0001 1 * * * * * * * * * * * * * * * * * 2 3 4 TEXAS LOTTERY COMMISSION 5 MEETING 6 7 AUGUST 2, 2006 8 9 * * * * * * * * * * * * * * * * * 10 11 12 13 14 15 16 17 BE IT REMEMBERED that the TEXAS LOTTERY 18 COMMISSION meeting was held on the 2ND of AUGUST, 19 2006, from 9:00 a.m. to 1:30 p.m., before Brenda J. 20 Wright, RPR, CSR in and for the State of Texas, 21 reported by machine shorthand, at the Offices of the 22 Texas Lottery Commission, 611 East Sixth Street, 23 Austin, Texas, whereupon the following proceedings 24 were had: 25 0002 1 APPEARANCES 2 3 Chairman: Mr. C. Tom Clowe, Jr. 4 5 Commissioners: Mr. James A. Cox, Jr. 6 7 General Counsel: Ms. Kimberly L. Kiplin 8 9 Executive Director: Mr. Anthony J. Sadberry 10 11 Charitable Bingo Executive Director: Mr. Billy Atkins 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 INDEX - August 2, 2006 2 PAGE 3 Appearances.................................... 2 4 AGENDA ITEMS 5 Item Number I.................................. 5 6 The Texas Lottery Commission will call the meeting to order 7 Item Number II................................. 5 8 Consideration of and possible discussion and/or action on amendments to 16 TAC 402.102 relating 9 to the Bingo Advisory Committee 10 Item Number III................................ 68 Report, possible discussion and/or action on 11 implementation of the new Administrative Penalty Guideline rules 12 Item Number IV................................. 15 13 Consideration of and possible discussion and/or action on external and internal audits and/or 14 reviews relating to the Texas Lottery Commission, including an internal audit of Charitable Bingo 15 Regulation - Audit Services, and/or on the Internal Audit Department's activities 16 Item Number V.................................. 70 17 Report, possible discussion and/or action on GTECH Corporation, including proposed 18 acquisition of GTECH 19 Item Number VI................................. 72 Consideration of and possible discussion and/or 20 action on the lottery operator contract, including whether the negotiation of the lottery operator's 21 contract in an open meeting would have a detrimental effect on the Commission's position 22 in negotiations of the lottery operator contract 23 Item Number VII................................ 72 Report, possible discussion and/or action on the 24 agency's contracts 25 0004 1 INDEX - CONTINUED - August 2, 2006 2 PAGE 3 Item Number VIII............................... 117 Commission may meet in Executive Session 4 Item Number IX................................. 119 5 Return to open session for further deliberation and possible action on any matter discussed in 6 Executive Session 7 Item Number X.................................. 8, 78 Consideration of the status and possible entry 8 of orders in Dockets A through J 9 Item Number XI................................. 97 Report by the Executive Director and/or 10 possible discussion and/or action on the agency's operational status, and FTE status 11 Item Number XII................................ 116 12 Report by the Charitable Bingo Operations Director and possible discussion and/or action on the 13 Charitable Bingo Operations Division's activities 14 Item Number XIII............................... 117 Public comment 15 Item Number XIV................................ 121 16 Adjournment 17 Reporter's Certificate......................... 122 18 19 20 21 22 23 24 25 0005 1 AUGUST 2, 2006 2 CHAIRMAN CLOWE: We'll come to order. 3 Good morning. It's 9:00 a.m., August the 2nd, 2006. 4 The Texas Lottery Commission will call this meeting to 5 order. Commissioner Cox is here. My name is Tom 6 Clowe. 7 We'll begin with item number two, 8 consideration of and possible discussion and/or action 9 on amendments to 16 TAC 402.102, relating to the Bingo 10 Advisory Committee. Mr. Atkins. Oh, I'm sorry. 11 Ms. Joseph, I believe you have that 12 item. 13 MS. JOSEPH: That's correct. Good 14 morning, Commissioners. My name is Sandy Joseph, 15 Assistant General Counsel. 16 Before you is a draft notice of 17 proposed rule making to amend bingo administrative 18 Rule 16 TAC, Section 402.102, pertaining to the Bingo 19 Advisory Committee. The proposed rule was prepared in 20 response to your direction on June 7th, 2006, to 21 prepare proposed amendments to clarify certain 22 portions of the rule. The proposed amendments to 23 subsections E and K will clarify the Bingo Advisory 24 Committee's responsibility to report to the Commission 25 and the basis for removal as a member of the BAC. 0006 1 More specifically, the amendment to subsection E 2 requires that the BAC annually report to the 3 Commission the BAC's perspective on the state of 4 charitable bingo in Texas, with specific comments on 5 certain items, including net receipts. 6 Subsection E currently provides that 7 the BAC annually report to the Commission, with 8 specific recommendations for improvement, the status 9 of certain areas relating to charitable bingo. 10 The proposed amendment to subsection K 11 specifies that a BAC member may be removed if 12 delinquent in payment of any prize fees or gross 13 rental taxes for which a final jeopardy determination 14 has been made by the Commission. The rule currently 15 provides for removal if delinquent in any liability to 16 the State. 17 The Commission may initiate the rule 18 making process by publishing the proposed rule in the 19 Texas Register for a comment period of not less than 20 30 days. The submission prepared for the Register 21 includes notice of a public hearing to be held on the 22 proposed rule on August 29th, 2006, at 11:00 a.m. 23 I have a memo prepared for your 24 approval if you wish to initiate rule making 25 proceedings. 0007 1 I'll be happy to answer any questions. 2 COMMISSIONER COX: No, sir. 3 CHAIRMAN CLOWE: Sandy, give us the 4 timetable on this if it's approved today. 5 MS. JOSEPH: It would be -- I don't 6 have the exact date that it would appear in the Texas 7 Register, but it would appear in the Texas Register 8 approximately ten -- ten days from now, ten days to 9 two weeks, depending on how we get their schedule. 10 And then it would be -- we would need to wait at least 11 30 days before bringing it back to you. So we'll be 12 back to you in September, I would expect, probably 13 early to mid September. 14 CHAIRMAN CLOWE: Has this item been on 15 the agenda for the BAC? 16 MS. JOSEPH: No. They are meeting next 17 week, and I plan to present it to them at that time. 18 They will have at least 30 days to submit any comments 19 they would like to. 20 CHAIRMAN CLOWE: Good. And, 21 Commissioner Cox, I'll be out of pocket at that 22 meeting in case you are able to attend that meeting, 23 the entire agenda. And this would come up before the 24 BAC, and you would have an opportunity to take input 25 if you want to. 0008 1 COMMISSIONER COX: Sure. 2 CHAIRMAN CLOWE: At that time. 3 I move the adoption of the staff 4 recommendation. 5 COMMISSIONER COX: Second. 6 CHAIRMAN CLOWE: All in favor, please 7 say aye. Opposed, no. The vote is two-zero in favor. 8 Sandy, I'm sorry. I thought your item 9 was another one. I didn't mean to... 10 We have a Witness Affirmation Form 11 here, a member of the public, in regard to item number 12 ten, represented by the letter J. Commissioner Cox, 13 with your approval, I would like to go to that item 14 number now, case number 200-1077, Moore Supplies, Inc. 15 Counselor, do you have that item, or 16 does another attorney have it? 17 MS. KIPLIN: No, sir. I think, 18 consistent with your request, you would like the 19 general counsel to present these enforcement matters 20 to the Commission. Mr. Atkins will also 21 participate -- 22 CHAIRMAN CLOWE: Okay. 23 MS. KIPLIN: -- in this item. And 24 we'll be happy to move to the tables in front of you, 25 or we'll stay put where we are, depending on what you 0009 1 would like to do. 2 CHAIRMAN CLOWE: What's your pleasure, 3 Commissioner? 4 Why don't you try it from where you 5 are. We'll see how that works. 6 MS. KIPLIN: Well, I'm happy to do 7 that. 8 Commissioners, this is a matter that 9 was previously presented to you, and it's a -- it -- 10 at that time and -- and still in your notebook is a 11 proposed settlement agreement on an enforcement 12 matter. And it had to do with Moore Supplies, 13 Incorporated, who is a licensed bingo distributor. 14 The original complaint that was filed 15 with the Commission was that this licensed distributor 16 was engaged in price fixing with the manufacturer 17 GameTech. 18 The complaint was investigated, and 19 I -- I would say, thoroughly. There are reams and 20 reams of paper that have been generated on this 21 particular matter. And I -- the investigator 22 concluded that -- did not see substantiation of the 23 allegation of price fixing, but based on the conduct 24 of the distributor, in terms of the contracts for the 25 furnishing of bingo equipment at particular halls, 0010 1 believed that there were violations of another -- 2 another provision of the Bingo Enabling Act. And that 3 had to do with who, in fact, can furnish -- well, who, 4 in fact, can be furnished bingo equipment. 5 And there is a statute that's at play, 6 Occupations Code 2001.407 -- point 407, which 7 indicates that a licensed distributor may not furnish, 8 by sale, lease, or otherwise, bingo equipment or 9 supplies to a person other than a licensed authorized 10 organization. There are other categories, but that's 11 the operative language for this particular matter. 12 And at that time, the Bingo Division 13 read that and has interpreted these provisions to mean 14 that it has to be the licensed authorized 15 organization. 16 What occurred, in fact, was that the 17 licensed distributor was entering into contracts with 18 individuals, in -- in some regards, who were not 19 members of the organization, and -- for example, a 20 commercial lessor in one -- one -- one or more 21 examples. And in others, it would be a representative 22 of the bingo hall. So what became more operative 23 and -- and it -- if you will remember, this matter was 24 presented to you before, were questions and comments 25 by the Commissioners on who can act on behalf of a 0011 1 licensed authorized organization. The statute and the 2 constitution, the constitutional provision that 3 authorizes bingo, refers to games being conducted by 4 the licensed authorized organization. And, in fact, 5 through the Bingo Enabling Act, there will be phrases 6 that will talk about bingo being conducted, promoted, 7 or administered by the organization. 8 But what is not clear in the Bingo 9 Enabling Act is, what is meant by conducting, 10 promoting, and administering bingo. Is it a narrow 11 construction? Are we looking at just the games 12 themselves, or are we looking at all activities 13 attendant thereto? In -- in -- in particular, with -- 14 with regard to this case, who, in fact, can act on 15 behalf of an organization to enter into a contract for 16 the furnishing of bingo equipment? 17 If one were to apply a narrow 18 interpretation, then -- then the conclusion would be 19 that it would have to be a member of the licensed 20 authorized organization or another one of the 21 enumerated categories, but not, for example, a 22 commercial lessor or a hall representative. 23 If one were to look at it in a broad 24 sense, then -- then it would be somebody who would be 25 authorized. For example, it could be an attorney 0012 1 acting on behalf of a licensed authorized 2 organization, negotiating a contract. 3 And so based on the -- the further 4 review, the -- the analysis, the comments, the 5 questions that were posed by the Commission, the staff 6 at this point is recommending pulling this enforcement 7 proceeding down and moving forward to propose a rule 8 that -- that puts folks on notice on what -- what is 9 acceptable market conduct under the Bingo Enabling Act 10 and -- and under the constitution. 11 And that's the recommendation at 12 this -- at this time, is to conclude this matter, move 13 forward into a rule making where all folks have an 14 opportunity to weigh in on these market conduct 15 issues, in -- in terms of who can act on whose behalf 16 and in what -- in what situation, what setting. 17 I think under -- under the conducting 18 of the games, where it's B-1, B-2, you know, calling 19 of the balls, the actual operation of the game, I 20 don't think that's the issue. I think the broader 21 issue is when you're looking at it in terms of a 22 business transaction and in furnishing equipment, 23 entering into contracts for licensed locations, and -- 24 and so forth. 25 I know Ms. Tabor, who represents Moore 0013 1 Supplies, Incorporated, is -- is here. And I don't -- 2 we've discussed this. I don't believe she has any 3 objection to the entry of the settlement -- the entry 4 of the staff's recommendation. And what that would 5 mean is that we would just conclude this matter and 6 move forward, try to put everybody on notice in terms 7 of what -- what is acceptable market conduct. 8 In this settlement agreement I will say 9 that Moore Supplies never acknowledged that they had 10 violated any provision. I think it was a compromise. 11 Not -- did acknowledge the conduct itself, but not 12 that that conduct violated this operative statute. 13 CHAIRMAN CLOWE: And what you're asking 14 the Commission to do is not to approve a settlement, 15 but you're asking to withdraw this item? 16 MS. KIPLIN: That's right. And -- 17 that -- that is correct. 18 CHAIRMAN CLOWE: Mr. Atkins? 19 MR. ATKINS: Commissioners, there is 20 not a lot that I have to add to Ms. Kiplin's comments. 21 Specifically, what the staff is proposing be 22 considered through the rule making process is, as she 23 mentioned, what is classified as market conduct or the 24 roles and responsibilities of different types of 25 licensees. 0014 1 Through the rule making process the 2 staff will be able to identify the issues and 3 relationships that we believe may have effect -- 4 effects on bingo games or their operations but, 5 additionally, will also be able to receive input from 6 the industry on what they consider to be common or 7 even necessary business practices. Then the matter 8 will be able to be presented to the Commission for 9 final adoption, and the intent of the rule will be to 10 end up with an administrative rule that clearly 11 identifies the roles and responsibilities of the 12 various parties in the bingo business and the 13 expectation of each. 14 COMMISSIONER COX: So, Ms. Kiplin, I've 15 heard you say pulling down, concluding -- 16 MS. KIPLIN: Uh-huh. 17 COMMISSIONER COX: You're dismissing 18 the charges, in effect? 19 MS. KIPLIN: Yes. 20 COMMISSIONER COX: It's over? 21 MS. KIPLIN: Yes. 22 COMMISSIONER COX: Okay. Good. And I 23 think this is the way we should be moving. When there 24 is a provision of the law, or even of our rules, that 25 is open to more than one reasonable interpretation, we 0015 1 should clarify it, I think, and so I like what we're 2 doing here, Mr. Chairman. 3 CHAIRMAN CLOWE: Ms. Tabor, do you have 4 anything to add to what has been said? 5 MS. TABOR: I'm in agreement with 6 everything that's been said. 7 CHAIRMAN CLOWE: Would you go to the 8 mike so you can be on the record, please, ma'am? 9 MS. TABOR: I agree with what 10 Ms. Kiplin, Mr. Atkins, and the Commissioner have 11 said. And I have nothing to add. I think this is the 12 right way to proceed, and, once advised, would like to 13 participate in the -- this rule making process. 14 CHAIRMAN CLOWE: Thank you. 15 Anything further? Move the adoption of 16 the staff recommendation. 17 COMMISSIONER COX: Second. 18 CHAIRMAN CLOWE: All in favor, please 19 say aye. Opposed, no. The vote is two-zero in favor. 20 Next, we will pass over item number 21 three for the time being and go to item number four, 22 consideration and possible discussion and/or action on 23 external and internal audits and/or reviews relating 24 to the Texas Lottery Commission, including an Internal 25 Audit of the Charitable Bingo Regulation, Audit 0016 1 Services, and/or on the Internal Audit Department's 2 activities. Ms. Melvin. 3 MS. MELVIN: Good morning, 4 Commissioners. For the record, my name is Catherine 5 Melvin, Director of the Internal Audit Division. 6 CHAIRMAN CLOWE: Is your mike on, 7 Catherine? 8 MS. MELVIN: It is on now. 9 CHAIRMAN CLOWE: Good. 10 MS. MELVIN: Can you hear me? 11 This morning I'm here to present the 12 results of a recently concluded Internal Audit of 13 charitable bingo regulations, specifically the Audit 14 Services function. 15 Before I do that, I would like to 16 provide a very brief update on the State Auditor's 17 Office activities, as I have done in the past. 18 Currently, we have one audit outstanding and then a 19 procurement audit. And our last meeting with the 20 State Auditors indicated that they were still on track 21 for an August 31st report release deadline. So if you 22 have no questions about that, I'll move on to the 23 Internal Audit. 24 CHAIRMAN CLOWE: Very good. 25 MS. MELVIN: The purpose of our audit 0017 1 was to evaluate the effectiveness of the Charitable 2 Bingo Operations Division in achieving its statutory 3 charge of ensuring that bingo conducted in this state 4 is fairly conducted and that proceeds derived from 5 bingo are used for an authorized purpose. 6 Specifically, we focused our review on 7 those activities and responsibilities of the Audit 8 Services department within the Division. In addition, 9 based on risk, we further limited our scope to 10 examining the regulation of organizations licensed to 11 conduct charitable bingo. 12 As a way -- as a way of background, the 13 Charitable Bingo Operations Division faces significant 14 challenges in administering their statutory 15 responsibilities of regulating the charitable bingo 16 games in the state of Texas. The charitable bingo 17 industry, as you well know, is comprised of both 18 large, high volume bingo halls and small, volunteer 19 based halls. Bingo game operations are largely a cash 20 based business. And dissenting opinions exist as to 21 the need for bingo gaming and the extent of necessary 22 regulations in Texas. In addition, several areas in 23 the enabling statute itself lack consistency, clarity, 24 and/or relevancy. These elements certainly combine to 25 create a complex and challenging regulatory 0018 1 environment. 2 Having said that, overall, we found 3 that the activities and processes of the Audit 4 Services department do not effectively ensure that 5 charitable bingo is fairly conducted nor that proceeds 6 derived from bingo are used for an authorized purpose. 7 Fundamental changes are needed to 8 ensure that statutory objectives are effectively and 9 efficiently met. These include defining and 10 articulating the regulatory objective and focus for 11 the Division, providing for a more fair, open, and 12 consistent regulatory experience for the licensees, 13 adopting an audit methodology and protocol which will 14 ensure adequate coverage and audit quality, and, 15 finally, ensuring adequate independence for the 16 auditors. 17 The -- before each of you is a copy of 18 the report which was issued today, and in that report 19 provides much more detail over these four major issue 20 areas. 21 CHAIRMAN CLOWE: Catherine, at this 22 point I want to ask you if the draft copy that I 23 received yesterday is substantially or exactly the 24 same as the final issue that is before us? 25 MS. MELVIN: It is the same. 0019 1 CHAIRMAN CLOWE: Thank you. 2 MS. MELVIN: Internal Audit would like 3 to express our appreciation to the Charitable Bingo 4 Operations Division and also other agency staff for 5 their cooperation and assistance during this 6 engagement. Their courtesy and responsiveness 7 extended to Internal Audit allowed us to complete our 8 audit effectively and efficiently. 9 I would like to conclude by stating 10 neither this audit nor this report is intended to 11 question the competency, the integrity, the 12 dedication, or the professionalism of the Audit 13 Services department staff. Our audit and resulting 14 report is an examination and a discussion of the 15 processes, the policies, the guidance, and other 16 infrastructure elements necessary to ensure effective 17 and efficient regulatory auditing. 18 That's a very brief overview. I'm 19 happy to go into more details regarding those four 20 major issue areas if you so desire. 21 COMMISSIONER COX: Catherine, you used 22 some words here that I wrote down because I think 23 they're very important. I think they're consistent 24 with the discussion this Commission has had in the 25 past few months. You said that it should be a goal to 0020 1 provide a fair, open, consistent regulatory 2 experience. Could you talk a bit about what kinds of 3 challenges we face in getting there? 4 MS. MELVIN: Well, fundamental to that 5 fair, consistent, open experience for licensees -- and 6 I used that word, licensee experience, because the one 7 thing I wanted to look at was, how did our processes 8 feel and look like from the side of the licensee also, 9 because it takes both of us to ensure proper 10 regulation. Fundamental to that is ensuring that the 11 licensee is adequately apprised of the regulatory 12 criteria of the audit process and how that happens and 13 what that entails, and, also, the availability of any 14 type of dispute resolution. 15 In my report, I -- I highlight three 16 areas that I have concerns with. One area is the 17 transparency of criteria. We found that the auditors 18 were using outdated criteria and applying it in their 19 audits and reviews. 20 The second issue was fairness of the 21 process. And what we found is that much of the 22 process is controlled and managed by the auditors. 23 There is a concept of the licensee being able to come 24 into compliance, if you will. In other words, if the 25 auditor feels that there were some unauthorized 0021 1 expenses, the licensee can redeposit funds into their 2 bingo account, be determined to have come into 3 compliance, and that issue is not forwarded to 4 headquarters. So that -- to me, that -- that puts the 5 auditor with a tremendous amount of responsibility. 6 Another issue related to fairness of 7 the process is -- is receiving a final report. And 8 what we found is that the Audit Services department 9 doesn't actually provide a -- what I would consider a 10 final issued report. At the exit conference, they 11 provided a draft copy, and from that draft report the 12 licensee is expected to respond and take action. 13 The third area, after transparency of 14 criteria and fairness of process, is clarity of scope. 15 And by that I mean, is it clear, when the auditors 16 come out, exactly what they're looking at and what 17 they're not -- and more importantly, what they don't 18 look at. And I think that's very important because 19 there can be a sense of false assurance where the 20 auditor assumes that, well, I've been audited -- or, 21 I'm sorry -- the licensee assumes an auditor is coming 22 out. They've come out once a year, and then we talk 23 to them. And then they're going to have to audit me 24 and writing up all of these issues. I don't 25 understand. And I think we can do a better job of 0022 1 being very clear as to what our scope is for each of 2 the different types of examinations that the 3 department makes. 4 COMMISSIONER COX: What do you see as 5 the first step that should be taken here? 6 MS. MELVIN: Regarding the licensee 7 experience or -- 8 COMMISSIONER COX: Regarding putting 9 the recommendations that you've made in your report 10 into effect. I understand that Mr. Atkins has agreed 11 with all of these recommendations and is prepared to 12 implement them. How do you think that should start 13 off? 14 MS. MELVIN: The first major issue of 15 risk finding, if you will, that I present in the 16 report deals with the regulatory objective and 17 approach. And I placed that first because, to me, 18 that is your building block. It seems to me that 19 nothing can -- nothing can follow or be built until 20 that is firmly established. I think it's very 21 important that the Division -- and this is not 22 specific to the Audit Services department, but the 23 Division as a whole, articulate -- write, articulate, 24 and submit for approval what their regulatory 25 philosophy is, what their approach is going to be. 0023 1 We've done some research, and -- and we've had 2 meetings with the Bingo Division management and 3 others, talking about this concept. And it seems to 4 me that we've found instances where there was a very 5 strict enforcement in some matters, and then in other 6 matters we didn't necessarily review. And it wasn't 7 always based on risk. 8 And when I say risk, I say -- I go back 9 to that statutory charge of ensuring that the games 10 are fairly conducted and that all proceeds derived are 11 used for authorized purposes. And I would see very 12 strict actions being taken to things that don't 13 necessarily impact that statutory charge. And so I -- 14 I think what is helpful or what is needed there is a 15 very thoughtful process, to say, what is our 16 regulatory objective. What are we trying to do. And 17 that way when you build your risk assessment, when you 18 build your audit methodologies, when you build 19 guidance to the licensees, it's all aligned with that 20 same regulatory philosophy. 21 COMMISSIONER COX: Okay. I totally 22 agree that that should be first. What do you think 23 should be second? 24 MS. MELVIN: Oh, you're putting me on 25 the spot. 0024 1 COMMISSIONER COX: I am. 2 MS. MELVIN: Second, I think -- the 3 second thing that needs to happen is, I -- I think we 4 really need to examine what the auditors are doing. 5 I'm very concerned about the licensee experience 6 issues. But, also, I have a section in the report 7 talking about the audit methodology. And what we 8 found is that we're missing some of the more important 9 pieces of the equation that get us to charitable 10 distributions and get us to the prize fees being 11 submitted. And so those, I think, need to be 12 revamped. 13 And, secondly, I think I would re -- 14 really reconsider what the auditors are doing, because 15 I don't think it's helpful for the auditors to 16 continue to audit against -- or absent criteria. And 17 I have been a staff auditor in the past, and I 18 understand what auditors do; they fill the void. So 19 in the absence of stated criteria, they find ways to 20 develop their own criteria. Obviously, in a 21 regulatory model, you can see how that can lead to 22 inconsistencies and challenges. And my audit team 23 that went out -- and, Billy, your auditors graciously 24 allowed us to follow them and sit beside them in 25 different exit conferences and different inspections, 0025 1 reviews, et cetera, heard questions and comments from 2 licensees not understanding the criteria that the 3 auditors were applying to them. For example, capping 4 limits on what you can pay a caller or that type of 5 thing. 6 COMMISSIONER COX: Okay. So would it 7 be reasonable, then, to say that the second thing, 8 perhaps, would be to establish auditing standards? 9 MS. MELVIN: Yes, sir. 10 COMMISSIONER COX: That would be at the 11 highest level, and then procedures might come after 12 that? 13 MS. MELVIN: Yes. 14 COMMISSIONER COX: One of the things 15 that I see that you and Billy didn't seem to exactly 16 agree on is an implementation schedule. Billy has 17 asked for -- or has indicated that he would have some 18 of these things done at a date that you seem to think 19 was perhaps -- could be moved up a bit. Would it seem 20 unreasonable to you for us to ask Mr. Atkins to have a 21 draft of his regulatory philosophy and his auditing 22 standards for our second meeting in September? 23 MS. MELVIN: I -- I think that's 24 reasonable. One thing -- and I -- I do understand -- 25 in my comment I recognize that many of the solutions 0026 1 to putting the Audit Services function and other 2 functions that tie into this for the bingo -- 3 Charitable Bingo Operations Division are really 4 long-term efforts, nothing that can be fixed 5 overnight. And, you know, as you have said -- said 6 many times, it's important to do it right more than 7 fast. But I -- there are things that have to happen 8 now and more immediately. And I do believe that that 9 philosophy is something that needs to be in place 10 fairly readily. I do know that there is a -- a very 11 involved rule review process that is going on, but I 12 think that the key to that process is having their 13 focus set, their regulatory philosophy that they can 14 continually refer back to, as they're going through 15 the rule review. 16 Regarding adopting standards, I think 17 that you could readily adopt the standards but commit 18 to full compliance by a later date. Because, yeah, I 19 mean, you know, committing to adopting standards is 20 very detailed. As you are well aware, Commissioner 21 Cox, they involve certain continuing professional 22 education for auditors and other quality control 23 measures that really need to be built in and don't 24 happen overnight. But I think you could adopt those 25 standards and say, our commitment is to be fully 0027 1 compliant by that date. 2 COMMISSIONER COX: And I would think 3 that these standards -- let me -- let me be sure we're 4 talking about the same thing. Are we talking about 5 standards at the highest levels, such as generally 6 accepted auditing standards? 7 MS. MELVIN: Yes, we are. 8 COMMISSIONER COX: And this would be 9 things like sufficient competent evidential matter and 10 training and supervising assistants, and that kind of 11 thing? 12 MS. MELVIN: Exactly. The -- what I 13 recommended is that the Division consider adopting the 14 Government Accountability Office's generally accepted 15 government auditing standards. They certainly do 16 not -- they are not required to follow any standards, 17 whether it's GAAS or GAGUS or -- or either of those. 18 What we found is that -- we actually visited with the 19 sales tax auditors of the Comptroller's Office, kind 20 of a parallel function, and talked to them a bit about 21 what they did and what type of audit protocol that 22 they used. How did they ensure the quality of their 23 work. And that -- and that's really what it comes 24 down to. When you say, I'm going to adopt a protocol, 25 which is standards, it -- it's ensuring your quality 0028 1 of the work, that that work can stand on its own. 2 It's that reasonable man test that someone can come in 3 behind you, look at the work you've done, and reach 4 that very same conclusion. 5 They have chosen not to adopt the 6 government auditing standards, or GAAS. However, what 7 they've done is that they've written their own 8 standards. And if you look at their standards, it 9 mirrors very closely the elements that you find in 10 these professional pronouncements. 11 And so my recommendation to the 12 Division is, is in lieu of developing your own 13 standards, which can take some time, I would say, 14 there is a model there. You know, why reinvent the 15 wheel. Adopt those standards. And as they move on 16 through time, they might find, okay, we're going to 17 start tweaking this and writing our own and moving 18 away from, you know, compliance with those government 19 auditing standards, but we'll write some of our own. 20 But they'll have those same quality control elements, 21 such as ensuring adequate evidence and due 22 professional care and adequate supervisory review. 23 COMMISSIONER COX: I -- I agree with 24 you on part of that. I agree that they should adopt 25 government -- general accountability -- that's the 0029 1 GAO. Right? 2 MS. MELVIN: GAO, yes. 3 COMMISSIONER COX: Standards. I don't 4 necessarily agree that they should, over time, develop 5 their own. I think that that could be done at the 6 lower level, which might be procedures and the like, 7 but I think as far as the standards, we ought to go 8 with the gold seal and go with something that is out 9 there for everyone to know and understand where they 10 came from, something that is carefully considered. 11 And then if we have procedures that we need to write 12 to implement those, then, by golly, that would be the 13 level where I would see us going to work. 14 So, to me, Billy, I think we're very 15 close to having the regulatory philosophy defined. I 16 look forward to hearing what Chairman Clowe says, but, 17 to me, the only thing we're lacking is what form to 18 put it in. But we've talked about fair and reasonable 19 in the past. We've talked about fair, open, 20 consistent regulatory experience. We've talked about 21 competence. And I think those are the things that are 22 going to go into that regulatory philosophy. So if we 23 can find a scribe somewhere to help us write those 24 things down, I think we're awfully close to you having 25 something to propose to us. 0030 1 MR. ATKINS: Yes, sir. 2 COMMISSIONER COX: Now, Catherine, I 3 have one further question, and it related to 4 transparency of criteria. You talked a little bit 5 about that. 6 Is the matter that Ms. Kiplin and 7 Mr. Atkins presented to us, under item two, an example 8 of clarifying -- making criteria more transparent? 9 Making them clear and visible? Or does that come 10 under fairness of process? 11 MS. MELVIN: Commissioner, I'm going to 12 have to admit to you, I was not closely listening. I 13 was preparing for this testimony. 14 COMMISSIONER COX: Okay. Well, let 15 me -- let me say this -- 16 MS. MELVIN: But perhaps I could give 17 you some examples of transparency of criteria. 18 COMMISSIONER COX: Okay. 19 MS. MELVIN: The -- I'm going to read a 20 little excerpt from my report because I think it kind 21 of sums that up. And, Commissioner, these may have 22 been words that you have used in the past, too. 23 As regulator, the Charitable Bingo 24 Operations Division has an inherent responsibility to 25 clarify and communicate requirements expected of those 0031 1 whom it regulates. These same requirements must be 2 equally communicated to the auditors conducting the 3 regulatory audits and reviews. You know, I talked a 4 lot about the licensee experience, but it's also -- 5 the auditors need that stick to measure their 6 licensees against. 7 COMMISSIONER COX: Everybody needs to 8 know the rules. 9 MS. MELVIN: They all need to know the 10 rules. Well said. However, what we found was -- was 11 that organizations licensed to conduct bingo did not 12 always know the specific requirements and criteria to 13 which they were held, and, further, the auditors could 14 not consistently -- and I mean consistently even 15 within a field office, and certainly from field office 16 to field office -- consistently nor clearly 17 substantiate criteria used in audits and reviews. For 18 example, I gave an easy example, but limiting the 19 amount you can pay a caller for a bingo occasion. 20 That requirement doesn't exist. It existed at one 21 time many, many, many years ago, but it doesn't exist 22 now. 23 COMMISSIONER COX: And yet the auditors 24 were still auditing against that? 25 MS. MELVIN: Still. I -- I talk a 0032 1 little more in my report about a statutory change that 2 occurred in 2003. At one time within the Bingo 3 Enabling Act was a limited list of authorized 4 expenses, and so the auditors would go out and -- and 5 ensure that expenses paid out of the bingo account 6 fell within those categories. Well, in 2003, that's 7 over. The language said, including these items. So 8 it opened the door substantially. However, the 9 auditors were still treating that list as a definitive 10 list when they audited. And that's why I say the -- 11 the criteria is not clear as to what we're auditing 12 against. 13 COMMISSIONER COX: Okay. Well, I think 14 it was an example of what Ms. Kiplin has undertaken to 15 do, is to make it clear what the operation of the game 16 is and where the line comes in where the 17 intermediaries and third parties can participate and 18 help those actually conducting the game. So I -- I 19 think that is an example of exactly the kind of thing 20 that you're asking for, and I'm glad to see that we're 21 already doing some of that. 22 MS. MELVIN: Yes, sir. 23 COMMISSIONER COX: Mr. Chairman, I -- I 24 want to commend Mr. Atkins for requesting this audit. 25 And I want to commend his people, him and his people, 0033 1 for cooperating with Ms. Melvin and for their 2 agreement to implement the recommendations. And I 3 want to commend Ms. Melvin and her staff for an 4 excellent piece of work. 5 CHAIRMAN CLOWE: I join in that. 6 Anything further at this time? 7 COMMISSIONER COX: No, sir. 8 CHAIRMAN CLOWE: Catherine, I know that 9 you and Commissioner Cox are trained auditors, and I 10 am not. And in a generalist view, my sense of your 11 audit report is that our auditing function at this 12 time in the Charitable Bingo Division has not been 13 fair and equitable and clear, the things that 14 Commissioner Cox has so well stated that we are 15 striving to achieve. And just so we are dealing with 16 this in enough detail, your first item is, regulatory 17 objective and approach. And you and Commissioner Cox 18 have discussed that. The licensee experience is 19 number two. Number three is audit methodology and 20 protocol. And then number four is organizational 21 structure and responsibilities. 22 In your opinion -- let's go back to the 23 beginning of where we come from, and that would be the 24 statute. And you comment about the statute and -- and 25 how it's viewed. Is the statute sufficiently clear to 0034 1 achieve the goals that you and Commissioner Cox have 2 discussed in the audit function? And if you want to 3 progress to the rules the Commission has put in place 4 from the statute, in other words, can the kind of job 5 that you have been discussing be done based on what 6 you have to work with, in your opinion? 7 MS. MELVIN: That's a fair question 8 because I -- I know there has been a lot of history. 9 I know that there have been concerns about the 10 statutory language of the Bingo Enabling Act itself. 11 I know that that was brought up during the Sunset 12 review of the Division. And certainly, the Division 13 itself has wrestled with places in the Act that are 14 inconsistent, some elements -- some elements of the 15 Act which are not relevant in today's environment, and 16 other challenges. But I -- I would submit this, 17 though. We -- in my report, I -- I have a section 18 where I outline elements in the Act that we have not 19 yet implemented. And those elements, in my opinion, 20 would help us to be a stronger regulator of the -- of 21 the charitable bingo games. And so it -- I guess 22 it -- it's hard for me to say definitively that the 23 Act is -- is insufficient and that that is a primary 24 cause for the condition, you know, noted in this 25 report, because I think there are still many things we 0035 1 can do. Perhaps someone from legal might better speak 2 to this, but I believe that we can still write rules 3 that clarify these things that are unclear. In my 4 mind, the Act gives very broad authority to the agency 5 to exercise the strict control over the games. And 6 from there, I believe that you build the rules that 7 allow you to do that. And I -- I am encouraged that 8 there is currently a rule review project ongoing 9 because I'm hopeful that maybe that will rethink how 10 we write rules, the types of rules that we need, and 11 how we do that. One thing that we looked at was the 12 use of advisory opinions and how much guidance that 13 provides, and how we communicate those soft things to 14 the licensees, and how a licensee would ever know, 15 what is the body of criteria that I'm subject to. 16 CHAIRMAN CLOWE: Okay. Well, I -- I 17 take that as at least a partial yes answer -- 18 MS. MELVIN: Okay. Partial yes. 19 CHAIRMAN CLOWE: -- in that this 20 Commission wants clarity, consistency, and fairness in 21 the audit practices. And to the extent that the 22 Commission can support this desire and pass rules, I 23 think Commissioner Cox and I stand ready to deal with 24 whatever the rules issues are. 25 And, Billy, this is also meant for you. 0036 1 As you get into correcting these deficiencies that 2 have been pointed out, you need to keep in mind that 3 Commissioner Cox and I are ready to help with rule 4 making that will clarify, such as Commissioner Cox has 5 pointed out, in item two on the agenda this morning 6 relative to what Ms. Kiplin briefed us on, and be a 7 part of correcting these deficiencies. I think we've 8 got the Bingo Enabling Act to work with, and that's 9 where we start in this practice. But perhaps the 10 Commission can play a positive role in rule making 11 that will make this job that you have ahead of you 12 easier. 13 Billy, I would like to hear you address 14 each of the three items that I have named. And I know 15 you've gone over this. You -- you said that you 16 support these recommendations. And then when we get 17 to item number four, I would like for us to hear what 18 your thoughts are on that as well. 19 I would like to say that I think item 20 four, it might be where we begin, Commissioner Cox. 21 You asked Ms. Melvin to rate the answers to what is 22 the first step. I think that, in my mind, comes to 23 the fore. And one thing that I find hard to 24 understand is, why December of '07 is implementation. 25 That is, by my count, about a year and a half away. 0037 1 And that seems to me too long, way too long, to do 2 some of the things that Ms. Melvin and her team of 3 auditors have recommended. 4 One of the things that certainly jumps 5 out to you is the accountability of the audit 6 function. That's a big change. And I just can't 7 imagine a year and a half down the road, we would say, 8 okay, well, we got that done, and now we're going to 9 work on some other things. So I'm trying to give you 10 a little flavor of my thinking, and I would like to 11 hear your response on these items if you could give us 12 that. 13 COMMISSIONER COX: Mr. Chairman? 14 CHAIRMAN CLOWE: Yes, sir. 15 COMMISSIONER COX: I would like to add 16 one to that list. 17 CHAIRMAN CLOWE: Certainly. 18 COMMISSIONER COX: And, Catherine, I 19 would like for you to talk a little bit about it 20 before we ask Billy to respond to it. This is the 21 matter that begins on page 16 of your report and goes 22 through the top of page 18, relating to organizational 23 structure and responsibilities. I see here, 24 incompatibility of duties and reporting structure may 25 question of the independence of the auditors. 0038 1 MS. MELVIN: Yes. 2 COMMISSIONER COX: Talk a little bit 3 about that, please. 4 MS. MELVIN: Okay. Would you like for 5 me to do that now? 6 COMMISSIONER COX: Yes. 7 MS. MELVIN: Okay. My concern there 8 is -- it's interesting in the sense that I think that 9 the Charitable Bingo Operations Division deliberately 10 tried to make some strides in improving their 11 relationships with licensees. And they sent their 12 auditors out there to do more technical assistance 13 visits and to try to do things to help the licensees 14 come into compliance. So it stems from a very good 15 intent. So I -- I would like to start by that. 16 However, I think that if you look at 17 all the different things that the auditors are asked 18 to do, you find that -- that it starts to include 19 conflict between their role as the auditor and other 20 roles that might be more appropriately performed by 21 somebody else in the Division. For example, the 22 auditor, in addition to being an auditor, is sometimes 23 an investigator. They are the trainer. They are the 24 advisor. They provide the technical assistance. And 25 it's not uncommon that the licensee, when being 0039 1 audited and cited for some violation or noncompliance 2 with the Act, rule, et cetera, will say, an auditor 3 was out here. He told me this. He said this would be 4 okay. And I think that's a very precarious position 5 for the auditors to be in. I think they should have 6 no part of guiding and assisting and helping the 7 licensees. That's an -- an important and necessary 8 function for a regulatory agency, but I don't believe 9 it should be the responsibility of the auditors. I'm 10 not saying that those activities shouldn't occur, but 11 I don't think it should be them. I think in 12 understanding and speaking with Billy and his staff, I 13 believe that that may have stemmed from more of just a 14 logistics issue because it's the auditors that are 15 located in the field offices, and so they're out 16 there. And so if we need somebody to go visit with 17 the licensees, well, they're already out there, and 18 they seem to be the logical one. But I think, long 19 term, that it jeopardizes truly their independence. 20 And we found examples where some of the practices of 21 the auditors were somewhat questionable, such as 22 assisting the licensee in completing their quarterly 23 report to have them sent in. You know, those types of 24 things, I believe, begin to cross the line certainly. 25 Regarding the -- 0040 1 COMMISSIONER COX: So -- so we've got a 2 small staff. We've been trying to utilize it to do 3 things that are needed. 4 MS. MELVIN: Sure. 5 COMMISSIONER COX: And yet the things 6 that have been assigned to the auditors are just 7 incompatible with being auditors. 8 MS. MELVIN: They are. They are. 9 And -- and I -- I do think that it places the auditor 10 in a -- in an uncomfortable position of trying to wear 11 both hats, trying to go out there and assist and help 12 them set up and do the right things and then come back 13 in and cite them for noncompliance. I don't think I 14 would want to be in both positions as a regulatory 15 auditor. Remember, we're talking about compliance 16 auditing. It's very pure auditing. 17 The next piece in this area was 18 reporting structure, and my question is, is their 19 organizational placement. I feel that the auditors 20 should be as independent as possible from other 21 functions that have licensing determination 22 responsibilities. And, currently, the licensing 23 component and an accounting component and the Audit 24 Services department report to one person. And I 25 think, ideally, you kind of want to separate -- 0041 1 segregate the audit function from licensing 2 determination. It should, you know, be two. 3 Certainly, their efforts should be coordinated, but I 4 don't think that they should be too closely 5 interwoven. 6 COMMISSIONER COX: Do you think there 7 is a need for even greater separation by reporting 8 responsibility, taking it outside of the Bingo 9 Division? 10 MS. MELVIN: Well, I made -- I think at 11 a minimum -- at a minimum, my recommendation is that 12 the Audit Services department report directly to the 13 Division director and, you know, give them the highest 14 level of independence that they can have within the 15 Division. But I certainly think that that is 16 something to consider. I don't know what other 17 limitations that we might have, appropriation 18 limitations or otherwise. 19 COMMISSIONER COX: Yes. 20 MS. MELVIN: I think there are 21 certainly other considerations. But, ideally, I think 22 that that would be even with -- allow the auditors 23 even more independence and make sure that their work 24 is -- has that integrity needed. 25 COMMISSIONER COX: Does it make any 0042 1 sense for his auditors to report to you? 2 MS. MELVIN: If it's your desire, 3 Commissioners. I -- I think it's possible. I think 4 the auditors could report to Internal Audit. In other 5 agencies, there are Internal Audit shops that have 6 both an Internal Audit component and an external audit 7 component. I don't know if that's standard. I think 8 a lot of Internal Audit shops try to stay pure in 9 being solely Internal Audit, because it -- it begins 10 to cross that line to -- it's truly a management 11 function to go and audit the compliance of your 12 regulatees. But I think that's certainly a model that 13 is, you know, possible. 14 COMMISSIONER COX: Well, one thing that 15 I think auditors enjoy is reporting to other auditors. 16 MS. MELVIN: They do. They do. 17 COMMISSIONER COX: People who 18 understand their work and can help them with their 19 work; whereas, more -- people with more general 20 background can provide help, too, but they can't 21 provide the kind of professional help that another 22 auditor can. And maybe some kind of combination of 23 those things might make some kind of sense, where they 24 have a coordinating relationship with you on 25 professional matters, and administratively and for 0043 1 other purposes report to the director. So I think 2 we've got some interesting possibilities there as to 3 how we might go. 4 MS. MELVIN: We do. I think there 5 are -- there are several scenarios that we thought -- 6 thought about and we can share with you, Commissioner, 7 privately, just some different thoughts that we had 8 about possible placement and where that might work. 9 And one of those possibilities certainly could be 10 within the Internal Audit house. 11 I'll tell you, it -- it was very 12 interesting, the auditors all being auditors, and 13 it -- it's interesting to look at it that way because 14 we recognize -- I mean, all of us were staff auditors 15 at one time, and we understand what it's like to audit 16 in an environment that is challenging. So we're 17 certainly very -- not just sympathetic, but empathetic 18 to what the challenges are for the audit -- audit 19 staff. 20 COMMISSIONER COX: Mr. Chairman, I just 21 wanted to put that one up for Billy's comments as 22 well. 23 CHAIRMAN CLOWE: Good. And since you 24 brought that subject up, I would like to ask a couple 25 of questions. 0044 1 How many auditors are there in this 2 function, Catherine? 3 MS. MELVIN: I can't quote you an exact 4 number. I believe it's like 25, somewhere -- 5 CHAIRMAN CLOWE: 25? 6 MS. MELVIN: Yeah. And that -- 7 CHAIRMAN CLOWE: And how many different 8 locations? 9 MS. MELVIN: There are four -- four 10 locations. 11 MR. ATKINS: And, Commissioner, there 12 are also auditors here in Austin. 13 MS. MELVIN: And then in Austin, also. 14 CHAIRMAN CLOWE: That would be a total 15 of five, but 25 is the right number? 16 MR. ATKINS: Yes, sir. 17 CHAIRMAN CLOWE: And how often do they 18 go through training or retraining? 19 MS. MELVIN: Right now there is not a 20 mandatory continuing professional education 21 requirement. They were brought in, I believe, last 22 year to have a group training. I believe it was a 23 week-long effort. They were here from Monday through 24 Friday, but that -- I don't think that that had 25 occurred for maybe -- 0045 1 MR. ATKINS: A year or two. 2 MS. MELVIN: Yeah, two years. 3 CHAIRMAN CLOWE: And who conducted that 4 training? 5 MS. MELVIN: I believe it was primarily 6 the staff of the -- the Legal Division, I believe, 7 brought in a trainer. I think Internal Audit even 8 facilitated one session. 9 CHAIRMAN CLOWE: Well, those are all 10 important facts that are helpful in this discussion. 11 I -- I would like to follow along Commissioner Cox's 12 comments and questions in that, I really think it's 13 Billy's job to run this Division. And I think that he 14 is the person that, as Commissioner, I look to, to be 15 held responsible. I have some concerns about taking 16 any group of working folks and putting them under your 17 function as internal auditor, because I'm apprehensive 18 about the idea that that becomes then your work 19 product or it becomes something that you are, in part, 20 responsible for in some way. And in doing so, I -- I 21 think that would put you in a position where you would 22 lose some objectivity about your ability to audit the 23 auditors. 24 MS. MELVIN: That's true. I would not 25 be able to audit that function any longer. 0046 1 CHAIRMAN CLOWE: And that's why I think 2 you're one of the three direct reports to the 3 Commissioners and why, when Commissioner Cox and I met 4 for the first time -- I've told this story a hundred 5 times -- I asked him what the most important function 6 in the Lottery was, and he said, in his opinion, it 7 was Internal Audit. And I agree with that. 8 Notwithstanding everything else we do around here, the 9 Internal Audit function is -- is very, very important. 10 And if you start taking on, in your role, line 11 responsibilities and are held responsible for those 12 functions to any extent, it shifts that burden off of 13 whoever it might be -- in this case, Billy -- and puts 14 it on you. So I have a question about that idea that 15 we're discussing, and I want to put that on the table. 16 COMMISSIONER COX: And I think those 17 are very wise comments, Mr. Chairman. 18 CHAIRMAN CLOWE: Thank you, sir. 19 And I also -- you know, you mentioned 20 putting it under Enforcement. The idea that we've 21 stuck on -- and I think it's a good one -- is we want 22 this to be fair and open and consistent. And I think 23 we really want to look to one person and say, that is 24 your job. And if Billy is the director of this 25 Division and this audit function occurs in this 0047 1 Division, I want to look at him and say, that's your 2 job. And it seems like to me that's where we ought to 3 start. And -- and with 25 people who can be trained 4 and -- and be measured -- and we haven't had a 5 measuring system, have we? 6 MS. MELVIN: No, sir. Our -- our 7 measures are tied to our performance measures, but 8 they're more output oriented. Number of 9 inspections -- 10 CHAIRMAN CLOWE: And -- and I'm talking 11 about the quality of the work, not the quantity. 12 MS. MELVIN: Exactly. 13 CHAIRMAN CLOWE: You've done the first 14 quantitative measurement in your audit. And I think 15 that's a weakness that we've discovered, that we ought 16 to be measuring not only the quality, but -- the 17 quantity, but the quality of the audits. And we 18 haven't done that at all until now. 19 These are things, Billy, that I hope 20 are helpful to you as the Commissioners talk about 21 this in the public, having received this audit, you 22 can take as guidance in what it is that you want to do 23 to improve this situation. And just for clarity, I 24 look to you to solve these needs and to take the 25 leadership role in doing the things that need to be 0048 1 done to improve this function. It definitely needs to 2 be improved, but I think at that -- at this point, if 3 Commissioner Cox is in agreement, we want to hear from 4 you about what your reaction is to these first four. 5 And then she has grouped in number five additional 6 concerns. We'll get to that later, but where 7 Catherine has singled out the first four, we would 8 like to hear what your reaction is, please. 9 MR. ATKINS: Thank you, Commissioners. 10 I also want to thank Ms. Melvin and her staff for 11 their dedication and hard work on this audit. 12 This audit provides a fresh, 13 independent look at the Bingo Division's audit 14 functions. It makes a number of important and 15 valuable recommendations, which management has agreed 16 with, that will result in significant improvements in 17 the way we conduct our business and interact with our 18 licensees and applicants. I have started working on a 19 number of the recommendations contained in the audit, 20 and I want to assure you that we will commit the 21 resources necessary to finish. Additionally, we're 22 prepared to reach out to other divisions in the agency 23 who may be affected by these changes and will actively 24 seek their input and assistance as well. 25 I would like to discuss some of the 0049 1 steps that have already been taken. While the audit 2 staff will continue to perform certain functions, I 3 have instructed the senior audit manager not to begin 4 any new audits without my prior approval. I will meet 5 with the internal auditor to identify those functions 6 that the Audit Department will continue to perform 7 while the recommendations are undergoing 8 implementation. 9 My intent, as it relates to the 10 implementation of the recommendations, is to develop a 11 regulatory objective that can be presented to you for 12 your consideration and to make significant progress in 13 the review of the existing statutes and rules that 14 have already been undertaken, and I have heard, 15 Commissioner Cox, your desired timeline for that 16 process. 17 This will lead to the identification of 18 rules necessary to implement the regulatory objective. 19 As you know, the rule making process itself is open to 20 the public, and we will take full advantage of the 21 opportunity to receive public comment, as well as 22 comment from licensees and the Bingo Advisory 23 Committee. The purpose of these rules will be to help 24 achieve the audit's recommendation of a more fair, 25 consistent, and open regulatory process. 0050 1 Another priority, as has been 2 discussed, is the staff training in the methodology 3 and protocols used in conducting our audits. 4 Some of these recommendations, as -- as 5 have been noted, will result in fundamental changes to 6 the way we conduct our business. Those changes 7 include what we audit, how we audit, and the reporting 8 structure for the Audit Services department. 9 And for -- just for clarification, in 10 terms of the target date that we had set for that, we 11 were considering Ms. Melvin's recommendation regarding 12 not just a change in the reporting structure to where 13 the Audit Services department would report to the 14 Bingo Director, but also the recommendation that, in 15 conjunction with the Executive Director, we look at 16 and study if those functions would be better suited 17 somewhere else. 18 And in taking those considerations in 19 mind, we were mindful of the fact that there could be 20 some statutory restrictions. Given the fact that a 21 legislative session was coming up, if it had been 22 decided to try and seek a change to that, that 23 information could be provided to the legislature. And 24 that is part of what led to the -- to the target date 25 that we identified in our management response. 0051 1 Regarding the target dates on the management response, 2 they are target completion dates. There will be a 3 number of sub tasks for each of the recommendations 4 that we'll be working on, leading up to the completion 5 date. 6 I am working with the managers in the 7 Bingo Division to develop a system to identify and 8 track the steps taken to implement the recommendations 9 in the audit. And I'll be providing regular updates 10 to you in future meetings as -- on our progress as we 11 move forward on these recommendations. 12 I recognize that improvements are 13 needed, and I want to emphasize my commitment to the 14 successful implementation of these recommendations and 15 the overall improvement of our processes, resulting in 16 a more fair, consistent, and open regulatory process. 17 CHAIRMAN CLOWE: Billy, I think the 18 Commissioners would like to hear from you on this 19 monthly about your progress because of the level of 20 interest that I know Commissioner Cox and I have in 21 this. And I assume that you plan a series of meetings 22 and planning sessions, where you will be calling on 23 the resources that you've mentioned, and you'll be 24 formulating plans and implementation efforts. So in 25 order to see, from our role as policy and oversight, 0052 1 how you're doing on this, and indicate our continuing 2 high level of interest, I think, every month, if 3 you'll touch on this in your duties and keep us 4 up-to-date, I would appreciate it, and I think 5 Commissioner Cox would appreciate it. 6 And I anticipate there will be further 7 activity as you put this audit report out to the 8 public and ask for input. We would like to be kept 9 abreast of that information as well. This, as I see 10 it, is the beginning of this process, and although we 11 want to see it move along to a speedy conclusion and a 12 successful conclusion, we want it to be done orderly 13 and correctly. And if you'll keep us involved on a 14 monthly basis by reporting, I think that will give 15 both Commissioner Cox and me comfort. 16 COMMISSIONER COX: It sure will. 17 MR. ATKINS: Yes, sir. 18 CHAIRMAN CLOWE: Anything further, 19 Commissioner Cox? 20 COMMISSIONER COX: No, sir. 21 CHAIRMAN CLOWE: Ms. Melvin, anything 22 further? 23 MS. MELVIN: Nothing further. 24 CHAIRMAN CLOWE: Thank you very much. 25 MS. MELVIN: Thank you. 0053 1 MR. BRESNEN: Mr. Chairman, may I -- I 2 comment? 3 CHAIRMAN CLOWE: On this item? 4 MR. BRESNEN: Yes, sir. 5 CHAIRMAN CLOWE: Yes, you may. You 6 have been so quiet, I didn't even know you were here. 7 MR. BRESNEN: Well, I know that's 8 unusual. 9 CHAIRMAN CLOWE: It's almost -- well, 10 I'll -- I'll not -- 11 MR. BRESNEN: I'm sure -- 12 CHAIRMAN CLOWE: We're glad to hear 13 from you, Mr. Bresnen. 14 MR. BRESNEN: I'm sure you'll tell me 15 about it later. 16 My name is Steve Bresnen. I'm here on 17 behalf of the Bingo Interest Group. And the first 18 thing I want to do is thank Ms. Melvin. We had the 19 opportunity, Steve Fenoglio and I -- is that feedback 20 bothering anybody but me? 21 We had the opportunity to -- let me try 22 this one. 23 Steve Fenoglio and I had the 24 opportunity to -- to visit with Ms. Melvin and her 25 staff, and I expected it to be sort of a 30- or 0054 1 45-minute pro forma meeting, and it went about three 2 hours. 3 They were clearly aware of a number of 4 issues, many involving interpretation of the statute, 5 inconsistency amongst auditors, and other things that 6 were on our minds. I think we were able to provide 7 some concrete examples and some suggestions and maybe 8 the effects on licensees that that was having, but -- 9 that those things were having, but I was extremely 10 impressed by the preparation and awareness at that 11 meeting, and I -- I think they've done a great job. 12 I have not seen the report, so I'm not 13 going to attempt to comment on anything specific to 14 the report. From the -- from what I've been hearing, 15 a lot of the concerns that have been expressed on 16 behalf of licensees over a long period of time are 17 addressed in the report, maybe in terminology that 18 they won't -- they wouldn't fully understand, not 19 being from the audit realm. But they certainly will 20 understand things like fair and open and consistent. 21 And I think those have -- those have been issues for a 22 long time. 23 I'm looking for my notes here because I 24 wanted to be concise, Mr. Chairman, so you can move 25 on. 0055 1 I would like to make a suggestion to 2 you. If item number two today was an example of one 3 of those cases where transparency was not achieved and 4 a lot of time and agency resources and a lot of money 5 by the licensee were expended -- I think it's in item 6 number two -- whatever -- the issue of Moore Supplies. 7 MR. ATKINS: Ten. 8 MR. BRESNEN: Ten. Whatever the -- 9 that case. There may be other cases out there in the 10 system right now. I understand under -- with the 11 procedures that you have and the Administrative 12 Procedures Act in place and all that, it may be 13 difficult to do what I'm about to suggest, but I would 14 state to you that you'll save the licensees some money 15 and maybe yourself some money and time and effort if 16 there could be a review of those existing cases in the 17 pipeline that may have the very same quality to it, so 18 you don't invent all those resources and spend them 19 all, have them get up to this level and say, well, 20 this is an example of what we've been talking about, a 21 lack of transparency. 22 And if I might, let me just give you 23 one more example by hindsight. There was an issue 24 about a gentleman that -- and I'm -- I'm hoping this 25 is on point -- about a gentleman who was going to be 0056 1 removed from the registry because the game went beyond 2 the end of the licensed time and the enforcement -- 3 the gentleman in charge of enforcement was arguing 4 that that was a violation of the integrity of the 5 game. Well, I certainly -- as a customer, had that 6 game not been completed, I would have thought that 7 would have been a violation of the integrity of the 8 game. And I know that was a significant issue for 9 you, Commissioner Cox. 10 So I would just suggest that maybe you 11 have a review, looking at those things that are in the 12 pipeline out there now. Even if they haven't gotten 13 to a contested case status, there may be things out 14 there now where you're just going to look at them and 15 say, folks, we've just got to -- we've just got to 16 stop where we are and go back and focus on that 17 transparency. I would suggest that for your 18 consideration, that that might be a task that the 19 staff would do. And -- and, obviously, you guys can't 20 get into that because you might end up being deciders, 21 I'm assuming, at -- at some point on that. 22 CHAIRMAN CLOWE: Let me respond to your 23 suggestion, Mr. Bresnen -- 24 MR. BRESNEN: Yes. 25 CHAIRMAN CLOWE: -- at this point in 0057 1 time, and tell you that we're way ahead of you. And 2 you will have noticed that the General Counsel now is 3 presenting the contested cases. 4 MR. BRESNEN: Yes, sir. 5 CHAIRMAN CLOWE: And that is exactly 6 what was intended by the change that took place some 7 time ago. Now, there are always those issues in a 8 contested case, which you just touched on in the 9 example that you gave, and that's why we get paid the 10 big bucks that we do, to make those decisions. 11 MR. BRESNEN: Right. 12 CHAIRMAN CLOWE: But we feel like, with 13 the General Counsel reviewing these cases and 14 presenting them, we have the best source of legal 15 representation to examine the very kinds of things 16 that you're talking about. 17 MR. BRESNEN: Right. 18 CHAIRMAN CLOWE: And the Commission is 19 focused on that and is looking at that intensely and 20 has been for some time. 21 MR. BRESNEN: Great. Well, I -- I 22 appreciate that. I'm not -- I'm not sure -- because I 23 don't handle cases over here, and Steve does that. 24 And he had to be in Dallas today. I'm not sure at 25 what point those percolate up to your attention, Kim. 0058 1 I guess what I'm -- what I'm thinking of and one of 2 the things we expressed to Ms. Melvin is, a lot of 3 agency resources and a lot of licensee resources get 4 expended in the early time periods of these 5 controversies. And so if there is a way to go back -- 6 and -- and maybe something for the Director to do or 7 the audit head or somebody -- but you might just 8 generally say, let's don't spend a lot of money and 9 time and effort and everything until we get some of 10 these things straightened out. And that won't be 11 possible on some issues, I know that, but -- 12 CHAIRMAN CLOWE: Well, we see that as 13 the role of the General Counsel, and -- and she is, in 14 her role, working down through the system. 15 MR. BRESNEN: Okay. 16 CHAIRMAN CLOWE: Now, she has her role. 17 The Director has his role. The Internal Auditor has 18 her role. 19 MR. BRESNEN: Sure. 20 CHAIRMAN CLOWE: They're all going to 21 play their roles, but we've brought to bear in her 22 insight the best resource we feel that's available for 23 the very kind of things that you're addressing. 24 MR. BRESNEN: Great. I appreciate 25 that. 0059 1 CHAIRMAN CLOWE: Now, that's totally -- 2 I want to always bring your attention -- won't take 3 out the controversy in every case. 4 MR. BRESNEN: Sure. I understand. 5 CHAIRMAN CLOWE: But it's getting 6 the -- it's getting the oversight that we feel it's 7 important enough to merit. 8 MR. BRESNEN: Good deal. Well, every 9 dollar that a licensee doesn't have to spend in a 10 controversy is one that goes to the bottom line. So 11 that's helpful -- 12 CHAIRMAN CLOWE: And -- and we want to 13 play a role in eliminating that unnecessary expense 14 with clarity, fairness, and openness. 15 MR. BRESNEN: Great. Thank you. 16 The second thing I would like to say is 17 that we've done a lot of -- I'm just -- this is my way 18 of sort of, you know, foreshadowing. We've done a lot 19 of rule making. In the last four or five years, there 20 has been a lot of rule making, more than any other 21 agency that I have any involvement with, in bingo. 22 I -- and I'm not questioning anybody's good 23 intentions. For example, defining all these different 24 forms of audits, for lack of a better word -- the 25 enforcement audit, the compliance audit, and all that 0060 1 sort of thing. And yet we're sitting here today, 2 after all of that rule making, with the same 3 identified -- or with the problems that are identified 4 in the report. Additional rule making, while, again, 5 I understand the purpose is to get the fairness, 6 openness, transparency, and all that -- people are 7 going to appreciate that -- but still going to be 8 putting a large community through the rule making 9 process again and in tapping into the resources for 10 people, you know, coming down to participate in that. 11 We will certainly do that because we like the tenor of 12 the report and we agree with the goals. But I'm 13 just -- I'm just letting you know, that's going to be 14 a reaction that people are going to have out there to 15 say, oh, my God, more rule making. 16 The last session, I tried to eliminate 17 some of these problems in the -- in the current 18 statute by completely overhauling the way the bingo 19 funds are accounted for. I killed that bill because 20 of disputes with staff over things that, in my 21 opinion, were peripheral. I did not want to impose 22 the pain that I had persuaded the industry to undergo 23 to change that accounting system without them being 24 able to get some goodies out of it, too, things that, 25 in my opinion, are not -- they weren't too good -- 0061 1 they weren't goodies to me, necessarily, but I don't 2 run a bingo hall every day. 3 So we're going to go back into the rule 4 making process right now. And I think people will 5 engage, and they'll do so in the -- in the spirit with 6 which you Commissioners have engendered here. This is 7 a whole new -- you guys are a whole new deal for these 8 people after 20 years. You've dug into and gotten 9 yourself involved in the mechanics of this in a way 10 that nobody ever did. And it is palpable in the 11 community that people appreciate. They will continue 12 to participate. But I just -- just to let you know, 13 it's -- it's hard on them. Y'all see us a lot. But 14 when we get these elderly people from these charities 15 and everybody down here, it's a lot of work and time 16 and -- time and effort. So they'll be a -- it 17 probably won't be without some controversy and some -- 18 some discussion along the way. 19 CHAIRMAN CLOWE: Well, let me -- let me 20 respond to that, Steve. 21 MR. BRESNEN: Yes, sir. 22 CHAIRMAN CLOWE: The offer that I made 23 on behalf of Commissioner Cox and myself was not to 24 embark on a whole new series of rules to be published 25 and considered and then adopted. The offer that I 0062 1 made was, where it would be helpful and where there 2 could be improvement, clarification, perhaps, I think 3 these Commissioners stand ready to take on that job 4 along with the bingo community that you and others 5 represent. My sense is that that process is enhanced 6 when groups such as those who you represent and other 7 professionals represent enter into that process along 8 with the BAC and the staff. And so you take as much 9 of the misunderstanding and the contentiousness out of 10 it as is possible through early work. 11 MR. BRESNEN: Yes, sir. 12 CHAIRMAN CLOWE: My further sense is 13 that's not where the primary problem lies in this 14 audit. My sense is, it lies in execution, not in a 15 misunderstanding or an inadequacy of the rules. And I 16 would like us to focus more on that -- 17 MR. BRESNEN: Great. 18 CHAIRMAN CLOWE: -- than anyplace else. 19 I -- I have stated, personally I believe the Bingo 20 Enabling Act could be improved and it could be made 21 clearer. And I hope that comes in time. That's a 22 legislative activity. 23 MR. BRESNEN: Yes, sir. 24 CHAIRMAN CLOWE: But we're going to 25 take that because it's what we've got, and it's the 0063 1 best thing we've got, and we're going to work with it. 2 But when we go through the rule making and we get down 3 to the audit function, I think the auditor, the 4 Internal Auditor has pointed out, the execution is 5 where our greatest problem lies that we need to deal 6 with. 7 MR. BRESNEN: I appreciate you saying 8 that, and I'll make sure people understand that when 9 I -- I'll do some kind of memo to them, and I will 10 make sure they understand that. And I -- I think that 11 will help. 12 CHAIRMAN CLOWE: Well, I hope that we 13 made it clear in our deliberations here. I -- I don't 14 think you need to emphasize it. I think we understand 15 what the problem is, and I think Commissioner Cox and 16 I have spoken to that. 17 MR. BRESNEN: Yes, sir. The -- the 18 problem is, many of them are not here, and I'll end up 19 communicating to them, so I will make sure I do it 20 accurately. 21 CHAIRMAN CLOWE: That's -- that's your 22 job. 23 MR. BRESNEN: Okay. As far as a 24 statutory change, I fully intend to come back with a 25 lot of recommendations to the legislature. I will 0064 1 work with your staff on those to the best of my 2 ability to make sure it meets the agency needs with 3 the -- with the appropriate requests for members of 4 the legislature so their role is as properly defined. 5 And I think we can make some -- some improvements 6 there, like we did when we passed the bill in the '03 7 session. I think we made a lot of changes there that 8 have -- that have been beneficial, both to the agency 9 and -- and to the others. 10 I would like to say one -- one final 11 thing, and that goes to the execution, the 12 implementation, of this proposal. And it's 13 interesting to hear the discussion back and forth 14 about the role of the internal auditor and how they've 15 been in these multiple roles and how there can be -- 16 not the internal auditor, the -- the bingo auditors, 17 and how they can be in these different roles, and 18 those roles may conflict. And I think Ms. Melvin has 19 picked up on a big frustration that's in the community 20 out there when people feel that they've been 21 instructed or guided to go in a particular way, and 22 then the audit comes up and you find a conflict when 23 people think that they were doing things correctly. 24 I -- at the same time, I've got a 25 little trepidation about splitting the things out 0065 1 because we've had -- we've had enough of a difficult 2 time achieving consistency with -- when there is one 3 person doing multiple roles, and I think if we have 4 multiple people doing multiple -- doing these various 5 roles now, there will be a management challenge to 6 make sure that that is consistent. So the auditor can 7 say, well, I don't care what the technical assistant 8 person said, this is the audit standard. So those 9 audit standards have got to be known by the technical 10 assistants because it's going to have to be a -- a 11 unified understanding of what these criteria are that 12 have to be achieved out there. 13 CHAIRMAN CLOWE: I think that's an 14 excellent point, and -- and I would invite you and 15 others that are in your role to work with Billy and 16 his staff to achieve the best solution in that area. 17 I think that's a real concern and an excellent point. 18 MR. BRESNEN: The final thing I would 19 say is, in 1997, I persuaded the legislature to amend 20 the Bingo Enabling Act to provide that the Director of 21 the Charitable Bingo Division report directly to the 22 Commission. Prior to that, the bingo functions were 23 under the Executive Director of the Lottery 24 Commission. There was a reason for that, and that was 25 to have someone who was accountable on the bingo side 0066 1 and partly was driven by the concern that bingo is 2 a -- that lottery was a competitor to bingo. And we 3 wanted the Commissioners to have direct input and 4 direct control over those functions in bingo. When -- 5 when -- to some extent, when enforcement is separate, 6 when -- and when we had a -- a more -- a lot of peace 7 officers serving in the Security Division, you may 8 recall there were some concerns that we brought to you 9 expressing about the conduct of the peace officers. 10 There, again, they were not under the bingo director. 11 So to the extent that you consider moving the 12 pieces -- the chess pieces around here and moving -- 13 putting them under different direction, it defeats the 14 whole purpose of that 1997 legislative act of the 15 legislature and, I would say, would be inconsistent 16 with that act. Although it doesn't say all the -- all 17 the different divisions that affect bingo having to be 18 under the bingo director. 19 I think conceptually we remain 20 committed to the -- to the proposition that the bingo 21 director should report directly to y'all and that you 22 should have direct authority over that -- that person 23 and -- and conduct yourselves the way you essentially 24 are today in that regard. So that would be my two 25 cents on what you might do organizationally here. 0067 1 I appreciate the opportunity to -- to 2 speak today. I look forward to reading the report. I 3 will say to you, we have a number of items of rule 4 making that we'll probably be petitioning you on for 5 rule making that may fall right into line with what 6 you're doing today. I developed a work plan with my 7 clients last -- last week. They are shared by Steve's 8 clients to the extent they don't overlap, and we've 9 also worked with some of the other groups in bingo to 10 try to get everybody on the same page so you're not 11 hearing the conflicting stories and desires down here. 12 Thank you very much. I appreciate your time. 13 CHAIRMAN CLOWE: Steve, thank you for 14 your comments, and they're -- they're well taken. 15 And -- and, again, we really want your involvement and 16 others in a similar position to yours to work with 17 Billy. And this is his deal. This is clearly, along 18 the lines of your last comment, his work product and 19 his project. And I think it would be remiss on my 20 part if I didn't at this point mention the credit for 21 this audit. He gave it to Billy, and Billy deserves 22 credit, but the credit also goes to Commissioner Cox. 23 He has pursued this audit and has been working with 24 Billy and with Catherine Melvin to achieve this 25 result. And you're fortunate to have a Commissioner 0068 1 like Commissioner Cox that goes into the detail and 2 comes out with a product like this, working with the 3 staff. 4 MR. BRESNEN: Yes, sir. We agree with 5 that. 6 CHAIRMAN CLOWE: Thank you. 7 MR. BRESNEN: Thank you. 8 CHAIRMAN CLOWE: We'll take a short 9 recess. 10 (RECESS.) 11 CHAIRMAN CLOWE: We'll come back to 12 order. 13 Let's now return to item number three, 14 report, possible discussion and/or action on 15 implementation of the new Administrative Penalty 16 Guideline rules. Mr. Atkins. 17 MR. ATKINS: Thank you, Commissioners. 18 We previously reported to you an estimated 19 implementation date of August 2006. However, in view 20 of the internal audit report that we've just 21 discussed, we would like to hold on further 22 implementation of the provisions of the expedited 23 administrative penalty rule until we've had some 24 additional time to consider this rule and how it will 25 fit in with the Division's regulatory objective. As 0069 1 we work on implementing the recommendations of the 2 Internal Audit report, we'll incorporate the 3 provisions of this rule accordingly. 4 CHAIRMAN CLOWE: Any objection? 5 COMMISSIONER COX: No, sir. I think 6 that's a good move. I think we need to be looking at 7 all these rules as to whether they are fair, whether 8 we -- we have the authority to make them under the 9 statute, and right now I think that's more important 10 than getting something out there. 11 CHAIRMAN CLOWE: Very -- 12 COMMISSIONER COX: But I think it's 13 very important to get something out there as soon as 14 we can because, you know, people need to know what the 15 rules are. When they know what the rules are, then 16 the auditors can audit against those rules so 17 everybody can know what they are going forward. 18 The other thing I think hasn't been 19 mentioned precisely, although I think it is in 20 Catherine's report, is that we need some minimum 21 internal control efforts out there so that people have 22 a safe harbor as far as having an adequate system, 23 even for the very smallest one. 24 CHAIRMAN CLOWE: Thank you, 25 Commissioner Cox. 0070 1 Next item, five -- 2 COMMISSIONER COX: Mr. Chairman, if I 3 could. 4 CHAIRMAN CLOWE: Yes, sir. 5 COMMISSIONER COX: When I asked 6 Ms. Melvin whether item two was an example of the kind 7 of clarity that she was talking about, I was actually 8 speaking of item 10 J. 9 CHAIRMAN CLOWE: 10 J. 10 COMMISSIONER COX: Right. Yes, sir. 11 CHAIRMAN CLOWE: And thank you for that 12 on the record. 13 Next, item five, report, possible 14 discussion and/or action on GTECH Corporation, 15 including proposed acquisition of GTECH. 16 Director Sadberry. 17 MR. SADBERRY: Good morning, Chairman, 18 Commissioner Cox. I have nothing to report at this 19 time. And for the record, I'm Anthony Sadberry, 20 Executive Director. 21 CHAIRMAN CLOWE: And, Director 22 Sadberry, you were present at the hearing last week, 23 where I stated how I saw this process to be underway 24 before Chairman Flores and the members of the House 25 Licensing Committee. At that time, I indicated, I 0071 1 believe, that I had asked you to work with the Deputy 2 Attorney General David Mattax and meet with 3 Mr. Turner, and is that process ongoing? 4 MR. SADBERRY: It is, Mr. Chairman. It 5 is already in its implementation stage. 6 Communications consistent with your directions and 7 your testimony in that regard have occurred. We plan 8 that they will occur. They will occur consistent with 9 your directions and consistent with your testimony. 10 And we will continue to advise the Commissioners of 11 the progress of the implementation of that plan. 12 CHAIRMAN CLOWE: At this point, could 13 you tell us when you might expect this item to be on 14 the agenda and before the Commissioners next? 15 MR. SADBERRY: It is the anticipation 16 at this time that the communications we are addressing 17 informally will occur with the agency, my office, and 18 other person designated by my office, and with the 19 Attorney General's Office, as you have indicated, 20 Assistant Attorney General David Mattax, within the 21 next week or so, and that, depending upon those 22 developments and commitments that are secured for 23 purposes of appearances before the Commissioners, 24 absent events that may occur that change the 25 expectation at this time, my belief is that at the 0072 1 second August Commission meeting, which I believe is 2 August 16, we can expect to receive -- or the 3 Commissioners, you may expect to receive some 4 presentation on this agenda item at that meeting. 5 CHAIRMAN CLOWE: So unless we have some 6 change in your thinking, at this point in time, this 7 item would come before the Commissioners on August the 8 16th, and there would be presentations at that time? 9 MR. SADBERRY: That is correct. 10 CHAIRMAN CLOWE: That's helpful. Thank 11 you. 12 Anything, Commissioner Cox? 13 COMMISSIONER COX: No. 14 CHAIRMAN CLOWE: Would your response be 15 the same in regard to item six, Director Sadberry? 16 MR. SADBERRY: That is correct. 17 CHAIRMAN CLOWE: Thank you, sir. 18 Item number seven, report, possible 19 discussion and/or action on the agency's contracts. 20 Mr. Jackson. 21 MR. JACKSON: Good morning, 22 Commissioners. For the record, my name is Tom 23 Jackson. I'm the Purchasing and Contracts Manager for 24 the Commission. 25 Commissioners, in your notebooks, under 0073 1 tab number seven, is a report on prime contracts that 2 have been updated for your review. I'll be happy to 3 respond to any questions you may have. 4 COMMISSIONER COX: Mr. Chairman, I 5 don't know if this is appropriate under this 6 particular agenda item or not, but I see on here 7 several contracts with folks who provide us with 8 instant tickets. And I wonder whether -- just what 9 are the investigations of the qualifications of these 10 folks to sell us instant tickets? Clearly, those 11 involve the integrity of the game. And I wonder 12 whether those folks are going through the same kind of 13 stringent investigation as GTECH is going through. 14 CHAIRMAN CLOWE: Good question, 15 Commissioner, and I think maybe Mr. Anger might be in 16 a better position to answer that than Mr. Jackson. Am 17 I -- 18 MR. JACKSON: That's correct. 19 CHAIRMAN CLOWE: -- correct in that? 20 Mr. Anger, that's your department, isn't it? 21 MR. ANGER: Yes, sir. Good morning, 22 Commissioners. For the record, my Michael Anger, and 23 I'm the Lottery Operations Director. 24 Commissioner Cox, in response to your 25 question, we have two current instant ticket 0074 1 manufacturers that provide vending services to the 2 agency. 3 COMMISSIONER COX: Those are Pollard 4 and Sci Games? 5 MR. ANGER: Yes, sir. That's correct. 6 And with regard to their processes, the contracts 7 are -- are similar, with regard to structure, between 8 our instant ticket manufacturing services contracts 9 and our lottery operator contract, in the requirements 10 that we set forth for those manufacturers. And so 11 they do -- and they are subjected to audit standards. 12 For instance, with our instant tickets, specific to 13 that contract, we have audit reviews done of the work 14 that they perform prior to the printing of any instant 15 ticket game, including the prize structures, et 16 cetera. And those are reviewed by an audit firm, and 17 we receive the certification of that before we go 18 forward with receiving those tickets and -- and 19 releasing those to the public. 20 COMMISSIONER COX: Okay. So that goes 21 to the product that they provide -- 22 MR. ANGER: Yes, sir. 23 COMMISSIONER COX: -- but my question 24 was more to the -- their suitability, the character 25 and reputation of those corporations to -- are there 0075 1 any questions as to their integrity, or have we 2 investigated them, as we have investigated GTECH, to 3 find out whether their officers, directors, key 4 employees, principal stockholders, et cetera, have a 5 character and reputation consistent with maintaining 6 the appearance of integrity of the Texas Lottery? 7 MR. ANGER: I would have to say that we 8 have not undergone the type of review that we have 9 recently undergone with regard to the GTECH contract 10 with regard to those two manufacturers, to the -- to 11 the extensive nature that -- that has recently taken 12 place. 13 COMMISSIONER COX: Mr. Chairman, I just 14 want to throw out for your consideration the idea that 15 any important vendor that is providing a product or 16 service that could affect the integrity of the game be 17 subjected to the same kind of background 18 investigations that GTECH has and, I would hope, by 19 the Department of Public Safety. 20 CHAIRMAN CLOWE: That's a good thought. 21 And -- and I'm curious now to ask the question, 22 Michael, to what extent have they undergone any 23 background investigation? I think, from my 24 recollection, GTECH had undergone certain examinations 25 prior to this potential acquisition, and I'm curious 0076 1 Commissioner Cox's point relative to these other 2 entities and what level of background checks have they 3 been subjected to. 4 MR. ANGER: And I am probably not the 5 best placed person to get into the specific details of 6 the background investigations that are conducted. 7 That is conducted by the Enforcement Division. 8 However, it's my understanding that -- that as a part 9 of the normal contracting process, they undergo the 10 same type of review that GTECH had undergone 11 previously. It's the more recent review that -- that 12 was much more in depth that we conducted in 13 coordination with -- with the DPS that I would say 14 that there is a differing in -- in what has been done 15 with the instant ticket manufacturers currently. 16 CHAIRMAN CLOWE: For my clarification, 17 the first level of background checks that any vendor 18 goes through -- principally, we're talking about the 19 lottery operator and the supplier of the instant 20 tickets -- those background checks, to whatever level 21 they are accomplished, is done by our security folks. 22 Does the DPS enter into that? 23 MR. ANGER: We -- we use DPS for 24 conducting those checks. We -- we reach out to DPS to 25 conduct checks via their system, and I believe the 0077 1 enforcement group also reaches out to other law 2 enforcement organizations, possibly on a national 3 level. But I -- I don't want to overstep my knowledge 4 in that regard. 5 CHAIRMAN CLOWE: That's okay. I'm just 6 wanting to get some basic facts in mind and -- 7 MR. ANGER: Sure. 8 CHAIRMAN CLOWE: -- and that would be 9 similar to the type of check that we do for potential 10 employment. Is that correct? 11 MR. ANGER: Both potential employment 12 and with regard to our retailer licensees. 13 CHAIRMAN CLOWE: And the agency pays 14 for that work out of our own funds? 15 MR. ANGER: We have, I believe, 16 reimbursement authority underneath the lottery 17 operator contract. And I would have to look into the 18 specifics with regard to the instant ticket 19 manufacturing contract. I believe that's correct, but 20 I'll -- I'll look into that. 21 CHAIRMAN CLOWE: Okay. Those are 22 questions, I think, that we want answers to. I was, 23 then, going to point out, as I testified last week, 24 that we have received billings from the Department of 25 Public Safety and the outside law firm, Graves and 0078 1 Dougherty, to the extent of approximately 400,000. 2 And, in fact, that expense is being paid for by GTECH. 3 MR. ANGER: That is my understanding, 4 sir, yes. 5 CHAIRMAN CLOWE: Okay. In light of 6 Commissioner Cox's question and his statement, would 7 you come back to us, if it's possible, at our next 8 meeting and give us a briefing on what level of 9 background checks are being conducted for these 10 principal vendors and an idea of what the costs are 11 and what we're paying and anything else that you think 12 is cogent to that subject so the Commissioners can 13 look at that and perhaps give direction on it? 14 MR. ANGER: Yes, sir. 15 CHAIRMAN CLOWE: Would that be 16 satisfactory, Commissioner? 17 COMMISSIONER COX: Thank you, 18 Mr. Chairman. Yes. 19 CHAIRMAN CLOWE: Thank you, Michael. 20 MR. ANGER: Thank you. 21 CHAIRMAN CLOWE: Anything further from 22 Mr. Jackson? 23 Then let's move to item number ten, 24 consideration and -- of the status and possible entry 25 of orders in various dockets represented by the 0079 1 letters A through I. That is, alpha through iota. 2 Ms. Kiplin. 3 MS. KIPLIN: Commissioners, are you 4 comfortable with me presenting these cases to you 5 where I am? 6 CHAIRMAN CLOWE: That's fine with me. 7 MS. KIPLIN: Okay. The -- 8 CHAIRMAN CLOWE: I think it's okay. 9 MS. KIPLIN: I'll go wherever you want. 10 CHAIRMAN CLOWE: Thank you. I think 11 you're in a good position. 12 MS. KIPLIN: Okay. There -- the first 13 two cases are bingo registry -- bingo worker -- the 14 registry of bingo worker cases. 15 The first group of these cases -- let's 16 make sure -- have to do with denying placing persons 17 on the registry of the bingo workers. Each of these 18 cases were a -- on a default basis to the State Office 19 of Administrative Hearings, and they're based on a 20 disqualifying criminal -- criminal history. They 21 are -- they -- they are presented on a mass docket. 22 In other words, we're trying to improve efficiency so 23 y'all just have one order to sign with an -- an 24 attachment that has the names. So they're fairly 25 generic in the sense of proposal for decision. Of 0080 1 course, the evidence that is -- that is presented 2 is -- is unique to each one of these, but bottom line 3 on the -- on the findings and conclusions, they're all 4 not going to be added based on a disqualifying 5 criminal conviction. 6 The second -- if you're comfortable, 7 I'll move forward. 8 COMMISSIONER COX: Let me ask a 9 question on -- 10 MS. KIPLIN: Sure. 11 COMMISSIONER COX: -- on the A, Kim. 12 MS. KIPLIN: Uh-huh. 13 COMMISSIONER COX: There are five 14 copies of the letter that seem to be the same letter. 15 What is that? 16 MS. KIPLIN: I know and -- well, 17 it's -- the -- the State Office of Administrative Law 18 Judges, Jim Norman, is making sure -- if you go down 19 to the extra copies under -- under the third one, 20 you'll see the name of the respondent. 21 COMMISSIONER COX: Oh, okay. He didn't 22 put them all on the same -- 23 MS. KIPLIN: That's right. He 24 didn't -- 25 COMMISSIONER COX: I see. 0081 1 MS. KIPLIN: -- because each one of 2 them has an opportunity, when they get their original 3 proposal for decision, to say, Judge, you got it 4 wrong, and this is why you got it wrong. 5 COMMISSIONER COX: Thank you. 6 MS. KIPLIN: Either I didn't get notice 7 or, you know, for whatever reason. 8 COMMISSIONER COX: Thank you. 9 CHAIRMAN CLOWE: And under this, you 10 say it was default. Did the individuals involved not 11 appear? 12 MS. KIPLIN: They did not appear. They 13 did not appear, notwithstanding the fact that they 14 received notice of the hearing and not -- 15 notwithstanding the fact they received a copy now of 16 the proposal for decision. 17 CHAIRMAN CLOWE: And to the extent that 18 Commissioner Cox brought up the item about background 19 investigations, who conducts these backgrounds? 20 MS. KIPLIN: These -- these criminal 21 histories are run by the Enforcement Division, the 22 background specialists. And that is -- in receiving 23 information on each of these individuals, it is then 24 put to Department of Public Safety, into their system 25 under, I believe, it's T -- it's an acronym, TCIC, to 0082 1 determine whether there has been a -- what is called a 2 hit. And what that is, is -- is give information on 3 an arrest. If there is a hit, then what will happen 4 is, the background specialist will move forward to 5 receive the documents -- the final disposition from 6 whatever the court is on what caused the arrest. 7 CHAIRMAN CLOWE: And clarify. Is it a 8 felony conviction or indictment or arrest? 9 MS. KIPLIN: Well, it's got to -- it -- 10 it's a conviction. The arrest is what triggers the 11 further review. If there is no hit, then these folks 12 will be processed and be able to -- be eligible to be 13 placed on the registry. If there is a hit, then the 14 system is not -- it's automated as it relates to 15 arrests going in, but it's not automated as -- as it 16 relates to ultimate disposition. And that is where 17 the background specialists actually have to go and get 18 the disposition. To answer your question, a 19 disqualifying criminal conviction is a felony, a 20 misdemeanor involving moral turpitude, a gambling 21 related offense. It can be a number -- any one of a 22 number of those. It could be a theft by check because 23 it's a -- that's a misdemeanor involving moral 24 turpitude. It could be a -- a felony conviction 25 burglary. Any kind of felony will be a 0083 1 disqualifying -- 2 CHAIRMAN CLOWE: But it's a conviction 3 in every case? 4 MS. KIPLIN: It's a -- it -- it is a 5 conviction. Yeah. 6 CHAIRMAN CLOWE: Thank you. 7 MS. KIPLIN: And -- and then, of 8 course, the ultimate disposition could be a probated 9 sentence, but it's -- we're looking at -- at these 10 convictions. 11 CHAIRMAN CLOWE: Okay. Thank you. 12 MS. KIPLIN: So that's A. A are the 13 ones where we had folks who have applied to be placed 14 on the registry. Based on this process, when we get 15 the documents, we make a determination whether it's 16 one of these disqualifying criminal convictions, and 17 then we proceed to the State Office of Administrative 18 Hearing, where they have due process things show -- 19 show -- appear and say why we're wrong. 20 B is a removal of folks, based on, once 21 again, a criminal conviction. I believe those are the 22 only two bingo matters. I don't know if you want to 23 take these up separately. 24 CHAIRMAN CLOWE: Yes, I think we 25 should. 0084 1 MS. KIPLIN: Okay. Staff would 2 recommend that you adopt the proposal for decision by 3 the State Office of Administrative Judge -- 4 Administrative Hearings law judge in each of those 5 matters. And if you do adopt it, you'll be signing 6 one order per item, but the attachment will address 7 all -- all of those letters that you -- that, 8 Commissioner Cox, you pointed out. 9 CHAIRMAN CLOWE: Any comments or 10 questions, Commissioner? 11 COMMISSIONER COX: No, sir. 12 CHAIRMAN CLOWE: Move the adoption of 13 the staff recommendation. 14 COMMISSIONER COX: Second. 15 CHAIRMAN CLOWE: All in favor, please 16 say aye. Opposed, zero. The vote is two in favor, 17 zero against. We'll sign those orders. 18 MS. KIPLIN: Okay. Thank you. Do you 19 want me to present them to you now or wait until the 20 end? 21 CHAIRMAN CLOWE: Let's sign them right 22 now. 23 Let's proceed. 24 MS. KIPLIN: If I could take that next 25 one and separate that from the remaining because the 0085 1 next one has to do with a criminal conviction, and the 2 remaining are -- are insufficient funds. 3 CHAIRMAN CLOWE: That's item C -- 4 MS. KIPLIN: Yes, sir. 5 CHAIRMAN CLOWE: -- Kemp's Supermarket? 6 MS. KIPLIN: Yes, sir. Kemp's 7 Supermarket. Commissioners, this is a -- a lottery 8 licensee, Kemp's Supermarket, who has a disqualifying 9 criminal conviction. The reason that I'm taking this 10 out of order is because I know that the -- the 11 Commission has had an interest in terms of these 12 criminal convictions, and they -- they lapse, if you 13 will, in time from conviction and us -- us moving 14 forward. 15 Once again, this one moved forward on a 16 default basis. But I do want to raise to your 17 attention that this would fall in the group -- if you 18 recall, we've had discussions at at least one, if not 19 two, Commission meetings on when the Enforcement 20 Department -- when there was a reorganization and 21 there were two file cabinet drawers full of files that 22 were awaiting review of pending disposition. This one 23 falls into that category. And -- and the evidence 24 that was submitted -- it's not summarized in these 25 findings, but I'm going to speak from the record -- is 0086 1 that the retailer was licensed in 2002. The 2 conviction occurred in 2004. So it was really at a 3 time of the renewal where the pending disposition was 4 not picked up, if you will, and it was part of the 5 memo -- memorandum that Mr. Rogers, who is now the 6 acting Enforcement Division director, mentioned to 7 you, where they -- they saw this in their licensing at 8 the same time that Steve White, who was the chief of 9 that enforcement, discovered these two file cabinet 10 drawers. So through that reconciliation, we're 11 working through this -- this group of licensees, and 12 this is one of them. 13 This gentleman, who is the principal 14 under Kemp's Supermarket, was convicted of a -- a 15 misdemeanor involving moral turpitude. His conviction 16 actually occurred in August of 2004, and his 17 punishment was 120 days. So based on that, he will 18 not -- he -- and if he continues to be an officer of 19 a -- an applicant, that applicant will not be eligible 20 for a sales agent's license for -- let's see, it would 21 be 2014, because there is a ten-year lapse that has to 22 occur. The matter was presented on a default, 23 although he -- he received notice of both an 24 opportunity to -- to show compliance -- in other 25 words, where we're wrong -- and also notice of the 0087 1 hearing. He declined to -- to appear at that hearing. 2 The administrative law judge has 3 recommended revocation of the license in this matter. 4 And staff does recommend that you adopt that 5 recommendation. 6 CHAIRMAN CLOWE: Any questions? 7 COMMISSIONER COX: Yes, sir. 8 Ms. Kiplin, let's see if I understand 9 the timeline. 10 MS. KIPLIN: Sure. 11 COMMISSIONER COX: Mr. Beiler was given 12 a license or -- no. Sorry -- 13 MS. KIPLIN: No. Ming Ngo. 14 COMMISSIONER COX: Yeah, this -- yes, 15 that person was given a license in 2002? 16 MS. KIPLIN: That's right. 17 COMMISSIONER COX: Then there was a 18 conviction in 2004. 19 MS. KIPLIN: That's correct. 20 COMMISSIONER COX: And then the 21 conviction was picked up when he applied for a 22 renewal? 23 MS. KIPLIN: I -- I believe that's 24 correct, because the -- the arrest didn't occur in 25 2002. My -- my understanding is, it occurred 0088 1 subsequently. This gentleman also had the requirement 2 to notify us at the Commission and did not. There is 3 that continuing obligation to do so. 4 COMMISSIONER COX: Okay. So what -- 5 if -- if one gets a license in 2002, when does one 6 renew that license? 7 MS. KIPLIN: They're biennial. And so 8 the application for -- for the two-year license would 9 not have occurred until around November of 2004. 10 COMMISSIONER COX: And was the 11 conviction prior to November of 2004? 12 MS. KIPLIN: Yes, it was. 13 COMMISSIONER COX: And we missed it? 14 MS. KIPLIN: We missed it, and my 15 understanding is, because it was in this pending 16 disposition -- Mr. Rogers might -- might help me on 17 this because it's the reconciliation between Lottery 18 Operations licensing activities and Enforcement, in 19 terms of what they show on their system and how 20 that -- how that worked through the process. 21 MR. ROGERS: Good morning, 22 Commissioners. For the record, my name is Ed Rogers, 23 Acting Division Director for the Enforcement Division. 24 At -- at the -- at the time that this 25 occurred, I was also the -- I was the -- acting, and I 0089 1 was the Retailer Services Manager. This -- this -- I 2 don't have the details in front of me, but I believe 3 that the -- this applicant probably would have gotten 4 a provisional license for a period of time just after 5 the application was initially approved, which would 6 have probably pushed the license renewal to the end of 7 2004 or -- or to early 2005. So the license -- but -- 8 but even so, the disposition of the case, the 9 documents showing that the conviction had occurred, 10 had not been acquired by the Security Division at the 11 time. And so while we did see that there had been a 12 hit, as Ms. Kiplin described earlier, the licensing 13 department had not been provided with the 14 documentation that we could then take to SOAH to 15 present to a judge to either deny a renewal or to 16 revoke a license. 17 Part of -- part of the -- the 18 disconnect, as Ms. Kiplin described earlier, was the 19 acquisition of those court documents showing the 20 convictions, being -- being gathered by the Security 21 Division, or the -- or the Enforcement Division staff 22 at the time, and then being provided to the -- to the 23 licensing staff for consideration and presentation for 24 revocation. There -- there -- as we described, I 25 think, in a previous Commission meeting, there are 0090 1 several of those that, after the discovery of those 2 documents and after a review -- I think Ms. Kiplin 3 described in the file cabinet when Steve White first 4 took over the Enforcement Division -- and a review 5 that took place in the licensing department to try to 6 determine how many of these cases may not have worked 7 their way from the old Security Division to the -- to 8 the licensing area, this -- this case was one of those 9 that was captured, and -- and we're working through 10 these. So I believe -- 11 COMMISSIONER COX: Are you satisfied, 12 Ed, that we have found them all? 13 MR. ROGERS: Yes, sir, I -- I am. 14 We've -- we've run several -- we've done several 15 reviews in the database. I believe we have a few more 16 of these, probably less than four, I think, that we're 17 in the process of acquiring additional court documents 18 from the local jurisdictions where these cases were 19 heard. And we will be presenting these either -- you 20 know, if they haven't already gone to SOAH, will be -- 21 they will be presented to SOAH. Those that are in the 22 pipeline with SOAH will be coming to you over the 23 course of the next couple of months. 24 We do have new tools today to track 25 these things that we didn't have at the time that -- 0091 1 that these things were not processed completely and 2 timely. We have a -- a new database that the 3 Enforcement Division is using specifically to track 4 these items, to give us reminders of the need to 5 follow up with the court when cases are pending at the 6 local court. And we also have a new database in the 7 licensing area that helps us track these issues in 8 direct relation to license renewal activity or even, 9 you know, subsequent additional applications that a 10 current licensee may -- may give us for additional 11 locations that -- that they -- where they want to sell 12 lottery tickets. So I -- I believe we've tightened 13 this process up and should not have these issues in 14 the future once we work through these few pending 15 cases that were part of this -- the group that 16 Ms. Kiplin described. 17 COMMISSIONER COX: This is really 18 critical. The -- this happened in Kemp, Texas. I 19 don't know where Kemp, Texas is, but it isn't very 20 big. And probably everybody in that town knows the 21 guy who has been in jail is selling lottery tickets. 22 And so we need to do everything we can to find these 23 things and revoke these licenses as quickly as 24 possible. 25 MR. ROGERS: Yes, sir. 0092 1 COMMISSIONER COX: Ms. Kiplin, you 2 indicated that it's a felony or a misdemeanor 3 involving moral turpitude or a gaming conviction. Is 4 misdemeanor involving moral turpitude, is that a 5 defined set, or is that a matter of judgment? 6 MS. KIPLIN: It's a matter of -- it's a 7 matter of judgment. It's -- it's a nonstatutory -- 8 it -- the phrase is statutory. It's in -- in just 9 about every -- every licensing statute I've seen. But 10 in terms of what is a misdemeanor involving moral 11 turpitude, that's a subject of case law development 12 through judicial decisions. 13 COMMISSIONER COX: So is it possible 14 that there are other State agencies that are applying 15 that differently and using a different set of 16 misdemeanors as involving moral turpitude from the one 17 we're using? 18 MS. KIPLIN: Well, I guess -- I guess 19 it's possible. I mean, I -- but if -- if there is a 20 review of the case law, the case law -- those opinions 21 are reported decisions. And so it -- it would be 22 possible, I guess, but in my view, I'm -- I'm 23 answering your question literally. I -- I think an 24 attorney who is prosecuting a matter would go to the 25 case law and do the research to determine, you know, 0093 1 is a particular assault -- has it in -- in a past 2 judicial decision been considered to be a misdemeanor 3 involving moral turpitude. For example -- 4 COMMISSIONER COX: When somebody is 5 convicted of a misdemeanor, does the order setting out 6 that conviction state that it's a misdemeanor 7 involving moral turpitude? 8 MS. KIPLIN: No. It'll state that it's 9 a misdemeanor, and then it'll state the offense that 10 the person was convicted of. And the offense the 11 person is convicted of, that's the subject of judicial 12 opinions on whether that involves moral turpitude or 13 not. 14 COMMISSIONER COX: Well, because my 15 concern here is that we might have different folks 16 making different decisions on the same conviction. 17 And one investigator says, that does involve moral 18 turpitude and the other one says, no, it doesn't. And 19 so two people are getting treated differently. Is 20 that possible? 21 MS. KIPLIN: Well, in terms of what an 22 investigator might think, yeah, I guess it's 23 possible -- 24 COMMISSIONER COX: Or whoever is the 25 ultimate -- 0094 1 MS. KIPLIN: -- but in terms of whether 2 a lawyer, in terms of doing the legal research, is 3 going to -- to determine based on a research of case 4 law, the case law is what gives the guidance. 5 COMMISSIONER COX: Okay. So is this 6 done by lawyers? 7 MS. KIPLIN: The -- when -- when there 8 is a question on whether a misdemeanor involving moral 9 turpitude has not already been researched, when it 10 comes up, is it a misdemeanor involving moral 11 turpitude or not? Yes, it is researched. 12 COMMISSIONER COX: Okay. And so your 13 department, then, keeps records as to, hey, this one 14 right here, we have just found that to be a case 15 involving moral turpitude. This one right here, we 16 haven't. 17 MS. KIPLIN: There is no reported 18 decision on whether it is or it is not. 19 COMMISSIONER COX: And then there might 20 be a new misdemeanor come along the path, and then 21 your folks will do the research, and they'll add it to 22 the good list or the bad list? 23 MS. KIPLIN: That's right. As a matter 24 of fact, we've had a recent request from Enforcement 25 to refresh that list or review that list. And Texas 0095 1 is odd. I -- I will tell you, just anecdotally, an 2 assault, a man on a man, is not considered to be a 3 misdemeanor involving moral turpitude. A man on a 4 woman is considered to be a misdemeanor involving 5 moral turpitude. A woman on a man is not considered 6 to be a misdemeanor involving moral turpitude. Texas 7 is -- 8 CHAIRMAN CLOWE: Texas. 9 MS. KIPLIN: Texas is Texas. So it 10 does -- theft is a misdemeanor involving moral 11 turpitude. Any kind of -- any kind of theft will be 12 moral turpitude. I don't know if that's helpful to 13 you. 14 COMMISSIONER COX: No, that is very 15 helpful. 16 MS. KIPLIN: A DWI is not a misdemeanor 17 involving moral turpitude. However, a -- a third 18 conviction is a felony conviction, and so that takes 19 it even out of play on your misdemeanors. So I hope 20 that's helpful. And it -- it would be nice if the 21 legislature had adopted some kind of a chart that 22 said, from this point forward these are all the 23 misdemeanors involving moral turpitude. 24 Unfortunately, that's not what has occurred. It's a 25 development through case law, and so it's a matter of 0096 1 do -- conducting the research and looking at the -- 2 the reported decisions. 3 COMMISSIONER COX: Okay. 4 MS. KIPLIN: And then -- and then 5 looking to the -- obviously, the offense and the facts 6 in play. 7 COMMISSIONER COX: Sure. Thank you, 8 Ms. Kiplin. Thank you, Ed. 9 CHAIRMAN CLOWE: Is there a motion? 10 COMMISSIONER COX: Let's see. This 11 would be a motion to -- what's the staff 12 recommendation? 13 MS. KIPLIN: It was the staff 14 recommendation to adopt the administrative law judge's 15 recommendation and revoke the license. 16 COMMISSIONER COX: So moved. 17 CHAIRMAN CLOWE: Second. All in favor, 18 please say aye. Opposed, no. The vote is two-zero in 19 favor. 20 All right. Ms. Kiplin, how far are we 21 going to go with the next group? 22 MS. KIPLIN: I think we're -- we can 23 take them all if it's the Commission's desire. The 24 remaining cases are all proposals -- are all cases 25 that were presented at the State Office of 0097 1 Administrative Hearings. And they all relate to 2 insufficient funds. There are some that are the 3 repeated three strikes and you're out rule 4 application. And there are -- I think there is a 5 couple that are -- one -- one incident of insufficient 6 fund -- insufficient funds, and that's where we were 7 not repaid the money. And in each of these cases, the 8 staff is recommending that you adopt the proposal for 9 decision by the administrative law judge. 10 CHAIRMAN CLOWE: In the case of dockets 11 represented by the letters D through I, I move we 12 adopt the staff recommendation. 13 COMMISSIONER COX: Second. 14 CHAIRMAN CLOWE: All in favor, please 15 say aye. Opposed, no. The vote is two-zero in favor. 16 We'll sign the orders now. 17 As soon as we complete these orders, 18 Director Sadberry, we'll be calling on you for your 19 report. 20 Item number 11, Mr. -- Director 21 Sadberry. 22 MR. SADBERRY: Chairman, Commissioner, 23 again, for the record, I'm Anthony Sadberry, Executive 24 Director. 25 You have in -- under tab item 0098 1 numeral -- numeral 11, certain information regarding 2 FTEs for your consideration. 3 In addition to that, I have already 4 spoken, at the Chairman's request, to the status of 5 the GTECH discussions and the anticipated follow-on 6 presentation that you might expect to receive in that 7 regard. 8 One additional item is the -- what we 9 refer to as DPS, interim committee for protocol that 10 has been previously discussed, has been formed. From 11 the agency's standpoint, the members and participants 12 who will engage in that process on behalf of the 13 Lottery Commission have been appointed. And the 14 preliminary meeting to meet with the DPS 15 representative has been scheduled. I look forward to 16 keeping you advised of the progress in that regard. 17 Other than that, I have nothing else to 18 report to you. I'll be happy to address any questions 19 you may have. 20 COMMISSIONER COX: Mr. Chairman, this 21 relates to item 10 C. And I don't know whether this 22 is for Director Sadberry or Ms. Kiplin or someone 23 else, but I think I asked this question last meeting. 24 Even though we know someone has a disqualifying 25 conviction, the Executive Director doesn't have the 0099 1 authority to revoke that license -- that license? 2 MS. KIPLIN: Due process. 3 COMMISSIONER COX: And you say -- I 4 think I heard you say due process. Why isn't it due 5 process when the Executive Director looks at it and 6 says, there is a conviction, and it's in black and 7 white, as clear as can be. Why do we have to wait 8 several months and go to the expense of going to the 9 administrative law judge when this could be made -- 10 this decision could be made administratively? 11 MS. KIPLIN: Well, it -- it has to do 12 with the -- the -- the constitutional right to due 13 process by somebody who holds a -- a property 14 interest. And that interest is in the license -- 15 COMMISSIONER COX: So this -- this is 16 the old right versus privilege? 17 MS. KIPLIN: Yes. And we have a 18 statute that says after a hearing. 19 COMMISSIONER COX: Does -- could 20 Director Sadberry conduct a hearing? 21 MS. KIPLIN: Director Sad -- in terms 22 of -- 23 COMMISSIONER COX: That he say, come on 24 down. We're going to have -- we're going to have a 25 hearing. I want to hear if you have any objections. 0100 1 If not, I'm going to take your license. 2 MS. KIPLIN: Well, I think -- I think 3 there -- there would be the Rules of Procedure, Rules 4 of Evidence, that would be at play. In terms of who 5 can conduct the hearing, that is really controlled by 6 a statute that says, if you don't have a full-time 7 administrative law judge, you know, somebody -- a 8 staff employee -- 9 COMMISSIONER COX: Uh-huh. 10 MS. KIPLIN: -- and in this case, since 11 he's not the decision maker, he would be that staff 12 employee. And if it's not a full-time administrative 13 law judge, you have to use the State Office of 14 Administrative Hearings for your hearings. You all 15 could conduct a hearing, if you wanted, because you 16 would be the decision maker, and -- and have an 17 evidentiary and procedural hearing as the decision 18 maker. But if you delegate it to somebody who is not 19 a decision maker, they're acting on your behalf, and 20 that would be in conducting the hearing, but they 21 can't make the decision. 22 CHAIRMAN CLOWE: We could qualify 23 administrative law judges within the General Counsel's 24 office and conduct those hearings internally, could we 25 not? 0101 1 MS. KIPLIN: You could, but it has to 2 be an employee that that's all they do, is 3 administrative law judge. 4 CHAIRMAN CLOWE: I understand that. 5 That -- that would be my question. 6 MS. KIPLIN: That's right. 7 CHAIRMAN CLOWE: Somebody we could 8 qualify? 9 MS. KIPLIN: Yes. 10 CHAIRMAN CLOWE: Which is what a number 11 of agencies did for some time as a matter of practice, 12 and then the majority, I think, went to the agency 13 that sets up to do that as a matter of expediency, 14 probably reduced cost, and uniformity. 15 MS. KIPLIN: Well, in my experience, 16 the agencies even went voluntarily, pursuant to 17 agreement, or were compelled to do so, and those that 18 did not were then compelled to do so. 19 CHAIRMAN CLOWE: But they went. 20 MS. KIPLIN: But they went. 21 CHAIRMAN CLOWE: So now there are, to 22 your knowledge, no agencies doing that internally? 23 MS. KIPLIN: There are -- there are 24 some agencies that still do have the authority to do 25 it internally. They do have a full-time ALJ. As I 0102 1 understand it, every time there is a Sunset review, 2 this is one of those issues. The Railroad Commission, 3 for example, still has some, but not all, but the 4 general course of conduct is to have the centralized 5 administrative hearings agency. 6 CHAIRMAN CLOWE: Commissioner Cox has 7 asked a good question, and -- and I was relying on my 8 experience at the Railroad Commission. We used to 9 have a large staff there of hearing examiners, and 10 those contested hearings were held within the 11 authority and by those employees of the Railroad 12 Commission. And so those internal employees -- there 13 was no executive director at that time, but they came 14 before the commissioners on both a non-contested and a 15 contested hearing basis and presented their 16 recommended orders. And it simplified and, I think, 17 reduced costs by going to the SAO and asking them to 18 have full-time administrative law judges. 19 Now, within the last year or two, the 20 Governor's Office asked a number of chairs of boards 21 to come together informally and comment on that 22 process. And I was invited as one of those 23 individuals and attended that meeting. And as result 24 of being invited, I gave, over the past, I think, 25 three years, the number of cases that we have asked 0103 1 them to handle for us, what the results were, and gave 2 a comment, an editorial comment, on how we felt those 3 were being handled. I did that with the help of the 4 General Counsel, and those comments were received. 5 And I think that the process was generally thought to 6 be working well, with the input of our agency as well 7 as a number of others. 8 And, Commissioner Cox, I -- I think, 9 from my background in agency work -- well, maybe I 10 approach it from the other end of it. From my 11 background as being a licensee, where I had real 12 property that was granted to me by the State to do 13 business, it had a value. I would have objected 14 strenuously if some administrative bureaucrat, which 15 the executive director could be classified as, took 16 that -- 17 COMMISSIONER COX: Oh, no. I would 18 never classify Director Sadberry -- 19 CHAIRMAN CLOWE: Absolutely not. But I 20 served as an executive director, and I was called 21 that. If I revoked a permit for dormancy, which was 22 an issue that came up from time to time, if you didn't 23 use it, you would lose it. And I always wanted to go 24 to hearing, and I would find mightily ways to prove 25 that there had been some commercial activity under the 0104 1 scope of that permit so it would not be ruled dormant 2 and canceled. And that, I think, is a good process, 3 if I could just enter into this discussion to the 4 extent of my experience as a licensee. I would not 5 want to put that burden on Director Sadberry or 6 anybody else in this agency. I think an 7 administrative law judge is the place for it to 8 go and -- and -- and I reported that it was our 9 opinion -- I -- I cannot honestly remember whether 10 your thoughts were sought out or not in the proper 11 way, with the General Counsel taking your input. I 12 was not allowed to ask you your opinion. 13 COMMISSIONER COX: I understand. 14 CHAIRMAN CLOWE: But I -- I reported, 15 as I recall, that we were pretty well satisfied with 16 that process. 17 COMMISSIONER COX: Well, Ms. Kiplin, 18 what is the timeline on this? When we find out there 19 is a conviction, what happens, what happens next, what 20 happens next, and how long does all that take? 21 MS. KIPLIN: When we -- when -- when it 22 comes and it's assigned an attorney, it goes in the 23 attorney's case list. And then there will be a review 24 of the case. Once -- one internally that occurs, on a 25 revocation, there is a requirement to issue what is -- 0105 1 under the Administrative Procedure Act what is -- what 2 is called an 054C letter. And that's a slang for a 3 requirement that the licensee or the respondent be 4 provided notice of its opportunity to show why we're 5 wrong, either factually or legally. And that's an 6 opportunity to show compliance. So that's -- 7 COMMISSIONER COX: So that's an 8 opportunity to -- to go before the administrative law 9 judge or just come straight to us? 10 MS. KIPLIN: Just come straight to us. 11 It's a -- if you will, it's -- it's the first rung of 12 dispute resolution. You got it wrong, and -- and -- 13 and there are -- there are times in an administrative 14 agency's practice where that would be the case. 15 COMMISSIONER COX: Sure. And how long 16 does that take? 17 MS. KIPLIN: That's a 20-day -- 18 COMMISSIONER COX: That's 20 days. 19 MS. KIPLIN: The -- it's to -- 20 COMMISSIONER COX: So it comes to the 21 attorney on day one. This letter would go out on day 22 two? Right? 23 MS. KIPLIN: Well, I mean, if this is 24 the only case that attorney is handling. It goes into 25 a caseload, if it's -- 0106 1 COMMISSIONER COX: Well, what I'm 2 trying to figure out is -- 3 MS. KIPLIN: Let's just say it's 4 assigned a number -- 5 COMMISSIONER COX: -- is there a big 6 old backlog there? Is it taking six months for the 7 attorney to issue that letter, or is it going out the 8 next day? 9 MS. KIPLIN: You know, and -- and 10 Ms. Law is here, and she is one of the Enforcement 11 attorneys, and she might be able to help in terms of 12 the lag time. I don't -- I don't think it goes out 13 the next day. I think there is a review of the file. 14 I think there is a drafting of the letter. I think 15 there is a review by whoever the referring division is 16 before it's issued, and -- she is nodding her head 17 in -- affirmatively. And then I think it -- then I 18 think it goes -- it goes out. I think -- I believe 19 there is a tickler system, in terms of these -- once 20 the letters go out, tickling when is a response due. 21 And then, if there is contact, working out an 22 arrangement to either have a conversation by 23 telephone, get documentation, have a meeting, whatever 24 that contact may be. Ultimately, let's assume there 25 is no contact. There will be a notice of hearing. 0107 1 It'll be issued. That has to do with working with the 2 State Office of Administrative Hearings in terms of 3 getting that case docket -- you need to get a docket 4 number assigned. They have their own -- their own 5 timeline. I don't know whether it's -- you have 30 6 days or 60 days from when you're -- when you're trying 7 to get a hearing set, you know, from the day you 8 request a hearing set, how far out their docket goes 9 before you can get a hearing set. 10 And this is where -- this is not one of 11 these mass dockets. I can talk about that later. 12 This is a -- just a run-of-the-mill kind of case that 13 we're talking about. There is a -- generally, we 14 provide -- I think it's 30 days notice on a notice of 15 hearing to give people an opportunity to get their 16 ducks in a row on a notice of hearing. We could still 17 get it wrong and be -- and, hopefully, the respondent 18 would say, you got it wrong or, you know, whatever the 19 issues are. 20 Sometimes there -- cases require 21 discovery, so it depends on whether there is discovery 22 involved. In these cases that are default, I can tell 23 you there is no discovery. We don't -- we don't hear 24 from the folks. And we present the case. Then the 25 administrative law judge will prepare a proposal for 0108 1 decision. There is a required -- a -- a sit-out time 2 of, I believe, it's 15 days for exceptions and 15 days 3 for replies, where somebody can file exceptions with 4 the administrative law judge and say, you got your 5 findings wrong, you got your conclusions wrong. And 6 then, ultimately, then it's noticed for you-all's 7 consideration in the Commission meeting. So -- and 8 having said all that -- 9 COMMISSIONER COX: How long does all 10 that take? 11 MS. KIPLIN: -- talking through all 12 that, I'm thinking five months, four to five months. 13 But you -- but you -- you can tell me if I'm wrong. 14 I'm just mentally doing this. 15 MS. MITCHELL: I agree with everything 16 you said. It just depends on the case, and like -- 17 like she said, it's -- we -- once it is prepared, the 18 referring division reviews it as well. So there is 19 that time lapse as well. 20 CHAIRMAN CLOWE: And identify yourself, 21 please. 22 MS. MITCHELL: Kristen Mitchell, 23 Assistant General Counsel. 24 CHAIRMAN CLOWE: Thank you. 25 COMMISSIONER COX: Kristen, how long 0109 1 would you say this process takes, on average? 2 MS. MITCHELL: Probably four to five 3 months, from the time that the 054 letter referral is 4 sent to us to a proposal for decision being issued. 5 COMMISSIONER COX: So given all that, 6 Ms. Kiplin, would you think that there is a way, 7 whatever it might be, that this would be done 8 significantly quick -- more quickly and significantly 9 less expensively, or is this about as good as we can 10 do? 11 MS. KIPLIN: You mean if we took it 12 in-house, if we took the function in-house? 13 COMMISSIONER COX: Yes. 14 MS. KIPLIN: And I was thinking about 15 that as -- as you all were discussing. Right now we 16 don't pay -- we're not under a contract with the State 17 Office of Administrative Hearings. They get an 18 independent appropriation for each agency, based on -- 19 on number of -- case volume, directly from the 20 legislature -- the -- the Texas legislature through 21 the legislative process. So we don't pay so long as 22 we stay within -- what -- the number of cases, if you 23 will, that translates into hours. We're not paying 24 for the services of the State Office of Administrative 25 Hearings. If we go over that amount, then there is 0110 1 a -- a -- I believe it's a 90-dollar -- 90-dollar per 2 hour cost. We have not gone over whatever is our -- 3 COMMISSIONER COX: So there is a sub 4 cost that the State out there is already doing this, 5 and we would be costing the State additional money if 6 we did it. And it sounds like, based on the number of 7 notice periods that are in there, that we couldn't 8 make it much faster anyway? 9 MS. KIPLIN: That's right. I mean, I 10 think the -- the delay -- if there is any delay on -- 11 on -- on the SOAH's part, State Office of 12 Administrative Hearings, it would be the time that we 13 request a case be docketed, be heard, be assigned, 14 to -- to when it can be. And that has to do with the 15 case volume that's coming through their agency. But 16 the -- you know, theoretically, if we had one ALJ, we 17 may have -- we may have the same problem. I think 18 not, and give -- my other thought that I'll throw out 19 is that I -- I've taken a look at this in my own mind, 20 years ago, not recently. But we just don't have a 21 volume of work to justify, in my mind, hiring a 22 full-time ALJ. It's got to be somebody who only does 23 this work. It can't be an assistant general counsel 24 as shared work. 25 COMMISSIONER COX: I understand. 0111 1 MS. KIPLIN: Under the statute. 2 COMMISSIONER COX: Okay. Thank you. 3 That -- that answers my question, and thank you for 4 tolerating that and giving me a little time for 5 education. 6 CHAIRMAN CLOWE: Absolutely. Director 7 Sadberry always brings up interesting subjects. 8 MR. SADBERRY: Thank you. 9 That's all I have on this unless you 10 have additional questions, Commissioner. 11 CHAIRMAN CLOWE: And are you 12 comfortable in your further work on the budgeting 13 process with the request from the Governor's Budgeting 14 Office for a 10 -- a 90 percent base for computing our 15 next fiscal year biennium budget? 16 MR. SADBERRY: Yes, Chairman. That -- 17 that matter has received significant attention. And 18 the work has been done by our Controller -- I know she 19 was here earlier. I think she may have left now, but 20 she is on top of it. And the directors, deputy 21 executive director, and all necessary personnel 22 resources, to -- required to bring to bear the 23 appropriate review and preparation of this item, that 24 has been done. You had before you at the last 25 Commission meeting an item of approval of the budget 0112 1 for the remainder of this biennium, and that has 2 occurred. My understanding is, the LAR process for 3 the -- the 10 percent that you're talking about, 4 Chairman, will come before you -- I want to think it 5 may be the second August meeting, but maybe sooner 6 than that. But it is -- it is on target. We 7 understand the principles and the priorities 8 established by the Governor's Office. Those have been 9 kept in mind, uppermost in our focus, to get the job 10 done. So I am pleased and comfortable and 11 appreciative of the effort that has gone into that. 12 You provided to me, Chairman, the materials that you 13 received in the -- in connection with the briefing 14 that certain agency chairs were invited to attend. We 15 reviewed that material. I have distributed it as 16 appropriate for others within the agency to be aware 17 of, of this emphasis, and then the requirements in 18 that regard. It is our expectation as an agency that 19 we will meet those requirements. That is consistent 20 with the principles that have been established by my 21 office for consideration of the Commissioners' 22 emphasis in that regard and the Governor's Office as 23 well. So, yes, I am pleased and comfortable that we 24 are on target and in focus. 25 CHAIRMAN CLOWE: We had no exceptional 0113 1 items, did we? 2 MR. SADBERRY: Is -- we do not, to my 3 knowledge. I would yield to Kathy Pyka's greater 4 knowledge in that regard. 5 CHAIRMAN CLOWE: There -- there is one 6 area that I am not happy about, and that is the 7 compensation of the Executive Director. And I've 8 expressed that concern to the Senate and the House 9 committees on our budget and the LBB. And I want that 10 continuing concern to be reflected in our budgetary 11 requests. I -- I think that is important to not fail 12 to bring that attention to the legislature as we go 13 into the next biennium. There are a number of people 14 in this agency that are paid -- compensated at a 15 higher level than the Executive Director, and that 16 salary is capped at 115,000 dollars a year. There is 17 not internal equity, therefore. That's an issue. But 18 the other issue is that the Executive Director is not 19 being compensated for the task that is being required 20 of that individual, in this case you. And because you 21 have applied for and been employed in that position at 22 the 115,000 dollar level, I don't want to let that 23 issue drift away. And so I want to urge you, with 24 Commissioner Cox's approval, to continue to press that 25 point, and as the Commissioners appear in support of 0114 1 our budget, to plan to keep bringing that to the 2 attention of the legislature. 3 MR. SADBERRY: Yes. Chairman, that 4 is -- that is correct. And we are emphasizing it. 5 And it will be documented and presented in the 6 appropriate manner. And in the interim, we would urge 7 your comments in that regard. I -- I concur, and I 8 see it in a greater light that you want to give the 9 priority, the importance of the State of Texas and its 10 lottery, compared to the others in the nation and 11 hemisphere, and that was addressed by the State 12 Auditor's Office Workforce Commission phase of the 13 audit report. I have heard your comments in that 14 regard. We have, as I believe you've indicated in 15 your comments previously in session here, I've made it 16 a point that it is important that, independent of 17 that, that compensation of others, division director 18 level and at other levels, continue to be placed 19 appropriately, and that is that that not be a matter 20 that is acted upon as an oppression factor. You know, 21 others are not compensated fairly because of the 22 executive director and/or competitively. My priority 23 is that we detach from the executive director 24 compensation for that purpose, that we review and look 25 at compensation at appropriate levels for the division 0115 1 directors and others within the agency so that the 2 agency remains competitive and that compensation is 3 not a factor in our internal retention levels. So I 4 will say, as an additional consideration, independent 5 of the person or serving in this capacity, that may 6 become a factor in the future if it is not addressed. 7 And that's an additional emphasis I would place on it 8 as a reason for it being addressed. It is being 9 addressed and will be addressed. We will keep your 10 admonitions in that regard well in mind as we proceed. 11 COMMISSIONER COX: Mr. Chairman, I 12 agree with all of that for all of those reasons. The 13 State Auditor has pointed out that this is an 14 important and complex agency and that continuity and 15 capability in the position of Executive Director is 16 critical, and has also landed on the compensation 17 issue as well. So I think we've got wide recognition 18 of the need here, and I just hope that the folks that 19 have this authority are able to hear us and to support 20 us. 21 CHAIRMAN CLOWE: I agree. 22 Anything further, Director Sadberry? 23 MR. SADBERRY: That's all I have, 24 Chairman. 25 CHAIRMAN CLOWE: Thank you, sir. 0116 1 Next, item number 12, report by the 2 Charitable Bingo Operations Director. Mr. Atkins. 3 MR. ATKINS: Thank you, Commissioners. 4 There are two things that I wanted to expand on as it 5 relates to my report in your notebook. 6 Early reports for the second quarter of 7 2006 were due on August 25th. This quarter we 8 received a total of 54 reports that were filed 9 electronically, as compared to 46 that we received 10 last quarter. Obviously, not a big increase, but an 11 increase nonetheless. We have been informed by some 12 licensees, as well as bookkeepers who prepare 13 quarterly returns for licensees, that they would be 14 more inclined to file electronically when they were 15 also able to submit their payments electronically with 16 their return. This capability is the item the Bingo 17 Division -- the Bingo Division has identified for 18 phase two of the agency's E strategy program. 19 And, finally, my report indicates we 20 have posted the public service announcements, video 21 copies of the public service announcements, to the Web 22 site. In working with Media Relations and Information 23 Resources, we've also placed audio copies as well. 24 And that's all I have. 25 CHAIRMAN CLOWE: Billy, how many 0117 1 filings do you have under the unit accounting rule at 2 this time? 3 MR. ATKINS: I don't have that exact 4 figure, Commissioner Clowe. We can get that for you. 5 CHAIRMAN CLOWE: Would you give that to 6 Commissioner Cox and myself when you are -- are able 7 to tell us that number, please? 8 MR. ATKINS: Sure. And that's the 9 number of organizations filing as an accounting unit? 10 CHAIRMAN CLOWE: Right. 11 COMMISSIONER COX: Make that two 12 numbers, if you will, Billy -- how many units and then 13 how many organizations does that total. 14 CHAIRMAN CLOWE: Thank you, Billy. 15 Is there anyone under item number 13 16 wishing to make public comment to the Commission at 17 this time? 18 Commissioner Cox, with your permission, 19 I will move we go into executive session. 20 COMMISSIONER COX: Yes. 21 CHAIRMAN CLOWE: I move the Lottery 22 Commission go into executive session: 23 To deliberate the appointment, 24 employment, evaluation, and/or duties of the Executive 25 Director and/or Deputy Executive Director, pursuant to 0118 1 Section 551.074 of the Texas Government Code; 2 To deliberate the duties and evaluation 3 of the Internal Audit Director, pursuant to Section 4 551.074 of the Texas Government Code; 5 To deliberate the duties and evaluation 6 of the Charitable Bingo Operations Director, pursuant 7 to Section 551.074 of the Texas Government Code; 8 To deliberate the duties of the General 9 Counsel, pursuant to Section 551.074 of the Texas 10 Government Code; 11 To receive legal advice regarding 12 pending or contemplated litigation and/or to receive 13 legal advice, pursuant to Section 551.071(1)(A)or(B) 14 of the Texas Government Code, and/or to receive legal 15 advice pursuant to Section 551.071(2) of the Texas 16 Government Code, including but not limited to: 17 Cynthia Suarez versus Texas Lottery 18 Commission; 19 Shelton Charles versus Texas Lottery 20 Commission -- Texas Lottery and Gary Grief; 21 Stephen Martin versus Texas Lottery 22 Commission; 23 Betty Domingo versus Texas Lottery 24 Commission et al.; 25 Employment law, personnel law, 0119 1 procurement and contract law, evidentiary and 2 procedural law, and general government law. 3 Is there a second? 4 COMMISSIONER COX: Second. 5 CHAIRMAN CLOWE: All in favor, please 6 say aye. The vote is two-zero. The time is 11:35. 7 Today is August the 2nd, 2006. 8 (EXECUTIVE SESSION.) 9 CHAIRMAN CLOWE: The Texas Lottery 10 Commission is out of executive session. The time is 11 1:28 p.m. Is there any action to be taken as a result 12 of the Executive Session? 13 If not, we'll move back to the agenda, 14 and I think, Mr. Atkins, you had a piece of 15 information you were going to report to the 16 Commissioners. 17 MR. ATKINS: Thank you, Mr. Chairman. 18 You had asked earlier, you and 19 Commissioner Cox had asked earlier for the number of 20 accounting units that we had, and the number of 21 organizations associated with those units. We have 62 22 active units representing or comprised of 280 23 organizations, out of a total number of 1,266 24 organizations licensed to conduct bingo. 25 COMMISSIONER COX: So about 20 percent. 0120 1 And how many groups was it? 2 MR. ATKINS: 62. 3 COMMISSIONER COX: So you've turned 250 4 into 62. Cut it by 75 percent. Or was it 250? 5 MR. ATKINS: It was 280 organizations. 6 COMMISSIONER COX: 280, and you turned 7 that into that small a number. Okay. 8 CHAIRMAN CLOWE: So there has been a 9 beneficial result. 10 COMMISSIONER COX: Would you consider 11 that beneficial? 12 MR. ATKINS: The -- the organizations 13 have reported to us that they find their -- their 14 operations much more streamlined when formed as a 15 unit. We have not completed any type of actual 16 analysis on halls where units are formed as opposed to 17 halls without units. 18 COMMISSIONER COX: Well, it ostensibly 19 would reduce the number of pieces of paper you're 20 handling, is that -- 21 MR. ATKINS: That's correct. 22 CHAIRMAN CLOWE: And it should reduce 23 their expenses. 24 MR. ATKINS: That's correct. 25 CHAIRMAN CLOWE: Very good. Anything 0121 1 further? 2 COMMISSIONER COX: No, sir. 3 CHAIRMAN CLOWE: Is there anything 4 further to come before the Commission? 5 I would like to tell you that I will be 6 unavailable this next week through Tuesday, the 15th. 7 It will be very difficult to reach me by phone, and so 8 if you will just be aware of that and understand that 9 if I don't answer my calls or -- my cell phone, I'm 10 not avoiding you, I'm out of the country. 11 COMMISSIONER COX: I see. Are you 12 going to Paraguay? 13 CHAIRMAN CLOWE: I'm going to 14 Argentina. 15 I think we have concluded our meeting. 16 We are adjourned. Thank you all very much. 17 18 19 20 21 22 23 24 25 0122 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, BRENDA J. WRIGHT, Certified Shorthand 7 Reporter for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing 9 before the TEXAS LOTTERY COMMISSION as hereinafter set 10 out, that I did, in shorthand, report said 11 proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 Witness my hand on this the 11TH day of 16 AUGUST, 2006. 17 18 19 BRENDA J. WRIGHT, RPR, 20 Texas CSR No. 1780 Expiration Date: 12-31-06 21 WRIGHT WATSON & ASSOCIATES Registration No. 225 22 Expiration Date: 12-31-07 1801 N. Lamar Boulevard 23 Mezzanine Level Austin, Texas 78701 24 (512) 474-4363 25 JOB NO. 060802BJW