as well
 2   as bodies, may bring different expectations to this
 3   table, and this will be a good time to explore those
 4   more fully with all of the appropriate parties present,
 5   and I think it also will be an opportunity, as the
 6   Commission discussed in the development of the business
 7   plan, of actually having some sort of
 8   state-of-the-industry presentation.  I know Suzanne has
 9   raised some of the items of her report and I've talked
10   to you about some of the items that one of the work
11   groups has been working on, but also, it will be an
12   opportunity for, really, all of the bodies to hear the
13   same message at the same time.
14                  CHAIRMAN CLOWE:  Suzanne, you understand
15   all of this and are you comfortable with it and what
16   are your thoughts about it?
17                  MS. TAYLOR:  Yes, I understand it.  Yes,
18   I'm comfortable with it.  I do like the
19   state-of-the-industry presentation that Billy talked
20   about.  I think it's important for all the players to
21   be in the same place at the same time, that maybe we
22   can come to a fuller understanding of how we can all
23   work together and make what needs to happen in bingo
24   happen.
25                  CHAIRMAN CLOWE:  And do you anticipate,
0022
 1   not only a quorum, but a good turnout of the members of
 2   the Bingo Advisory Committee for this meeting?
 3                  MS. TAYLOR:  Yes, I do.  And the public.
 4   We've lost a lot of public interest because it seems
 5   that we meet and things that they're interested in,
 6   which, of course, are a lot of legislative issues,
 7   can't happen or don't happen.  And where we used to
 8   have a pretty good attendance at the BAC meetings, we
 9   come in now and I see fewer and fewer people here, and
10   I believe it's because they feel that we're an
11   effective group.
12                  CHAIRMAN CLOWE:  Well, I'd like to --
13   I'd like to make two following comments.  One is, I
14   think it's important, if you can, to have your members
15   understand what the format of the meeting is on the
16   20th and come prepared to give their comments, and, as
17   part of that, the point that you made in your earlier
18   report that this Commission can only deal with certain
19   issues, and to be repetitious about areas that are not
20   under the control of this Commission will not be a
21   productive use of our time, and I would appreciate you
22   doing the best effort with the other members of the BAC
23   that you can so that we are focused and we cover ground
24   that is meaningful rather than talking about wants and
25   needs and desires that are beyond the scope.
0023
 1                  The second thing is, I've made it very
 2   clear that this Commission will address the issue at
 3   the end of August of next year about the life of the
 4   BAC, and for myself, this is an effort on my part to
 5   get the best effort expended and the best result to
 6   achieve a useful result from the BAC to the industry
 7   and back to the Commission, and so I'm very hopeful
 8   that we'll see some productivity come out of this.
 9                  And, Carol, I want to tell you how much
10   we appreciate your involvement.  For the record, so
11   everyone will understand, this lady is an employee of
12   the comptroller's office.  She's compensated by the
13   comptroller's office for this work, and the Commission,
14   the Lottery Commission, doesn't have to pay her
15   additional funds, so it's nice to have an expert such
16   as her -- and your credentials are very impressive --
17   to support us in this meeting.
18                  And this will be an interesting
19   experience to try to combine the structure and
20   discipline of a public meeting and the ability to
21   create solutions to problems that come through
22   facilitation.  I'm -- this will be a first for me.  I
23   think it's going to be very interesting.
24                  MS. LAUDER:  And a first for me as well,
25   sir.
0024
 1                  CHAIRMAN CLOWE:  Well, good.
 2                  MS. LAUDER:  I have great faith that we
 3   can do some good things in the meeting.
 4                  CHAIRMAN CLOWE:  Good.
 5                  Anything further?
 6                  MR. ATKINS:  Mr. Chairman, I was going
 7   to say, I have shared with the members of the Advisory
 8   Committee one of your earlier e-mails regarding what
 9   you hoped to accomplish in the joint meeting, and in
10   doing that, some of the things that you did identify is
11   asking them to be prepared to talk about what they see
12   their role as BAC members as being, if they believe
13   they're meeting their goals, and also if they have any
14   suggestions on ways to improve the BAC and its
15   functions.
16                  CHAIRMAN CLOWE:  That's great.
17                  Anything further?
18                  Thank you all very much.
19                  AGENDA ITEM NO. 3
20                  CHAIRMAN CLOWE:  We'll now go to Item 3
21   on the agenda:  Report, possible discussion and/or
22   action on lottery sales, game performance, and trends.
23                  Mr. Deviney?
24                  MR. ANGER:  Good morning, Mr. Chairman,
25   commissioners, for the record, my name is Michael
0025
 1   Anger.
 2                  CHAIRMAN CLOWE:  You're not Lee Deviney?
 3                  MR. ANGER:  I'm not, sir.  I'm the
 4   lottery operations director and to my right here is
 5   Mike Fernandez.
 6                  CHAIRMAN CLOWE:  I know Lee Deviney, and
 7   you're not Lee Deviney.
 8                  MR. ANGER:  Yes, sir.
 9                  With your permission, we'd like to make
10   some opening comments before we launch into this agenda
11   item, if that's all right with you?
12                  CHAIRMAN CLOWE:  Sure.
13                  MR. ANGER:  Due to some recent changes
14   in our organizational structure here at the agency that
15   you're aware of, both of our divisions, the lottery
16   operations and the administration, are going to play a
17   more active role in this particular agenda item.
18                  CHAIRMAN CLOWE:  I'm aware of that.  And
19   Mr. Grief had asked me to call on him so that he might
20   discuss that.
21                  Gary, is this where you want to be
22   called on so that you can help Mike and Michael out?
23                  MR. GRIEF:  Yes, sir.  I think it might
24   help just by way of introduction for several of the
25   other agenda items.
0026
 1                  CHAIRMAN CLOWE:  I think it would.  It
 2   would certainly clear up the confusion in my mind of
 3   who Lee Deviney is, so let me call on you at this
 4   point.  And you're No. 14, aren't you?  Okay.  We'll
 5   cover your Item Number 14.  Thank you.
 6                      AGENDA ITEM NO. 14
 7                  MR. GRIEF:  Very good.  Good morning,
 8   commissioners.  The purpose of this agenda item this
 9   morning is to update the Commission regarding an agency
10   reorganization that has recently occurred.  This
11   reorganization occurred, in part, as a result of the
12   recent review of the security function of the agency.
13   Now, that review included an evaluation of any changes
14   that should be made in order to more affectively meet
15   the missions of the agency for both the operation of
16   the lottery and the regulation of charitable bingo as
17   well as best serve the needs of the State.
18                  As we work through the issues of
19   realigning the security function, we recognize an
20   opportunity to reorganize and streamline our entire
21   organization with the exception of the charitable bingo
22   division.  To that end, we developed and have
23   implemented a new organizational structure that we
24   believe benefits the agency in several ways.  First,
25   it's improved the communication of information across
0027
 1   the agency.  Second, it has facilitated direct access,
 2   as needed by the executive director, to certain
 3   critical areas including governmental affairs, media
 4   relations, the security and integrity of our drawings
 5   and ticket validations, and the creative image of our
 6   products and our agency.  Third, it has organized our
 7   agency by line of business.  In other words, functions
 8   generic to state agencies have been aligned in one
 9   division and that is the administration division here.
10   Functions generally unique to a state lottery have been
11   aligned in another division, the lottery operations
12   division.  And the enforcement functions of the agency
13   have been placed under the legal services division with
14   the purpose of improving the communications and
15   coordination of the enforcement function between the
16   legal, the lottery, and the bingo departments.  And,
17   finally, we believe this structure leaves the agency
18   very well positioned for any potential changes or any
19   additional responsibilities that might come our way in
20   the future.  I'll quickly go over the key changes that
21   have occurred as a result of this reorganization.
22                  First, in the internal audit department,
23   you'll notice that we have added an element of contract
24   compliance auditing to that department.  In the legal
25   services division, which is headed by General Counsel
0028
 1   Kim Kiplin, the responsibility of enforcement has been
 2   added to that division, and that is one of the four
 3   four components of the previously titled security
 4   division that have been transferred to other divisions
 5   within the agency.
 6                  Under this new structure, the
 7   enforcement area contains both administrative and
 8   commission peace officer investigators and it
 9   centralizes all of our enforcement staff here in our
10   Austin headquarters office, and that enforcement
11   department is currently headed by Steve White, an
12   enforcement attorney, who has relevant experience
13   managing investigators as well as prosecuting
14   administrative cases.
15                  As I briefly touched on earlier, this
16   reorganization also created a new division, the
17   administration division, and that is headed by Mike
18   Fernandez.  This division, as I said earlier, includes
19   those functions that are typically germane to general
20   state agency business, and included within the
21   administration division is a new area that will be
22   focussed on purchasing and contracts.  It will be under
23   the support services department in administration, and
24   this new area is going to focus on complex procurement
25   and contract issues, including the scheduling,
0029
 1   development, and issuance of procurement documents,
 2   which, in our agency, are typically RFB's, the
 3   evaluation of proposals that come in in response to
 4   RFB's, general contract negotiation skills, as well as
 5   contract strategy development.  Also included in
 6   administration under support services will be building
 7   security, and that is the second of the four former
 8   four components of the security division.
 9                  As I mentioned earlier, the lottery
10   operations division, which is headed by Michael Anger,
11   has been changed to include those items typically
12   unique to a state lottery and we transferred out
13   certain functions that were in the lottery operations
14   division that were more relevant to general state
15   agency operations.  The lottery operations now contains
16   the third of the four four components of the former
17   security division, and that is a department of security
18   right here that has supervisory oversight of the ticket
19   validations and lottery drawings processes, and Mike
20   Pitcock has been assigned to oversee that department.
21                  Also, you'll note that the drawings
22   function itself has been moved to lottery operations,
23   and that is the fourth and final piece of the former
24   security division.  You'll also notice that instant and
25   online products as well as promotions and advertising
0030
 1   have all been transferred into lottery operations, and
 2   we have a new area, a creative area, right here that
 3   will be dedicated to focussing on advertising concepts
 4   and the image of the Texas Lottery and will be working
 5   closely with our executive director.  And, finally, the
 6   current support services function has been moved out of
 7   lottery operations and, as I mentioned earlier, it's
 8   now in the new administration division.
 9                  Reagan and I rolled out this new
10   organizational structure to staff and other appropriate
11   parties the week of November 15th, and as several
12   departments, four positions were restructured and
13   reorganized, 33 current positions were eliminated, and
14   those affected employees were communicated with first.
15   Every effort was made to handle this communication, not
16   only according to agency policy, but also with the
17   utmost respect and assistance to those affected
18   employees.
19                  Those employees that were effected are
20   under the agency's reduction of force policy which
21   allows those employees to remain on the payroll for a
22   period of 90 days and also provides those employees
23   with certain preferential treatment for any new
24   positions that may be posted.  Although 33 positions
25   were eliminated under this reorganization, the agency's
0031
 1   full-time equivalent employee cap of 325 was not
 2   affected, as an offsetting number of new positions that
 3   will better serve the mission of the agency have been
 4   created.
 5                  As individual staffing issues were
 6   considered, we chose, in some situations, to promote
 7   employees to build some of the new positions, and we
 8   based those promotions on the employee's past work
 9   history at the agency as well as their relative
10   experience and abilities.  For certain other new
11   positions, we are using the job posting process to fill
12   those positions.
13                  As an additional part of the
14   implementation of this reorganization, we informed
15   state leadership offices of our plans and we
16   communicated via a letter from Reagan to each member of
17   the legislature.  On Friday morning, November 19th,
18   Reagan and I conducted an all-staff meeting in which we
19   announced this reorganization.  The same organizational
20   chart that you see this morning was shown to staff in
21   that meeting and we went over the key changes similar
22   to how I just went over them with you this morning.  We
23   also provided detailed organizational charts for the
24   lottery operations, administration, and legal services
25   divisions to the staff via the agency Internet on that
0032
 1   same day, and we encouraged staff to carefully review
 2   those organizational charts.
 3                  The divisional directors of the
 4   administration, legal services, and lottery operations
 5   divisions, Michael Anger, Mike Fernandez, and Kim
 6   Kiplin, immediately reached out to the effected
 7   departments and there were a series of small groups and
 8   one-on-one meetings that took place throughout the day
 9   to make sure that we informed staff properly of the
10   changes that had occurred.  Diane Morris, our director
11   of human resource, was available and provided critical
12   assistance to us and to effected staff, and we feel
13   like we successfully addressed these questions that
14   arose.
15                  The implementation of this new structure
16   is expected to save the agency approximately $296,000
17   annually in salary savings and, in addition, there are
18   potential lease cost savings of approximately $55,000
19   annually that may be achieved based on our negotiations
20   with our lessors in our field offices.  But, more
21   importantly, we believe that the agency and the State
22   stand to benefit from an organization that is aligned
23   and more efficient in an effective manner and one that
24   is also better positioned for any potential changes
25   that may come our way.
0033
 1                  And that concludes my report.  We would
 2   be happy to answer any questions that you have.
 3                  CHAIRMAN CLOWE:  Gary, as I understand
 4   it, the purpose of this reorganization was to
 5   streamline and to create efficiencies as a result of
 6   these five entities being identified and the activities
 7   of each of them as you have explained to us, so you
 8   feel like you've really now put the organization at its
 9   optimum as far as the assignment of tasks and duties
10   and you're in the process, I assume, of putting the
11   right people in the right jobs.  What we should see,
12   then, in the future is more productivity and a higher
13   level of quality in productivity?
14                  MR. GRIEF:  Yes, sir.
15                  CHAIRMAN CLOWE:  In addition to that, in
16   effecting these changes, you were able to actually
17   achieve an annualized savings, which you've mentioned
18   to us, in salary expense, which is a beneficial result
19   to the people of Texas, and there is potentially a
20   long-term savings in a reduction of lease space that
21   will occur as a result of these reductions and
22   streamlining?
23                  MR. GRIEF:  Yes, sir.
24                  CHAIRMAN CLOWE:  And you noted for our
25   attention the contract compliance office in the
0034
 1   internal auditor's function.  I think that's very
 2   important and it's an item that, as a result of the
 3   Sunset review, there's been an indication that that
 4   group would like to see closer scrutiny on the part of
 5   the commissioners, and that function, under the
 6   internal auditor, will be part of the support to the
 7   commissioners in that role, I assume?
 8                  MR. GRIEF:  That's my understanding from
 9   Catherine Milton, yes, sir.
10                  CHAIRMAN CLOWE:  You've also called our
11   attention to the creative function, and I think I
12   understand that, but I'd like to have a little bit more
13   explanation about what the real beneficial result of
14   that is going to be in regard to marketing and the
15   creation of interest in the players towards the games
16   of Texas.  Can someone expand on that a little bit for
17   our benefit?
18                  MR. GREER:  Yes, sir.  Commissioners,
19   this is an area that, as we look at, in fact today, a
20   presentation on instant games that are constantly
21   changing or we have a number of games that are out
22   there, our ad campaigns, as we look at just the general
23   image of the lottery, what, from my perspective, had
24   been lacking in the past was a direct focus on that on
25   a daily basis.  In the marketing function in the prior
0035
 1   organizational structure, there was a number of tasks
 2   that were assigned to that individual, and I think a
 3   lot of times some of the creativity aspects of that got
 4   lost.  This person, that's their job.  It will be to
 5   bring their, what we're hoping to find is, advertising
 6   expertise as well as their creative idea capabilities
 7   to the table to assist us in all of those three areas.
 8                  CHAIRMAN CLOWE:  Reagan, in my view, we
 9   are more focussed on that now than we've ever been in
10   my time on this board, and that is probably a measure
11   of our success in that.  To create new games and
12   maintain a high level of interest and keep freshness in
13   the instant tickets and the online opportunities that
14   we're able to offer the players is what really is
15   creating the record that we had in the last fiscal year
16   and the year-to-date success that you're going to
17   update us on this morning.
18                  MR. GREER:  Yes, sir, I fully agree with
19   that.  And you'll see in this presentation we're going
20   to give here in a moment some examples that will
21   reinforces that.
22                  CHAIRMAN CLOWE:  Then, Gary, a question
23   I think comes to mind, not necessarily a criticism, but
24   a question, is:  With doing away with the security
25   division, you have placed enforcement in this
0036
 1   organization under the legal services and you have
 2   placed security under lottery operations.  I'd like to
 3   hear some more explanation on, you know, how are the
 4   roles of those two entities going to take care of our
 5   enforcement needs and are we going to be able to
 6   respond to calls for the enforcement activities?  Is
 7   that going to be properly staffed?  And what about
 8   security?  What are they actually doing in our security
 9   level to maintain?  I'd like for you to defend that, so
10   to speak, if you would, or whoever you want to call.
11                  MR. GRIEF:  I think the first, and
12   probably the biggest, change that we may have to do
13   would be the enforcement function.  I think the best
14   person to speak to that would probably be our general
15   counsel, Kim Kiplin.
16                  MS. KIPLIN:  Commissioners, if you'll
17   recall, we brought to you a proposed agency
18   prioritization enforcement activities and that
19   prioritization was very helpful in terms of looking at
20   exactly what enforcement activities needed to be
21   accomplished.  We will follow that agency
22   prioritization schedule in addressing complaints, and
23   the core function, Mr. Chairman, is on violations of
24   the Bingo Enabling Act and the State Lottery Act.
25                  In reviewing the former security
0037
 1   divisions activities, there was a significant emphasis
 2   placed on investigative stolen tickets.  We viewed that
 3   in and of itself as a local venue issue.  There are
 4   outlying violations that will result as a result of the
 5   stolen ticket, potentially, which will be violations of
 6   the State Lottery Act, and the enforcement department
 7   will obviously be investigating those; those are
 8   criminal, for example, claiming a lottery prize by
 9   fraud.  This enforcement program will also be
10   responsive to requests for information from law
11   enforcement agencies regarding the stolen tickets in
12   particular and any other matter in which they need our
13   assistance.  It is my understanding that, primarily,
14   the request is for information through the data that is
15   retained on the computer systems, and we will continue
16   to provide that information responsibly.
17                  The centralization of the investigators
18   will enable us to deploy, I think more efficiently, in
19   covering the state on both violations of the Bingo
20   Enabling Act, alleged violations, and also the State
21   Lottery Act.  When we keep in mind the fact that the
22   majority of the -- it appears to us, the majority of
23   the work that was being performed really had to do with
24   these stolen tickets these local venues had.  I hope
25   that answers your question in terms of enforcement
0038
 1   department.
 2                  I do believe that the director of the
 3   lottery operations division, Michael Anger, and myself
 4   will need to coordinate what will come in from,
 5   example, the securities review, validations, and
 6   drawings will be those that appear to be criminal.
 7   Those that are questionable claims that are not -- do
 8   not have a criminal nature will be handled under his
 9   division.  And there is, I believe, a high degree of
10   frequency of those tickets that come in through the
11   claim centers and which did not require investigative
12   time.
13                  We will -- in the enforcement
14   department, we will conduct the background
15   investigations for those that require background
16   investigations, whether it's a vendor, licensee, or an
17   applicant, or an employee.  And there is a large amount
18   of that type of work that I think we believe can get
19   accomplished, frankly, without involving an
20   investigator.  It's simply a matter of tracking
21   criminal histories and recovering that information and
22   then providing that to whomever needs to have that
23   information.
24                  Do y'all have any questions that I may
25   not have answered?
0039
 1                  CHAIRMAN CLOWE:  Well, I want to respond
 2   to your question, does that answer my question.  I want
 3   to make certain that you have the personnel and Michael
 4   has the personnel, in your case, Kim, enforcement, in
 5   his case security, that you have the personnel and the
 6   police officers, commission police officers, which you
 7   need to do the job that has been done by this
 8   Commission in the past, that people are not going to be
 9   able to be stealing our tickets and us not be able to
10   enforce the law and take the proper action and we're
11   going to be able to validate tickets.  We're not going
12   to suffer in any way those critical functions.  I want
13   the assurance that we're going to continue to see the
14   kind of performance in the future that we've seen in
15   the past in these areas.
16                  MS. KIPLIN:  I believe we do.  I will
17   say that that was a concern, a primary concern, as we
18   discussed this reorganization, and I think we've
19   collectively agreed that we're going to monitor that
20   very closely.  And if we, for whatever reason, miss the
21   mark, then we will address that immediately.
22                  CHAIRMAN CLOWE:  Well, okay.  I hope you
23   haven't missed the mark and I don't want to go around
24   fixing problems as a result of this.  I want to see
25   that -- and I think you have anticipated, but let's
0040
 1   monitor that very carefully and make certain that we
 2   don't stumble, because we're dealing with three and a
 3   half billion dollars a year in revenue and these are
 4   critical functions.  So, you know, the whole thing
 5   needs to work, the streamlining, the increased
 6   productivity, the cost savings.  We need to continue to
 7   do a stellar job in the future as we've done in the
 8   past.
 9                  MS. KIPLIN:  And let me tell you that, I
10   believe we have not missed the mark.  I don't believe
11   that any one of us would have moved forward on this
12   reorganization had we thought that.  I think the
13   prioritization of the agency enforcement matters was
14   very significant in terms of creating this type of
15   organization, and our focus is going to be on
16   violations of the Bingo Enabling Act and the State
17   Lottery Act.  We will continue to provide information
18   on requests that we receive from local law enforcement,
19   but our focus will be on those two statutes.
20                  CHAIRMAN CLOWE:  Michael, do you have
21   anything to add on this subject?
22                  MR. ANGER:  Yes, sir.  Commissioners,
23   the newly-formed security department and lottery
24   operations is going to be made up of four employees.
25   And in response to your question, Mr. Chairman, I
0041
 1   believe that we're very well positioned to perform the
 2   functions that are assigned to our area.  In fact, I'm
 3   very excited about the opportunity that it creates.  As
 4   you'll note on the organizational chart, we have a
 5   validations and drawings area, and formerly the
 6   drawings area was housed under the security division;
 7   that's now been split out under a separate manager.
 8   And, in fact, the security department will be
 9   responsible for overseeing, from a supervisory capacity
10   from a separate management structure, the validations
11   and drawings process and peer in and, quite frankly,
12   monitor and provide criticism and comment about our
13   processes in those areas to ensure that we're doing the
14   very best things that we can in both of those areas.
15                  And as Kim Kiplin alluded to, we will
16   also be taking on the function of the former security
17   division, and that is the processing of claims that
18   fall outside of the processes, the standard validation
19   processes in the Austin claims center and the field
20   claim centers.  They will continue to perform those
21   functions and play an activities role in working with
22   the instant ticket manufacturers with regard to instant
23   tickets and things that we need to do with regard to
24   those claims as well.
25                  CHAIRMAN CLOWE:  Who heads up that
0042
 1   validations and drawings team, Michael?
 2                  MR. ANGER:  That is a vacant position
 3   right now.  Lori Vogel is the claims center manager and
 4   Rivers is the drawings manager and we have a vacancy
 5   for A validations and drawings manager, which we have
 6   posted and we'll shortly be conducting interviews for.
 7                  CHAIRMAN CLOWE:  Well, you know, we've
 8   got a great record on the drawings and we want to keep
 9   that record in tact, so those are very public functions
10   and we want to manage that with the artfulness in the
11   future that we have in the past.
12                  MR. ANGER:  Yes, sir, we're very mindful
13   of that.
14                  CHAIRMAN CLOWE:  Any questions,
15   commissioners?
16                  COMMISSIONER OLIVERA:  On a different
17   theme, Gary -- and I relay this to either you or
18   Ms. Melvin -- I note that contract compliance, which is
19   an important issue, is under the internal audit box and
20   then we also have that similar function in support
21   services under the administrative box.  Do we have a
22   plan so that there is some kind of efficient
23   communication between those two departments in working
24   together on contract compliance?
25                  MR. GRIEF:  Let me try to explain that
0043
 1   better, commissioner.  That box under internal audit is
 2   somewhat misleading.  That is an audit function that
 3   the internal audit department will add to their line of
 4   responsibilities.  I think the vision of the Commission
 5   and of Catherine may be that, from time to time, they
 6   will identify certain contracts within the agency that
 7   may fall within some type of risk schedule that might
 8   be high risks, and they will audit that contract from
 9   "A" to "Z" and give the Commission and, at the same
10   time, management feedback as to where there might be
11   areas that we can improve in that particular contract
12   that they identify.
13                  CHAIRMAN CLOWE:  Commissioner Olivera,
14   if I could add this:  For my part, I would hope that
15   there can sort of be an ongoing oversight of the major
16   contracts that we have in this agency, because we have
17   a number that are so large and so important that I
18   wouldn't be satisfied, as one commissioner, to see
19   those contracts reviewed maybe every third year, so I'd
20   want an ongoing function of review and monitoring so
21   that the commissioners can be assured that we're in
22   compliance on those.
23                  COMMISSIONER OLIVERA:  And I agree, Mr.
24   Chair.  With these type of large contracts, there has
25   to be an interplay with, number one, legal and audit
0044
 1   and administration, so my question being in terms of,
 2   do we have a game plan for efficient communication
 3   between all three of these departments, or more if
 4   needed?  It goes back to either risk contracts or large
 5   contracts that deserve specific attention.
 6                  CHAIRMAN CLOWE:  Ms. Melvin is coming
 7   forward.
 8                  MS. MELVIN:  Good morning,
 9   commissioners.  For the record, my name is Catherine
10   Melvin.  I'm the internal auditor director.  To answer
11   your question hopefully more specifically, Commissioner
12   Olivera, one thing I would first like to point out is a
13   distinction between contract management and
14   administration and then the Contract Compliance Act
15   that we're talking about at internal audit.
16                  To be very clear, contract management
17   and administration are certainly the purview of the
18   management of the agency, but as internal audit,
19   contract compliance activities are commonly within the
20   internal auditors scope to review as they, you know,
21   see risk might necessitate that type of review.
22                  As I've spoken with Chairman Clowe and
23   also Commissioner Cox, there certainly is much more
24   interest in the state in focusing agency attention on
25   contracts, and so I think our desire here is to really
0045
 1   increase our efforts and have something more of a
 2   regular program of looking at contract compliance.
 3                  There are some things that we're doing
 4   now.  For example, our large G-tech contract, we're
 5   better -- there is a current provision that requires an
 6   annual compliance review, and so internal audit is very
 7   involved in that to ensure that that requirement in
 8   that contract will give us all those things that we
 9   need to see to ensure that G-tech is meeting all their
10   requirements.  And I think, as we go further in this
11   process, that internal audit will certainly work with
12   legal, but we would want to have certain provisions put
13   in the contract that allow us to do more contract
14   compliance work, but as an ongoing basis, internal
15   audit will have the program of actually looking at
16   certain elements that are more within our larger
17   contracts, those might pose more risk to us.
18                  CHAIRMAN CLOWE:  Thank you.
19                  MR. GRIEF:  In answer to your question,
20   Commissioner Olivera, we will do our best to ensure
21   that there is coordination between internal audit,
22   between the management team in maybe managing a
23   particular contract, and also with the group that will
24   be in the administration division that will be our
25   contract specialist to help us in all of our
0046
 1   procurement issues.  We will make sure that there's not
 2   any wasted efforts or redundancy where there shouldn't
 3   be in coordinating those activities.
 4                  MS. MELVIN:  I can say that we've got
 5   another element of internal audit that is also to
 6   evaluate how well the management administers or manages
 7   those contracts, so I think that's another element to
 8   throw into the mix that we would look to to be sure
 9   that, you know, those functions that are now moved or
10   given more robust opportunities, I'd say, are working
11   affectively, so that almost forces our hand in ensuring
12   that we have coordination and not duplicating efforts.
13                  COMMISSIONER OLIVERA:  Thank you.
14                  CHAIRMAN CLOWE:  Reagan, did you have a
15   comment?
16                  MR. GREER:  No, sir.  I would like to
17   make a -- not on this specific issue on contract
18   compliance, but I have a general comment about the
19   overall organization.
20                  Is this the proper time for that?
21                  CHAIRMAN CLOWE:  Yeah, I'd just like to
22   thank you, Catherine, for that explanation.  We talked
23   about that difference between contract management,
24   which is, as I see it, the role of the executive
25   director in the management of this agency and contract
0047
 1   compliance, which is, from the commissioner's
 2   viewpoint, as I see it, it's an oversight
 3   responsibility and one of wanting to be able to be
 4   current and monitor these very large and important
 5   contracts, and this organization change, I think,
 6   serves those needs very well and I see them, for one
 7   commissioner, as two separate entities that, to a great
 8   extent, work together, and that explanation that I
 9   think you gave was very helpful.
10                  MS. MELVIN:  Thank you.
11                  CHAIRMAN CLOWE:  Now, Reagan, did you
12   have a general comment?
13                  MR. GREER:  Yes, sir.  I certainly
14   concur with Catherine's thoughts, and what her comments
15   and what your comment leads me to reinforce is the fact
16   that this is a great new communication tool.  One of
17   the things that we've really prided ourselves on is
18   being team oriented, and the thing that I'm already
19   seeing in the reporting to me -- which I get a weekly
20   report and then we have monthly meetings as well as
21   individual meetings that I'm having with the heads of
22   each division -- the communication level is much better
23   and there's better coordination, and I think that goes
24   back to what you talked about a minute ago, which is
25   delivering the highest quality possible and working in
0048
 1   an optimum capacity.
 2                  CHAIRMAN CLOWE:  Very good.
 3   Commissioners, any questions or comments?
 4                  Gary, I think this is an excellent
 5   organizational plan.  I know that you gave me a full
 6   and complete briefing along with the other members of
 7   your team who worked on this before you implemented it.
 8   I think you implemented it very professionally and very
 9   well and I approved it and I support it and I expect to
10   see the performance of this agency improve as a result
11   of it.  Thank you very much.
12                  MR. GRIEF:  Yes, sir.  Thank you.
13                      AGENDA ITEM NO. 3
14                  CHAIRMAN CLOWE:  All right.  Now, Mr.
15   Fernandez and Mr. Anger, I know who you are and I see
16   you there on Item 3:  Report, possible discussion
17   and/or action on lottery sales, game performance, and
18   trends.
19                  MR. ANGER:  Thank you.  Commissioners,
20   with our last discussion as a backdrop, the lottery
21   operations division and the administration division
22   will both play an active roll in reporting to you on
23   this agenda item in the future, and with that in mind,
24   Mike and I and multiple staff members from both
25   divisions have spent some time looking at the report
0049
 1   that's been presented to you in the past and we've made
 2   some changes to that report and the report that we will
 3   go through today, and one of the things that we have
 4   done is, we have created a greater emphasis on instant
 5   ticket products.
 6                  As you know, instant tickets make up
 7   better than two-thirds of our sales, and we felt that
 8   it was appropriate that we spend a little more time
 9   sharing information with you on both that product line
10   and the online product line to give you a better
11   overall picture of where we stand in the lottery
12   products as a whole, and so the presentation today will
13   reflect that, and I'll turn it over to Mike for his
14   comments.
15                  MR. FERNANDEZ:  Thank you.  Good morning
16   Mr. Chairman, commissioners.  My name is Mike Fernandez
17   and I'm the director of the administration division,
18   and I concur with what Michael said.  I believe, and I
19   think the staff believes, that this presentation will
20   improve.  Certainly, we welcome your comments and your
21   guidance as we go forward with this, but having that
22   said, it is the Commission's presentation, and the
23   staff would like it to be as informative and timely as
24   possible.  And so with that, I believe we'll turn it
25   over to our new product managers and Mr. Deviney.
0050
 1                  MR. DEVINEY:  Thank you.  Good morning,
 2   Chairman Clowe and commissioners.  I'm still Lee
 3   Deviney, financial administration director.  If you'll
 4   refer to tab three in your notebook, you will find the
 5   weekly sales report for the month.  Normally, in a
 6   commission meeting, we'll hand you out a new one, but
 7   the one that you have in your notebook under tab four
 8   is the current one, we're reporting sales through the
 9   week ending December 4th, 2004.
10                  Comparing fiscal year 2005 sales by
11   product and 2004 sales for the same time period, we're
12   going to break out the instants and onlines for you.
13   The instant tickets are up 73.2 percent compared to the
14   same time period in fiscal year 2004 -- excuse me --
15   they're up 20.1 percent, and we wanted to note that at
16   this time instant tickets make up 73.2 percent of our
17   sales.  On line sales represent 26.8 percent of our
18   overall sales, and we're up 2.7 percent compared to the
19   same time period last year.  On audited fiscal year
20   2005, sales through December 4th are at $897.1 million.
21   That's a 14.9 percent increase over where we were in
22   2004 at $780.8 million.
23                  On this slide, we've broken out each
24   product.  These are fiscal year 2005 sales to date.
25   Again, our instant tickets are 73.2 percent and our
0051
 1   overall sales are $897.1.  And then on the next slide,
 2   we'll give you a -- this is the same information; we
 3   just wanted to present it to you as a pie chart to give
 4   you a feel for what our sales look like at this time.
 5                  And the last slide I wanted to cover
 6   during this portion is looking at instant ticket sales
 7   and revenue starting in fiscal year 2000.  We picked
 8   the year 2000 because, prior to that, we had a
 9   legislative cap on the prize pay out, and so we felt
10   like starting in 2000 would give you more comparable
11   figures.
12                  As you can see, our instant ticket sales
13   have gone up each year as well as our revenue with a
14   very minute dip in fiscal year 2001 from 2000, but our
15   sales have gone up consistently as has revenue from
16   instant ticket products.  And then, finally, for fiscal
17   year 2005, we're reporting through the end of November,
18   and you can see where we are, $624.1 million in sales,
19   and unaudited, we estimate about $160 million worth of
20   revenue from instant ticket products so far.
21                  COMMISSIONER COX:  Lee, it looks as
22   though the increase in revenue is -- our sales is
23   significantly greater as a percentage than the increase
24   in revenue.  Is that because of the scale or are there
25   actually -- is the percentage declining?
0052
 1                  MR. DEVINEY:  Well, I don't have it
 2   quite that way.  I do have some notes.  And one thing
 3   that we've noticed is that the prize pay out has
 4   increased each year.  Back in 2000, the prize pay out
 5   was 61.93 percent and in fiscal year 2004, we were up
 6   to 65.04 percent, and we're actually running a little
 7   bit above that in '05; however, when we back out
 8   unclaimed prizes, that will tend to bring that prize
 9   down, the percentage down.
10                  Sales have gone up -- just to give you
11   some comparative numbers, from 2000 to 2001, our sales
12   went up 3.2 percent, then the following year sales went
13   up 13 percent, then ten percent, then nine percent, and
14   our revenue, you'll note that there is a slight
15   decrease in revenue in '01; it was 1 1/2 percent, and
16   then we went up 13.8 percent, then up 6.32 percent,
17   then up 7.8 percent, so, yeah, sales have tended to
18   rise.  That's a lot of number, but sales have tended to
19   rise at a slightly higher rate than revenue has, but
20   overall revenue has gone up; our bottom line has gone
21   up.
22                  COMMISSIONER COX:  So, this would say
23   that, over that period of time, we have made the
24   product more attractive by a larger payback and that
25   has resulted in, not only increased sales, but
0053
 1   increased revenue as well?
 2                  MR. DEVINEY:  Yes, sir, that is the
 3   case.
 4                  MR. CHALONEY:  Good morning,
 5   commissioners.  For the record, my name is Robert
 6   Chaloney.  I am the products manager for the Texas
 7   Lottery Commission.  Commissioners, I do want to let
 8   you know, I did provide you each with a color copy of
 9   this presentation on the table in case you do want to
10   follow along with a hard copy.
11                  Commissioners, the instant product game
12   plan is truly a collaborative effort with a lot of
13   different players involved, including the Texas Lottery
14   Commission products staff, the lottery operator, and
15   our instant ticket manufacturing vendors.
16                  Commissioners, in the summer of this
17   year, Reagan challenged the instant product section of
18   the agency to develop an annual plan and to develop
19   that plan early in the fiscal year.  We believe, and I
20   think he believed, that that strategy would give us the
21   opportunity to analyze the factors that are critical in
22   building a successful game plan and to find areas and
23   opportunities for sales growth.
24                  Our instant product coordinator, Dale
25   Bowersock, is in constant communication and
0054
 1   coordination with all of the vendors that support our
 2   instant plan and Reagan is also very involved in the
 3   plan and plays a vital role.  He reviews artwork,
 4   attends focus groups, meets regularly with vendors,
 5   provides feedback on the plan, and Reagan is briefed
 6   regularly by Dale and by myself on the plan and any
 7   changes to the plan.
 8                  I'd like to walk through the factors
 9   that are considered when we build our instant plan for
10   the year starting with prize points.  We strive to have
11   a good mix of prize points out in the -- out in our
12   retail locations.  I've also noted higher prize points.
13   We, in late October, just introduced our first $30
14   ticket, Holiday Millions Wishes, and I'll talk about
15   seasonal games in a little bit.  This time of the year
16   has been a good time of the year for us to step out
17   with some higher prize points.  Our first $10 game was
18   introduced around the holidays; our first $20 game was
19   also introduced in the holiday times.  Not everybody
20   wants $30 tickets, obviously, and not everybody wants
21   $1 tickets, and so our goal is to always have a good
22   mix available.
23                  The same is true for themes and colors
24   as well.  We like to have different themes.  We do have
25   a segment of the player population that likes gaming
0055
 1   casino themes, Texas themes, money themes, and just
 2   like prize points, you need to have a good mix
 3   available.  I touched on seasonal games.  We have five
 4   holiday games out this year.  This is our biggest time
 5   of the year in terms of releasing seasonal games.  In
 6   the past, we have done seasonal games around
 7   Valentine's Day, Mother's day.  In the past, we've done
 8   Halloween games.
 9                  Game closures, that's important factor.
10   We have to ensure that we're pushing out enough product
11   to compensate for those games that have already sold
12   through and that are closing.  Working closely with our
13   vendors gives us the ability to introduce games that
14   have proven track history in other states.
15                  In terms of core games, those are games
16   that have indexed high even after several releases.  We
17   do have a strategy as it relates to core games,
18   commissioners.  We are looking to increase the number
19   of core games we currently offer.  We feel that this
20   may impact the number of new games we launch per year.
21   There are some advertising and promotional benefits to
22   having a group of core games.  You know you're always
23   going to have a consistent number of core games and
24   those games are not going to change in terms of the
25   name of the game.  It's easier to produce in-store
0056
 1   point of sale on advertising, to advertise and promote
 2   those games.  And in other states where core games have
 3   been introduced, retailers have embraced that concept,
 4   and the reason is, they have become very familiar with
 5   those core games and there's not the regular learning
 6   curve of having to learn about how certain games are
 7   played, what the prize points are.  If there's core
 8   games in place, they become more familiar with the
 9   products that they're actually offering in their
10   stores.
11                  Licensed property games are important.
12   I think the biggest factor with licensed property games
13   is the brand awareness.  When you launch a game like
14   Harley Davidson or Instant Monopoly, you have the power
15   of that brand, that well-known, recognized brand that
16   people are familiar with.
17                  And, lastly, focus groups.  Going years
18   back, we used to do focus groups for $1, $2, $3 games.
19   The process has evolved over the years, and now the
20   focus groups are pretty much geared towards higher
21   prize point games, licensed property games, noncash
22   prize games, and we get valuable feedback from those
23   focus groups for our game plan.
24                  Dale Bowersock, our instant product
25   coordinator, is going to take you through the next few
0057
 1   slide where he'll discuss our holiday games and some of
 2   our core games, and then I'll be back with a few more
 3   updates.
 4                  MR. BOWERSOCK:  Good morning,
 5   commissioners.  For the record, my name is Dale
 6   Bowersock and I'm the instant products coordinator.
 7   Robert just provided you information on how we prepare
 8   the game plan, so we'll provide you some basic
 9   information on our first quarter of FY '05.  This slide
10   provides you with the number of games that we
11   introduced for sale by prize point during the first
12   quarter.  We launched a total of 27 new games, seven in
13   the $1 prize point; eight were launched in the $2 prize
14   point; three in the $3; the $5 prize point had six new
15   games; two in the $10; and as Robert had mentioned
16   earlier, on October 27th, we launched Holiday Millions
17   Wishes, our first $30 ticket.
18                  This pie chart demonstrates our first
19   quarter FY '05 instant sales by prize points.  As you
20   see here in green, the $1 prize point made up
21   13.5 percent of the sales.  The $2 prize point made up
22   29.9 percent of the sales for this quarter.  The $3
23   prize point made up 6.6 percent.  The $5 prize point
24   made up 21.3 percent.  The $7 prize point made up
25   1.8 percent of the sales.  The $10 prize point gave us
0058
 1   11.9 percent.  The $20 prize point produced 4.4 percent
 2   of the sales.  The $25 prize point generated
 3   8.1 percent.  The new $30 prize point produced
 4   2.6 percent after only six weeks from its launch date.
 5                  We've selected a sample of games to show
 6   you today.  On your desk, you'll find two bundles of
 7   void ticket samples.  This is the set of the holiday
 8   tickets that we released this year.  The $1 prize point
 9   is Holiday Cash.  Holiday Gold is at our $2 prize
10   point.  The $5 prize point is Deck the Halls.  Twelve
11   Days of winning is at the $10 prize point.  And the
12   newest prize point, once again, Holiday Millions, which
13   comes in at the $30 prize point.
14                  The second bundle of tickets in front of
15   you is the group that we refer to as the core games.
16   As Robert mentioned earlier, the core games are games
17   that perform very well from their first launch and when
18   released, they continue to perform well.  We keep these
19   games on the market.  Our $1 prize point core game
20   theme consists of two different Nines games.  Nines in
21   a Line and Find the Nines.  They alternate releases.
22   When we release one of them, and when it sells through,
23   we'll release the other.  They alternate so as to keep
24   the nines theme fresh.  The first of these two games,
25   Nines in a Line, was launched in December of 1999.  We
0059
 1   have three core games at the $2 prize point.  Break the
 2   Bank has been a very popular game and has done very
 3   well since its first launch back in December of 1995.
 4   Weekly Grand is an annuity game offering players a
 5   chance to win $1,000 a week for 20 years and has been a
 6   strong game ever since its release back in May of 1995.
 7   The bingo games are standard play games, and although
 8   extended play games are not for everyone, this game has
 9   its share of devoted players.  Our first bingo game was
10   introduced in June of 1999.  In June of 2002, we
11   introduced our first crossword game at a $3 prize
12   point, and it also has its dedicated players and has
13   done very well with every release since.
14                  MR. CHALONEY:  Commissioners, I'm very
15   excited about the instant game plan that we have in
16   place for '05.  I'm excited to be the product manager
17   over both the instant and the online product
18   categories.  I think we've seen great success thus far,
19   and as Michael Anger and Mike Fernandez said earlier,
20   we plan to keep you undated on this vital part of our
21   overall product portfolio on a regular basis so you are
22   up to speed on, not only the online categories that
23   we've been updating you in past meetings, but also the
24   instant side of the business.
25                  I'd like to give you a brief update on
0060
 1   our two online jackpot games, Lotto Texas and Mega
 2   millions.  This is a chart we've looked at now for just
 3   about a full year.  This is the trending of Mega
 4   Millions and Megaplier.  Not much change.  Over the
 5   past, the Megaplier is trending similar to the Mega
 6   Million sales.  You see that our Megaplier sales are
 7   still about 19 percent of total sales.  We did roll up
 8   to $149 million jackpot; that was in October.  That
 9   winning ticket was sold in New York City.  We started
10   back at a $10 million starting jackpot and we didn't go
11   very far on this roll cycle.  We built up to a
12   $24 million jackpot before a ticket was sold in New
13   Jersey, so we started back at $10, and our current
14   jackpot for tomorrow night is $17 million.
15                  We've also seen this slide.  Again, this
16   just provides you with a bit more detail.  This slide
17   is nice because it goes all the way back to the time
18   when Mega Millions started in Texas in December of
19   2003.  And, again, the Lotto Texas rolls are in red in
20   the background and the Mega Millions rolls are in blue
21   in the foreground.  And, again, there's the roll that
22   took a $149 million jackpot on Mega Millions.  And,
23   again, you can see the $24 million hit in New Jersey,
24   and back to the starting point.  Lotto Texas has been
25   on a roll cycle and we are currently at $28 million for
0061
 1   the Wednesday drawing.
 2                  I have two follow-up items from the last
 3   meeting.  The first one is a recap of a Cash Five
 4   promotion that we did and the second one is, in answer
 5   to your question, Mr. Chairman, about instant games
 6   available at retail locations.  Before I go into the
 7   Cash Five promotion summary, I wanted to give a little
 8   background of why we ran that promotion and give you
 9   some information that we just received from a recent
10   lottery conference that a group of us attended, and I
11   think that coordinates well with the reasons why we ran
12   this Cash Five promotion.
13                  Reagan and myself and some other staff
14   members went to a Florida Lottery Conference just about
15   a week ago, And Texas' situation is very similar to
16   that of many other jurisdictions, and that is that
17   instant sales seem to be trending up in most
18   jurisdictions while online sales tend to be in decline
19   or flatlining.  For states that have healthy online
20   sales years, it seems that they're very dependant on
21   their big jackpot games, whether that be an instate
22   game or a multi state game, so if you have a large
23   jackpot, such as we did in Texas last year, the $145
24   million jackpot on Lotto and the $290 million Mega
25   Millions jackpot, you tend to have a healthy online
0062
 1   sales year, but your other online products, such as
 2   your daily games, your three-digit, your five-digit
 3   games, those are harder to be able to move the lines,
 4   so to speak, in an upwards trend because they're not
 5   jackpot driven.
 6                  So, this past summer, in coordination
 7   with G-tech, we felt that we needed to run a promotion
 8   on the Cash Five game to address this very issue,
 9   declining sales on Cash Five, and so we ran a two-week
10   promotion, and I'll share the information with you.
11   For the nine weeks before we ran the promotion, the
12   average Cash Five sales were $2.03 million.  We ran a
13   two-week player promotion, and the promotion was buy $5
14   worth of Cash Five and get a free $1 Cash Five quick
15   pick.
16                  And so that promotion ran for two weeks,
17   and it was for the weeks ending 11-6 and 11-13, and the
18   average sales for those two weeks was $2.19 million, so
19   the number of free ticks we gave away in that period
20   was over 450,000 tickets.  Since Cash Five is a
21   50 percent pay out game, the potential prize expense
22   for those 450,000 tickets is $225,220, and the retailer
23   commission on those free tickets is slightly over
24   $22,000.  The increase in sales translates to a net
25   revenue increase of -- slightly over $123,000, but when
0063
 1   you factor in the potential prize expense and the
 2   retailer commission, we have an initial impact of a
 3   cost of slightly over $124,000, so from our
 4   perspective, we're looking at this two-week promotion
 5   as a lost leader on the Cash Five game.  With the hopes
 6   that these efforts to bring players into the stores and
 7   to increase retailers' interests, we'll have a
 8   long-term positive impact on Cash Five sales, and the
 9   goal, as I said, in online is to be able to stop the
10   decline and stabilize the sales of that game and,
11   hopefully, as we continue to measure this -- the Cash
12   Five sales after the promotion, hopefully we'll see
13   that that is the case.
14                  We have three weeks of data since the
15   promotion ran -- the week ending 11-20, and we were
16   $2.04 million.  The week of Thanksgiving we believe is
17   an anomaly.  The week ending 11-27, we had sales of
18   $1.93 million.  For the week ending last week, we had
19   sales of 2.08 million.  So our plan is to continue to
20   monitor these sales over the next coming weeks so we
21   can make an apples-to-apples comparison in terms of
22   time and then report back to you on our feelings about
23   how the promotion worked overall from a long-term
24   perspective.
25                  Mr. Chairman, this last slide I have is
0064
 1   in answer to the question that you posed last month
 2   about the number of instant games that are available.
 3   We thank G-tech for their help in getting us this
 4   information.  We see retailers with a weekly sales
 5   average greater than equal -- greater or equal to
 6   $4,000 a week.  They're averaging about 28 games for
 7   sale or available at their location, and that's
 8   comprising slightly over 4,100 retailer.
 9                  And then moving down to the next notch,
10   you have retailers about -- just under 4,000 retailers
11   with sales greater than or equal to $2,500 but less
12   than $4,000.  They're selling about 23 games.  Moving
13   down, the next 5,100 retailers fall into the greater
14   than or equal to $1,000 but less than $2,500 in sales.
15   They're selling about 19 games at their stores.  And
16   then those retailers selling less than $1,000 a week
17   slightly under 3,000 retailers, they're selling about
18   13 games.  So, statewide, there's about 21 games
19   average available for sale at retail locations.  That
20   16,175 number might look low in terms of our retailer
21   count; that's based on active retailers with a minimum
22   number of eight week sale, and that's the reason why
23   that number might look low.
24                  Commissioners, that concludes our
25   presentation for this morning.  We'd be happy to answer
0065
 1   any remaining questions that you have.
 2                  CHAIRMAN CLOWE:  Are there any
 3   questions?
 4                  COMMISSIONER COX:  Just a little bit
 5   more on that 16,175 number.  My perception was that the
 6   number was closer to 17,000.  Can you get me up there
 7   from 16,175.
 8                  MR. CHALONEY:  I belive that that number
 9   is based on -- I believe our retailer count total right
10   now is approximately 16,000 five or six hundred
11   retailers total.  These -- this analysis is based on
12   when G-tech went in and looked at these numbers, they
13   only looked at retailers that had eight weeks of sales
14   in order to do this analysis.
15                  COMMISSIONER COX:  So we have five
16   hundred retailers or so that have eight weeks of sales?
17                  MR. ANGER:  Commissioners, for the
18   record once again, my name is Michael Anger and I'm the
19   lottery operations director.  I think I can answer that
20   question for you.
21                  As of last week's count, we had a little
22   over 16,450 retailers active with the commission, but
23   the fact is, commissioner, that there is a lot of
24   turnover in change of ownerships of small businesses
25   that we had as licensees in our retailer base, and
0066
 1   so -- and when you look at -- we took a snapshot in
 2   time and said, okay, let's look at our retailers and
 3   let's look at a stable number, retailers that have been
 4   with us for a period of time, so the snapshot that you
 5   had put together for us were retailers that had been
 6   active for basically at least two months with us, so
 7   the difference you see there is turnover in our
 8   licensee base.
 9                  COMMISSIONER COX:  So, this is not
10   locations disappearing and replacing them.  This is
11   ownership changing?
12                  MR. ANGER:  Frequently that's the case.
13   There are -- also included in that, there are also
14   certainly new locations and locations that might go out
15   of business, but most of that is kind of a turnover in
16   sales of businesses; that's the biggest part of that
17   number.
18                  COMMISSIONER COX:  Thank you, Michael.
19                  CHAIRMAN CLOWE:  Any other questions?
20                  MR. GRIEF:  Mr. Chairman, I had two
21   points that I wanted to make.  First off, I wanted to
22   tell the staff how much I appreciate this new report.
23   I think they did a great job, especially on the instant
24   side.  Working with them and with G-tech, I think we've
25   come up with what I perceive to be a game plan for
0067
 1   instant tickets that's going to take us up another
 2   notch, specifically looking at what other states are
 3   doing and going back to what we talked about on the
 4   core games, and you noted that the $2 prize point was
 5   our top prize point, you see some of those tickets.
 6                  I think with further analyzation of
 7   what's going on around the country, we're going to
 8   continue to see a lot of exciting things on the instant
 9   side and I feel really good about that, and we're going
10   to bring you that plan as it continues to develop.
11   There's changes going on all the time with that.
12   Especially exciting is the licensed property, we've
13   really never dove -- we haven't gone into that area or
14   dove into that area in the past as deeply as we are
15   now, and we're doing cost benefit analysis and other
16   things prior to bringing that to you, so I want you to
17   be aware of that.  And I want to thank you all again
18   for your work on this presentation today.
19                  Secondly, next month we're going to
20   bring you an overview on Mega Millions.  It was our
21   one-year anniversary, as you're aware, on December the
22   3rd.  I'm going to give you some numbers and my
23   comments at the end of the meeting in my report, but I
24   wanted to let you know that we will be pursuing Mega
25   Millions as part of our presentation next month.
0068
 1                  CHAIRMAN CLOWE:  Very good.  Anything
 2   further?  Thank you, gentlemen.
 3                  AGENDA ITEM No. 4
 4                  CHAIRMAN CLOWE:  Next we'll go to Item
 5   Number 4:  Report, possible discussion and/or action on
 6   HUB and/or minority business participation, including
 7   the agency's mentor/protege program.
 8                  MS. BERTOLACINI:  Good morning, Chairman
 9   Clowe and commissioners.  For the record, my name is
10   Joyce Bertolacini and I'm the coordinator of the TLC
11   Historically Under-Utilized Business Program.  The TLC
12   subcontracting and tort submission deadline did not
13   allow time to complete the November monthly HUB
14   minority contracting activity report for this meeting.
15   However, included in your notebooks today is the
16   October monthly HUB minority contracting activity
17   report, which includes all fiscal year 2005
18   expenditures from September 1st of 2004 through
19   October 31st of 2004.
20                  During this time, our total qualifying
21   expenditures were $23.4 million and our estimated HUB
22   minority expenditures were $5 million, which equates to
23   21.45 percent.  I also wanted to mention that we're
24   currently working on our minority business
25   participation report, which is an annual report
0069
 1   required by the State Lottery Act, and I hope to be
 2   able to bring that to you in the January meeting,
 3   depending upon when the date falls.  We are currently
 4   in the review process on that report and, as you know,
 5   that report does require your approval.
 6                  Regarding our mentor/protege program, we
 7   have received a mentor application from one of our
 8   advertising vendors, DDB Dallas, since the last
 9   commission meeting, and I will be supplying DDB Dallas
10   with a potential protege applications, and we'll update
11   you on progress made in establishing any new
12   relationship.
13                  And that's all I have for you this
14   morning, but I'd be happy to answer any questions.
15                  CHAIRMAN CLOWE:  Joyce, be sure and get
16   that report to us timely prior to the January meeting
17   so we have time to read it and study it and understand
18   it.  I'm told that our meeting in January must occur,
19   at the latest, January the 7th to approve some other
20   document that must be submitted, I believe, to the
21   legislature by the 10th, and if that's the case, that
22   gives you a smaller time frame in the month of January.
23                  Counselor, can you help me with that?
24   Am I remembering the constraints on our January meeting
25   correctly or not?
0070
 1                  MS. KIPLIN:  Well, there is a constraint
 2   in terms of, I believe, several reports that need to be
 3   issued prior to the meeting of the legislative session.
 4   I will defer to Mr. Eno in terms of the precise date on
 5   the convening.
 6                  COMMISSIONER COX:  Okay.  We don't need
 7   to go into that now, but I just wanted to bring that up
 8   in the light that, I don't like for the commissioners
 9   to be given something a day before or the day of the
10   meeting and asked to vote on it.  I think we need more
11   time in order to be fair, so keep that in mind, would
12   you, please?
13                  MS. BERTOLACINI:  Yes, Chairman.  And I
14   would like to mention that I did have a time line
15   worked out probably more looking at the date being more
16   towards the end of the month.  I did have plans to get
17   you a draft prior to that time, but in light of what
18   you've just told me, we probably won't be able to bring
19   it to you in its final form, then, until the February
20   meeting.  And we don't have an externally-imposed
21   deadline for the minority business participation
22   report.  Traditionally, we try to get it out by the end
23   of January, or at least up on the web site, and then
24   have it in its hard copy form by about mid February so
25   that any members of the legislature that are interested
0071
 1   can request it.  So, I will revise my time line and I
 2   will make sure that you all have draft copies prior to
 3   the February meeting.
 4                  CHAIRMAN CLOWE:  Very good.  And we
 5   continue to be appreciative of the efforts that are
 6   made by you and others in this group to minority and
 7   HUB participation and the mentor/protege program and we
 8   are very pleased with the results as they continue to
 9   be very positive.
10                  MS. BERTOLACINI:  Thank you, Chairman.
11                      AGENDA ITEM NO. 5
12                  CHAIRMAN CLOWE:  Thank you.
13                  Next, Item 5:  Report, possible
14   discussion and/or action on the agency's contracts.
15                  MR. FERNANDEZ:  Mr. Chairman,
16   commissioners, my name is Mike Fernandez.  I'm the
17   director of the administration.  Tab five has a status
18   report addressing those contracts with an estimated
19   value of $25,000 or more.  If you have any questions,
20   I'd be happy to try to answer them.
21                  CHAIRMAN CLOWE:  Are there any
22   questions?
23                  Thank you, sir.
24                      AGENDA ITEM NO. 6
25                  Next, Item 6:  Report, possible
0072
 1   discussion and/or action on the agency's financial
 2   status.
 3                  Mr. Deviney?
 4                  MR. DEVINEY:  Commissioners, again, I'm
 5   the financial administration director.  If you would
 6   refer to tab six in your notebook, there's only a
 7   couple of things that I wanted to point out to you.
 8   First, on the first page, which is a summary of
 9   transfers and allocations, you'll note that total
10   transfers to the state from the Texas Lottery
11   Commission have now exceeded $12 billion.
12                  Also, looking at unclaimed prizes this
13   fiscal year, we've broken the $10 million mark in terms
14   of like prizes transferred to state, including $10
15   million that's been transferred to the category of Fugi
16   Hospital account and then the remainder of
17   approximately $800,000 has been transferred to the
18   Health & Human Services Commission to fund graduate
19   medical programs.
20                  And then behind the teal divider page --
21                  COMMISSIONER COX:  I see a transfer here
22   to the general revenue fund, $19,465,000?
23                  MR. DEVINEY:  During the course -- yes,
24   sir.  The first or second page?
25                  COMMISSIONER COX:  The first page.
0073
 1                  MR. DEVINEY:  Oh.  Okay.  Right.  There
 2   is a very complicated formula in terms of how unclaimed
 3   prize money is allocated biannually, and this was --
 4   the way the legislature -- the 78th Legislature passed
 5   House Bill 2292, which dealt with a variety of things
 6   in reorganization of health & Human Services functions
 7   in the state government.  There was also provisions in
 8   their on allocations of lottery money, unclaimed
 9   lottery prize money.  The first $10 million each year
10   of unclaimed lottery prize money goes to the wound
11   category teaching hospital account.  After that, we
12   transfer money to the general revenue fund, and there
13   was a formula that brought us up to this $19.4 million
14   cap, and then that's tied to the biannual revenue
15   estimate, and then after we reach that cap, then we
16   start transferring money to the Health & Human Services
17   Commission graduate medical education programs.
18                  COMMISSIONER COX:  So it is no longer
19   true that none of our revenue goes into the general
20   fund?
21                  MR. DEVINEY:  It is not true if you're
22   looking at unclaimed prize money, that is correct.
23                  COMMISSIONER COX:  All our revenue,
24   then, does not go into the general fund, but some of
25   the money we turn over does?
0074
 1                  MR. DEVINEY:  Correct.
 2                  COMMISSIONER COX:  Thank you.
 3                  MR. DEVINEY:  And behind the divider
 4   page, you'll find our budget report for the period
 5   ending November 30th, 2005.  During this period, our
 6   expenditures have been within our operating budget and
 7   also within our legislative appropriations, and there's
 8   nothing significant to report on the budget.
 9                  Any questions?
10                  CHAIRMAN CLOWE:  Lee, I have two annual
11   financial reports.  One is just listed as an annual
12   financial report; the other is a comprehensive annual
13   financial report.  They seem to be for the same period.
14   Would you help me understand that?
15                  MR. DEVINEY:  Sure, I'd be glad to.
16                  Each Texas state agency is required to
17   turn in an annual financial report to the comptroller
18   public accounts -- that's that report -- by
19   November 20th of each year.  The Texas Lottery
20   Commission is a little unique in the fact that we also
21   have to have audited financial statements submitted by
22   December 20th of each fiscal year.  The colored
23   document, the CAFR, includes the audited financial
24   statements, so it's a more comprehensive report than
25   the annual financial report turned in on the 20th.  And
0075
 1   the next agenda item will cover the audit report and
 2   more on the CAFR.
 3                  CHAIRMAN CLOWE:  This?
 4                  MR. DEVINEY:  Yes, sir.  And what you'll
 5   find in there is the same -- the same financial
 6   information that's on the November 20th submission is
 7   also in the CAFR.
 8                  CHAIRMAN CLOWE:  And what are you --
 9   what word are you using?
10                  MR. DEVINEY:  CAFR, Comprehensive annual
11   financial report.
12                      AGENDA ITEM NO. 7
13                  CHAIRMAN CLOWE:  Well, commissioners, if
14   you're agreeable, let's cover that, which is Item 7:
15   Report, possible discussion and/or action on the
16   agency's annual financial audit and/or comprehensive
17   annual financial report.
18                  I'm eager to hear more about this.
19                  MR. DEVINEY:  Catherine is going to come
20   up and kick that off.
21                  CHAIRMAN CLOWE:  Sure.
22                  Catherine, I think I have the same
23   question:  Why two and what's behind this?
24                  MS. MELVIN:  Well, actually, let me
25   invite Lee back up to the table since your question is
0076
 1   still regarding the two presentations.
 2                  MR. DEVINEY:  I'm going to make sure
 3   everybody has a copy.
 4                  MS. MELVIN:  My purpose here this
 5   morning is to deliver the audited annual financial
 6   statement, and with me is Mr. Scott Kirshnack from the
 7   firm Maxwell, Loch & Ridder who will deliver that
 8   report.
 9                  CHAIRMAN CLOWE:  Good morning.
10                  MS. MELVIN:  But maybe before we go
11   there, maybe you would like to have some additional
12   discussion about the distinction between the annual
13   financial report, the audited annual financial
14   statement, and the CAFR.
15                  MR. DEVINEY:  Again, the annual
16   financial report is a required report and the audited
17   financial statements are required reports under state
18   law.  The CAFR, the comprehensive annual financial
19   report, is an expanded version of an annual financial
20   report that's recommended by the Government Finance
21   Officer's Association, and a lot of state agencies have
22   adopted the practices of developing a CAFR.  This is
23   our third year to do a comprehensive annual financial
24   report.  It will be submitted to the Government Finance
25   Officer's Association for their review, and we hope to
0077
 1   receive annually a certificate of excellence award for
 2   the production of the CAFR.
 3                  If you'll look in the -- it includes a
 4   letter of transmittal to the citizens of the state of
 5   the legislative leadership describing in more detail
 6   the functions and history and activities of the agency.
 7   And also in the back of the CAFR, you will find some
 8   supplemental charts and graphs and other information
 9   that would not normally be included in the just the
10   barebones annual financial report.
11                  CHAIRMAN CLOWE:  I'm to going to defer
12   to Commissioner Cox on this because he has the
13   expertise that I don't have, but, you know, when public
14   companies report, some of them just put out a 10k, and
15   this is sort of the 10k to me; other times, they put
16   out a PR document.  And I read this and I thought, this
17   is a lot, and there's colored pictures in here and
18   obviously there's a lot of effort that's gone into this
19   and some expense, and I'm just wonder, are we guilding
20   the willy and are we wisely spending the taxpayer's
21   money when we generate a document like this.  And, as I
22   say, I defer to Commissioner Cox because I don't know
23   the answer to that question, but I have that question.
24                  COMMISSIONER COX:  Well, the only answer
25   I could give would be a general one, and this is, many
0078
 1   companies use their annual report as a way to
 2   communicate with their shareholders far beyond the area
 3   of public relations, communicating information that is
 4   not required, but is, nonetheless, helpful and valuable
 5   to the stockholders, the investing public, et cetera.
 6   Having said that, I guess I'll listen to the answer to
 7   your question.
 8                  MR. GREER:  Well, I'd like to add, from
 9   my perspective, you certainly get a lot of scrutiny and
10   stuff when you're talking expensive color copies and
11   things like that, and I wanted to assure you that I
12   reviewed this with the staff as we went through the
13   process.  And again, back to Commissioner Cox' comment,
14   this is painting a picture of the lottery, and the
15   assurance that I wanted to give you is that we're
16   trying to create an environment through this document
17   that gives a clear picture and gives people a really
18   good snapshot of what goes on on a daily basis.
19                  MR. DEVINEY:  One other thing I'd like
20   to add to that is, the way the -- the Lottery
21   Commission is a component of the Texas state government
22   and the State of Texas itself issues a comprehensive
23   annual financial report for all the state government.
24   The comptroller public accounts produces that document.
25   Our annual financial report that's submitted on
0079
 1   November 20th, all we're doing, in essence, is we're
 2   providing our information that the comptroller then
 3   blends into the state's capital.
 4                  By producing our own CAFR, as other
 5   governmental entities do, there's information included
 6   in the CAFR that is of interest to decision makers and
 7   to the public that they would not get in the barebones
 8   annual financial report.  In fact, on some year -- many
 9   years ago, some of this information was prescribed in
10   an annual financial report and then they changed the
11   rules and had us develop a separate report called the
12   annual report of nonfinancial information, so we
13   believe that -- if I was going to -- someone was very
14   interested in the lottery and its activities, I would
15   hand them the CAFR because it's more likely to provide
16   them the information that they need.
17                  CHAIRMAN CLOWE:  What are your thoughts,
18   Commissioner Olivera?
19                  COMMISSIONER OLIVERA:  Very
20   simplistically, would the CAFR be -- why produce two?
21   Why not just give the CAFR to the comptroller's office?
22                  MR. DEVINEY:  I glad you asked that
23   question.  In fact, it was our goal to do just that and
24   not produce two reports; however, we were waiting --
25   There was one thing that -- one item that we needed to
0080
 1   put into the comprehensive financial report that did
 2   not -- we did not get timely.  It came from a third
 3   party, and while we were waiting to receive that, we
 4   didn't get it on time for November 20th, so we just
 5   created just a bare minimum, a bare number, of annual
 6   financial reports to provide to the comptroller and a
 7   few other people until we were able to complete the
 8   CAFR.
 9                  COMMISSIONER COX:  So this one has a
10   different cover.  It's a subset of this?
11                  MR. DEVINEY:  Yes, everything in here is
12   in here, that's correct.
13                  COMMISSIONER OLIVERA:  And the
14   comptroller has no objection to getting a more
15   expansive report?
16                  MR. DEVINEY:  They have no objection.
17   In fact, what will be in there that is required by the
18   comptroller is the auditor's opinion.
19                  CHAIRMAN CLOWE:  Thank you.
20                  MR. GREER:  Commissioners, I would note,
21   before we get off of this, specifically on page 11 of
22   this document, that we as a commission did receive a
23   certificate of achievement for excellence in financial
24   reporting.  This document is very valuable in the
25   financial perspective on what we do, and I think that
0081
 1   Catherine might want to talk about that as well.
 2                  MS. MELVIN:  This award is the second
 3   year in a row for the Texas Lottery Commission to
 4   receive the award.  I'm speaking about it, but I have
 5   no part in it.  It's really the financial
 6   administration that submits their CAFR for review by
 7   the GFOA to determine if they're eligible for that
 8   award, and so this report for 2004 will be submitted
 9   for that very same purpose and we hope to see this
10   award in next year's report.
11                  COMMISSIONER COX:  One question, Lee:  I
12   think I observed in maybe one of the magazines that one
13   of the other state lottery's CAFR had won the award for
14   the best lottery report?
15                  MR. DEVINEY:  I'm not familiar with
16   that, but it sounds like something we need to go after.
17                  COMMISSIONER COX:  And if we've decided
18   this is worth doing, let's do it better than anybody
19   else does.
20                  MR. DEVINEY:  Yes, sir.
21                  MS. MELVIN:  Okay.  Well, if you have no
22   further questions on the distinction in the reports,
23   I'll go ahead and turn it over to Mr. Scott Kirshnack.
24   As I stated, he's with the firm Maxwell, Loch & Ridder.
25   This firm was hired to be our independent audit firm to
0082
 1   conduct the statutorily required annual financial
 2   audit.
 3                  MR. KIRSHNACK:  Thank you, Catherine.
 4                  Again, my name is Scott Kirshnack with
 5   Maxwell, Loch & Ridder.  Earl Maxwell was here until
 6   9:30.  He's the lead partner with our firm, but he had
 7   a prior commitment he couldn't get out of, so he was
 8   hoping this agenda item would happen prior to 9:30, but
 9   he had to leave.
10                  With that, one thing I want to point out
11   is, what Reagan pointed out on page 11 is the actual
12   piece of information Lee referred to that the
13   Commission was waiting on prior to completing this
14   CAFR.  In addition to the award, there is certain
15   additional comments that come with that award and that
16   we need to address prior to completing the CAFR, so
17   that's the one piece of information that was not
18   available prior to the annual financial award filing
19   deadline of November the 20th.
20                  With that, on page 12 is our independent
21   auditor's report on the Commission's financial
22   statements as of the year ending August 31st, 2004.
23   And based on our audit, we've rendered an unqualified
24   opinion that these financial statements are materially
25   correct, in lay terms and in unqualified opinion, it's
0083
 1   is a clean opinion.  That's what this agency is
 2   striving for.  One difference this year, the
 3   presentation in the CAFR is the same presentation as
 4   the prior year; however, in the prior year, there was
 5   reference to comparative financial statements, in
 6   essence, August 31st, 2002 and 2003 were tied on by the
 7   predecessor auditor, and when I actually got to writing
 8   the audit opinion, in looking at what was presented in
 9   a comparative total column, that column did not
10   represent the minimum required information to be
11   entered for the gaps of generally accepted accounting
12   principles, so if there is that distinction now this
13   year throughout this document that the prior year
14   information is referred to as summarized comparative
15   totals.  If you want to see an apples-to-apples
16   comparison, you'll need to pull the prior year
17   comprehensive annual financial report to see the same
18   information for '03 as '04.  If it's a desire of the
19   Commission to actually have two years of the same
20   information, that's going to be a decision, I guess,
21   you-all have to make, but there would be a lot of
22   additional schedules, columns and I don't know if
23   that's really the goal of what you-all want to see as
24   far as some prior year information, but if that is the
25   desire, then this report would have to be expanded
0084
 1   upon.
 2                  COMMISSIONER COX:  Well, that would be
 3   an expansion on your end for which we're responsible?
 4                  MR. KIRSHNACK:  Right.  Additional
 5   columns and so forth would need to be added here to
 6   meet the minimum requirements.
 7                  As a result of our audit, just a couple
 8   of things came out, again, this is our first year, and
 9   one area Lee noted was -- that could potentially be
10   looked into further and expanded upon was the revenue
11   recognition of the instant ticket sales.
12                  COMMISSIONER COX:  Is this in one of
13   these reports?
14                  MR. KIRSHNACK:  That's actually not.
15   It's on page 35 -- or, 46, actually, where we have
16   recognition of revenue.  It's about in the middle of
17   the page there.  It describes how the Commission
18   recognizes revenue for instant ticket sales.  And just
19   in looking at that, we thought maybe the organization
20   could work possibly with G-tech to get a better, more
21   accurate revenue recognition for instant ticket sales.
22   We did not believe that, in doing that, it would have
23   materially affected the financial statements, but maybe
24   it's something to consider if the Commission thinks
25   it's cost beneficial to get more accurate revenue
0085
 1   recognition for the instant tickets.  I think this
 2   procedure has been going on for a number of years.  Lee
 3   may expand on that, but just a side comment there, that
 4   maybe the Commission could potentially get a more
 5   accurate revenue recognition for instant tickets.
 6                  One other thing I wanted to bring up
 7   was, in the course of our audit, we proposed one audit
 8   adjustment that was actually recorded by the Texas
 9   Lottery Commission.  That audit adjustment had no
10   impact on net income of the Commission.  It dealt with
11   investment, balance, and actual payroll balance, and as
12   a result of confirming those balances with Texas
13   Safekeeping and Trust Company, confirmation came back
14   with a different answer than previous information that
15   was given to the Commission.  And just a point on that,
16   maybe before that information is taken for granted that
17   it's accurate, maybe the Commission could -- or, the
18   business people could challenge that information a
19   little bit more before it's actually just recorded at
20   face value, if you will.
21                  COMMISSIONER COX:  Lee, is this
22   something we would have found in the course of things?
23                  MR. DEVINEY:  It was significant enough
24   to where we should have.  As it turned out, the
25   auditors brought it to our attention when they sent the
0086
 1   confirmation letter, but I would hope we would have
 2   found it sooner or later before we published it.
 3                  COMMISSIONER COX:  Would you agree,
 4   Scott?
 5                  MR. KIRSHNACK:  I think, in time, it
 6   would have been found.
 7                  With that, I mean, there's a lot of
 8   information here.  I don't want to go over all of this
 9   information; I just wanted to bring out a few key
10   highlights of the financial audit.  And I'll open up
11   the door for any questions from any of the
12   commissioners.
13                  CHAIRMAN CLOWE:  Commissioner Olivera, I
14   would suggest that Commissioner Cox pursue the issue
15   that has been raised here about revenue recognition
16   with our internal auditor and Lee Deviney and Maxwell,
17   Loch & Ridder.  Rather than get into that at this point
18   in time and discuss the pros and cons, either you
19   always want more accurate numbers, there's no question
20   about that, but how much more accuracy can we achieve
21   if, where we are right now in evaluating that against
22   the cost of that, I think requires some more detailed
23   attention?  If you're comfortable with that, I would
24   certainly ask Commissioner Cox to pursue that in
25   another venue, and I think his expertise can be brought
0087
 1   to bear on that.  Would that be agreeable with you?
 2                  COMMISSIONER OLIVERA:  Very much so.
 3                  CHAIRMAN CLOWE:  Would you do that,
 4   Commissioner Cox?
 5                  COMMISSIONER COX:  You bet.
 6                  CHAIRMAN CLOWE:  Any other questions?
 7                  COMMISSIONER COX:  Are we going to talk
 8   about the agreed upon procedures for Mega Millions?
 9                  MS. MELVIN:  Yes, sir.  I'd asked Scott
10   to -- I wanted Scott to also just deliver the final
11   report, as you're aware, based on procedures, but maybe
12   we could just summarize the work that was done there.
13                  MR. KIRSHNACK:  Actually, that's a good
14   point, Commissioner Cox.  I didn't know if that was on
15   this agenda item or not.  That's a good question.  Is
16   it, Mr. Chairman?
17                  CHAIRMAN CLOWE:  I don't know.  Is it,
18   counselor?
19                  MS. KIPLIN:  Does it relate to the
20   annual financial audit, the comprehensive annual
21   financial report?  It could very well relate to game
22   performance.  I'm trying to -- or, understand your --
23   is it under the internal auditor's activities?
24                  MS. MELVIN:  Perhaps it should go under
25   the internal audit activities.  It's done in
0088
 1   conjunction with the annual financial audit, but it is
 2   not the same thing.
 3                  MS. KIPLIN:  Okay.
 4                  CHAIRMAN CLOWE:  All right.  It is
 5   within the agenda.
 6                  MR. KIRSHNACK:  Well, what we did in
 7   addition to an audit of the financial statements of the
 8   Texas Lottery Commission, this year being a new member
 9   with Mega Million states, there's certain agreed upon
10   procedures that have to be performed by all
11   participating states, and those procedures are spelled
12   out, which we have done here.
13                  There are a couple of minor findings in
14   here that may not be of concern to the Lottery
15   Commission, and those findings are actually addressed
16   within the body of this report.  I believe the first of
17   which was on the second page, near the bottom, it's
18   item "F," binding number one, and then the commission's
19   response is number two, as you read that, there's a
20   very clear excellent reason for that finding.  And I
21   believe, secondly, is on the next page, it's item "H,"
22   will begin the Commission's response there, with a very
23   clear reason why that point wasn't met.
24                  MS. MELVIN:  And I'd like to point out
25   that those findings, as Mr. Kirshnack is walking you
0089
 1   through them, relate to the short period of time of us
 2   not joining the game until December of last year, and
 3   we don't have a full year, a full cycle.  And,
 4   actually, I believe in the time period audited, a
 5   jackpot winner was not available from Texas, so there
 6   are some procedures to confirm jackpot winners in
 7   states, so those would not apply in our case.
 8                  CHAIRMAN CLOWE:  So that was for the
 9   period December through August 31?
10                  MS. MELVIN:  Actually, the Mega Million
11   states specify kind of an unusual time period.  It's a
12   full year, but I believe it's April -- no, I'm sorry --
13   April through May -- no, April through March, and so
14   what we did this time was go ahead and pick up
15   December, from our start date, through March, and so
16   the next reports that will come before you will be a
17   full year.
18                  MR. DEVINEY:  I'd add one thing, we had
19   our exit interview with the auditors on the agreed upon
20   procedures the other day, and one thing that we're
21   going to be getting from them that I think would be
22   very helpful is, outside their review of our activities
23   here at the Texas Lottery Commission, they've come up
24   with -- they've developed some recommendations that
25   might be applied to the whole process of agreed upon
0090
 1   procedures among them, the party lotteries, some really
 2   good ideas, I think, that we'll probably have an
 3   opportunity to share with the other party lotteries and
 4   hopefully they will be interested and adopt it.
 5                  CHAIRMAN CLOWE:  Anything further?
 6                  MS. MELVIN:  I have nothing further,
 7   commissioners, unless you have questions.
 8                  CHAIRMAN CLOWE:  Any questions?
 9                  COMMISSIONER COX:  Well, just one
10   question that I want to put on the record.  Scott, this
11   letter says that there have been no disagreements
12   between the auditors and management.  Is that -- does
13   that tell the whole story?
14                  MR. KIRSHNACK:  That's correct.  We
15   actually worked with Lee and Ben Navarro, who actually
16   prepared a comprehensive annual financial report that
17   we actually audited with all members of the Commission,
18   and there were no disagreements or difficulties during
19   the course of the audit.
20                  COMMISSIONER COX:  Lee, do you share
21   that view?
22                  MR. DEVINEY:  Absolutely.  We had
23   wonderful service from the auditors.
24                  COMMISSIONER COX:  And, Catherine, do
25   you share that view as well?
0091
 1                  MS. MELVIN:  Yes, I do.
 2                  COMMISSIONER COX:  Thank you.
 3                  CHAIRMAN CLOWE:  Any motions required on
 4   that?
 5                  MS. KIPLIN:  No, sir.  Under the State
 6   Lottery Act, it is actually the certified public
 7   accountant that presents the audit report to the
 8   executive director of the Commission that the governor
 9   or comptroller of the legislature body at times
10   prescribe.  The report must contain recommendations to
11   enhance the Lottery and improve the efficiency of the
12   lottery operations.  And I'm thinking that you'll
13   address that.  I have had a chance to review it, but
14   other than that, we'll set aside the requirements of
15   the State Lottery Act.
16                  CHAIRMAN CLOWE:  All right.  And I want
17   to point out to you three young people that there was a
18   time when an unqualified opinion took one page and two
19   paragraphs.  I see now it takes two and a half pages.
20                  COMMISSIONER COX:  There was one firm
21   out there that could do it in one paragraph.
22                  CHAIRMAN CLOWE:  That's because they
23   were go.  Thank you all very much.
24                  We're going to take a ten-minute recess
25   at this point in time.  We'll come back at 10:20.
0092
 1                  (A short break was taken.)
 2                      AGENDA ITEM MO. 8
 3                  CHAIRMAN CLOWE:  Okay.  We'll come back
 4   to order and take up Item Number 8 on the agenda:
 5   Report, possible discussion and/or action on the
 6   demographic report on lottery players.
 7                  MR. FERNANDEZ:  Mr. Chairman,
 8   commissioners, my name is Mike Fernandez, director of
 9   administrations.  Just an update to saw that we spoke
10   with Texas State University, as you know, they're
11   conducting this research for us, and they're on
12   schedule so we expect a report the 20th of December.
13                  CHAIRMAN CLOWE:  Any questions?  Thank
14   you.
15                      AGENDA ITEM NO. 9
16                  CHAIRMAN CLOWE:  Next, Item Number 9:
17   Report, possible discussion and/or action on the
18   agency's lottery security study.
19                  MS. MELVIN:  Thank you, commissioners.
20   I'd like to provide a brief update on the buying of
21   security audits.  As you are aware, under the State
22   Lottery Act, the agency is required to undergo a
23   comprehensive study of all aspects of lottery security
24   at least once every two years to be performed by an
25   independent firm.  The firm Jefferson Wells
0093
 1   International has been engaged to conduct the current
 2   study for the agency.  They are currently on site
 3   conducting their field work.  The statute requires the
 4   completed report to be submitted to the governor and
 5   the legislature before the convening of each regular
 6   session, and Jefferson Wells is currently on track to
 7   complete their review in time for the agency to meet
 8   this requirement.
 9                  CHAIRMAN CLOWE:  Are there any
10   questions?
11                  COMMISSIONER COX:  Now, I do have a
12   comment.  I attended the opening meeting with Jefferson
13   Wells and I was quite impressed with their approach to
14   things and with the work that Catherine and our folks
15   were doing as well.  Catherine had a real difficulty
16   finding this office to do that work, and I think she
17   did us a good service by getting Jefferson Wells.
18                  MS. MELVIN:  I'm looking forward to
19   their report.  Thank you.
20                  CHAIRMAN CLOWE:  Very good.
21                  Reagan, did you have a comment?
22                  MR. GREER:  Yes, sir.  In reference to
23   Items 8 and 9, both of these are statutory requirements
24   that have to go before the legislate, which convenes on
25   January the 11th, and based on the comment you just
0094
 1   made in reference to our time line and the difficulty
 2   we have in locking this all down to be within that
 3   statutory requirement, I wanted to just, for your
 4   consideration, throw out the idea that we need to get
 5   that commissioners back together prior to that taking
 6   place, hopefully that first week, the third through the
 7   seventh, because I certainly am not comfortable moving
 8   forward with this meeting to a legislative session
 9   without having a chance to bring it to you and let us
10   discuss it as a group, and then once y'all are
11   comfortable it, then moving it forward and submitting
12   it as a part of our statutory requirement.
13                  CHAIRMAN CLOWE:  Well, in order to give
14   you the most time, I'd suggest the commissioners look
15   at their calendars for a Friday, January 7th meeting.
16                  MR. GREER:  That would be great.
17                  CHAIRMAN CLOWE:  And I'm seeing
18   agreement, so we'll plan on that being our meeting date
19   for January unless something else turns up.
20                  Counselor, you'll take that under
21   consideration?
22                  MS. KIPLIN:  Yes, sir.  And I'll need
23   the file no later than December 30th.
24                  CHAIRMAN CLOWE:  Anything further,
25   Reagan?
0095
 1                  MR. GREER:  No, sir.
 2                  CHAIRMAN CLOWE:  Anything further,
 3   commissioners?
 4                  Thank you, Catherine.
 5                      AGENDA ITEM NO. 10
 6                  CHAIRMAN CLOWE:  Next, Item Number 10:
 7   Report, possible discussion and/or action on lottery
 8   advertising and promotions.
 9                  MR. TIRLONI:  Good morning again,
10   commissioners.  For the record, my name is Robert
11   Tirloni.  I'm the products manager for the Texas
12   Lottery.  I have two quick updates for you.  DDB Dallas
13   is currently on-air with their Scratch Dance campaign
14   which is running through December 24th and that
15   campaign is focussing on our holiday scratch off games.
16   The King Group is also on-air through December 22nd
17   with their Right Now campaign and that campaign is also
18   focussing on the Commission's holiday scratch offs.
19   After these flights, the agencies will be off-air and
20   will begin their next flights in mid to late January.
21                  Commissioner Cox, last month you asked
22   about some of the ad campaigns we've been running, so
23   we have two spots to show you and the other
24   commissioners today.  The first one is going to be our
25   Jackpot spot and the then the second spot that you will
0096
 1   see will be the Scratch Dance spot, and that's the
 2   holiday spot.
 3                  (Video playing.)
 4                  MR. GRIEF:  I just can't get enough of
 5   that.
 6                  MR. TIRLONI:  Both of those campaigns
 7   were produced by DDB and both ads were done in a way
 8   that, on the Jackpot spot, at the end, it gives us the
 9   ability to tag those spots with current jackpot amounts
10   for any of the games.  And on the scratch off game, the
11   Scratch Dance campaign, you saw the holiday suite at
12   the end, the ad agencies call that a donut spot, and
13   that gives them the ability to go in whenever we have
14   an instant game that we want to focus on, whether it be
15   holiday games or a licensed property game, they have
16   the ability to go in and actually drop in that ticket
17   artwork, so instead of it just being a generic scratch
18   ad, it can be specific and actually have the product
19   that we're trying to focus on for that time period.
20                  And I do not have any updates on any
21   promotions or promotional events at this time, but I'd
22   be happy to answer any questions that you may have.
23                  CHAIRMAN CLOWE:  Any questions?
24                  COMMISSIONER COX:  Robert, those ads
25   are, to me, head and shoulders above what they were
0097
 1   doing six months ago, but I can't buy lottery tickets.
 2   What do people who buy lottery tickets think about
 3   these?  Are they buying more lottery tickets as a
 4   result of this?
 5                  MR. TIRLONI:  I don't know if they're
 6   buying more lottery tickets as a result of these.  I
 7   will tell you, though, that in the seven and a half
 8   years that I've been involved in marketing our
 9   products, the Jackpot spot has been so well received
10   that it's actually hard to believe.  We have been
11   inundated with phone calls and e-mail requests about
12   that spot:  Where it was developed, who sang the
13   jingle, what music company produced the music.  The
14   positive response that we've had has been pretty
15   overwhelming.  And Scratch Dance is a much newer
16   campaign and has not been out as long, but we're
17   starting to hear the same kinds of comments about
18   Scratch Dance, so it seems like that type of
19   advertising is at least catchy and people are
20   remembering it and associating it with the lottery.
21                  COMMISSIONER COX:  And we are still
22   working the project to try to get a handle on the cost
23   benefit relationship between advertising dollars and
24   revenue?
25                  MR. TIRLONI:  Yes.  The matrix study is
0098
 1   being reviewed the professors at UT, and I believe
 2   we're going to have the results in January, the latter
 3   part of January.
 4                  CHAIRMAN CLOWE:  I'll be an old man by
 5   the time --
 6                  MR. GREER:  Well, and I wanted to
 7   mention, specifically when you look at the tag on those
 8   Scratch Dance ads, we're going to really look at the
 9   time frames that they ran, and like there was one for
10   $100,000 pay out, and specifically see if we can
11   identify the direct correlation between the ad campaign
12   and the ticket, and this is really one of the first
13   times we've been able to do that on this light,
14   commercials, so I'm comfortable we're moving in the
15   right direction on that to address some of the issues
16   you've shared with us for a long time.
17                  CHAIRMAN CLOWE:  Anything further?
18                  Thank you, Robert.
19                  MR. TIRLONI:  Thank you, sir.
20                      AGENDA ITEM NO. 11
21                  CHAIRMAN CLOWE:  Next, Item 11:  Report,
22   possible discussion and/or action on the 78th and/or
23   79th Legislature.
24                  Ms. Trevino, good morning.
25                  MS. TREVINO:  Good morning,
0099
 1   commissioners.  For the record, I'm Nelda Trevino,
 2   director of governmental affairs.  A very brief report
 3   today, commissioners.  It is our understanding that the
 4   house committee on licensing and administrative
 5   procedures has approved its interim committee report.
 6   As you may recall, one of the interim charges was
 7   specifically related to charitable bingo and the
 8   implementation of House Bill 2519.  The report should
 9   be available by next Monday when the joint meeting of
10   the Commission and the Bingo Advisory Committee will be
11   held.
12                  As I reported at our last Commission
13   meeting, prefiling of legislation for the 79th
14   Legislature began on November the 8th.  In your
15   notebook is a copy of our bill tracking report that
16   includes legislation filed thus far that may impact the
17   agency.  To date, there have been 323 bills that have
18   been filed and none have been directly related to the
19   lottery or to charitable bingo.
20                  As a reminder, we are scheduled to have
21   our legislative briefing this Wednesday, December the
22   15th, at the state capital, in room E2.010.
23                  This concludes my report and I'll be
24   happy to answer any questions.
25                  CHAIRMAN CLOWE:  Questions?
0100
 1                  COMMISSIONER COX:  The report that you
 2   referred to initially, tell me about that.  I don't
 3   remember what that is or does, how it affect us.
 4                  MS. TREVINO:  Commissioner, during the
 5   interim, the speaker and the lieutenant governor assign
 6   what's referred to as interim charges to each of the
 7   standing committees, and so the house licensing and the
 8   administrative procedures committee that has
 9   oversighted this agency had one specific interim charge
10   that was directly related to charitable bingo and also
11   specifically related to the implementation of House
12   Bill 2519.
13                  It's our understanding that the report
14   has been approved by the committees.  It's received all
15   the required signatures.  It has not been made
16   available to the public, but it's our understanding
17   from the committee office that that should be available
18   in time for next week's meeting.
19                  COMMISSIONER COX:  Okay.  So it will
20   address how affective this agency implemented that
21   legislation?  Is that -- did I understand that
22   correctly?
23                  MS. TREVINO:  Well, that was -- I
24   believe, the report will include some references to
25   some of the provisions that were contained in House
0101
 1   Bill 2519, and based on testimony and information that
 2   was provided by this agency and testimony provided by
 3   Billy when the committee was considering that specific
 4   interim charge, I believe the report will address some
 5   of the provisions and maybe some recommendations that
 6   the committee may have to improve on some of those
 7   provision that were contained in that piece of
 8   legislation.
 9                  COMMISSIONER COX:  Thank you.
10                  CHAIRMAN CLOWE:  Anything further?
11                  Thank you.
12                      AGENDA ITEM NO. 12
13                  CHAIRMAN CLOWE:  Next, Item 12:
14   Consideration of and possible discussion and/or action
15   on external and internal audits and/or reviews relating
16   to the Texas Lottery Commission and/or the internal
17   audit department's activities.
18                  MS. MELVIN:  Thank you, again,
19   commissioners.  I have just one item on which I'd like
20   to update you.  It is regarding the internal audit of
21   Lotto Texas jackpot prizes.  Pursuant to a request from
22   the house committee on licensing and administrative
23   procedures, I prepared an interim report regarding my
24   audit of Lotto Texas jackpot prize winner awards.  I've
25   provided a copy of the interim report to the chairman
0102
 1   of that committee, Representative Kino Flores.  I did
 2   want to make very clear today that the interim report
 3   represents my preliminary comments regarding the audit
 4   work conducted thus far.  The audit is not yet
 5   completed, but it is still on track for a December
 6   completion date.  My final analysis and conclusions
 7   will be presented in a formal report upon its
 8   completion.  If you have any questions, I'd be happy to
 9   answer those.
10                  CHAIRMAN CLOWE:  Any questions?
11                  Catherine, did you supply the interim
12   report to each of the commissioners?
13                  MS. MELVIN:  Yes, I did.
14                  CHAIRMAN CLOWE:  And would you
15   anticipate that your final report will be concluded
16   timely in December so that if we have a January the 7th
17   meeting, we can take that presentation at that time?
18                  MS. MELVIN:  Absolutely.
19                  CHAIRMAN CLOWE:  Very good.  Anything
20   further?  Thank you.
21                      AGENDA ITEM NO. 13
22                  CHAIRMAN CLOWE:  Next, Item 13:
23   Consideration of and possible discussion and/or action,
24   including proposal, on new rule relating to petitions
25   for rule making.
0103
 1                  Good morning, Ms. Joseph.
 2                  MS. JOSEPH:  Good morning.  For the
 3   record, my name is Sandy Joseph.  I'm assistant general
 4   counsel for the Lottery Commission.  Before you is a
 5   draft new rule relating to a petition for adoption of a
 6   rule by the Commission.  This rule would apply to the
 7   Commission as a whole.  The purpose of the new rule is
 8   to prescribe the form of a petition for rule making and
 9   a procedure for its submission, consideration, and
10   disposition.  This rule is required by Section
11   2001.021{b} of the Administrative Procedures Act.  I
12   would recommend that the Commission initiate the rule
13   making procedures by submitting the proposed rule to
14   the Texas Register for public comment for 30 days.
15                  Are there any questions?
16                  CHAIRMAN CLOWE:  Any questions?
17                  COMMISSIONER COX:  How, if at all, does
18   this change what we've been doing, Sandy?
19                  MR. JOSEPH:  It doesn't necessarily
20   change what we've been doing at all; it just sets out
21   the procedure in writing.
22                  COMMISSIONER COX:  Okay.  So this is not
23   replacing a procedure; this is formalizing what we were
24   doing?
25                  MS. JOSEPH:  That's correct.
0104
 1                  And I have for you, upon your decision,
 2   a T-bar demo for you to indicate your approval or
 3   denial of this recommendation.
 4                  MS. KIPLIN:  Commissioners, that's a new
 5   change.  In the past, we've just asked that you
 6   consider the staff's recommendation and vote to approve
 7   for publication, but Ms. Joseph brought that to my
 8   attention, and it's a process that is used in other
 9   agencies, and I thought it was a good idea to
10   memorialize a file and not have to refer to a
11   transcript.  It's really y'all's choice.  I'm always
12   looking for ways to improve.
13                  CHAIRMAN CLOWE:  I've seen this report.
14                  MS. KIPLIN:  Yes, I have, too.
15                  CHAIRMAN CLOWE:  Any questions?  Is
16   there a motion?
17                  COMMISSIONER OLIVERA:  And the motion is
18   to adopt this recommendation?
19                  CHAIRMAN CLOWE:  Yes.
20                  COMMISSIONER OLIVERA:  I second.
21                  CHAIRMAN CLOWE:  All in favor, please
22   say aye.  Opposed?  No.  The vote is three/zero.
23                  Commissioners, as soon as we sign this
24   T-bar memo, I'm going to move that we go into executive
25   session unless you have any other business you want to
0105
 1   bring up at this time.
 2                  At this time I move the Texas Lottery
 3   Commission go into executive session:
 4                  To deliberate the duties and evaluation
 5   of the executive director and/or deputy executive
 6   director pursuant to Section 551.074 of the Texas
 7   Government Code;
 8                  To deliberate the duties and evaluation
 9   of the internal audit director pursuant to Section
10   551.074 of the Texas Government Code;
11                  To deliberate the duties and evaluation
12   of the charitable bingo operations director pursuant to
13   Section 551.074 of the Texas Government Code;
14                  To deliberate the duties of the general
15   counsel pursuant to Section 551.074 of the Texas
16   Government Code;
17                  To deliberate the duties of the security
18   director pursuant to Section 551.074 of the Texas
19   Government Code;
20                  To receive legal advice regarding
21   pending or contemplated litigation and/or to receive
22   legal advice pursuant to Section 551.071 (1) {A} or {B}
23   of the Texas Government Code and/or to receive legal
24   advise purchase to Section 551.071 {2} of the Texas
25   Government Code, including but not limited to:
0106
 1                  Patsy Henry versus Texas Lottery
 2   Commission; Sandy Surber, et al. versus GTECH
 3   Corporation; Linda Cloud versus Mike McKinney, et al.;
 4   James T. Jonegebloed versus Texas Lottery Commission;
 5   Steven W. Hieronymus, et al. versus Texas Lottery
 6   Commission and Gametech International, Inc.; Felipe
 7   Chavez versus Texas Lottery Commission and Sergeant
 8   Marvin J. Collins; Don McCaffety versus Texas Lottery,
 9   Employment, personnel law, procurement and contract
10   law, evidentiary and procedural law, and general
11   government law.
12                  Is there a second?
13                  COMMISSIONER COX:  Second.
14                  COMMISSIONER OLIVERA:  Second.
15                  CHAIRMAN CLOWE:  All in favor, please
16   say aye.  Opposed?  No.  The vote is three/zero.
17                     AGENDA ITEM NO. 15
18                  The time is 10:39.  Today is December
19   the 13th of 2004.  We are going into executive session
20   at this time.  Thank you.
21                  (Executive Session.)
22                  AGENDA ITEM NO. 16)
23                  THE CHAIRMAN CLOWE:  This Commission is
24   out of executive session.  The time is 12:25 p.m.  Is
25   there any action to be taken as a result of the
0107
 1   executive session?  I believe not.
 2                  AGENDA ITEM NO. 27
 3                  CHAIRMAN CLOWE:  Now We will return to
 4   the agenda and take up Item Number 27:  Consideration
 5   of the status and possible entry of orders in four
 6   cases listed letters A through D.
 7                  Counselor, would you help us with these?
 8                  MS. KIPLIN:  Yes.  Commissioners, I'm
 9   going to defer to the attorneys that handled these
10   matters, because I know, in particular Ms. Joseph, she
11   does have somebody here.  The first case is a lottery
12   case and Mr. Bennet was the attorney representing the
13   staff on that matter and I'd like for him to make the
14   presentation on that case.
15                  THE CHAIRMAN CLOWE:  Mr. Bennett.
16                  MR. BENNETT:  Good afternoon,
17   Commissioners.  For the record, my name is Ridgely
18   Bennett.  I'm the deputy general counsel of the Texas
19   Lottery Commission.  Commissioners, this case involves
20   Aldine Food Store, Texas Lottery Licence No. 136207.
21   The undisputed facts as presented -- as found out in
22   the administrative case was that the licensee, on
23   November 19th, 2003, was convicted of the offense of
24   possession of a gambling device and was sentenced to
25   one day of confinement and a $400 fine.  Less than ten
0108
 1   years as elapsed since the termination of the sentence.
 2   Based on the conviction at the hearing, staff
 3   recommended that the license be revoked.  The
 4   administrative law judge, however, in Conclusion of law
 5   Number Six, concluded that the license should be
 6   suspended for 45 days.
 7                  The administrative law judge does not
 8   have the authority under the State Lottery Act to
 9   impose a sanction against the lottery licensee.  The
10   State Lottery Act provides that the Texas -- provides
11   the Texas Lottery Commission with the authority and
12   discretion to revoke or suspend a license based on a
13   finding that the licensee violated a provision of the
14   Act.  The provisions of the Administrative Procedure
15   Act, under which the State Office of Administrative
16   Hearings, the administrative law judge, is provided
17   with the authority to preside over a contested case
18   hearing and make findings of fact and conclusions of
19   law, do not delegate the administrative law judge the
20   authority to make a conclusion of law as to the
21   sanctions to be imposed against the lottery licensee.
22   This authority rests solely with the Commission.
23                  The legislature has made clear its
24   intention that the operation of the lottery be
25   conducted in a manner that is closely regulated by the
0109
 1   Texas Lottery Commission.  The Commission is required
 2   to exercise strict control over all activities
 3   conducted in accordance with the State Lottery Act.
 4   The director may only issue a license to a person if
 5   the director finds the person's experience, character,
 6   and general fitness are such that the person's
 7   participation as a sales agent will not detract from
 8   the integrity, security, honesty, and fairness of the
 9   operation of the lottery.
10                  Staff believes that allowing a person
11   convicted of a gambling-related offense to retain a
12   lottery sales agent's license would be contrary to
13   these statutory obligations; therefore, staff
14   recommends that the Commission adopt findings of fact
15   and Conclusions of Law Number one through five, but
16   disregard Conclusion of Law Number Six, which was the
17   recommendation for a 45-day suspension, and instead,
18   staff recommends that the Commission issue an order
19   revoking the license.
20                  I'd be happy to answer any questions
21   that you have.
22                  COMMISSIONER OLIVERA:  That revocation
23   would be permanent?
24                  MR. BENNETT:  The revocation would be
25   permanent.  The licensee would be eligible to reapply
0110
 1   at a later date for a license.
 2                  MS. KIPLIN:  And, Commissioners, I will
 3   tell you that -- and I don't know if they were gambling
 4   convictions, but your past practice or past orders on
 5   convictions are to revoke licenses and deny
 6   applications.
 7                  COMMISSIONER COX:  Well, Ridgely --
 8                  MR. BENNETT:  Yes.
 9                  COMMISSIONER COX:  -- was this pointed
10   out to Judge Elkins?
11                  MR. BENNETT:  Yes, it was.
12                  COMMISSIONER COX:  And the court
13   response?
14                  MR. BENNETT:  The only response we
15   received was that he had received the staff's
16   exceptions and that he declined to amend the PFD based
17   on the staff's exceptions.
18                  MS. KIPLIN:  He says, having reviewed
19   the exceptions, I make no changes to my recommendation.
20   And the way I read that, and also I think the way that
21   they couch their recommendation conclusion of law, is
22   to say that the 45-day suspension is warranted and
23   revocation is warranted, and our position is that that
24   is not a proper subject matter for a conclusion of law.
25   It does not conclude the law; it is making
0111
 1   recommendation, and that's why we've taken the subject
 2   up.
 3                  COMMISSIONER OLIVERA:  Has the -- what
 4   has basically been the precedent of this Commission in
 5   terms of these kinds of sanctions, Mr. Bennett?
 6                  MR. BENNETT:  I've been here for 12
 7   years and I do not call recall a case where somebody
 8   was convicted of a gambling-related offense and
 9   received anything less than revocation.
10                  COMMISSIONER COX:  Suspension would mean
11   that, at the end of 45 days, it would be restored?
12                  MR. BENNETT:  That's correct.
13                  COMMISSIONER COX:  And then we would
14   have a person with a gambling conviction within the
15   last tens years holding a lottery license?
16                  MR. BENNETT:  That's correct.
17                  COMMISSIONER COX:  That doesn't make any
18   sense?
19                  MR. BENNETT:  The staff agrees with that
20   interpretation.
21                  THE CHAIRMAN CLOWE:  Is there a motion?
22                  COMMISSIONER COX:  What would the motion
23   be?
24                  MS. KIPLIN:  The motion would be to
25   approve the order that has been recommended by the
0112
 1   staff, and that is to adopt all the findings and all
 2   the conclusions of law, save the last conclusion of law
 3   and reject that.
 4                  MR. BENNETT:  Except Conclusion of Law
 5   Number Six.
 6                  MS. KIPLIN:  Mr. Bennett has that.
 7                  COMMISSIONER OLIVERA:  And for
 8   clarification, we would be -- we would be issuing our
 9   own sentence of permanent revocation as opposed to the
10   45-day suspension?
11                  MR. BENNETT:  That is correct.
12                  MS. KIPLIN:  Commissioner Olivera,
13   that's because the State Office of Administrative
14   Hearings has the authority to find facts and the
15   authority to enter conclusions of law.  I will say that
16   for, I believe, occupational licenses, which this is
17   not, you have to have some other occupation before you
18   can even be eligible for a sales agent's license.  A
19   state agency can actually defer to the State Office of
20   Administrative Hearings administrative law judge the
21   ability or the -- delegate being a decision maker.
22   This agency is not in that situation and that's another
23   reason that I believe that the practice of the State
24   Office of Administrative Hearings insofar as making
25   recommendations is inconsistent with the statute.
0113
 1                  THE CHAIRMAN CLOWE:  I believe there's a
 2   motion.
 3                  COMMISSIONER OLIVERA:  I move that we
 4   adopt the staff's recommendations with respect to the
 5   conclusions of law and findings of fact.
 6                  COMMISSIONER COX:  Second.
 7                  THE CHAIRMAN CLOWE:  All in favor,
 8   please say aye.  Opposed?  No.  The vote is three/zero
 9   in favor.
10                  Counselor, if you would, let's go into
11   the docket listed under letter D.  Next, we have a
12   person who has filled out a witness affirmation form.
13   I don't know what Commissioner Olivera's time schedule
14   is, but I know he would like to be here for this item,
15   and so if we may take that out of order, we will do so.
16                  MS. KIPLIN:  Commissioners, if I could
17   just set the precedent and ask the respondent to come
18   forward.
19                  What is before you -- let me just tell
20   you procedurally where you are.  This case has already
21   gone to hearing.  You all have already adopted an order
22   and I believe the order was revoking this
23   organization's license for the findings that were set
24   out in the proposal for a decision.  The respondent has
25   filed a motion for rehearing.  The staff has filed a
0114
 1   reply to that motion for a hearing.  Under the
 2   Administrative Procedure Act, you all must act on that
 3   motion within 45 days from the issuance not later than
 4   the 45th day after the date on which the party is
 5   notified of the order or the motion for a hearing is
 6   overruled by operational law.  Today is that 45th day.
 7   It is right before you.  There is an opportunity to
 8   extend for another 45 days if you wish, but the parties
 9   are here and they're prepared to go forward.
10                  I believe this is a pro se party who is
11   here, and I want to make sure that we're clear on the
12   record that you all are not receiving evidence.  The
13   evidence was developed at the State Office of
14   Administrative Hearings by the trier of facts.  This is
15   a motion for rehearing and the parties are admonished
16   to stay within the record that was created at the State
17   Office of Administrative Hearings.  Arguments may
18   occur, but the evidence must be limited to that which
19   was presented at the State Office of Administrative
20   Hearings.
21                  THE CHAIRMAN CLOWE:  And you're here for
22   the staff?
23                  MS. JOSEPH:  Yes, sir.
24                  CHAIRMAN CLOWE:  To represent the staff
25   position?
0115
 1                  MS. JOSEPH:  Yes, sir.
 2                  CHAIRMAN CLOWE:  And we have a witness
 3   affirmation form from Ms. Judy Brim.
 4                  Is that correct, Mr. Brim?
 5                  MS. BRIM:  Yes, sir.
 6                  CHAIRMAN CLOWE:  And you are here
 7   representing Humanity United In Giving Internationally,
 8   Inc.?
 9                  MS. BRIM:  Yes.
10                  CHAIRMAN CLOWE:  And you are against the
11   motion for rehearing?
12                  MS. BRIM:  I'm against losing my
13   license.
14                  CHAIRMAN CLOWE:  You're for the motion
15   for hearing, aren't you?
16                  MS. BRIM:  Yes.
17                  CHAIRMAN CLOWE:  You have checked the
18   wrong box and I wanted to get that on the record.
19                  MS. BRIM:  Thank you very much.
20                  CHAIRMAN CLOWE:  And how do we correct
21   that?
22                  MS. BRIM:  I didn't realize.  I guess I
23   need an attorney after all.
24                  COMMISSIONER OLIVERA:  For the record,
25   Ms. Brim and Ms. Joseph, I will attempt to stay as long
0116
 1   as possible.  I was supposed to leave at 12:30, but I
 2   shall -- and I'm not trying to rush you in any way, but
 3   I will try and stay as long as possible.
 4                  MS. BRIM:  I appreciate that.
 5                  THE CHAIRMAN CLOWE:  And, Ms. Brim, are
 6   you an attorney?
 7                  MS. BRIM:  No, sir.
 8                  CHAIRMAN CLOWE:  Do you understand what
 9   Ms. Kiplin just said about staying within the record?
10                  MS. BRIM:  I believe I do, yes, sir.
11                  CHAIRMAN CLOWE:  And you, therefore,
12   although you're not an attorney, understand her advice?
13                  MS. BRIM:  Yes.  The particular things
14   that she has said, I have never seen, that's one of the
15   reasons that I'm here today.
16                  THE CHAIRMAN CLOWE:  All right.  Well, I
17   want to make you as comfortable as I can, and if in the
18   process that we're going through here now, Ms. Kiplin
19   speaks up and tells you that what you're saying is
20   improper, I want you to understand that it is within
21   the advice that she has given both of you.  All right?
22                  MS. KIPLIN:  Mr. Chairman, if I might
23   also say, this is not -- I was not the attorney.  I'm
24   not that familiar with the evidence that was actually
25   taken at record, so I wouldn't want you to be offended
0117
 1   if Ms. Joseph raises an objection that you're going
 2   outside the record.  You're free, at the Commission's
 3   discretion, to respond to why her objection is not
 4   valid.
 5                  THE CHAIRMAN CLOWE:  All right.  That's
 6   fine.
 7                  We'll hear from you first, Ms. Joseph,
 8   please.
 9                  MS. JOSEPH:  Thank you.  Again, for the
10   record, my name is Sandra Joseph, assistant general
11   counsel for the Lottery Commission.
12                  Commissioners, before you for
13   consideration is a motion for rehearing which was filed
14   by Humanity United In Giving International in response
15   to Order No. 050019 which you previously signed.  This
16   order revoked what is commonly called HUG
17   Internationally -- that's the acronym, a short way of
18   saying Humanity United In Giving -- revoked their
19   license for failing to timely file either their
20   quarterly report or their prize fees due three times in
21   a 12-month period.
22                  The Commission does have a rule which
23   provides that if an organization fails to file three
24   times in a 12-month period, then the Commission will --
25   and the way the rule is written, it does say will
0118
 1   revoke the license; it doesn't say may revoke the
 2   license.
 3                  In this case, back in March a notice of
 4   opportunity to show compliance was sent to the
 5   organization.  Mr. Atkins sent that notice to them.
 6   Subsequently, a notice of hearing was sent to them on
 7   May 19th for a hearing scheduled on June 29th.  After
 8   that notice of hearing went out, the Commission
 9   received a request for a postponement, or a
10   continuance.  In that request for a continuance, the
11   organization HUG did specify a number of dates that
12   they said would be good for them to have the hearing.
13   I did not contest that motion; in fact, I agreed to the
14   request for a postponement.  Subsequently, the SOAH
15   judge did postpone the hearing and set a date of August
16   3rd for the hearing, and that is one of the dates that
17   had been submitted in writing as being acceptable to
18   this organization.  We did not receive any further
19   written request for a postponement.
20                  I'm going through all of this because,
21   in the motion for rehearing, I believe there's an --
22   it's not fully presented.  It seems to indicate that,
23   upon notification of the first hearing, they requested
24   a continuance and that was denied, but it's not
25   accurate.  They were granted a continuance and the
0119
 1   hearing was reset to a date that they had requested.
 2   Now, the notice of hearing, all of these notices, were
 3   sent to the address of record for the organization.  It
 4   was sent by certified mail and by regular mail.  It was
 5   sent both to the organization and to an officer of the
 6   organization, Ms. Brim specifically.
 7                  All right.  At the hearing, in fact, a
 8   representative for HUG did appear.  Ms. Tiffany Welch
 9   appeared for HUG.  At the time, she did not contest any
10   of the facts that we presented as to the late filing of
11   reports or fees.  She said she could not -- had nothing
12   to offer that was not contested; therefore, the judge
13   subsequently circulated a proposal for a decision
14   recommending revocation.  There were no exceptions
15   filed and I recommended signing that order, and that's
16   what you did.  So, that's where we are today.
17                  Now, one of the things in this motion
18   for rehearing, it does say, we would like the
19   opportunity to seek counsel.  I would submit that the
20   organization has had plenty of time to seek counsel,
21   inasmuch as, the first time they were notified of this
22   as a show of compliance matter was back in March.
23                  Beyond the notice issue, I would like to
24   also point out that their motion for rehearing does not
25   raise any issue of fact or law that has not been
0120
 1   previously considered by the Commission.  Also, they do
 2   not point out any error in any of the findings of fact
 3   or law.  They haven't pointed to anything and said,
 4   this finding of fact is wrong; this conclusion of law
 5   is wrong.  It is required under the law that in a
 6   motion for rehearing the movant set out what it is they
 7   think is wrong with the order, and that has not been
 8   done here; therefore, I would recommend that you deny
 9   the motion for rehearing.  And I have an order with me
10   that would allow you to do so if that's what you chose
11   to do.  Thank you.
12                  CHAIRMAN CLOWE:  Any questions for Ms.
13   Joseph?
14                  Ms. Brim?
15                  MS. BRIM:  I came from Dallas today and
16   came today for a favorable consideration.  I realize
17   that it may be impossible; although, I did come with
18   what I thought was something wrong with the order.
19   After speaking with both Sandra and with Mr. Winer, I'm
20   even more sure now that probably the information given
21   to me was wrong.
22                  MS. JOSEPH:  Excuse me.  Was that Mr.
23   Miner?
24                  MS. BRIM:  Miner.  I'm sorry.
25                  MS. JOSEPH:  Bruce Miner?
0121
 1                  MS. BRIM:  I'm sorry.
 2                  Lack of knowledge is not an excuse, so I
 3   come to you knowing that.  Ignorance is not bliss.  I
 4   have -- being handicapped has kept me from being where
 5   I need to be in order for this travesty to have gotten
 6   to the point that it's at.  I had -- Lisa Garland is
 7   the bingo operator/owner, runs the hall.  I don't know
 8   what her title would be, but --
 9                  MS. JOE:  Excuse me.  Let me just
10   interject for a moment.  The record that we have
11   indicates that Ms. Garland is the bookkeeper for your
12   organization.  Is that correct?
13                  MS. BRIM:  She is the bookkeeper.  She
14   also runs the bingo hall.
15                  MS. JOSEPH:  That is in the record.
16                  MS. BRIM:  When I got into bingo, we
17   had -- I was at another hall and things went well.
18   They told me how we were supposed to do things, so I
19   did that.  They had an outside accountant.  There were
20   never any problems.  When that hall closed, I came to
21   Rick's Gold Mine Bingo.
22                  MS. JOSEPH:  Pardon me, again.  I don't
23   want to be rude, but what Ms. Brim does seem to be
24   discussing is not in the record, and I would object for
25   that basis.
0122
 1                  THE CHAIRMAN CLOWE:  Please confine your
 2   remarks to what you want to tell us about this case and
 3   your experience here that's on the record.
 4                  MS. BRIM:  All right.  Okay.  Because I
 5   am handicapped, Lisa Garland explained to me when we
 6   first started that she would take care of everything as
 7   far as the accounting and the bookkeeping goes, that
 8   she would make sure we got our amounts.  Because,
 9   according to the law, there's only one way --
10                  MS. JOSEPH:  Pardon me.  Excuse me
11   again, but I'm afraid this is out of the record also.
12   In fact, I know it is outside the record and I would
13   object.
14                  THE CHAIRMAN CLOWE:  Ms. Brim --
15                  MS. BRIM:  I guess I don't understand.
16   How --
17                  THE CHAIRMAN CLOWE:  You can't tell us
18   what you have in your mind that does not appear on the
19   record.  This body can only review those facts which
20   are resulting from the hearing on the record.
21                  Are you familiar with the record?
22                  MS. BRIM:  I don't guess so.  I never
23   received a copy of it.
24                  THE CHAIRMAN CLOWE:  It's going to be
25   difficult for you to make your presentation if you
0123
 1   don't know what the facts are.
 2                  MS. BRIM:  I have not received anything
 3   from the Commission because the address has changed
 4   this summer.  I have received nothing since the times
 5   that she said I did receive something.  I've received
 6   nothing since then.  I only found out about this motion
 7   when she called me on Friday.
 8                  THE CHAIRMAN CLOWE:  Well, please
 9   understand that we don't want to have you feel like
10   you're being treated discourteously at all, but there
11   is a rule that we must follow and it's a matter of law
12   and the Commission must stay within what is the proper
13   practice in this occasion, and it's very difficult, I
14   can understand, for you to stay within the transcript
15   or the record if you haven't read it.
16                  MS. BRIM:  Yes.
17                  THE CHAIRMAN CLOWE:  Ms. Joseph, is
18   there anything you can do to help her at this juncture?
19                  MS. JOSEPH:  I would -- I did -- I had
20   visited with her briefly before this and on the
21   telephone last Friday and she expressed to me that she
22   understood there might not be anything that she could
23   do about this particular case but that she has concerns
24   in general about what has happened, and I did suggest
25   to her that perhaps it would be more appropriate to
0124
 1   make her comments during the public comment period or
 2   to attempt to participate in the meeting that y'all
 3   have just announced for next week, the bingo advisory
 4   committee.  I think she --
 5                  MS. BRIM:  I'd be glad -- if there's
 6   public comments today, I would be glad to do that.  I'm
 7   leaving the country for Romania to work in the
 8   orphanages next week, and I can't do it, but the
 9   information I have is something this Commission needs
10   to hear.
11                  CHAIRMAN CLOWE:  Well, and I think that
12   might be a better venue.  You wouldn't be restricted to
13   the extent that you are in this legal proceedings at
14   that time.
15                  MS. BRIM:  May I do that during the
16   public comment?
17                  COMMISSIONER COX:  Yes, you may.
18                  MS. BRIM:  That's great, then.
19                  THE CHAIRMAN CLOWE:  You'd like to do
20   that?
21                  MS. BRIM:  Yes, sir, very much.
22                  THE CHAIRMAN CLOWE:  Then are you
23   withdrawing your appearance to support the motion for a
24   rehearing in this matter?
25                  MS. BRIM:  May I ask Sandra a question,
0125
 1   please?
 2                  CHAIRMAN CLOWE:  Sure.
 3                  MS. BRIM:  According to the information
 4   that Lisa gave me, in one of the quarters, the check
 5   was sent -- it was received the day it was due and it
 6   was cashed three days after that, and she brought that
 7   as evidence that it wasn't late even though she paid a
 8   penalty on it.
 9                  MS. JOSEPH:  All right.  Ms. Garland did
10   not appear at the hearing, so I'm not aware of the
11   evidence that you're describing.
12                  MS. BRIM:  Well, I brought it with me.
13                  MS. JOSEPH:  Well, the record has been
14   closed.  The opportunity was at the hearing to present
15   that.
16                  MS. BRIM:  See, and I did not know about
17   the hearing.
18                  MS. JOSEPH:  From what you have
19   described to me, I believe that your organization has
20   an internal communication problem.  Would you agree
21   with that?
22                  MS. BRIM:  I've been believing
23   everything that Lisa has said and I just haven't been
24   told and we haven't received stuff because addresses
25   were changed.
0126
 1                  THE CHAIRMAN CLOWE:  Commissioners, I
 2   think at this point we're faced with one of two
 3   choices, either to accept the staff recommendation or
 4   to accept the choice of a rehearing.
 5                  Is there any other choice, counselor?
 6                  MS. KIPLIN:  Well, I guess to the
 7   extent -- and correct me if I'm wrong, but I guess you
 8   could grant the motion for rehearing and allow the
 9   license to continue.  As I said, there's three -- you
10   can grant the motion for rehearing if it's couched that
11   way, and I think it's probably not as specific and
12   articulate, and allow the license to continue.  You can
13   follow --
14                  CHAIRMAN CLOWE:  If the Commissioners
15   vote for that, that sends the matter back to the SOAH?
16                  MS. KIPLIN:  No.  That would mean this
17   matter is concluded and you've decided to go ahead and
18   allow the license.  You can grant the motion for
19   rehearing and remand it back to the -- send it back to
20   the state office for additional evidence or you can
21   overrule the motion for rehearing and then the
22   revocation would stand and the revocation would be
23   valid for a year.  There would be a year sit out and
24   then this organization would be eligible to apply
25   again.
0127
 1                  CHAIRMAN CLOWE:  That's helpful.
 2                  COMMISSIONER COX:  Ms. Joseph, I
 3   understood you to say that our rule says that if three
 4   reports within a year are received -- not received in a
 5   timely manner and the remittance not received in a
 6   timely manner that we will revoke, so I didn't hear her
 7   say we had any choices.
 8                  MS. KIPLIN:  You know, I'm wrong.  I
 9   stand corrected.  Thank you, Commissioner Cox.
10                  You would be violating your own rule
11   based on the findings of fact by the administrative law
12   judge.  I appreciate that correction.
13                  THE CHAIRMAN CLOWE:  Okay.  Now, I'm not
14   practicing law, but I have a question:  If the
15   commissioners vote to remand this back to the SOAH for
16   a rehearing, doesn't that step aside from that rule?
17                  MS. KIPLIN:  No.  It would be the same
18   rule that would be applied, and if the --
19                  THE CHAIRMAN CLOWE:  Why did we go to
20   the SOAH, then?
21                  MS. KIPLIN:  If you want to have -- if
22   you want there to be the taking of any additional
23   evidence, it may prompt the findings to be amended.  I
24   think the organization is going to have an uphill
25   battle because the representative -- the record is
0128
 1   clear keeping the proposal for a decision, the
 2   representative admitted the violations, but you
 3   can't do --
 4                  MS. BRIM:  The representative -- pardon
 5   me.  The representative that came was not the person I
 6   was told was coming either.  As a matter of fact, I
 7   don't even know the person, but I do have what I
 8   believe to be proof that one of them was wrong.
 9                  CHAIRMAN CLOWE:  Okay.
10                  COMMISSIONER OLIVERA:  And that would be
11   one out of the three?
12                  MS. BRIM:  Yes.
13                  COMMISSIONER OLIVERA:  Do you admit that
14   the other two were late?
15                  MS. BRIM:  Yes, I do.
16                  COMMISSIONER COX:  Were they late or did
17   they not arrive at all?
18                  MS. BRIM:  They were late.
19                  COMMISSIONER COX:  But we did get them?
20                  MS. BRIM:  Yes.  One was late five days.
21   None of them have been over 30 days.
22                  COMMISSIONER COX:  So we got our money
23   in all cases, and in one of the cases, you have
24   evidence that it wasn't even late?
25                  MS. BRIM:  I believe so, yes, sir.
0129
 1                  MS. JOSEPH:  I have the specific
 2   findings as to each report, if you would like to hear
 3   that.
 4                  For the second quarter, the report was
 5   due on July 15th, 2003 and it was received July 16th,
 6   so that one was a day late.
 7                  COMMISSIONER COX:  So these reports are
 8   not timely filed when they're put in the U.S. mail?
 9                  MS. JOSEPH:  No, it has to be received.
10   My understanding was that it was stamped by the mail,
11   also.
12                  For the third quarter, the report was
13   due on October 27th and it was received December 1st,
14   2003.  The fourth quarter was due on December -- excuse
15   me -- January 26th, 2004 and it was received
16   April 12th, 2004.  So, you know, in one instance, it
17   was a very short period of time and others it was a
18   month, a couple of months.
19                  MS. BRIM:  The one that was due in
20   September and didn't get their until October was my
21   responsibility.  I was in Romania and could not sign a
22   check and I didn't realize before I left that I needed
23   to sign it, so I take responsibility for that one.
24                  CHAIRMAN CLOWE:  Commissioner Olivera?
25                  COMMISSIONER OLIVERA:  Nothing.
0130
 1                  THE CHAIRMAN CLOWE:  I'm still confused.
 2   I hope you can straighten me out on it.  If it's the
 3   Commission's rule --
 4                  MS. KIPLIN:  It is.
 5                  CHAIRMAN CLOWE:  -- then why isn't the
 6   revocation automatic?  Why did we go to the SOAH?
 7                  MS. KIPLIN:  Well, because of due
 8   process, because there's a license that's there that
 9   exists and they have property rights, and it could very
10   well be that the staff was wrong and there's an
11   opportunity to be heard.
12                  THE CHAIRMAN CLOWE:  Just to the extent
13   that there weren't three, that's the only issue the
14   SOAH --
15                  MS. KIPLIN:  With regard to the
16   application of this rule, that's right.  But why you go
17   to hearing at all is because this organization has a
18   license and there are property rights that are a part
19   of that and there's an opportunity for there to be due
20   process to be heard and have notice.
21                  THE CHAIRMAN CLOWE:  See, that sounds to
22   me, it give the flavor of understanding to me, that we
23   have some latitude in a ruling that we might make.
24                  MS. KIPLIN:  If, in fact, you believe
25   that there is reason where the facts are incorrect, but
0131
 1   I will tell you, the reason that you all adopted this
 2   particular rule is because you had organizations that
 3   were repeated violators of this particular statutory
 4   requirement and it caused your staff to continue to
 5   have to notice up hearings, and then prior to going to
 6   hearing or after the hearing, sometimes it was even
 7   after the hearing, you'd have these organizations that
 8   would pay, and it was a continued patten of behavior.
 9                  THE CHAIRMAN CLOWE:  I'm sure that's
10   true.  Thank you for that, counselor.
11                  COMMISSIONER OLIVERA:  And, in
12   summation, the administrative hearing would be the
13   entity's opportunity to overrule the allegation if the
14   facts are incorrect?
15                  MS. KIPLIN:  Yeah.  Sure.  The staff
16   would say to you; they've got an opportunity; they got
17   a continuance; they were able to get counsel; there was
18   a representative.  This is not necessarily atypical of
19   an organization in terms of internal problems and then
20   bring it to the Commission.  In terms of where the
21   letters went for notice, it was as required by
22   Commission statutes and it's the organization's
23   responsibility to change the address with the
24   Commission.
25                  MS. BRIM:  I didn't know it had changed.
0132
 1                  CHAIRMAN CLOWE:  That's very helpful.
 2                  Can Mr. Atkins Comment?
 3                  MS. KIPLIN:  If he stays within the
 4   record.
 5                  THE CHAIRMAN CLOWE:  Do you have any
 6   comment, Mr. Atkins, that falls within the records?
 7                  MR. ATKINS:  Well, the only other thing
 8   that I would follow up on in terms of the history of
 9   how this rule came about that Ms. Kiplin laid out,
10   other justification given by the staff for the rule was
11   the fact that organizations were coming before the
12   Commission and making a claim that, again, the payment
13   wasn't that late and you eventually got it, but still,
14   there's a series of steps that the staff has to go
15   through when those payments are late.  And the other
16   argument that organizations were making before the
17   Commission is that there was someone else, you know,
18   that caused these payments to be late.  And the, you
19   know, staff drafted a rule to bring before the
20   Commission that would resolve these issues.  And while
21   it may seem harsh, I don't know what other alternative
22   there is.
23                  MS. BRIM:  And, unfortunately, the
24   guidance that I received I thought was honest and true
25   and correct, and only this weekend have I learned what
0133
 1   really happened and that I even needed the counsel.
 2                  COMMISSIONER OLIVERA:  Ms. Joseph, is
 3   there a mandatory provision with respect to two late
 4   payments or one late payment, or is it just three?
 5                  MS. JOSEPH:  Three.
 6                  COMMISSIONER OLIVERA:  It has to be
 7   three?
 8                  MS. JOSEPH:  Uh-huh.
 9                  CHAIRMAN CLOWE:  In line with what Billy
10   has said and what Kim has said, I can tell you that,
11   during my term on this board, in the beginning there
12   were a number of these type cases that came before the
13   Commission, and more recently, there just haven't been,
14   as I know you all are aware, that many, and so there
15   has been a marked improvement.  This rule may be part
16   of it and there may be other reasons where this type of
17   case is rather unusual for whatever reason.
18                  MS. BRIM:  It is embarrassing to be
19   here.
20                  CHAIRMAN CLOWE:  I beg your pardon?
21                  MS. BRIM:  I said, it is embarrassing to
22   be here, but lack of knowledge is not an excuse and
23   trusting --
24                  COMMISSIONER OLIVERA:  And that is
25   correct, Ms. Brim.  But are you saying that you have
0134
 1   new evidence that was not presented at the previous
 2   hearing that one of the payments was, in fact, on time?
 3                  MS. BRIM:  I believe so, yes, sir.
 4                  MS. JOSEPH:  I will say, commissioners,
 5   that was not mentioned in the motion for a hearing.
 6                  COMMISSIONER OLIVERA:  If that's not
 7   part of the record, it's not --
 8                  MS. JOSEPH:  That's right, that's not in
 9   this record at this time.
10                  MR. ATKINS:  Commissioner Olivera, If I
11   could address one thing you said.  It's my
12   understanding, under the statute the agency actually
13   could move to revoke a license for the failure to
14   timely file or pay just once.  I think that, in and of
15   itself, is a violation of the act and the staff could
16   take action based on that one incident.
17                  MS. JOSEPH:  And I would agree with
18   that, that they could, but I understood your question
19   to be, was it required.
20                  COMMISSIONER OLIVERA:  That was my
21   question.
22                  THE CHAIRMAN CLOWE:  And that's our own
23   rule?
24                  MS. JOSEPH:  Yes.
25                  COMMISSIONER COX:  I would like to help
0135
 1   this person, but I don't see how we can.  Ms. Joseph,
 2   you say our rule says we will, then what happens to us
 3   if we don't follow our own rules?
 4                  MS. KIPLIN:  Well, you're looking at me,
 5   Commissioner Cox, and I will tell that what I think
 6   will happen is that you will see a marked increase in
 7   the number of cases that will come before you after the
 8   order has been issued on motions for a hearing very
 9   similar to this, because that's what had occurred prior
10   to your rule being adopted.
11                  COMMISSIONER OLIVERA:  And, Ms Brim, I
12   too am sympathetic to your cause, but it is your
13   responsibility, or this company's responsibility, to
14   show up at trial and present your evidence.  This is an
15   appellate body now and we are bound by the record and
16   the rules, so it's not a rehearing of the case.
17                  MS. BRIM:  Well, what is the point for
18   me being here today for a motion for a rehearing if I
19   don't have due process?
20                  COMMISSIONER OLIVERA:  Well, to contest
21   the record based upon the appellate rules that are
22   applicable to you, but --
23                  MS. BRIM:  Am I not doing that?
24                  COMMISSIONER OLIVERA:  Well, you weren't
25   there.  You don't have the record.  You're not
0136
 1   contesting any of the facts in the record.
 2                  MS. BRIM:  I'm contesting the fact that
 3   one of them was late, I believe.  Is that not --
 4                  COMMISSIONER OLIVERA:  Exactly, but
 5   that -- what you're trying to do is reopen a new
 6   hearing which should have been done in the first place.
 7   In other words --
 8                  MS. BRIM:  It was done --
 9                  COMMISSIONER OLIVERA:  Once again, I
10   reiterate --
11                  MS. BRIM:  -- but by no one that I knew
12   of.
13                  COMMISSIONER OLIVERA:  Well, that's not
14   my understanding.
15                  COMMISSIONER COX:  Well, I have the same
16   question Ms. Brim does:  What are we doing?
17                  MS. KIPLIN:  Well, you have a motion for
18   a hearing that's been statutorily -- that has been
19   timely timed and you are deciding what you want to do
20   with that motion for a hearing.  Regrettably, the
21   motion for rehearing does not contain the types of
22   information that show any kind of error with regard to
23   your order, and as Ms. Joseph indicated, that's the
24   purpose for a motion for a hearing and there is
25   reported case law on that.
0137
 1                  It's very difficult when we have pro se
 2   parties that come forward because of issue that we've
 3   been discussing, but part of the motion for rehearing
 4   was they wanted the opportunity to seek counsel.  I
 5   think the record is clear; they've known about this
 6   case since March.  Now, Ms. Brim might not have, but
 7   persons within that organization that are responsible
 8   for the organization's activities did, and if there is
 9   an issue with the organization -- and I know this
10   sounds harsh and I don't mean it that way -- really,
11   Ms. Brim needs to look to those people within the
12   organization.
13                  MS. BRIM:  You're exactly right.  You're
14   exactly right, and that's why I said that it's
15   embarrassing to be here, but whether or not I lose my
16   license, I'm here to tell the truth.
17                  COMMISSIONER COX:  Ms. Joseph, let's
18   just say for a minute, and I don't know whether you've
19   looked at it or not, that the evidence Ms. Brim has,
20   believes she has, or will produces, were to establish
21   that this payment was, in fact, made on time, would
22   that -- is that something that we can consider here?
23                  MS. JOSEPH:  Today?
24                  COMMISSIONER COX:  Uh-huh.
25                  MS. JOSEPH:  No, sir.  Because
0138
 1   today's -- the purpose of today is not to re-open the
 2   record and take additional evidence.
 3                  COMMISSIONER COX:  The facts have been
 4   established.  We're not triers of fact?
 5                  MS. JOSEPH:  That's correct.
 6                  COMMISSIONER COX:  And whether or it's
 7   paid on time is a fact?
 8                  MS. JOSEPH:  That's correct.  Now, if
 9   Ms. Brim had raised in her motion for rehearing, I have
10   additional evidence now and I would like the hearing to
11   be re-opened to consider this additional evidence, in
12   that case, before you would be the decision of whether
13   to re-open in order to hear the additional evidence,
14   but she --
15                  MS. BRIM:  I did not know about the -- I
16   did not know the license had been revoked or that the
17   motion for rehearing was filed because Lisa wrote the
18   letter and typed my name on it and sent it.  Until
19   Friday when she faxed it to me, I knew nothing of it.
20                  COMMISSIONER OLIVERA:  And I'm not
21   saying we're going to do this, but if this entity were
22   so inclined to send this back for rehearing, would you
23   be attending the hearing or are you going to Romania?
24   I mean, who is going -- who is going to be carrying the
25   ball on this?
0139
 1                  MS. BRIM:  I go to Romania for two weeks
 2   at a time every three months.
 3                  MS. JOSEPH:  If it were re-opened,
 4   the --
 5                  COMMISSIONER OLIVERA:  I'm not saying we
 6   are, but she had said she was leaving the country.
 7                  MS. JOSEPH:  I would just say that the
 8   SOAH judge would need some guidances as to what it was
 9   being re-opened for since there were no -- there was
10   nothing raised in the motion for rehearing itself,
11   which is somewhat problematic.
12                  CHAIRMAN CLOWE:  Did you have additional
13   facts, Mr. Atkins?
14                  MS. JOSEPH:  He can't add additional
15   facts.
16                  MR. ATKINS:  Counsel is right, I do have
17   additional facts, but I can't share them with the
18   Commission.
19                  CHAIRMAN CLOWE:  Okay.
20                  MS. BRIM:  And I honor whatever you have
21   to do; I want you to know that.  I have respect for the
22   Commission.
23                  THE CHAIRMAN CLOWE:  Well, I think Ms.
24   Kiplin answered my question.  We're trying to give you
25   a hearing and we're trying to take what you have to say
0140
 1   within the limitations that we have and we want you as
 2   a citizen of the state to feel like you've had the
 3   opportunity to appear and to be heard, and I think you
 4   heard two commissioners say they're compassionate about
 5   your problem, but we're bound by the law and --
 6                  MS. BRIM:  I understand that.
 7                  CHAIRMAN CLOWE:  -- and we must do the
 8   duties that we have.
 9                  Are there any other questions?
10                  COMMISSIONER COX:  Well, I think just
11   one, Mr. Chairman:  Ms. Joseph, is it possible at this
12   point for her to amend her motion for rehearing to say
13   that she has additional evidence?
14                  MS. JOSEPH:  There's no provision for
15   that in the Administrative Procedure Act.
16                  COMMISSIONER COX:  And is the decision
17   we make today subject to rehearing?
18                  MS. JOSEPH:  No, sir.  The next step,
19   would be, she might appeal to a court.
20                  CHAIRMAN CLOWE:  File with district
21   court?
22                  MS. JOSEPH:  File with district court.
23                  COMMISSIONER COX:  So there is a
24   continuing appeals process.
25                  MS. JOSEPH:  Yes.
0141
 1                  COMMISSIONER COX:  Is there an
 2   alternative in that case for them to say that they have
 3   additional facts and we didn't tell the Lottery
 4   Commission about it and we're telling you about it,
 5   would you send us back to the SOAH judge?
 6                  MS. JOSEPH:  The general rule, and I
 7   believe that it's pretty much adhered to, is that you
 8   can't appeal anything that wasn't raised in the motion
 9   for rehearing.
10                  MS. KIPLIN:  And I will say that the
11   standard for review is what is called substantial
12   evidence review, and so it is not a new trial where new
13   evidence is taken.  It is whether or not the Commission
14   erred based on the substantial evidence of the record.
15                  CHAIRMAN CLOWE:  Any questions?
16                  MS. BRIM:  You know what, I'll -- I
17   won't make you make this decision.  If you'll allow me
18   to speak later to let you know what's going on, I'll
19   withdraw.
20                  COMMISSIONER OLIVERA:  Well, it is our
21   job to make these decisions.
22                  MS. BRIM:  I appreciate the fact that
23   you care enough to talk about it.
24                  THE CHAIRMAN CLOWE:  Well, that's our
25   job and we certainly want to reach out to you and do
0142
 1   the best we can in that regard.
 2                  I understood Ms. Brim is prepared to
 3   withdraw her petition for rehearing.  Does that change
 4   the matter of whether the Commission needs to vote on
 5   this?
 6                  MS. KIPLIN:  I have to say, this is a
 7   case of first impression for me that somebody has come
 8   here and then wanted to withdraw their motion for
 9   rehearing.
10                  MS. BRIM:  I'm unique.
11                  MS. KIPLIN:  I guess from procedural, my
12   preference would be, just to make the record clear,
13   that the motion for rehearing is part of the record,
14   and I don't think you can withdraw something that you
15   filed, and you can either vote or today it will be
16   overruled by operation of the law because today is the
17   45th day.
18                  COMMISSIONER OLIVERA:  And I do say, she
19   can withdraw her motion, it's her emotion.
20                  MS. KIPLIN:  Well, and then if she
21   withdraws, then the order is final.  I have to say,
22   there may be law --
23                  COMMISSIONER OLIVERA:  I'm not telling
24   her to do that, but --
25                  MS. KIPLIN:  And there may -- and,
0143
 1   Commissioner Olivera, there may very well be a reported
 2   decision that I'm just not thinking about as I sit here
 3   that is applicable where there is a withdraw, but,
 4   procedurally, if she does withdrawal the motion for
 5   rehearing, then the order -- the order is final, and, I
 6   guess, if we get a petition for a judicial review, it's
 7   going to be one or the other, either y'all overrule the
 8   motion for rehearing by operational law or the order
 9   was final.
10                  MS. JOSEPH:  And an order cannot be
11   appealed where a motion for rehearing was not filed.
12   In other words, if she did decide that she wanted to
13   take this to court or appeal it further, she could not
14   do so if there had not been that motion for rehearing.
15                  CHAIRMAN CLOWE:  My sense is there ought
16   to be a motion.
17                  MS. KIPLIN:  That's an excellent point.
18   So, if she wants to leave here today and go seek
19   counsel, if that motion for rehearing is not part of
20   this record, she is barred jurisdictionally from
21   seeking judicial review.
22                  Thank you for that.
23                  COMMISSIONER OLIVERA:  Do you understand
24   that, ma'am?  There would be repercussions by you
25   withdrawing your motion for rehearing with respect to
0144
 1   your appellate rights?  Do you understand that?
 2                  MS. BRIM:  Yes, I do.
 3                  MS. JOSEPH:  I would like to point out
 4   one thing, you do not have to vote on it.  As Ms.
 5   Kiplin said, it will be overruled by operation of law,
 6   if you so choose just to let it be overruled by
 7   operation.
 8                  CHAIRMAN CLOWE:  I'm going to make a
 9   motion.  Any further questions, commissioners?
10                  I move we adopt the staff's
11   recommendations.  Is there a second?
12                  MS. KIPLIN:  Can I -- I'm sorry.  Can I
13   ask you to rephrase your motion, in that, the motion
14   would be to overrule the motion rehearing?
15                  THE CHAIRMAN CLOWE:  I move.
16                  Is there a second?
17                  COMMISSIONER OLIVERA:  Second.
18                  THE CHAIRMAN CLOWE:  All in favor,
19   please say aye.  Opposed?  No.  The vote is three/zero
20   in favor.
21                  Next we'll go to Docket 362-05-1077 as
22   laid out under letter B.
23                  MS. KIPLIN:  And, commissioners, I will
24   defer to Ms. Joseph.  This is another similarly
25   situated organization and I don't know if --
0145
 1                  COMMISSIONER OLIVERA:  And, Ms. Kiplin,
 2   let me interject.  At this time, I must take my leave.
 3                  (Commissioner Olivera has left the
 4                  room.)
 5                  MS. KIPLIN:  I don't know if Jerry
 6   Jackson, Mr. or Mrs. Jerry Jackson, is in the audience,
 7   but I'd ask them to come forward.  I have not been
 8   provided any affirmation form whatsoever.
 9                  MS. JOSEPH:  And I want to be sure we're
10   on the right page here, because the other one involving
11   Jerry Jackson is item C, it's behind tab C.
12                  MS. KIPLIN:  Okay.  It's the VFW 8785.
13                  THE CHAIRMAN CLOWE:  No.  I called the
14   letter B.
15                  MS. KIPLIN:  Well, then, I'm sorry.  I
16   apologize.  It's my confusion.  Commissioners, we would
17   like to pass that matter.  We thought we would have --
18                  THE CHAIRMAN CLOWE:  Okay.  That's
19   passed.
20                  Now we'll go to docket 362-03-5840.B
21   represented by the letter C, VFW Post 8785.
22                  MS. JOSEPH:  Thank you.  Commissioners,
23   Again, this is Sandra Joseph, assistant general
24   counsel.
25                  The facts in this case are virtually
0146
 1   identical to the case in item D which has previously
 2   been considered by the Commission.  The only difference
 3   is a slight difference in the date that the information
 4   was received that was due, but this is another case
 5   involving failure to file a quarterly report three
 6   times in a 12-month period.  Based on the facts in this
 7   case and the fact that no new issue of fact or law was
 8   raised in the motion for rehearing, I would again
 9   recommend denial of this motion for rehearing.
10                  CHAIRMAN CLOWE:  And there's no
11   appearances filed in this matter, are there?
12                  MS. KIPLIN:  No, sir, I don't have any
13   witness affirmation.  We'll make one additional call.
14                  A Jerry Jackson has filed a motion for a
15   rehearing.  Is there a Jerry Jackson in the audience?
16                  THE CHAIRMAN CLOWE:  Any questions?  Is
17   there a motion?
18                  COMMISSIONER COX:  So moved.
19                  CHAIRMAN CLOWE:  All in favor, please
20   say aye.  Opposed?  No.  The vote is two/zero in favor.
21                  There is someone speaking off mic that I
22   cannot recognize.  If someone has something to say to
23   this Commission, they need to come forward and be
24   recognized.  I believe we have an order to sign.  Is
25   there someone that wishes to be recognized?
0147
 1                  Okay.  Thank you, Ms. Joseph.  I think
 2   that concludes your business, doesn't it?
 3                  MS. JOSEPH:  Yes.  Thank you.
 4                  AGENDA ITEM NO. 28
 5                  THE CHAIRMAN CLOWE:  All right.  We're
 6   ready to go to Item 28:  Report by the executive
 7   director and/or possible discussion and/or action on
 8   the agency's operational status, FTE status, and
 9   retailer forums.
10                  Mr. Greer?
11                  MR. GREER:  Yes, sir.  Commissioners,
12   thank you for the opportunity to bring you up to date
13   on what's been taking place in the past month.  There's
14   a few thing that I wanted to revisit from our meeting
15   today, the first being that we reached the $12 billion
16   mark as a milestone to the State of Texas and that
17   $6.8 billion of that has gone into the foundation
18   school fund.  We continue to work toward getting the
19   word out on where the money goes and that continues to
20   be a challenge for us.  We near the $7 billion mark.
21   I'm going to be bringing you some things that we're
22   going to be looking at as we reach that milestone.
23                  We're into specifically talking for a
24   moment about Mega Millions and the fact that we have
25   had had a good year.  In talking with staff on one of
0148
 1   our breaks earlier, we're going to defer an overview on
 2   the entire year to February, because it's such a short
 3   time frame and we have also the holidays during the
 4   next couple of weeks, but I did want to let you know
 5   that we had great response from a press perspective
 6   over the past week on this topic.  The fact that our
 7   sales reached $289 million and $234 million, that with
 8   ticket sales of $55 million on Megaplier was certainly
 9   worth noting, reinforced to the press and to the public
10   that 38 cents of every dollar does go to the foundation
11   school fund, and that continues to be kind of a
12   misnomer because of the broad perspective of being in a
13   multi jurisdictional game, they forget that we have a
14   good percentage of that that comes into our state.
15                  Texas is ranking number three as far as
16   sales in the eleven participating states.  We've had 19
17   jackpots that have reached over the $100 million mark,
18   which we've obviously never seen here in our state
19   before.
20                  COMMISSIONER COX:  Who are the two
21   states ahead of us?
22                  MR. GREER:  As far as the sales, I'm
23   going to have to defer and get back to you on that.
24                  COMMISSIONER COX:  New York has --
25                  MR. GREER:  We're number three in the --
0149
 1   I think it's New Jersey, actually, and New York.  And
 2   New Jersey has a higher per cap, but I will verify that
 3   and get back to you.
 4                  The highest jackpot during that time
 5   frame was $290 million, which we enjoyed reliving
 6   through the month of June.  We talked about this the
 7   other day, that was our highest month ever.  We did
 8   have our first winner here out of Texas, a win out of
 9   Carlton, $101 million, and also we saw a good -- from
10   my perspective, a good overview as to what it was going
11   to do to Lotto Texas with a 12.2 percent shift versus
12   that 20 percent number that we looked at.  Both of
13   these games being jackpot driven, we're just going to
14   have to continue to monitor that, and I'll go into a
15   lot more detail on that when we talk about this in
16   February.
17                  I also want to make you aware, and
18   Robert touched on it earlier, that a group of us from
19   the Lottery Commission attended Florida's lottery
20   conference in Florida.  It was December the first
21   through the fourth.  Bobby, Diane Morris, Robert
22   Chaloney, and myself went.  Bobby and Diane had the
23   opportunity the meet with their counterparts in other
24   parts of the country.  Down there, there was other HR
25   directors and media relations directors that they had
0150
 1   outbreak sessions on.
 2                  The thing about the conference that I
 3   enjoyed the most, and I'll be bringing some more
 4   specific information, but Robert touched on the trends
 5   in the industry, specifically that online sales are
 6   showing a flat to decrease as far as the numbers and
 7   the instant tickets continue to rise, we're going to
 8   watch that and see what other states are doing.
 9                  I also came back with a number of ideas
10   that you'll be seeing implemented over the next couple
11   of months that staff is helping me work on, and more
12   than anything else, just building relationships with
13   other directors around the country.  I had never met a
14   number of them.  Specifically from Washington and
15   Florida, those are two states that I was looking to
16   reach out to, Florida specifically because of their
17   population base and the fact that they're number four
18   and we're number three in the country, watching what
19   they're doing, and we're looking at some of their ideas
20   that we may want to interject over our next year's
21   plan.
22                  We have a great holiday pop-up lunch
23   here on the 10th that I wanted you to be aware of.  I
24   also want to follow up with you, last month I touched
25   on the leadership secrets of Santa Clause series that
0151
 1   we've been carrying out; our final topic will be
 2   tomorrow, but a couple worth noting, which really went
 3   back to the basics and created an opportunity for us to
 4   revisit some of those, but it's building a good
 5   workshop, which talks about your mission statement,
 6   your goal orientation, and your core values.  Getting
 7   beyond the red wagons is just one of the courses that
 8   talks about being change ready and the fact that, years
 9   ago, kids were all looking at an environment where they
10   wanted a red wagon and now they want Nintendo and, you
11   know, computer-oriented games, and, you know, different
12   things, so you have to be change ready, even though
13   that worked in the past, they may not work in the
14   future, so to be able to address those type issues.
15                  And then another one was, making a list
16   and checking it twice, which we're all familiar with
17   that phrase, and in this environment, it was to have
18   your goals written down and take a look at them often
19   and be sure that you're moving in the proper direction.
20                  With that, I conclude my report by
21   wishing you a happy holiday.  We'll keep you informed
22   as we move through the holiday season.
23                  CHAIRMAN CLOWE:  Any questions?  Very
24   good.  Thank you.
25                  Billy, we've covered your item on the
0152
 1   agenda involving your report.  Do you have anything to
 2   add?
 3                  MR. ATKINS:  No, sir, not regarding my
 4   report.
 5                  AGENDA ITEM NO. 20
 6                  THE CHAIRMAN CLOWE:  Then we're next to
 7   take up Item 20:  Public comment.
 8                  And, Ms. Brim, I believe you wanted to
 9   come up and speak to the Commission at this point.
10                  MS. KIPLIN:  Commissioners, while Ms.
11   Brim comes forward, I wanted to just remind you that
12   under this item, your deliberations are extremely
13   limited.  Any deliberation of or decision about the
14   subject of the comment shall be limited to a proposal
15   to place the subject on the agenda for a subsequent
16   meeting.
17                  THE CHAIRMAN CLOWE:  Thank you,
18   counselor.
19                  MS. BRIM:  I knew the chances of my
20   getting a license were very small.
21                  CHAIRMAN CLOWE:  Would you mind
22   identifying yourself for the record?
23                  MS. BRIM:  I'm Judy Brim with Humanity
24   United In Giving Internationally, and I'm the founder
25   and president.
0153
 1                  I'm here because of what has happened to
 2   me the last year and what I found out ultimately about
 3   how a charity can be in real danger, because that's
 4   what's happened to my organization and I don't want it
 5   to happen to anyone else.  Lack of knowledge is not an
 6   excuse, but you have to know what has happened and how
 7   I got into this position and the truth about what's
 8   really happening in bingo and charities.  At this
 9   point, I don't have my license, so I have nothing to
10   lose, but I came knowing that I had nothing to lose and
11   everything to gain by talking with you.  I have been
12   called by many the truth holder, and I come now before
13   you with the truth hoping that you will listen with
14   intent so that future legislation can be affected and
15   so that charity bingo will be that, a bingo where funds
16   for charities are making the money and not just the
17   owners of the bingo or the operators of the bingo
18   halls.
19                  As I told you earlier, because I was
20   handicapped I trusted Lisa Garland who operates the
21   hall and did not realize that by having her be the
22   bookkeeper and the person who makes the deposits and,
23   for a time, including the time when I lost my license,
24   stamping my checks with my signature, I didn't realize
25   that I was having the fox guard the hen house.  That
0154
 1   only became completely open and clear to me when I
 2   spoke with Sandra.  And I want to publicly thank her
 3   for calling me, because without it, I would not have
 4   known and I wouldn't be here today.
 5                  I'm going to try real hard not to cry.
 6                  THE CHAIRMAN CLOWE:  Sure.  Take a
 7   moment and compose yourself.
 8                  MS. BRIM:  I was being told that
 9   everything was handled when we received the letter in
10   March that we needed a hearing.  I asked her if we
11   needed an attorney, and she said, no, this is a
12   procedural thing; it's done all the time; don't worry
13   about it.  And so because she told me that, in August
14   she came in my place and she represented me, and again
15   not to worry about it because it was handled and there
16   was no doubt in her mind that everything would be fine.
17                  After August, I didn't receive any other
18   letters, so I presumed that everything was fine.  We
19   didn't receive -- I didn't receive any information that
20   our license had been revoked, and so, again, I thought
21   everything was fine.  About six months ago, on a
22   totally unrelated issue, I was trying to get some
23   information from the IRS, because we had been sent
24   information that we owed more taxes for this same
25   period, when I gave my information about the address of
0155
 1   HUG so that they would talk with me, I was informed
 2   that that was the wrong address for HUG International.
 3   only after about 45 minutes did I found out that the
 4   address for the IRS of HUG was Oaks Drive.  I had not
 5   received anything else from them, so I didn't know
 6   anything was wrong.
 7                  I want it to be known that I am not
 8   accusing Lisa or anyone related to her or working with
 9   her of this.  I just find that it's very unusual that
10   both of those addresses turned out to be the bingo
11   address.  When we changed the address, only then did I
12   get all of the letters from the IRS about money that
13   was owed.  Unfortunately, again, because of lack of
14   knowledge, I had been having her pay the taxes, because
15   we only had one employees and she had seven, and so it
16   was easier for me to send her the information in order
17   for her to file, and I thought it was all being done in
18   a timely manner and all being paid.
19                  I don't want there to be any question
20   about the fact that charities are not the ones that are
21   prospering from bingo, from the lottery.  The bingo
22   owners are the ones that are getting rich.  I'm aware
23   that I happened to get someone that could not be
24   trusted, and as a result, I will have some big
25   penalties to pay, including the possible loss of my
0156
 1   organization, but even losing the license with the fear
 2   that there will be no reason for her pay the prize fees
 3   for this quarter, nor will there be any reason for her
 4   to pay the employee tax for this quarter as well as all
 5   the problems with the IRS, I'm willing to come here to
 6   beg this Commission and everyone involved with the
 7   Texas State Lottery to do something about the reality
 8   of what is going on.
 9                  I was given a signature stamp when I
10   started there to make it easier since I could not
11   attend bingo at night.  We don't have a lot of
12   volunteers and I was told that's the way it was done
13   and it was okay and it was so regulated that there was
14   no way that this could affect how much money the
15   charity got, and so, of course, I thought it was
16   handled and I thought it was okay.  Only when I was
17   contacted by Jim Grange did I realize that, indeed,
18   they could take advantage if they wanted to, and so I
19   pulled my signature stamp and became the person that
20   was signing the checks.  Unfortunately, when they
21   brought me the checks, I thought I had put a safe stop
22   into it.
23                  When I was presented with information
24   from Lisa on Saturday when she found out I was coming
25   here did I realize that we had had penalties.  She told
0157
 1   me we had penalties in the amount of $757.53 during
 2   that time and Mr. Miner just let me know that the
 3   penalties were $1,823, so I still have not gotten the
 4   truth about what has happened with my organization, but
 5   I do know that for that period of time, our
 6   organization received $6,000; that just happens to be
 7   exactly what the VFW that lost their license also
 8   today, that was exactly the amount that was paid to
 9   them.  Only then, last December, did I realize that
10   there may be a problem here.
11                  When I received the information from my
12   bank last week that a check for $3,632.45 had bounced
13   twice did I realize that it was the second quarter fees
14   for this year.  I changed the account because there
15   were signatures on there that I did not recognize, so I
16   closed that account and opened a new bingo account, but
17   everything that is in there, which was about $4400,
18   will only cover this without late fees, so, the
19   situation we have now is, the IRS we owe over $2,500;
20   the comptroller we owe $4,000 now plus whatever will
21   happen this quarter as well as what will happen with
22   the IRS this quarter, and I don't know that HUG will be
23   able to survive this.
24                  For 14 years my organization has been
25   run with integrity and pride.  We've worked with
0158
 1   Romanian orphanages and we've worked with African
 2   refugees here and we've worked with women and we have
 3   helped numerous families and emergency relief all over
 4   the United States as well as 9-11.  Only last week did
 5   I find out that I couldn't hold my head up because
 6   there are no safeguards and lack of knowledge is not an
 7   excuse, so you may be looking at world's biggest fool
 8   by explaining and telling you, although, I have.
 9   Something has to be done so that the charities are the
10   ones who really do get the money, whether it's a
11   straight percentage or something.
12                  I've gone about four months without
13   receiving anything.  I said that at the first of the
14   year that I was going to give $500 a week -- I'm
15   sorry -- $500 every two weeks.  I was hoping that we
16   could get $12,000 for the two months that are regarded
17   for this period, which we paid the state comptroller
18   $18,591.
19                  CHAIRMAN CLOWE:  Ms. Brim, I want to be
20   patient with the Commission's time and I just want to
21   tell you that I think we've heard the thrust of your
22   story and these facts now are a different issue, and if
23   you could come to a conclusion, I'd appreciate that.
24                  MS. BRIM:  Yes, sir, I will.
25                  Our rent is set at $200 to $600 a week.
0159
 1   Rent fees are never reimbursed, and when things such as
 2   security, clean up, accounting are at such significant
 3   levels, that at the end of it, there leaves nothing for
 4   the charities for weeks or months at a time.  Somebody
 5   has to do something.  Bingo operators and charities
 6   won't come and say what I'm telling you, but someone
 7   needs to make an honest, forthright effort to really
 8   get the money to the children and to the people that we
 9   as charities serve daily.
10                  You may not have the authority to
11   re-establish my license, but I hope you use all the
12   authority that you have to fix the holes that are in
13   bingo and to let the money go to where it's supposed to
14   have gone 20 years ago when the Bingo Enabling Act was
15   made.  There's got to be protection for the charities
16   for the prize fees.  We shouldn't even be responsible
17   for them; that comes directly from the operators, but
18   now I'm in a situation where I'm going to be
19   responsible for probably $7,000 or $8,000.  You may not
20   be able to talk to the charities about how much they're
21   making because they want to continue bingo.
22                  I will be back in a year if I am able to
23   raise the money for the fees that weren't paid to me in
24   order to pay to you.  I'm going to offer my services to
25   you or to the legislature when this comes back, and
0160
 1   they need to know what can happen to a charity that
 2   doesn't have stops in progress and things, and if I can
 3   offer my services in any way, maybe something good will
 4   come out of this.
 5                  CHAIRMAN CLOWE:  Thank you, Ms. Brim.
 6   Your appearance is appreciated here today and your
 7   comments are part of the record.
 8                  Is there anyone else wishing to make
 9   public comment to the commission?
10                  Back under your duties, Billy, Kim gave
11   me guidance on this:  Can the Commission at this point
12   in time direct Billy through his auditors to
13   investigate comments which have been made to the
14   Commission today during the public comment session or
15   is it necessary under the agenda for the next meeting
16   to put this item for consideration?
17                  MS. KIPLIN:  I think you have the
18   authority, if you want to, to give direction under
19   another agenda item on investigating the complaint.
20                  COMMISSIONER COX:  What item would that
21   be?
22                  MS. KIPLIN:  I think the appropriate one
23   would be -- actually, there's two, number 29, which is,
24   report by the charitable bingo operations director and
25   possible discussion and/or action on the operations
0161
 1   division's activities, and then, of course, even though
 2   it's in executive session:  To deliberate the duties of
 3   the charitable bingo operations director.
 4                  THE CHAIRMAN CLOWE:  Well, since we have
 5   that latitude, Commissioner Cox, we are restrained in
 6   this period of public comment from reacting or
 7   deliberating what's been said, but I think it would
 8   give the Commission comfort, if you're in agreement, to
 9   direct within the scope of the authority that Billy has
10   to have him look into these matters and come back to
11   us.
12                  COMMISSIONER COX:  Absolutely.
13                  THE CHAIRMAN CLOWE:  Billy, can you do
14   that?
15                  MR. ATKINS:  We can, Commissioners.  And
16   I understand that your direction is as it relates to
17   the comments made by Ms. Brim and her organizations and
18   the individual named Lisa Garland?
19                  THE CHAIRMAN CLOWE:  Within the scoop of
20   the authority as your role as director of the bingo
21   division and empowered by the Bingo Enabling Act.
22   There were a number of comments made which are way
23   beyond any investigative role that you might have, but
24   within the scope of your authority and this
25   Commission's authority.  It would give the Commission
0162
 1   comfort to have you do the best you can to look into
 2   that.  I don't expect that you can do a criminal
 3   investigation, in other words.
 4                  MS. KIPLIN:  Well, I would reach out to
 5   Ms. Kiplin and her staff.
 6                  CHAIRMAN CLOWE:  Absolutely.
 7                  MS. KIPLIN:  It depends on what the
 8   facts unfold.
 9                  CHAIRMAN CLOWE:  Excellent.
10                  COMMISSIONER COX:  And I would ask that,
11   as you're looking at the records for HUG, that you look
12   at the parallel records for the VFW.
13                  MR. ATKINS:  I will.  Commissioners,
14   I'll just let you know for the record that, back in
15   April of 2003, the staff raised some serious questions
16   about organizations, including HUG and VFW 8785, which
17   was the other organization that you took action on
18   today, specifically dealing with what the staff
19   believed to be either false documents or forged
20   documentation.  A fairly substantial investigation was
21   done by our security division at that time.  They
22   interviewed a number of individuals, one of which was
23   Ms. Brim, and in that investigative report, the
24   organizations stated that signatures on documents that
25   weren't received were not their signatures, but they
0163
 1   did not wish to take any action.
 2                  MS. KIPLIN:  Did not wish to take any
 3   action, you mean by filing criminal charges or --
 4                  MR. ATKINS:  That's correct.  And the
 5   agency did refer the investigative report to the Dallas
 6   County District Attorney's Office and they declined to
 7   prosecute.  So, the staff has actually been working on
 8   this --
 9                  THE CHAIRMAN CLOWE:  That's fine.
10                  MS. KIPLIN:  -- so we'll just update
11   what we already have.
12                  CHAIRMAN CLOWE:  I think your
13   commissioners would like to know and we would like to
14   have insight as to where we are on this thing.
15                  MS. KIPLIN:  We will provide that.
16                  THE CHAIRMAN CLOWE:  Very good.
17                      AGENDA ITEM NO. 21
18                  Is there anything else to come before
19   the Commission at this time?
20                  If not, we are adjourned.  The time is
21   1:43.
22   
23   
24   
25   
0164
 1                   REPORTER'S CERTIFICATION
 2   
 3   STATE OF TEXAS         )
 4   COUNTY OF TRAVIS       )
 5   
 6             I, KIMBERLYE A. FURR, Certified Shorthand
 7   Reporter for the State of Texas, do hereby certify that
 8   the above-captioned matter came on for hearing before
 9   the TEXAS LOTTERY COMMISSION as hereinafter set out,
10   that I did, in shorthand, report said proceedings, and
11   that the above and foregoing typewritten pages contain
12   a full, true, and correct computer-aided transcription
13   of my shorthand notes taken on said occasion.
14   
15             Witness my hand on this the 23rd day of
16   December, 2004.
17   
18   
19   
20                 ___________________________
                   KIMBERLYE A. FURR
21                 Texas CSR No. 6997
                   Expiration Date:  12/31/05
22                 1801 North Lamar
                   Mezzanine Level
23                 Austin, Texas  78701
                   (512) 474-4363
24   
25   JOB NO. 041213KAF