0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 REGULAR MEETING OF THE § TEXAS LOTTERY COMMISSION § 6 WEDNESDAY, SEPTEMBER 19, 2007 § 7 8 COMMISSION MEETING 9 WEDNESDAY, SEPTEMBER 19, 2007 10 11 BE IT REMEMBERED THAT on Wednesday, 12 the 19th day of September 2007, the Texas Lottery 13 Commission meeting was held from 9:00 a.m. to 14 p.m., at the Offices of the Texas Lottery 15 Commission, 611 East 6th Street, Austin, Texas 78701, 16 before CHAIRMAN JAMES A. COX, JR., and COMMISSIONER C. 17 TOM CLOWE, JR. The following proceedings were 18 reported via machine shorthand by Aloma J. Kennedy, a 19 Certified Shorthand Reporter of the State of Texas, 20 and the following proceedings were had: 21 22 23 24 25 0002 1 APPEARANCES 2 CHAIRMAN: 3 Mr. James A. Cox, Jr. 4 COMMISSIONER: Mr. C. Tom Clowe, Jr. 5 GENERAL COUNSEL: 6 Ms. Kimberly L. Kiplin 7 EXECUTIVE DIRECTOR: Mr. Anthony J. Sadberry 8 CHARITABLE BINGO ASSISTANT DIRECTOR: 9 Mr. Philip D. Sanderson 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS 2 PAGE NO. 3 AGENDA ITEM NO. I - Meeting Called to Order... 9 4 AGENDA ITEM NO. II - Consideration of and possible discussion and/or action on 5 nominations and appointment to the Bingo Advisory Committee............................ 9 6 AGENDA ITEM NO. III - Report, possible 7 discussion and/or action on the implementation of recommendations contained 8 in the Internal Audit Report on bingo audit services, including development of rules...... 12 9 AGENDA ITEM NO. IV - Report, possible 10 discussion and/or action on 2nd quarter calendar year 2007 bingo conductor 11 information................................... 16 12 AGENDA ITEM NO. V - Consideration of and possible discussion and/or action, 13 including adoption of repeal, on 16 TAC §402.500 relating to General Audit............ 20/149 14 AGENDA ITEM NO. VI - Consideration of and 15 possible discussion and/or action, including adoption, on new 16 TAC §402.715 16 relating to Compliance Audit.................. 20/149 17 AGENDA ITEM NO. VII - Consideration of and possible discussion and/or action, including 18 adoption, on new 16 TAC §402.708 relating to Dispute Resolution............................ 43 19 AGENDA ITEM NO. VIII - Consideration of and 20 possible discussion and/or action, including proposal, on new 16 TAC §402.211 relating to 21 Fair Conduct.................................. 67 22 AGENDA ITEM NO. IX - Consideration of and possible discussion and/or action, including 23 proposal, on new 16 TAC §402.210 relating to House Rules.................................. 69 24 25 0004 1 TABLE OF CONTENTS (continued) 2 PAGE NO. 3 AGENDA ITEM NO. X - Consideration of and possible discussion and/or action, 4 including proposal, on new 16 TAC §402.709 relating to Corrective 5 Action-Audit.................................. 70 6 AGENDA ITEM NO. XI - Report, possible discussion and/or action on Internal 7 Control Guidelines for licensed authorized organizations...................... 72 8 AGENDA ITEM NO. XII - Report, possible (item 9 discussion and/or action on Conductor- passed) Books and Records Guidelines.................. 68/76 10 AGENDA ITEM NO. XIII - Consideration of and 11 possible discussion and/or action, including proposal, on the agency’s rule review of 12 16 TAC Chapter 402 relating to charitable bingo administrative rules.................... 77 13 AGENDA ITEM NO. XIV - Report by the 14 Charitable Bingo Operations Director and possible discussion and/or action on the 15 Charitable Bingo Operations Division's activities.................................... 79 16 AGENDA ITEM NO. XV - Report, possible 17 discussion and/or action on lottery sales and revenue, game performance, new game 18 opportunities, market research, and trends.... 80 19 AGENDA ITEM NO. XVI - Report, possible discussion and/or action on transfers 20 to the State.................................. 117 21 AGENDA ITEM NO. XVII - Report, possible discussion and/or action on Request for 22 additional FY 2008 Rider 2 Capital Budget Authority.............................. 118 23 AGENDA ITEM NO. XVIII - Report, possible 24 discussion and/or action on Bingo indirect and administrative expenses................... 120 25 0005 1 TABLE OF CONTENTS (continued) 2 PAGE NO. 3 AGENDA ITEM NO. XIX - Report, possible discussion and/or action on the 80th 4 Legislature................................... 65 5 AGENDA ITEM NO. XX - Report, possible discussion and/or action on the 6 amendment to the agency’s lottery operations and services contract.............. 122 7 AGENDA ITEM NO. XXI - Report, possible 8 discussion and/or action on the agency’s contracts............................ 123 9 AGENDA ITEM NO. XXII - Report and possible 10 discussion and/or action on the agency's HUB program and/or minority business 11 participation, including the agency's Mentor Protégé Program....................... 124 12 AGENDA ITEM NO. XXIII - Consideration of 13 and possible discussion and/or action, including proposal of repeal, on 16 TAC 14 §403.402 relating to Exemption of Vehicle Inscription Requirements.............. 125 15 AGENDA ITEM NO. XXIV - Consideration of and 16 possible discussion and/or action, including proposal, on amendments to 16 TAC 17 §403.101 relating to Open Records............. 129 18 AGENDA ITEM NO. XXV - Consideration of and possible discussion and/or action, 19 including proposal, on amendments to 16 TAC §403.301 relating to Historically 20 Underutilized Businesses...................... 131 21 22 23 24 25 0006 1 TABLE OF CONTENTS (continued) 2 PAGE NO. 3 AGENDA ITEM NO. XXVI - Consideration of and possible discussion and/or action, 4 including proposal, on amendments to 16 TAC §401.301 relating to General 5 Definition, 16 TAC §401.304 relating to On-Line Game Rules (General), 16 TAC 6 §401.305 relating to “Lotto Texas” On-Line Game Rule, 16 TAC §401.307 7 relating to “Pick 3” On-Line Game Rule, 16 TAC §401.308 relating to “Cash Five” 8 On-line Game, 16 TAC §401.312 relating to “Texas Two Step” On-line Game, 16 TAC 9 §401.315 relating to “Mega Millions” On-Line Game Rule, and/or 16 TAC §401.316 10 relating to “Daily 4” On-Line Game Rule....... 133 11 AGENDA ITEM NO. XXVII - Consideration of and possible discussion and/or action, 12 including proposal, on the agency’s rule review of 16 TAC Chapter 401 relating to 13 the administration of the State Lottery Act... 135 14 AGENDA ITEM NO. XXVIII - Consideration of and possible discussion and/or action, 15 including approval of the FY 2008 Internal Audit Activity Plan, on external and 16 internal audits and/or reviews relating to the Texas Lottery Commission and/or on the 17 Internal Audit Department’s activities........ 136 18 AGENDA ITEM NO. XXIX - Report, possible discussion and/or action on the Mega 19 Millions game and/or contract................. 143 20 AGENDA ITEM NO. XXX - Report, possible discussion and/or action on GTECH 21 Corporation................................... 144 22 23 24 25 0007 1 TABLE OF CONTENTS (continued) 2 PAGE NO. 3 AGENDA ITEM NO. XXXI - Consideration of the status and possible entry of orders in: 4 A. Docket No. 362-07-3447 – Refugio 5 Exxon B. Docket No. 362-07-3346 – Times 6 Market #1954 C. Case No. 2007-929 – Diamond Food 7 Mart #3............................... 145 8 AGENDA ITEM NO. XXXII - Report by the Executive Director and/or possible 9 discussion and/or action on the agency’s operational status, activities relating 10 to the Charitable Bingo Operations Division, agency procedures, and FTE status... 146 11 AGENDA ITEM NO. XXXIII - Public comment...... 147 12 AGENDA ITEM NO. XXXIV - Commission may 13 meet in Executive Session: A. To deliberate the duties and 14 evaluation of the Executive Director pursuant to Section 15 551.074 of the Texas Government Code 16 B. To deliberate the duties and evaluation of the Deputy 17 Executive Director pursuant to Section 551.074 of the Texas 18 Government Code. C. To deliberate the duties and 19 evaluation of the Internal Audit Director pursuant to 20 Section 551.074 of the Texas Government Code. 21 D. To deliberate the duties and evaluation of the Charitable 22 Bingo Operations Director pursuant to Section 551.074 of 23 the Texas Government Code. E. To deliberate the duties of the 24 General Counsel pursuant to Section 551.074 of the Texas 25 Government Code. 0008 1 TABLE OF CONTENTS (continued) 2 PAGE NO. F. To receive legal advice regarding 3 pending or contemplated litigation pursuant to Section 551.071(1)(A) 4 and/or to receive legal advice regarding settlement offers pursuant 5 to Section 551.071(1)(B) of the Texas Government Code and/or to 6 receive legal advice pursuant to Section 551.071(2) of the Texas 7 Government Code, including but not limited to: 8 Cynthia Suarez v. Texas Lottery Commission 9 Shelton Charles v. Texas Lottery and Gary Grief 10 First State Bank of DeQueen et al. v. Texas Lottery 11 Commission James T. Jongebloed v. Texas 12 Lottery Commission Employment law, personnel law, 13 procurement and contract law, evidentiary and procedural law, 14 and general government law Lottery Operations and Services 15 contract Mega Millions game and/or 16 contract......................... 147 17 AGENDA ITEM NO. XXXV - Return to open session for further deliberation and 18 possible action on any matter discussed in Executive Session.......................... 149 19 AGENDA ITEM NO. XXXVI - Adjournment........... 153 20 REPORTER'S CERTIFICATE........................ 155 21 22 23 24 25 0009 1 P R O C E E D I N G S 2 WEDNESDAY, SEPTEMBER 19, 2007 3 (9:00 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN COX: Good morning. It's 6 9 o'clock. Today is Wednesday, September 19, 2007. 7 Commissioner Clowe is here. I'm Jim Cox. Let's call 8 this meeting of the Texas Lottery Commission to order. 9 AGENDA ITEM NO. II 10 CHAIRMAN COX: Item No. II, 11 consideration of and possible discussion and/or action 12 on nominations and appointment to the Bingo Advisory 13 Committee. 14 Mr. Sanderson. 15 MR. SANDERSON: Good morning 16 Commissioners. For the record, Phil Sanderson, 17 Director of the Charitable Bingo Operations Division. 18 In your notebook is Staff's 19 recommendation for the two remaining vacancies on the 20 BAC. I believe each of you have interviewed these 21 nominees individually. And Staff is now ready to 22 recommend Earl Silver be appointed to fill the 23 commercial lessor position and Pat Gifford to fill the 24 general public position. 25 COMMISSIONER CLOWE: No comment. 0010 1 CHAIRMAN COX: I have no comments 2 either. 3 COMMISSIONER CLOWE: Move the adoption 4 of the staff recommendation. 5 CHAIRMAN COX: Second. 6 All in favor, say "Aye. 7 COMMISSIONER CLOWE: Aye. 8 CHAIRMAN COX: Aye. 9 Motion passes 2-0. 10 MR. SANDERSON: Commissioners, as we've 11 extended an invitation to Ms. Gifford and Mr. Silver 12 to be in attendance today, I believe Mr. Silver is 13 here. And if he would like to come up and say 14 anything or if you have any questions for him, Earl 15 Silver. 16 CHAIRMAN COX: Mr. Silver, would you 17 like to come up and say anything? 18 MR. SILVER: My name is Earl Silver. I 19 would just like to thank you for your consideration. 20 And I hope to do charitable bingo good things while 21 I'm on the BAC, and I look forward to working with 22 other members of the BAC. And I would like to thank 23 you again. 24 COMMISSIONER CLOWE: And you'll 25 remember everything that Chairman Cox and I told you, 0011 1 won't you? 2 MR. SILVER: Yes, sir. 3 COMMISSIONER CLOWE: Okay. 4 MR. SILVER: Everything. 5 COMMISSIONER CLOWE: You won't 6 necessarily do what we recommended but you will 7 remember what -- 8 MR. SILVER: I will remember. 9 COMMISSIONER CLOWE: Okay. 10 CHAIRMAN COX: And I will refresh 11 myself on Robert's Rules of Order. 12 COMMISSIONER CLOWE: We gave you the 13 best advice we could. 14 MR. SILVER: Yes, sir. Thank you. 15 COMMISSIONER CLOWE: Thank you. 16 CHAIRMAN COX: Thank you very much for 17 being willing to serve. 18 MS. KIPLIN: Mr. Silver, in the back 19 there will be witness affirmation forms. Before you 20 leave, can I get you to complete one, just so we have 21 it for the record? 22 MR. SILVER: Yes, ma'am. 23 MS. KIPLIN: Thank you. 24 25 0012 1 AGENDA ITEM NO. III 2 CHAIRMAN COX: Item No. III, report, 3 possible discussion and/or action on the 4 implementation of recommendations contained in the 5 Internal Audit Report on bingo audit services, 6 including development of rules. 7 Mr. Sanderson. 8 MR. SANDERSON: Commissioners, in your 9 notebook is an updated Gantt chart as well as an 10 updated status of Management Actions Report which was 11 provided to the Licensing and Administrative 12 Procedures Committee last week. We are a little 13 behind, based on the revised timeline of 14 implementation, primarily due to rule development and 15 the rulemaking process, but we're still ahead of the 16 original timeline. 17 As you can see, there are several 18 agenda items relating to rulemaking today, and these 19 rules are a direct result of the recommendations from 20 Internal Audit. And with that, I would like to 21 express my appreciation and thanks and recognize Sandy 22 Joseph and Tamra Fowler in the Legal Services Division 23 as well as the Bingo audit staff and the Internal 24 Audit staff for their dedicated work on all of these 25 rule developments. 0013 1 I believe we're very close to 2 addressing the recommendations contained within the 3 Internal Audit Report. And I will be meeting with the 4 Internal Auditor, Ms. Melvin, between now and the next 5 Commission meeting to discuss our progress on the 6 implementation. 7 COMMISSIONER CLOWE: Mr. Sanderson, 8 it's good to have this progress report. But I would 9 like to ask you over and above what you've said, are 10 you confident that the work that's being done and that 11 you're reporting on this morning is going to preclude 12 a reoccurrence of the kind of problems that the audit 13 discovered initially and you sought to correct in the 14 Charitable Bingo Division for the future? 15 MR. SANDERSON: Yes, sir, I believe it 16 will. The rule development and the guidelines that 17 we're coming out with will provide clear and concise 18 guidance to the organizations. The regulatory 19 objective that was adopted just a little over a year 20 ago is our driving force in being fair and consistent 21 with the taxpayers. 22 The audit aspect of it, we've acquired 23 TeamMate as a workpaper repository to do the audits 24 with. That's being installed on the computers right 25 now, and all the auditors have attended training for 0014 1 TeamMate. 2 And we have performed several audits 3 over the last six to months using the new guidelines 4 for the audit standards and the GAGAS standards. And 5 those audits are coming to a finalization, and the 6 workpapers are a lot more precise and clear and 7 provide the evidence needed to cite the findings. 8 COMMISSIONER CLOWE: Okay. My question 9 does go to that issue, not so much are the guidelines 10 right and are the procedures set out correctly. But, 11 in fact, in the field, are the audits being conducted 12 properly? Are they consistent? Are they following 13 the rules and the law and are they fair? 14 MR. SANDERSON: Yes, sir. The ones 15 that I've reviewed and had an opportunity to see some 16 of the draft reports, I believe they are, yes, sir. 17 COMMISSIONER CLOWE: I'm sure it's 18 Chairman Cox's hope -- and it's certainly mine -- that 19 we never find ourselves in the situation that we 20 developed through the audit that was originally 21 offered up about these problems. We want to stay 22 clear of that kind of activity in the future. 23 MR. SANDERSON: Yes, sir. 24 CHAIRMAN COX: Absolutely. 25 Phil, I've got a lot of pages here and 0015 1 it's a very nice schedule, but I would like for you to 2 bring into sharp focus for me where we've slipped. 3 MR. SANDERSON: We have slipped in 4 primarily the rule development. We had the majority 5 of the rules and the guidelines ready, based on the 6 July timeline. Then we met with industry 7 representatives, and there were some modifications and 8 changes to those rules. One of the rules, which will 9 now be a guideline, is the books and records rule. 10 We're still working on making some minor changes to 11 that guideline and will bring that to you at the next 12 Commission meeting. 13 The other potential slippage as it 14 relates to the revised timetable was the 15 restructuring. And we've had some job description and 16 reclassifications that we're finalizing prior to 17 releasing that restructure. 18 CHAIRMAN COX: Okay. Now, one of the 19 things I asked you to do when you took this position 20 was to get a little more ambitious with the schedule, 21 and you did that. And what I think I heard you say 22 was that you have slipped a couple of places on the 23 new schedule but you're still ahead of the original 24 schedule? 25 MR. SANDERSON: Yes, sir. 0016 1 CHAIRMAN COX: Okay. Thank you. 2 AGENDA ITEM NO. IV 3 CHAIRMAN COX: Item IV, report, 4 possible discussion and/or action on 2nd quarter 5 Calendar Year 2007 bingo conductor information. 6 Ms. Shankle. 7 MS. SHANKLE: Good morning, 8 Commissioners. For the record, my name is Terry 9 Shankle. 10 The presentation this morning contains 11 financial information reported by our licensed 12 authorized organizations for the 2nd quarter of 2007. 13 I would like to thank Susan Beasley of the Office of 14 the Controller for preparing the statistical 15 information that was prepared and included in your 16 notebook. 17 This gross receipts and prizes graph 18 shows for the 2nd quarter of 2007 regular and 19 electronic card sales totaling $95.4 million. Of 20 that, $73.7 million were for prizes awarded, which 21 equates to 77.2 percent of regular and electronic 22 sales. 23 Instant pull-tab sales were 24 $67.3 million, with prizes being paid out of 25 $49 million, or 72.9 percent of pull-tab sales. 0017 1 As shown on this cash disbursements 2 graph, rent payments were just over $9.7 million. And 3 salaries for callers, cashiers and ushers were just 4 under $9.7 million. And we're 24.3 and 24.2 percent 5 of net receipts. 6 Organizations reported paying 7 $8.6 million in charitable distributions, which is 8 $5.2 million more than what was required. As reported 9 to you in previous quarters, charitable distributions 10 consistently have been two to three times more than 11 what their required amount is, the amount that was 12 required. 13 This pie chart shows expenses as a 14 percentage of total expenses but does not include 15 charitable distributions. Comparing each category of 16 expense, salaries represent 42 percent of total 17 expenses. When rent payments are included with 18 salaries, the two categories make up 70 percent of 19 total expenses. 20 The pie chart, gross receipts by type, 21 reflects the three different products that make up 22 gross receipts. Again, this quarter pull-tab sales 23 outperformed regular card sales by $10.7 million. 24 The average number of players by 25 occasion compares to the 2nd quarters of 2005, 2006 0018 1 and 2007. The average number of players per occasion 2 decreased by 3 percent in the 2nd quarter of 2007 from 3 the same quarter in 2006. 4 From 2003 to 2007, the 2nd quarter 5 pull-tab net receipts showed a continual increase. 6 And as reported to you last quarter, the increases are 7 becoming much smaller. 8 Regular bingo net receipts, as shown by 9 the red line, are down approximately $233,000 for the 10 2nd quarter of 2006. Net receipts, indicated by the 11 green line, are up one million when compared to the 12 same quarter of 2006. 13 As shown on this prize payout 14 percentage chart, regular bingo payout percentages 15 dropped slightly, while pull-tab percentage payouts 16 slightly increased. 17 Commissioners, that concludes my 18 updated 2nd quarter 2007 financial information. Thank 19 you. 20 CHAIRMAN COX: Terry, I'm looking at 21 that last slide. Let's look at the first slide. 22 Okay. Those are the same percentages. Now, there was 23 a time when the prize payout percentage was higher on 24 pull-tabs, I believe, than it was on regular bingo. 25 MS. SHANKLE: That is correct. 0019 1 CHAIRMAN COX: And I think you 2 explained that to us last time as the prize structure 3 remaining generally the same while receipts were 4 falling? 5 MS. SHANKLE: Correct. 6 CHAIRMAN COX: And does that continue 7 to be the case? 8 MS. SHANKLE: Yes, sir, it does. If 9 you will -- 10 CHAIRMAN COX: Although I think we saw 11 a little bit of a decline in the prize payout 12 percentage on the regular and electronic on the last 13 slide that you showed. 14 MS. SHANKLE: For the 2nd quarter -- 15 and I'll just compare the 2nd quarter of 2006 to the 16 2nd quarter of 2007. 17 CHAIRMAN COX: Sure. 18 MS. SHANKLE: For the gross receipts in 19 2006 were 160.1. 20 CHAIRMAN COX: I'm asking just about 21 the percentage, Terry. 22 MS. SHANKLE: Okay. It increased to 23 1.7 -- well, that's cumulative. 24 CHAIRMAN COX: Just go to your last 25 slide. There. 0020 1 MS. SHANKLE: There we go. 2 CHAIRMAN COX: Okay. So it's gone from 3 77.6 down to 77.2. And that's probably too small a 4 change to account for, but at least the trend is in 5 the right direction. 6 Okay. Thank you, Terry. 7 AGENDA ITEM NOS. V AND VI 8 CHAIRMAN COX: Item V -- and we'll take 9 Item V and Item VI together. Item V is consideration 10 of and possible discussion and/or action, including 11 adoption of repeal, on 16 TAC 402.500 relating to 12 General Audit. 13 And Item VI is consideration of and 14 possible discussion and/or action, including adoption, 15 on new 16 TAC 402.715 relating to Compliance Audit. 16 Ms. Joseph. 17 MS. JOSEPH: Good morning, 18 Commissioners. For the record, my name is Sandra 19 Joseph, Assistant General Counsel. 20 Before you are draft rules prepared for 21 submission to the Texas Register in order to repeal 22 existing 16 TAC §402.500 regarding General Audit and 23 adopt new 16 TAC §402.715 entitled Compliance Audit. 24 CHAIRMAN COX: Okay. Now, Sandy, let 25 me interrupt you right there. What I see here is that 0021 1 we're replacing one section, a rule pursuant to one 2 section with another rule pursuant to another section, 3 and they have different names. 4 MS. JOSEPH: That's correct. 5 CHAIRMAN COX: You're going to clear 6 that up for us? 7 MS. JOSEPH: Well, the new rule was 8 given a different title to more clearly indicate what 9 the rule pertains to. 10 CHAIRMAN COX: Okay. 11 MS. JOSEPH: However, the new rule does 12 cover matters that were covered by the existing rule. 13 CHAIRMAN COX: Okay. And is it 14 important that one of them is under a different 15 subsection of 16 TAC 402 than the other? 16 MS. JOSEPH: That indicates that the 17 rule will be at a different location in the rules. It 18 was given a different number to fit in more naturally 19 with the rules around it. 20 CHAIRMAN COX: Okay. So in effect, 21 402.500 is going away and it's being replaced by 22 402.715? 23 MS. JOSEPH: That's correct. 24 CHAIRMAN COX: Thank you. 25 MS. JOSEPH: These rules were published 0022 1 in Texas Register on August 10, 2007. The new rule 2 provides clarification and guidance to licensees 3 regarding the audit process. It's written in plain 4 language in a question and answer format. 5 One member of the public representing 6 the Bingo Interest Group appeared at the public 7 hearing and commented generally in favor of the repeal 8 and adoption of the new rule. The commenter made some 9 suggested changes which the Staff has considered and, 10 accordingly, made some but not all suggested changes 11 to the proposed rule. No written comments were 12 received. 13 The suggestions that were not accepted 14 are as follows: 15 First of all, the commenter suggested 16 at Subsection (a)(1) adding the word "alleged" before 17 the word "non-compliance," because the audit finding 18 at that point is an alleged instance of non- 19 compliance. The Staff disagreed with adding the word 20 "alleged" but has added language to clarify that an 21 audit finding is a statement of an instance of non- 22 compliance with the Act or Rules that may or may not 23 be a final determination of a violation. 24 At Subsections (m) and (r), the 25 commenter suggested that the phrase, quote, "required 0023 1 to attend" would tie the hands of the agency as well 2 as the licensees and that the language "may be 3 required to attend" should be used. The Staff 4 disagrees. Subsection (m)(1) and (r) are intended to 5 put certain individuals on notice as to the 6 requirements and responsibilities of their respective 7 positions within the organization as it relates to the 8 conduct of bingo. 9 At Subsection (s), the commenter 10 suggested that, quote, "20 work days" be substituted 11 for "10 calendar days." The Staff disagreed and 12 thinks that 10 calendar days is sufficient time for a 13 licensee to make the internal decision to request a 14 meeting with the audit manager. 15 Staff recommends that the Commission 16 adopt repeal of 16 TAC §402.500 and adopt new 16 TAC 17 §402.715. 18 COMMISSIONER CLOWE: Mr. Chairman, I 19 wonder about 10 working days. What's your reaction? 20 Is that time enough? 21 CHAIRMAN COX: I drew a line beside it. 22 COMMISSIONER CLOWE: You know, as a 23 sense of fairness to these organizations, it seems 24 like 20 calendar days might give them more time 25 certainly but adequate time to react to it. 0024 1 CHAIRMAN COX: And I tend to favor 2 working days. 3 COMMISSIONER CLOWE: Do you? 4 CHAIRMAN COX: I think that, you know, 5 holidays can come in there. 6 COMMISSIONER CLOWE: That's true. 7 CHAIRMAN COX: You know, 10 calendar 8 days can be only four or five business days in the 9 worst circumstances. 10 COMMISSIONER CLOWE: It could be. I'm 11 in favor of expanding that. What would your thoughts 12 be? 13 CHAIRMAN COX: Mr. Bresnen wants to 14 testify on this. And that was the point that he 15 raised, so maybe we should hear Mr. Bresnen. 16 COMMISSIONER CLOWE: Well, we certainly 17 should. 18 MS. KIPLIN: Well, Commissioners, 19 before you do that, I need to advise you that the 20 comment period is over. If you receive comment that 21 is dissimilar -- I'm not sure it is. Sounds to me 22 like it might be the same -- it will necessarily 23 require the Staff to revisit whether we're going to 24 need to summarize that comment and then address that 25 comment in its preamble. It's your call. But -- 0025 1 CHAIRMAN COX: Well, both of us have a 2 concern that 10 calendar days is not long enough. And 3 so why don't we let -- let's hear what Mr. Bresnen has 4 to say and deal with it. 5 MS. KIPLIN: And that's within your 6 prerogative. I will say that we set out a comment 7 period, make it clear to the public this is the 8 comment period for you to get your comment in to be 9 considered. But it's up to the Commission on how you 10 want to handle it. 11 COMMISSIONER CLOWE: Any comment on it, 12 Sandy? 13 MS. JOSEPH: Mr. Bresnen did comment on 14 this issue during the comment period. 15 COMMISSIONER CLOWE: It's in the 16 record. 17 MS. JOSEPH: So I believe it would be 18 appropriate for him to -- 19 COMMISSIONER CLOWE: As long as he 20 stays within those comments and doesn't get expansive, 21 it doesn't hurt the record. 22 MS. KIPLIN: No. And that's really 23 what I'm trying to just protect, is the record. 24 COMMISSIONER CLOWE: I think you made 25 us all aware of that point, and it's a good one. 0026 1 CHAIRMAN COX: Mr. Bresnen. 2 COMMISSIONER CLOWE: Can you be 3 something other than expansive, Mr. Bresnen? 4 MR. BRESNEN: My God, it will be a 5 challenge, but I'll do my best. 6 COMMISSIONER CLOWE: I knew it would 7 be. I knew you could do it with (laughter) 8 MR. BRESNEN: I just want to say, 9 Mr. Chairman, it's good to see you here and looking so 10 chipper after the Austin City Limits music festival 11 the other day. Everybody has recovered from the 12 experience. 13 CHAIRMAN COX: Were you there? 14 COMMISSIONER CLOWE: Was that the one 15 that the fire took place? 16 MR. BRESNEN: Yes, sir; yes, sir. I 17 can report that the vast majority of the people didn't 18 move an inch from their chairs and stayed doing what 19 they were doing while the fire raged. 20 CHAIRMAN COX: You were there? 21 MR. BRESNEN: Typical music festival. 22 Thanks for allowing me to speak today 23 and not comment further on -- I would like to reup a 24 couple of comments that we made during the comment 25 period. But before that, I would like to say 0027 1 something y'all probably don't hear very often. But 2 thanks for putting these bingo items early in the 3 agenda and addressing them early. It sure makes it 4 easier for everybody in the industry. I really 5 appreciate that. It's been a while I think since 6 y'all made that change, and I don't know if anybody 7 every thanked you. And I do appreciate that. 8 I also want to thank the Staff, because 9 they've really been working great with us on these 10 rules. We're probably somewhat to blame for a little 11 slippage in the schedule in here, but it's a 12 reflection of the Staff's working with the industry 13 and listening and making changes as appropriate. So I 14 want to make sure that they get recognized for that. 15 Speaking about the compliance audit 16 rule, we understand the repeal of the general audit 17 rule, and we'll supportive of that, the reorganization 18 of the rules. And I think we stated as such in our 19 comments at the public hearing. 20 We had a couple of comments regarding 21 the compliance audit rule. If I could just address 22 the time period first. The Staff proposed 10 calendar 23 days. We suggested 20 calendar days. If there is a 24 compromise in there that gives more time than 10 25 working days and less than 20 calendar days, that 0028 1 works for us. It's been suggested to me that working 2 days are probably a better measure. And somewhere 3 around 15 working days would work for the industry. 4 MS. JOSEPH: Excuse me just a minute. 5 CHAIRMAN COX: This indicates -- the 6 record I have here indicates that you suggested 20 7 work days could be substituted for 10 calendar days. 8 MR. BRESNEN: My recollection may be 9 faulty, Mr. Chairman. Okay. I stand corrected. 10 Well, we would support a compromise somewhere between 11 the two. That's the bottom line for what I'm here to 12 tell you today. We think we need more time than 10 13 working days, as we suggested in our earlier comment. 14 CHAIRMAN COX: More time than 10 15 calendar days? 16 MR. BRESNEN: More than 10 calendar 17 days, yes, sir. 18 CHAIRMAN COX: Yes. 19 MR. BRESNEN: Secondly, it may be -- 20 Sandy and I talked about this a little earlier -- but 21 it seems clear to me that between the provisions of 22 the Bingo Enabling Act, the rules and the 23 Administrative Procedures Act, that when a letter is 24 sent out about non-compliance, then it's essentially 25 an allegation, because there's a subsequent 0029 1 opportunity, through meetings or the SOAH process, to 2 come forward with evidence and argue your point. 3 That's the reason we wanted the word "alleged" to be 4 put in, to make it clear when somebody received a 5 letter, that it was alleged non-compliance. Now, my 6 limits in the administrative law area may have been 7 met, because Sandy has explained to me that the 8 language that they've added I think has that net 9 effect. Is that -- 10 MS. JOSEPH: Yes, I believe so. Yes. 11 MR. BRESNEN: My only concern about 12 that is that the non-lawyers out there who receive 13 these letters may not understand that this is in the 14 nature of an allegation. That's probably not the 15 biggest concern in the world, but it would probably 16 help clarify the rule. 17 More importantly, though, was our 18 comment on who may be required to attend. If you'll 19 look at the rule on Page -- the version I have, it's 20 Page 7 in the proposal -- starting at Line 6. It 21 should say, Subdivision (m), "Who attends the entrance 22 conference? 23 "(1) The following individuals from 24 the organization are required to attend the entrance 25 conference: 0030 1 "(A) Bingo chairperson; 2 "(B) Primary operator; and 3 "(C) Unit manager or designated 4 agent, if applicable." 5 CHAIRMAN COX: Mr. Bresnen, excuse me. 6 MR. BRESNEN: Yes. 7 CHAIRMAN COX: Did you comment on this 8 originally? 9 MR. BRESNEN: Yes, sir. 10 CHAIRMAN COX: I didn't remember that 11 from -- 12 MR. BRESNEN: In the preamble material, 13 it's on Page 2, Mr. Chairman, starting at Line 14, 14 lines 14 through 19. 15 CHAIRMAN COX: Thank you. 16 MR. BRESNEN: And then also down at 17 Line 20 and 21 on that page and the top two lines on 18 Page 3. 19 CHAIRMAN COX: Yes. Thank you. 20 MR. BRESNEN: Here was our thinking: 21 We would like for the rule to say, "The following 22 individuals from the organization may be required to 23 attend." There are instances that -- there is a 24 reoccurring theme in all of our rule discussions where 25 the Staff believes -- and I think with some merit -- 0031 1 that some people that should be more involved and more 2 on top of their bingo operations are not doing so. 3 And so when these instances of audit exceptions come 4 up and people are notified, then they say, "Well, we 5 didn't know," or they get way down in the process and 6 the hammer is about to fall and they say, "Well, we 7 didn't know." 8 Our position on that is, they're 9 required by law to know. Whether they like it or not, 10 they're required by law to know. If I get a bank 11 statement and I keep writing checks and the bank 12 statement says I don't have any money and I bounce the 13 checks, I can't go down to the bank and say, "Well, I 14 didn't read the bank statement." So we think they are 15 required to know. 16 Now, we think there are also people who 17 scoff laws and are not nearly as diligent as they 18 ought to be out there, but we also think they're good 19 operators. So we would like to have the agency to 20 have the discretion -- and this was our comment -- to 21 say "The following individuals may be required to 22 attend." That would give Mr. Sanderson or the Audit 23 Manager the ability to say, "I work with this 24 organization. They do a good job. They come with 25 their records. We've got an audit exception here, but 0032 1 they're not trying to hide the ball," and you get an 2 appropriate person who can act on behalf the agency to 3 come to that meeting. 4 On the other hand, if you've got a bad 5 actor or somebody who is just so deeply in the ditch 6 that they shouldn't have a driver's license, then you 7 may want to make everybody come in. It's important to 8 remember that if one of these people doesn't show up, 9 they've violated the rule. That's a separate 10 violation from the audit violation, the cause for the 11 entrance conference to be needed to begin with. 12 And secondly - or thirdly -- fourthly, 13 I think it causes a problem in the unit situation, 14 because if it's the unit that has a -- the unit is 15 being audited, there is a bingo chairperson for every 16 charity in the unit and a primary operator for every 17 charity in the unit. There is only one unit manager. 18 Under this rule, all those people have to attend. If 19 it said "may be required to attend," then you could 20 select out those people who could come and work out 21 the problem with the agency and act on behalf of the 22 charity. 23 I think I've stayed within the nature 24 of my comments before, and we would ask y'all for a 25 little relief on that. I put "Against the rule" on my 0033 1 witness affirmation form, because we would like to see 2 those changes made. Obviously, we understand the need 3 to have an audit rule, and this compliance audit rule 4 is a much improved approach over the other one. So if 5 you'll take my comments in that light, I'll appreciate 6 it. 7 CHAIRMAN COX: Thank you, Mr. Bresnen. 8 COMMISSIONER CLOWE: I would like to 9 hear Ms. Joseph's response -- 10 CHAIRMAN COX: Okay. 11 COMMISSIONER CLOWE: -- to the item 12 about requiring as opposed to may be required comment 13 that Mr. Bresnen made. 14 MS. JOSEPH: All right. We discussed 15 that comment with Mr. Sanderson at the time that we 16 received it. And Mr. Sanderson at that time felt it 17 was important to require these people. I would like 18 to let him comment on that any further. 19 MR. SANDERSON: One of the reasons that 20 we included the words "required" and chose those 21 particular individuals to be the ones that were 22 required to attend did result from, as Mr. Bresnen 23 indicated, that we would like the organizations and 24 the individuals that they're designated in those 25 capacities to understand what their responsibilities 0034 1 are as it relates to the bingo activities and, in this 2 case, an audit being conducted on their operation, 3 that certain individuals will be required to attend 4 the entrance conference, the exit conference, and they 5 will be the ones that we contact throughout the audit 6 process and keep them updated on where the audit may 7 be heading or potential violations or findings that 8 may be coming up. 9 And when I heard the comment at the 10 public comment hearing, I may not have gleaned on to 11 the thought that the Commission may require certain 12 individuals. I was thinking he was commenting more on 13 that these individuals may attend the entrance 14 conference or the exit conference. 15 There are potentially certain 16 situations where we would like to have more than just 17 those certain individuals attend an entrance or an 18 exit conference, more particularly an exit conference. 19 If there's some violations or findings that are very 20 serious in nature, then we may would like to meet with 21 their whole board if that's the case, attend one of 22 their board meeting and explain the audit findings to 23 them so that they can understand the ramifications of 24 their audit. 25 So with that in mind, I don't believe 0035 1 we would object, if it's permissible, to make that 2 change to where the Commission may require certain 3 individuals to attend. 4 COMMISSIONER CLOWE: What changed your 5 mind? 6 MR. SANDERSON: I think what changed my 7 mind primarily was that in the comment hearing and in 8 reading this, I did not pick up on the "may be 9 required to attend." I was concentrating or looking 10 at "may attend" and the "required" not being in that 11 statement, indicating that these individuals may 12 attend the entrance conference. 13 And I think that even recently we've 14 had a couple of audits that are coming down to where I 15 would like to have more individuals than just one or 16 two from the board attend an exit conference, because 17 I think there's some information that the whole board 18 of directors or all the officers of the organization 19 need to be made aware of, instead of just one or two 20 certain individuals. 21 COMMISSIONER CLOWE: Okay. Then what 22 I've heard you say is that you've rethought this and 23 you think that the comments that Mr. Bresnen has made 24 are persuasive and you're inclined to agree with his 25 position. Is that correct? 0036 1 MR. SANDERSON: Yes, sir. 2 COMMISSIONER CLOWE: Sandy, in regard 3 to Mr. Bresnen's comments and Phil's following 4 comments, is the language -- if the Commission were to 5 decide to change it to "may be required," does that 6 give, through the rule, the latitude to the Staff to 7 call in individuals along the lines that Mr. Sanderson 8 has said they might want to do so? 9 MS. JOSEPH: I believe we could change 10 the language to "may be required to attend" in order 11 to possibly require others to attend. I believe we 12 might need to add a (D). Right now there is a bingo 13 chairperson as (A), (B) the primary operator, (C) the 14 unit manager or designated agent. I believe it would 15 be appropriate to add (D) "or other person." 16 COMMISSIONER CLOWE: Now, does his 17 comment constitute a new comment? 18 MS. JOSEPH: No, not as the Staff -- 19 the Staff can, you know, go through its own thought 20 processes and make appropriate changes. 21 COMMISSIONER CLOWE: What I've heard, 22 Mr. Chairman, is that Mr. Sanderson has now agreed 23 with Mr. Bresnen, that "may be required" is okay. 24 CHAIRMAN COX: I heard that, too. 25 COMMISSIONER CLOWE: But he has said, 0037 1 "We would like others maybe to be called in." And our 2 counselor has told us that that can be added within 3 the rule as it is on our agenda today. 4 Now, the question I have is, can 5 Mr. Bresnen comment on that or does that take us 6 outside of the record? 7 CHAIRMAN COX: And let me add a 8 question to that, that maybe is the one that Chairman 9 Clowe has already asked; and that is, can we add a (D) 10 without republishing? 11 MS. KIPLIN: Let me take the last one 12 first. And the answer to that is, "Yes, you can," 13 because I think the comment -- you're responding to 14 the comment that you received today. And it's not a 15 change that persons who are interested in this would 16 not have received prior notification of this subject 17 matter to begin with. So I think you're fine with 18 that. It would not trigger republication. You're 19 responding to a comment that you have received. 20 And then let me go to -- can you ask me 21 that question again or what your question was in terms 22 of (D)? Was yours (D), Commissioner Clowe? 23 COMMISSIONER CLOWE: Can Mr. Bresnen 24 comment on Mr. Sanderson's request that those who may 25 be called in be broadened? We got the right to have 0038 1 that suggestion from him, and you just told the 2 Chairman we can act on that. 3 MS. KIPLIN: Yes. 4 COMMISSIONER CLOWE: But if I want to 5 hear from Mr. Bresnen as to his reaction, are we 6 within the publication to have him comment on that? 7 MS. KIPLIN: I think so. I think this 8 subject matter has been what he's generally commented 9 on. You've already made a decision today that you are 10 going to allow comment at this time. And so I don't 11 think it violates the scope of what he's previously 12 commented on and going into something new. 13 CHAIRMAN COX: Mr. Bresnen. 14 MR. BRESNEN: Thank you, Mr. Chairman. 15 My name is Steve Bresnen, for the Bingo Interest 16 Group. 17 We have no objection to that change. 18 And I believe those of us who have been pushing for 19 the "may be" language always anticipated that there 20 might be people beyond those enumerated who could be 21 called and support the Staff. All I would ask is that 22 the power be exercised judiciously, work with the good 23 folk to make it as easy on them and the least burden 24 possible in terms of people's attendance but do what 25 you need to do with those folks who need a little 0039 1 tighter rein. 2 Thank you. 3 MS. KIPLIN: While Mr. Bresnen is 4 there, do you mind if I ask a clarifying question? 5 Commissioner, are you okay with that? 6 CHAIRMAN COX: Go ahead. 7 MS. KIPLIN: We have shown in the 8 preamble that you, representing the Bingo Interest 9 Group at that public comment hearing, commented 10 generally in favor of the new rule. But now I've 11 heard today that you have indicated that, when you 12 submitted your witness affirmation form, that you were 13 against it. And I just want to get it clear for the 14 preamble -- 15 MR. BRESNEN: I'm happy to change the 16 form. 17 MS. KIPLIN: Okay. 18 MR. BRESNEN: Will that solve your 19 problem? 20 MS. KIPLIN: Yes, sure does. 21 MR. BRESNEN: Good. 22 CHAIRMAN COX: So what would be your 23 pleasure as to the number -- are we in agreement that 24 business days would be a good way to state this? 25 COMMISSIONER CLOWE: Yes. 0040 1 CHAIRMAN COX: What would be your 2 pleasure as to an appropriate number of business days? 3 COMMISSIONER CLOWE: I think 15 is a 4 nice number -- 5 CHAIRMAN COX: Okay. 6 COMMISSIONER CLOWE: -- if that's okay 7 with you. 8 CHAIRMAN COX: I think 15 is a very 9 fair number, and I heard that Mr. Bresnen was 10 agreeable to that. So let's say we'll go with 15. 11 Now, Sandy, do you have the section 12 that shows up on Page 7, Line 7, do you have that 13 amended for us now to change "are" to "may" - 14 MS. JOSEPH: Yes; yes, I do. 15 CHAIRMAN COX: -- and add the (D)? 16 MS. JOSEPH: Yes. I have "may be" 17 substituting for "are" on Line 7, and then need to add 18 a (D). And I haven't quite decided in my mind what I 19 think is the best way to phrase that. But it would 20 indicate other individuals could be required to 21 attend. 22 CHAIRMAN COX: Okay. Is that specific 23 enough for us to vote at this point, Ms. Kiplin? 24 MS. KIPLIN: May I make a suggestion? 25 Can they work on that language and let's just read it 0041 1 into the record so that it's clear and everybody 2 knows, and then bring it back later in the Commission 3 meeting? 4 CHAIRMAN COX: Sure. That's a good 5 point. 6 MS. KIPLIN: And that way, maybe they 7 can go and they can work with some of the commenters 8 and everybody knows what that's going to be and so 9 forth. 10 CHAIRMAN COX: Good. 11 MS. KIPLIN: And, if I could, 12 Ms. Joseph, what I was thinking is, maybe we should 13 just say -- make it clear who, because I think 14 Mr. Sanderson's confusion had to do with whether it 15 was discretionary on the part of the industry or 16 the -- pardon me -- the conductor versus the 17 Commission and start it with, "The Texas Lottery 18 Commission may require the following..." 19 CHAIRMAN COX: Okay. We'll come back, 20 then, to Items VI and VII -- V and VI. Pardon me. 21 COMMISSIONER CLOWE: Mr. Chairman -- 22 CHAIRMAN COX: Yes, sir. 23 COMMISSIONER CLOWE: -- if I may, in 24 guidance in writing that particular part of the rule, 25 I would like to suggest along the lines I think the 0042 1 Chairman was approaching, that it be as specific as 2 possible. I don't like "and any other." You know, 3 that's just too broad. 4 MS. JOSEPH: Mr. McDade just showed me 5 a suggestion that perhaps we say the officers. 6 COMMISSIONER CLOWE: I think they ought 7 to be named individuals -- 8 MS. JOSEPH: Okay. 9 COMMISSIONER CLOWE: -- so that there 10 are no surprises. I mean, let's not subpoena people 11 that really shouldn't be called in. 12 And, Ms. Joseph, are you comfortable 13 with all the discussion that's been had? We heard 14 from the General Counsel. But as far as being within 15 the record, do you feel that we have done that 16 faithfully? 17 MS. JOSEPH: Yes, I do. 18 CHAIRMAN COX: Okay. Item VII. 19 MS. KIPLIN: Mr. Chairman, before we go 20 on, I just want to make it clear, on the days -- I 21 believe your intention was 15 work days? 22 CHAIRMAN COX: Yes. 23 MS. KIPLIN: Okay. 24 CHAIRMAN COX: That was our intention? 25 COMMISSIONER CLOWE: Yes, sir. 0043 1 CHAIRMAN COX: You said business days, 2 but I believe those are the same. 3 COMMISSIONER CLOWE: Yes, sir. 4 MR. SANDERSON: And may also amend -- 5 or we're going to change Paragraph (r) to reflect the 6 same information that we're putting in Paragraph (m), 7 "may be required to attend." 8 CHAIRMAN COX: Yes. Okay. Are we 9 ready to go on to Item VII? 10 AGENDA ITEM NO. VII 11 CHAIRMAN COX: Item VII, consideration 12 of and possible discussion and/or action, including 13 adoption, on new 16 TAC 402.708 relating to Dispute 14 Resolution. 15 Ms. Joseph. 16 MS. JOSEPH: This item concerns a draft 17 rule prepared for submission to the Texas Register in 18 order to adopt new 16 TAC §402.708 regarding dispute 19 resolution, with changes to the proposed text as 20 published in the August 10, 2007 issue of the Texas 21 Register. The changes include clarification that the 22 new rule applies to all licensees. 23 The purpose of the adopted new rule is 24 to provide an informal process to resolve disputed 25 issues and enforcement actions related to bingo 0044 1 operations as an alternative to the formal process 2 described in the Bingo Enabling Act and the 3 Administrative Procedures Act. 4 Mr. Steve Bresnen, representing the 5 Bingo Interest Group, was the only person who offered 6 comments at the public hearing held on August 21st. 7 He commented generally in favor of the new rule and 8 made some suggestions to clarify the rule that the 9 Staff has considered. No written comments were 10 received. 11 There were certain comments that 12 Mr. Bresnen made that the Staff did not agree with or 13 did not accept. Those were the following: At 14 Subsection (e)(3), the commenter suggested deleting 15 "within 24 hours," that language, because unforeseen 16 events may occur in less than 24 hours. The Staff 17 disagreed, believing that 24 hours prior to the 18 scheduled conference time is a reasonable deadline for 19 a request to reschedule. 20 At Subsection (k)(2)(A), the commenter 21 suggested adding the words, quote, "if any" or 22 suggested striking Subparagraph (A)(2) and adding "if 23 any" after Subparagraph (C). The Staff disagreed. If 24 there were no violations identified, then there would 25 be no need for a dispute resolution settlement 0045 1 agreement. 2 And at Subsection (l), Mr. Bresnen 3 suggested changing, quote, "will proceed" to "may 4 proceed." The Staff disagreed with that suggestion. 5 If there is no dispute resolution settlement 6 agreement, then the only action remaining would be to 7 proceed to an administrative hearing 8 The Staff recommends that the 9 Commission adopt new 16 TAC §402.708 with changes to 10 the proposed rule as shown in your notebooks. 11 COMMISSIONER CLOWE: Mr. Chairman, I 12 would like to hear more about the 24-hour discussion, 13 if we may. 14 CHAIRMAN COX: Okay. And I would like 15 to hear more about the 20 calendar-day discussion, 16 because here we gave them 20 calendar days; whereas, 17 we didn't on the last one. And I would like to have 18 us thinking about working days rather than calendar 19 days. So I would like to hear more about that one, 20 too. 21 That's on Page 2, Line 12, Sandy. Why 22 don't you take Chairman Clowe's -- 23 MS. JOSEPH: First? 24 CHAIRMAN COX: -- suggestion first. 25 MS. JOSEPH: Yes. And your question 0046 1 involved the requirement that the conductor notify the 2 Commission at least 24 hours prior to the scheduled 3 conference time if they wanted to change the time 4 period? 5 COMMISSIONER CLOWE: Yes, ma'am, if 6 they wanted to defer or postpone, I assume. 7 MS. JOSEPH: Right. I believe that 8 Staff felt that 24 hours was a reasonable time, as I 9 commented. Of course, unforeseen things do occur from 10 time to time; however, felt it was fair to give the 11 Staff at least 24 hours' notice. Some other 12 jurisdictions were checked as to their guidelines, and 13 24 hours was a time that is used by many other -- not 14 many necessarily, but other jurisdictions that were 15 reviewed. 16 Mr. Sanderson may want to add something 17 to that. 18 MR. SANDERSON: The dispute resolution 19 conference may not necessarily take place here at 20 Austin headquarters. We may schedule it at the 21 location of the taxpayer or at a regional office or 22 somewhere agreeable to both parties. And the 24-hour 23 notice was intended to first, you know, at least set a 24 time that they have to respond if there are requests 25 of rescheduling of the conference within a certain 0047 1 amount of time period, to have, you know, that 2 deadline and to possibly prevent any expenses that the 3 agency may incur in sending someone to another area to 4 do the dispute resolution conference and the 5 conference be postponed or rescheduled. We felt like 6 a 24-hour period was a fair time period to have that 7 request turned in. 8 COMMISSIONER CLOWE: Sandy, if you 9 know, what is the practice? What is good practice 10 that the courts follow when you have a meeting 11 scheduled for mediation, for example, or you have a 12 non-judicial hearing scheduled out of court, so to 13 speak, which I assume that this is similar to? I'm 14 looking for a good practice in a sense of what's fair 15 between, on the one hand, a person that would just 16 call for a postponement for reasons of unjustified 17 delay and, on the other hand, a person who comes down 18 with the flu and really is physically unable to travel 19 or appear in a public setting. Give us some good 20 practice guidelines from your experience, if you have 21 them. 22 MS. JOSEPH: I'm not familiar with what 23 would happen in the court situation. I did look at 24 SOAH's rules and I believe that I saw that they 25 required three days' notice request for a 0048 1 postponement. Now, of course, that may not -- what 2 they have written in their rules may not reflect what 3 would happen if they believe there is a true 4 emergency. 5 MS. KIPLIN: May I add some comments on 6 that? 7 COMMISSIONER CLOWE: Certainly. 8 MS. KIPLIN: I think the question is 9 one that we're -- it's unforeseen in the example of 10 somebody who is ill and they are a key individual in a 11 mediation or something along those lines. And with 12 regard to the State Office of Administrative Hearings 13 and going through on proceedings on, for example, a 14 continuance, they do require that. 15 I do think, though, to the extent that 16 the parties can agree on passing a setting or 17 rescheduling, I think those are generally 18 accommodated. Of course, sometimes you do run into a 19 judge who wants control of their own calendar. And I 20 do think there is a distinction between those things 21 that are unforeseen and there's good cause for a 22 failure to appear -- for example, illness -- just 23 anything that's more of the unforeseen or emergency 24 situations. 25 And perhaps -- I'm throwing this out 0049 1 there and people can react the way they want -- but 2 maybe what we need is, if it's not already in here -- 3 I didn't see it -- is just the ability -- well, it 4 does say here "upon agreement of the parties," that if 5 there is something due to unforeseen events, you can 6 reschedule it upon agreement of the parties. 7 So, for example, if Mr. Bresnen had 8 somebody he was representing and said, you know, "He's 9 sick. He's in the hospital, emergency appendectomy," 10 I think it would be pretty clear that that would be 11 rescheduled. The other one in terms of you -- 12 COMMISSIONER CLOWE: So you're saying 13 that negates the 24-hour exclusion? 14 MS. KIPLIN: I think so. And if it's 15 not clear, maybe we need to work on that. You know, 16 if somebody is in the hospital, they're in the 17 hospital. 18 CHAIRMAN COX: What page are you 19 looking at? 20 MS. KIPLIN: I'm looking at Page 6 -- I 21 better get the line in front of me -- Page 6, Line 7. 22 So you have the first one that talks about agreement 23 of the parties rescheduling it due to unforeseen 24 events. 25 CHAIRMAN COX: But again, the 24 hours 0050 1 is there? 2 MS. KIPLIN: Right. And that's what 3 I'm saying, if that's not clear, that maybe there is a 4 difference between the two. One, if you're not -- if 5 it's beyond your control that you can't attend, then 6 you can't attend -- if you're in the hospital, you're 7 in the hospital -- versus the other one where, for 8 whatever reason that it's not unforeseen emergency, 9 the reasonableness of give us at least 24 hours. 10 And, Commissioner Clowe, your question, 11 I think that is reasonable on things that are not 12 unforeseen; for example, somebody who has just failed 13 to retain somebody that they may want as an attorney. 14 If you follow it with State Office of Administrative 15 Hearings and that three-day clock and it's not 16 something due to something that's unforeseen that you 17 had more control over, they're not -- over a party's 18 objection, they're not inclined to grant that. 19 CHAIRMAN COX: Okay. Sandy, take me to 20 the portion that Chairman Clowe is originally talking 21 about, where the 24-hour exception was there. 22 MS. JOSEPH: That I believe would be at 23 the same place on Page 6 -- 24 CHAIRMAN COX: Page 6. 25 MS. JOSEPH: -- Line 8. "You must 0051 1 contact the Commission at least 24 hours prior to the 2 scheduled conference time to reschedule a dispute 3 resolution conference." 4 CHAIRMAN COX: Okay. So the second 5 sentence of (3) there on Page 6 is the one he was 6 talking about? 7 MS. JOSEPH: I believe so. 8 CHAIRMAN COX: Ms. Kiplin brings in 9 that before that, there is a sentence that says it 10 "may be rescheduled due to unforeseen events." So 11 what would happen if we took out the sentence that 12 says, "You must contact the Commission at least 24 13 hours prior to the scheduled conference time to 14 reschedule a dispute resolution conference," and left 15 the "may be rescheduled due to unforeseen events"? 16 MS. JOSEPH: That would eliminate the 17 time requirement. 18 COMMISSIONER CLOWE: That sounds like a 19 wonderfully simple solution to me. 20 CHAIRMAN COX: Okay. 21 MR. SANDERSON: May I offer one other 22 suggestion possibly -- 23 CHAIRMAN COX: Sure. 24 MR. SANDERSON: -- and take that second 25 sentence, "You must contact the Commission at least 24 0052 1 hours prior to the scheduled conference time to 2 reschedule" and have that as a separate paragraph. 3 And before the "unforeseen events," that at any time 4 they can request to be rescheduled 24 hours prior to 5 the scheduled conference time. And then it may be 6 rescheduled by agreement of both parties due to 7 unforeseen events. 8 CHAIRMAN COX: Would you tell me what 9 you think he just said. 10 Not that it was confusing Phil. I just 11 want to be sure I understand. 12 MS. JOSEPH: I believe he is suggesting 13 that we make two separate paragraphs and in the first 14 one indicate that in the case of foreseen conflicts, 15 the parties must contact or a party must contact the 16 Commission 24 hours prior to the scheduled conference 17 time. However, the next paragraph would read, "In the 18 event of unforeseen occurrences, the conference may be 19 rescheduled by agreement of the parties at any time." 20 COMMISSIONER CLOWE: My question is, 21 will the public understand that and be able to live 22 with that and conform to it? 23 CHAIRMAN COX: Well, Mr. Bresnen has 24 asked to testify. Maybe we can, under the same kind 25 of guidelines, Mr. Bresnen, that Ms. Kiplin laid out 0053 1 last time, do you want to talk to us about this? 2 MS. KIPLIN: And so for the record, I 3 would say the comment period is over but the 4 Commission has decided that they want to hear from a 5 commenter who has previously commented on this same 6 subject matter. Correct? 7 CHAIRMAN COX: Absolutely. 8 MR. BRESNEN: Thank you. My name is 9 Steve Bresnen. I'm here on behalf of the Bingo 10 Interest Group. 11 I think the direction you're heading is 12 a workable one. Certainly the agency has an interest 13 in being notified ahead of time if somebody needs to 14 reschedule for something that's a routine problem or 15 something they could foresee. My comments went 16 specifically to the unforeseen. 17 And you have a hurricane -- the other 18 day a hurricane blew down up in Beaumont (indicating) 19 like that. And, you know, those things happen. I 20 think as a practical matter, the agency would go, 21 "Okay. We'll work it out." No action would be taken. 22 It just seems like rules ought to reflect what 23 actually happens in the world, to the extent that you 24 can. 25 So we would support and believe, 0054 1 consistent with our general comment, that the 24-hour 2 specification was too restrictive. We would support 3 that kind of a compromise, a split between foreseeable 4 and unforeseeable events. 5 COMMISSIONER CLOWE: So the verbiage 6 that Ms. Joseph just recited, you think you and your 7 clients, and it's your sense the bingo-playing 8 regulatees would understand? 9 MR. BRESNEN: I think so. You know, if 10 it's noun, verb, "See Spot run," you know, in the case 11 of an unforeseen event, you can reschedule. In the 12 case of a foreseeable event, you have to give some 13 kind of a notice. Is that where you're driving? 14 MS. JOSEPH: (Nods head) 15 MR. BRESNEN: I would rather see the 16 language than sign off on it in the abstract, but I 17 think you get my drift. One of the things we were 18 trying to do when working on all these rules -- and I 19 think the Staff is really doing a good job on it -- is 20 to try to make things intelligible. 21 If you'll notice, this rule is done in 22 a question and answer format, which I think is a 23 really good way for the non-lawyers and the people who 24 don't deal in regulated enterprises all day every day 25 to understand the rules, so I commend them for that. 0055 1 I would be happy to work with the Staff 2 on the exact language. I'm going to have to leave to 3 go to a funeral here in a little bit, but I think 4 others here would turn their attention to that and see 5 if we're all on the same page. 6 CHAIRMAN COX: Okay. 7 COMMISSIONER CLOWE: Well, you know, 8 people ask, "What was the legislative intent behind 9 this law?" And my intent in the questions I'm asking 10 is that we not allow those people who keep postponing 11 their speeding ticket so they just wear the Court out, 12 wear the arresting officer out and finally it gets 13 dismissed -- 14 MR. BRESNEN: Yes, sir. 15 COMMISSIONER CLOWE: -- as opposed to 16 the hurricane example that you gave. 17 MR. BRESNEN: Right. As I understand 18 it on the foreseeable matters, it would be a matter of 19 it can re rescheduled by agreement; whereas, for those 20 things that might be a more act of God type thing, 21 that the person would have a right to reschedule. Is 22 that the way you see it, along those lines? 23 MS. JOSEPH: Yes. 24 MS. KIPLIN: Can I read language into 25 the record and see if you guys are comfortable with it 0056 1 or -- 2 CHAIRMAN COX: Why don't we do the same 3 thing with this one that we were going to do with VI; 4 and that is, let Sandy have some time after this and 5 bring it back? And then you will have an opportunity 6 to defer your thoughts as well. 7 MS. KIPLIN: Okay. 8 MR. BRESNEN: Somebody will be here. 9 While I'm here and in the interest of time, may I 10 follow up on one of my comments in another part of the 11 rule? 12 CHAIRMAN COX: Will that be okay, 13 Ms. Kiplin? 14 MS. KIPLIN: It depends on what his -- 15 MR. BRESNEN: It's on the part about 16 "will proceed," the last -- it's about the next to the 17 last sentence in the document there. 18 MS. KIPLIN: Yes. I believe -- you 19 commented on that already at the comment hearing? 20 MR. BRESNEN: I did. 21 MS. KIPLIN: And so you're going to 22 stay within the comments you've already provided. 23 MR. BRESNEN: Explain why I suggested 24 that the word "will" be changed to "may." Literally 25 speaking, when you get out of one of these dispute 0057 1 resolution conferences, which I imagine is going to be 2 something on the order of an alternative dispute 3 resolution, mediation or maybe just a discussion, the 4 rule literally would require the agency to proceed to 5 an administrative hearing. But the agency -- what 6 happens in those things, a lot of times people look at 7 their hold card in those deals and they come out of 8 one of those meetings and they go, "You know, we're 9 not on very solid ground here. We're not -- maybe we 10 won't go forward on this," or maybe they come back 11 with another proposal later on. 12 But literally speaking -- the rule says 13 the agency has got to go on to the next process. So, 14 you know, it may be as a practical matter that you 15 just look at your hold card and drop the case. I 16 think you have the ability to do that. But the rule 17 will say, "You will proceed," and it seems to more 18 comport with the way things actually happen that you 19 may proceed. And that was the reason for my comment 20 on that. 21 CHAIRMAN COX: Okay. 22 Now, that was on Item VI? 23 MR. BRESNEN: No, sir, it's on this 24 same Item No. VII. 25 CHAIRMAN COX: Okay. 0058 1 MR. BRESNEN: It's at the -- 2 MS. JOSEPH: Page 9. 3 CHAIRMAN COX: Okay. Now, this is a 4 comment that you previously made? 5 MR. BRESNEN: Yes, sir. 6 MS. JOSEPH: Yes. It's Line 3 of Page 7 9, 3 and 4. 8 MR. BRESNEN: The Staff's response is, 9 if there is no agreement coming out of this dispute 10 resolution conference, then you will proceed to a 11 hearing. But I don't think that's necessarily true. 12 I think you may proceed to a hearing. And you won't 13 go there if you find out in the course of the 14 conference that maybe you've got a weak case. So all 15 I'm saying is, this probably ought to reflect what 16 would actually happen. 17 CHAIRMAN COX: Ms. Joseph? 18 MS. JOSEPH: Yes. And I did discuss 19 this comment with Mr. Sanderson also, of course. And 20 it was felt that if there was not an agreement 21 reached, the Commission would -- or the Staff would 22 proceed to a hearing. And so -- 23 CHAIRMAN COX: Well, I hear some pretty 24 persuasive thought there, that this would require us 25 to take a weak case to a formal administrative 0059 1 hearing, and I'm not sure I want to commit us to do 2 that. 3 MS. JOSEPH: Well, I think the thought 4 was that if we saw we had a weak case, we would come 5 to an agreement with the party, with the other party. 6 That would be a reason for us to reach a settlement 7 agreement. 8 CHAIRMAN COX: Okay. So you're saying 9 that there are only two choices, either reach an 10 agreement or go forward to a formal administrative 11 hearing? It would never be a case where you couldn't 12 reach an agreement and it would be just left in limbo, 13 in effect? 14 MS. JOSEPH: That's possible. 15 CHAIRMAN COX: It is possible? 16 MS. JOSEPH: Yes. 17 CHAIRMAN COX: What are you going to do 18 in that case, Mr. Sanderson? 19 MR. SANDERSON: Well, I wasn't thinking 20 that that scenario was -- I was under the impression 21 that either we would come to some form of a settlement 22 agreement or it would end up going to a hearing if the 23 parties could not -- 24 CHAIRMAN COX: There has never been any 25 other outcome other than one of those two? 0060 1 MR. SANDERSON: In the past possibly, 2 but not going forward, there potentially would not be, 3 because the -- 4 CHAIRMAN COX: Well, let me ask you 5 this: How could it hurt for it to be discretionary? 6 That leaves you with the possibility to do it, with 7 the right to do it, but it doesn't require you to do 8 it in the event of some unforeseen circumstance that 9 we can't dream of right now. How can it hurt for the 10 regulator to have discretion? 11 COMMISSIONER CLOWE: I think you're 12 right spot on. You know, you're backing yourself into 13 a corner where you've either got a true bill or a no 14 bill, and there may be something in between where you 15 don't want to do either one of those. I think he's 16 making sense. 17 MR. SANDERSON: And I don't necessarily 18 disagree. But I think that in light of what, to some 19 degree, the Internal Audit Report, talking about 20 disposition of cases or audit findings and 21 organizations coming to the clients -- 22 CHAIRMAN COX: Don't disagree at all, 23 Phil, as regarding your goals. I'm just saying, why 24 not give yourself this discretion? 25 COMMISSIONER CLOWE: As a practical 0061 1 methodology to follow in case something develops that 2 you just say, "Look! We want to make this go away." 3 Now, that carries a responsibility with it, too. 4 MR. SANDERSON: Yes, sir. 5 COMMISSIONER CLOWE: And you've got to 6 be able to justify that decision. But I think the 7 Commissioners are of a mind that we like the Staff to 8 have that prerogative, to exercise that decision if 9 it's the right one. 10 MR. SANDERSON: And potentially there 11 could be some unforeseen situation that we may decide 12 to agree to disagree and not more forward with a case. 13 CHAIRMAN COX: And I think, given that 14 that might be the case, I would say that "may" is a 15 better word than "will." 16 COMMISSIONER CLOWE: And I would like 17 to say a word of caution in that regard. I think it 18 relies on the Staff to make the right decision and not 19 be weak and just put it on the shelf and leave it 20 there and let it sit. We don't want -- and I 21 commented earlier on what I considered to be bad 22 practices that were discovered in the Internal 23 Audit -- we don't want this to lead to bad practices. 24 And if you're given this discretion, you have to 25 exercise it properly. 0062 1 MR. SANDERSON: And we will, and we 2 will institute that into our procedures that we're 3 working on also. 4 COMMISSIONER CLOWE: Okay. 5 CHAIRMAN COX: Okay. So that deals 6 with -- thank you, Mr. Bresnen. 7 MR. BRESNEN: Thank you, Mr. Chairman. 8 I appreciate it. I'm going to have to leave in just a 9 minute. I just wanted to say, on all the other 10 proposed rules, we'll continue working with Staff, 11 participate in the public hearings on those. If I'm 12 not here when they come up, I appreciate y'all 13 listening to us today. Thank you. Appreciate the 14 Staff working with us, too. 15 CHAIRMAN COX: Sandy, I think that 16 leaves one item on this, and that is the number of 17 either calendar or working days. Here you agreed with 18 Mr. Bresnen's request for more time. The last one, 19 you didn't, and it's stated in calendar days rather 20 than working days. How would you like to deal with 21 that? 22 MS. JOSEPH: Let me find that. Just a 23 moment. 24 CHAIRMAN COX: Sure. I believe it's on 25 about Page 2. 0063 1 MS. JOSEPH: Yes. Okay. Yes, that was 2 Subsection (c)(4). 3 CHAIRMAN COX: Yes. 4 MS. JOSEPH: Mr. Bresnen suggested 5 changing "20 calendar days from the date you receive 6 a..." and it continues, "to a more certain time 7 period." The Commission agreed and added language to 8 clarify that the 20 calendar days is from the latest 9 date of receipt. I believe that's the one you're 10 talking about. 11 CHAIRMAN COX: Yes, it is. 12 MS. JOSEPH: So he didn't object to the 13 fact that it was calendar days, or didn't comment on 14 that. 15 CHAIRMAN COX: And my question was, 16 since we've stated the other one in working days, 17 maybe we should make it consistent that we're going to 18 do working days rather than calendar days. And 15 19 worked on the last one. Would it work on this one? 20 MS. JOSEPH: I believe it would, 21 because I believe the effect of 15 working days would 22 not be substantially less and could be more than 20 23 calendar days. 24 CHAIRMAN COX: Okay. So why don't we 25 make it 15 working days like we did last time. 0064 1 MS. JOSEPH: Okay. 15 working days. 2 We can make that -- 3 CHAIRMAN COX: And as to the wording on 4 the time for mutually agreed versus unilateral 5 postponement of the meeting, you'll work with your 6 Staff -- Ms. Kiplin has some ideas, and the industry 7 on that -- and bring it back to us later in the 8 meeting? 9 MS. JOSEPH: Yes. 10 CHAIRMAN COX: Good. 11 MS. KIPLIN: Commissioners, not only 12 will that change the text of the rule itself, but it 13 will cause us to go back in and have a different 14 response on your behalf to the comments. So I want to 15 make sure that you know that there will also be 16 changes in the preamble part. 17 CHAIRMAN COX: That's correct. 18 MS. KIPLIN: We're required to 19 summarize the comment and then give the agency's 20 response. 21 CHAIRMAN COX: Okay. With respect to 22 the Court Reporter, why don't we take about a 23 10-minute break. 24 (Off the record: 10:07 a.m. to 10:19 25 a.m.) 0065 1 CHAIRMAN COX: Let's come back to 2 order, please. 3 Chairman Clowe, with your permission, I 4 would like to take Item XIX out of order. 5 COMMISSIONER CLOWE: Yes, sir. 6 AGENDA ITEM NO. XIX 7 CHAIRMAN COX: Let me call Item XIX. 8 It is report, possible discussion and/or action on the 9 80th Legislature. 10 Ms. Trevino. 11 MS. TREVINO: Good morning, 12 Mr. Chairman and Commissioner. For the record, I'm 13 Nelda Trevino, the Director of Governmental Affairs. 14 I want to provide a final report 15 related to the agency's legislative implementation 16 project. 28 bills were identified for the 17 implementation project, and included in your meeting 18 notebook are two comprehensive tracking reports. One 19 report includes the 22 bills that have been closed or 20 completed. Some of these bills required no action by 21 the agency or the required action has been 22 implemented. 23 The second tracking report includes the 24 six remaining bills where you will note the required 25 action is either in progress, additional research is 0066 1 being conducted or the agency is waiting for 2 information or notification from another state agency 3 on any steps the agency may need to take to be in 4 compliance with the bill. 5 The assigned division directors will 6 continue to monitor and provide progress reports on 7 these pending bills. Overall, I believe the agency 8 has successfully executed the implementation project. 9 I want to take this opportunity to 10 thank Melissa Villasenor, the Project Coordinator; the 11 division directors and all agency staff involved for 12 their thoughtful attention and work on this very 13 important agency project. 14 Lastly, during this legislative 15 interim, the Governmental Affairs staff will be 16 coordinating and developing the agency's legislative 17 briefings, similar to those that we have held in the 18 past. We intend to hold our first briefing during 19 this interim on October the 10th. 20 This concludes my report, and I'll be 21 happy to answer any questions. 22 COMMISSIONER CLOWE: No questions. 23 CHAIRMAN COX: No questions. Thank 24 you, Nelda. 25 MS. TREVINO: Thank you. 0067 1 AGENDA ITEM NO. VIII 2 CHAIRMAN COX: Okay. I think we're now 3 on Item VIII, consideration of and possible discussion 4 and/or action, including proposal, on new 16 TAC 5 402.211 relating to Fair Conduct. 6 Ms. Joseph. 7 MS. JOSEPH: Again, for the record, my 8 name is Sandra Joseph, Assistant General Counsel. 9 Item VIII is proposed new §402.211 10 bingo rule regarding Fair Conduct. The purpose of the 11 draft proposed new rule is to set out the requirements 12 for organizations to follow in order to ensure the 13 fair conduct of a bingo game. 14 The draft proposed rule provides that a 15 fairly conducted bingo occasion is one that is 16 impartial and honest and free from prejudice or 17 favoritism. The bingo game is also to be conducted 18 competitively, free of corrupt and criminal influences 19 and follow appliable provision of the Bingo Enabling 20 Act and the Charitable Bingo Administrative Rules. 21 The draft rules provide that the 22 licensee is responsible for ensuring minimum 23 requirements are met in order to conduct a fair bingo 24 occasion. The submission prepared for the Texas 25 Register includes notice of a public hearing to be 0068 1 held on the proposed rule on October 16, 2007, at 2 10:00 a.m. 3 Staff recommends that the Commission 4 initiate the rulemaking process by publishing the 5 proposed rule in order to receive public comments for 6 a period of 30 days. 7 COMMISSIONER CLOWE: No questions. 8 CHAIRMAN COX: Move approval of staff 9 recommendation. 10 COMMISSIONER CLOWE: Second. 11 CHAIRMAN COX: All in favor, say "Aye." 12 COMMISSIONER CLOWE: Aye. 13 CHAIRMAN COX: Aye. 14 Motions passes 2-0. 15 Okay. Mr. Fenoglio would like to talk 16 about VIII, IX, X, XI and XII. Steve, what would be 17 the best time for you to do that? Would it be right 18 now? 19 MR. FENOGLIO: Right now. 20 CHAIRMAN COX: Okay. And I will tell 21 you that I'm going to -- with Chairman Clowe's 22 permission, we're going to pass Item XII today. 23 MR. FENOGLIO: Okay. Just briefly, we 24 support the publication for comment. The industry is 25 generally supportive of the rules. Mr. Sanderson 0069 1 indicated earlier that his internal clock had been set 2 back a little bit my meetings, and those were 3 primarily centered around these rules. He's done an 4 excellent job, and so we support the publication for 5 public comment, will be actively commenting on all of 6 these proposed rules. Thank you. 7 CHAIRMAN COX: Thank you, Mr. Fenoglio. 8 MS. JOSEPH: And with your permission, 9 Chairman, I'll hold my T-bar memos for your signature 10 at the conclusion of all of my items. 11 CHAIRMAN COX: Okay. Good. 12 AGENDA ITEM NO. IX 13 CHAIRMAN COX: Item IX, consideration 14 of and possible discussion and/or action, including 15 proposal on new 16 TAC 402.210 relating to House 16 Rules. 17 Ms. Joseph. 18 MS. JOSEPH: Commissioners, this item 19 concerns draft proposed new bingo rule §402.210 20 regarding House Rules. The purpose of the proposed 21 new rule is to set out the minimum requirements for 22 house rules, including posting, announcement, 23 publication and content of house rules. Specifically 24 the draft rule requires the licensed authorized 25 organization to establish and adhere to its house 0070 1 rules for the fair conduct of bingo and the operator 2 on duty to be responsible for ensuring that the house 3 rules are consistently enforced. 4 The submission prepared for the Texas 5 Register includes notice of a public hearing to be 6 held on October 16, 2007 at 10:00 a.m. I recommend 7 that the Commission initiate the rulemaking process by 8 publishing the proposed rule in order to receive 9 public comments for a period of 30 days. 10 COMMISSIONER CLOWE: No questions. 11 CHAIRMAN COX: Move approval of the 12 Staff recommendation. 13 COMMISSIONER CLOWE: Second. 14 CHAIRMAN COX: All in favor, say "Aye." 15 COMMISSIONER CLOWE: Aye. 16 CHAIRMAN COX: Aye. 17 Motions passes 2-0. 18 AGENDA ITEM NO. X 19 CHAIRMAN COX: Item X, consideration of 20 and possible discussion and/or action, including 21 proposal, on new 16 TAC 402.709 relating to Corrective 22 Action-Audit. 23 Ms. Joseph. 24 MS. JOSEPH: Yes, Chairman. Thank you. 25 This item does concern draft proposed new §402.709 0071 1 regarding corrective action-audit. The purpose of the 2 proposed new rule is to set out the requirements for 3 organizations to follow in order to address compliance 4 issues identified in an audit of their organization. 5 The new rule provides a process for licensed 6 authorized organizations to take corrective actions 7 for violations noted as a result of an audit. 8 Specifically it sets forth the 9 definition of "corrective action." It lists examples 10 of corrective actions and explains what occurs if a 11 licensed authorized organization does not take 12 corrective action. This submission prepared for the 13 Register also includes notice of a public hearing to 14 be held on October 16, 2007, at 10:00 a.m. 15 I recommend that the Commission 16 initiate the rulemaking process by publishing the 17 proposed rule in the Texas Register in order to 18 receive public comments for a period of 30 days. 19 COMMISSIONER CLOWE: No questions. 20 CHAIRMAN COX: Move approval of Staff 21 recommendation. 22 COMMISSIONER CLOWE: Second. 23 CHAIRMAN COX: All in favor, say "Aye." 24 COMMISSIONER CLOWE: Aye. 25 CHAIRMAN COX: Aye. 0072 1 Motions carries 2-0. 2 AGENDA ITEM NO. XI 3 CHAIRMAN COX: Item XI, report, 4 possible discussion and/or action on Internal Control 5 Guidelines for licensed authorized organizations. 6 Mr. Sanderson. 7 MR. SANDERSON: Commissioners, you have 8 been provided with the minimum internal control 9 guidelines the Staff has developed for organizations 10 to use to develop their own internal controls. I 11 would like to mention that it is my full intention 12 that these guidelines will remain guidelines and that 13 there's no requirements of the organization to 14 implement any type of internal controls. 15 However, when we do perform our audits 16 of these organizations, one part of the audit process 17 is to evaluate the internal controls that 18 organizations have in place. To that extent, the 19 organizations have internal controls and the quality 20 of those internal controls will impact the audit 21 procedures that will be performed on each individual 22 audit. If adequate internal controls or mitigating 23 controls don't exist or are not effective, the 24 auditors will in most instances be required to perform 25 extensive procedures to provide assurance that the 0073 1 objectives of Charitable Bingo are being accomplished 2 by the licensees. 3 At a high level, these objectives 4 address whether a licensed authorized organization are 5 in compliance with the Act and the rules, the 6 financial information that is provided to the 7 Commission is reasonable and accurate and that the 8 bingo proceeds are used for an authorized purpose, 9 including the charitable distributions. 10 These guidelines, once adopted, will be 11 posted on our Internet. We're creating a space to 12 post all of our policies and procedures so the 13 organizations can review those at any point in time. 14 There is no action necessary on this item, unless you 15 want to discuss any of the contents of the internal 16 controls. 17 COMMISSIONER CLOWE: No questions. 18 CHAIRMAN COX: Okay, Phil, I can't 19 resist this. One of the basic auditing standards is 20 that you make an evaluation of existing internal 21 controls as a basis for reliance thereon. And then 22 you're saying, "Yes, we're going to do that." Then 23 you have to extend your audit tests if the controls 24 are weak. You have to do more work than you would if 25 the controls are strong. So in regulatory auditing, 0074 1 that's just like it is in financial auditing? That's 2 a question. 3 MR. SANDERSON: Yes, sir. 4 CHAIRMAN COX: Okay. So what do you do 5 in a -- and I recognize that there's some small 6 organizations that can't have two people counting the 7 petty cash or counting the cash receipts, and they 8 can't have this and that, this person reconciling the 9 bank account and this person keeping the cash books, 10 because they don't have but one person. 11 But what do you do when you have a 12 sizable organization that can afford and has enough 13 people to have internal controls and they just don't 14 have them? You're still going to have to extend your 15 test. The state is going to have to spend more money 16 auditing folks, because they chose not to have 17 controls that it would be reasonable for an 18 organization like that to have. 19 MR. SANDERSON: I agree that, you know, 20 in some cases, organizations, they should have -- they 21 have the capability to segregate duties, and they 22 should segregate duties. But I don't feel like that 23 we can require certain actions of some organizations 24 that we can't require of all organizations. And the 25 internal controls is an area that, in doing research 0075 1 with other jurisdictions in the charitable gaming 2 aspect, have them all designed as guidelines, and part 3 of the audit process is to assess those internal 4 controls. 5 And we will be training individuals and 6 recommending to organizations that they establish some 7 form of internal control as well as, you know, general 8 oversight of the operations so that the organization 9 has in itself assurance that their bingo operations 10 are designed to maximize their profits or their 11 charitable distributions. 12 CHAIRMAN COX: Did you run across in 13 your survey any jurisdictions that had more than one 14 class of licensee; whereas, somebody that generated 15 $6,000 a year had one set of standards and one that 16 generated more than $6,000 a year had a different set 17 of standards? 18 MR. SANDERSON: Most all jurisdictions 19 have a separate class of operations, but I do not 20 recall any as it relates to internal controls or other 21 regulatory requirements that are based on their 22 licensed class or the size of their operation. 23 CHAIRMAN COX: Would that be 24 something -- let's say that that was something that 25 the State of Texas deemed appropriate, would that 0076 1 require a statute or would that be something that this 2 agency would be charged with? 3 MR. SANDERSON: I believe there is some 4 statutory provisions to allow certain things for a 5 different licensed class. And our bingo operations 6 are divided into Class A through J, based on their 7 gross receipts. However, that's the bingo operations 8 and not necessarily the size of the organization that 9 has the license itself. 10 CHAIRMAN COX: Okay. 11 MR. SANDERSON: And there are some 12 small organizations that have the Class J license, 13 which is the highest gross receipts. 14 CHAIRMAN COX: Okay. So there is no 15 provision in the statute for anything like that? 16 MR. SANDERSON: No, sir. 17 CHAIRMAN COX: Okay. Thank you for 18 bearing with me on that. 19 COMMISSIONER CLOWE: Yes, sir. 20 AGENDA ITEM NO. XII 21 CHAIRMAN COX: Item XII we agreed to 22 pass. The Staff needs a little more time to work on 23 that. 24 25 0077 1 AGENDA ITEM NO. XIII 2 CHAIRMAN COX: Item XIII, consideration 3 of and possible discussion and/or action, including 4 proposal, on the agency's rule review of 16 TAC 402 5 relating to Charitable Bingo administrative rules. 6 Ms. Joseph. 7 Now, I understand this is something 8 like Sarah talked about last month for the lottery, 9 where every four years we do a review of rules to see 10 if they continue to be appropriate and the like? 11 MS. JOSEPH: That's correct, Chairman, 12 yes. The Staff is requesting that you vote to publish 13 in the Texas Register a notice of the Commission's 14 intent to review the rules in 16 TAC Chapter 402. 15 Those are the rules dealing with Charitable Bingo. 16 Government Code Section 2001.039 does require the 17 agency to review all of its rules every four years. 18 At a minimum, the review must include an assessment of 19 whether the reasons for adopting each of the rules 20 continues to exist. 21 At the conclusion of the review, the 22 Staff will request that the Commission take one of the 23 following actions in regard to each rule: Re-adopt 24 the rule, repeal the rule or amend the rule. If the 25 Commission chooses to repeal a rule or propose an 0078 1 amendment to a rule, normal rulemaking procedures will 2 then apply. In other words, Staff would request that 3 the Commission publish a proposed repeal or amendment. 4 There would be a comment period, and then the 5 Commission could take final action. 6 I recommend that you approve 7 publication of notice of intent to review the rules in 8 order to receive public comment for a period of 30 9 days. 10 COMMISSIONER CLOWE: No questions. 11 CHAIRMAN COX: Move approval of Staff 12 recommendation. 13 COMMISSIONER CLOWE: Second. 14 CHAIRMAN COX: All in favor, say "Aye." 15 COMMISSIONER CLOWE: Aye. 16 CHAIRMAN COX: Aye. 17 Motion carries 2-0. 18 So that would be Items VIII, IX, X and 19 XIII? 20 MS. JOSEPH: That's correct, that I 21 have presented to you T-bar memos for you to indicate 22 your approval. And I will return later in the 23 conference with orders -- with the changes that you 24 requested. 25 CHAIRMAN COX: Okay. 0079 1 AGENDA ITEM NO. XIV 2 CHAIRMAN COX: Item XIV, report by the 3 Charitable Bingo Operations Director and possible 4 discussion and/or action on the Charitable Bingo 5 Operation Division's activities. 6 Mr. Sanderson. 7 MR. SANDERSON: Commissioners, in your 8 notebook is an update on the activities of the Bingo 9 Division. I would like to point out that allocations 10 to local jurisdictions were released on August the 11 8th, which is the earliest release date of allocations 12 since Bingo has been at the Lottery Commission. And I 13 would like to thank Patricia Graef and the Office of 14 the Controller, as well as Terry Shankle and her 15 staff, on accomplishing this milestone. 16 CHAIRMAN COX: And, Phil, let me ask 17 you, how much earlier was that than the previous 18 record? 19 MR. SANDERSON: This was 14 days. And 20 I think prior to that, 20 days was the earliest we had 21 had a release. 22 CHAIRMAN COX: That's excellent. 23 MR. SANDERSON: Additionally, we -- 24 CHAIRMAN COX: I'm sure the local 25 jurisdictions appreciate it. 0080 1 MR. SANDERSON: They do. I think the 2 time that it was at 20 days, when we slipped a couple 3 of months later, like to 28, they were calling and 4 wondering where their checks were at. So now we're 5 down to 14 days, so we have to revise our performance 6 measures and our expectations. 7 Additionally, we have updated the chart 8 on the website tracking charitable distributions and 9 would like to note that we have passed the 10 $850 million mark with the 2nd quarter 2007 charitable 11 distributions. 12 With that, I'll answer any questions. 13 COMMISSIONER CLOWE: No questions. 14 CHAIRMAN COX: No questions. Thank 15 you, Phil. 16 MR. SANDERSON: Thank you. 17 CHAIRMAN COX: Okay. That concludes 18 the bingo section of the agenda. 19 AGENDA ITEM NO. XV 20 CHAIRMAN COX: Item XV, report, 21 possible discussion and/or action on lottery sales and 22 revenue, game performance, new game opportunities, 23 market research and trends. 24 Ms. Pyka, Mr. Tirloni, et cetera. 25 DR. SIZEMORE: I'm the et cetera. 0081 1 CHAIRMAN COX: Sorry, David. 2 MS. PYKA: Thank you, Mr. Chairman. My 3 name is Kathy Pyka, Controller for the Lottery 4 Commission. And with me to my right this morning is 5 Robert Tirloni, our Products Manager, and Dr. David 6 Sizemore, our Research Coordinator. 7 Commissioners, this morning we'll be 8 presenting to you a final Fiscal Year 2000 year-end 9 report on sales and transfers to the Foundation School 10 Fund. Before we begin that detailed presentation, I 11 wanted to note for you that our cash transfers to the 12 Foundation School Fund for Fiscal Year 2007 amounted 13 to $1,032,000,000, as compared to $1,030,000,000 last 14 fiscal year. That is a $2.3 million increase over 15 last year's transfers to the Foundation School Fund. 16 This marks the sixth consecutive year in which our 17 cash transfers to the Foundation School Fund have 18 increased. 19 With that, we'll begin our detailed 20 presentation on sales. 21 COMMISSIONER CLOWE: Thank you, Mega 22 Millions. 23 (Laughter) 24 MS. PYKA: Yes. 25 Our first chart before you includes 0082 1 sales and net revenue to the state through the week 2 ending August 31, 2007, or the fiscal year ending 3 August 31, 2007. Total sales for Fiscal Year 2007 4 amounted to $3.78 billion, which is one-tenth of a 5 percent, or $507,000 under actual sales for Fiscal 6 Year 2006. Estimated net revenue to the state for 7 this period was $1,023,000,000, prior to our 8 adjustment, for year-end accruals. 9 And then I would like to take you to 10 the next slide which provides a calculation of the 11 final cash transfer to the Foundation School Fund as 12 well as our prize expense for the fiscal year. As 13 noted earlier, our final cash transfers were 14 $1,032,000,000 as compared to $1,030,000,000 in Fiscal 15 Year 2006. 16 And while our sales have remained 17 essentially flat from fiscal year to the fiscal year, 18 as I noted, there was just a slight decline from 19 Fiscal Year '07. We were able to provide a greater 20 transfer to the Foundation School Fund as a result of 21 a reduced operating budget in Fiscal Year 2007, as 22 well as a greater share of Fiscal Year 2006 unspent 23 administrative funds which were transferred to Fiscal 24 Year 2007. 25 I would also like to note that our 0083 1 prize expense as a percent of sales following the 2 adjustment for unclaimed prizes is reflected at 3 61.24 percent for Fiscal Year '07, which is a slight 4 increase over the 61.21 percent for Fiscal Year 2006. 5 CHAIRMAN COX: Kathy, help me. Let's 6 go back to the previous slide, if you will. 7 MS. PYKA: Yes. 8 CHAIRMAN COX: Okay. There we've got 9 about 14/100ths of a percent decrease in the sales 10 contribution. Now, let's go back to the last one. 11 MS. PYKA: Yes. 12 CHAIRMAN COX: And there we have only 13 three/one-hundredths. 14 MS. PYKA: Right. 15 CHAIRMAN COX: And the difference would 16 be unclaimed prizes? 17 MS. PYKA: Unclaimed prizes. I mean, 18 that's essentially the difference on the contribution. 19 We've adjusted for unclaimed prizes in those final 20 numbers. 21 CHAIRMAN COX: Thank you. 22 MS. PYKA: Yes. 23 And then moving to -- 24 CHAIRMAN COX: Let me ask you one thing 25 before you go further. Let's go back to the last one. 0084 1 Is that decline from 37.33 to 37.19, is that about 2 trend or is that flattening out? 3 MS. PYKA: That is actually flattening 4 out. And we have another slide further into the 5 presentation in which we'll show you the share of 6 sales that relate to instant, that relate to on-line. 7 And you'll see a flattening out there, which also 8 relates to the flattening out sales contribution. 9 CHAIRMAN COX: Okay. Thank you. 10 MS. PYKA: Yes. 11 So as we look at this next slide, we'll 12 walk through the change in sales by game for Fiscal 13 Year 2006 to 2007. As I noted, it's a half million 14 dollar decline. And we'll begin with the instant 15 ticket product, which notes a $3.9 million decline, or 16 .14 percent. 17 And then looking at our on-line 18 products, we actually have a $3.4 million gain, or a 19 .4 percent increase in Fiscal Year 2007 sales as 20 compared to Fiscal Year 2006. And I wanted to note, 21 Commissioners, Pick 3 continues to reflect a positive 22 increase in sales year over year from the inception of 23 the game is Fiscal Year 1994, to the present. And 24 then I also would like to note that our Mega Millions 25 sales for Fiscal Year 2007 note the highest level of 0085 1 sales since we joined the game in Fiscal Year 2004. 2 And then the other positive game that 3 we had again was on Texas Two Step, in which we ended 4 the fiscal year with greater sales than we did in 5 prior Fiscal 2006 and 2005. 6 CHAIRMAN COX: Kathy, when did 7 California join Mega Millions? 8 MS. PYKA: Robert, can you help me with 9 this? Was it 2005 or six? 10 MR. TIRLONI: Yes. For the record, my 11 name is Robert Tirloni. I'm the Texas Lottery 12 Products Manager. 13 They joined in July of 2005. 14 CHAIRMAN COX: July 2005. And we've 15 got an increase in Mega Millions sale where these 16 on-line games, the big on-line games have typically 17 been declining. Do you attribute the increase here or 18 the failure to decline to California, to jackpots, or 19 both? 20 MS. PYKA: I would contribute it to, in 21 Fiscal Year 2007, to jackpots. We had two jackpots 22 which were over $300 million in Fiscal Year 2007. And 23 in the history of the Mega Millions game, we had only 24 had one $300 million-plus jackpot, and that was in 25 Fiscal Year 2006. And so we ended up with a 0086 1 $370 million advertised jackpot as well as that final 2 jackpot of the year, which is the $330 million 3 advertised jackpot. 4 CHAIRMAN COX: Thank you. 5 MS. PYKA: We certainly ended the year 6 strong, with that $330 million jackpot. 7 MR. TIRLONI: Commissioners, this next 8 slide shows each game's share or percentage of total 9 sales for Fiscal Year 2007, fiscal Year 2006 and then 10 the percentage change. Instant game sales represented 11 over 75 percent of total sales for Fiscal Year '07. 12 Instant games had a minimal decrease in their share of 13 total sales when compared to Fiscal 2006. And you can 14 see that the percentage change is a negative 15 .09 percent. Pick 3, Texas Two Step and Mega Millions 16 all realized slight increases in their share of sales 17 for Fiscal Year '07. Pick 3 had the biggest of those 18 three, coming in at .46 percent. 19 Commissioners, I believe what this 20 represents or what this tells us is that the product 21 mix over the past two fiscal years has been relatively 22 stable. We're not seeing drastic changes in sales 23 share by game. And I have another slide following 24 this that provides some history dating back to Fiscal 25 Year 2000. 0087 1 CHAIRMAN COX: Robert, this slide 2 clearly supports the statement that you just made. Is 3 this stability atypical? Have we previously had big 4 jumps around or is this pretty much trend? 5 MR. TIRLONI: We'll see that on the 6 next slide, actually. 7 CHAIRMAN COX: Okay. Thank you. 8 MR. TIRLONI: So this next slide 9 illustrates the percentage of total sales broken down 10 by on-line and instant games. And, again, it goes 11 back to Fiscal 2000. The instant or the prize payout 12 reduction had a major impact on instant games sales in 13 Fiscals '98 and '99, and that's why we chose to start 14 this chart for you with Fiscal 2000. 15 So if we go back to Fiscal 2000, you 16 can see instants made up almost 63 percent of the 17 product mix, with on-line coming in at just slightly 18 over 37 percent. And then as we move forward through 19 the years, you can see the changes in Fiscal '04. 20 Instants were just under 67 percent, with on-line 21 coming in at about 33 percent of the total. 22 And then we did have a large increase 23 in Fiscal '05 where instants made up almost 74 percent 24 of the total. Fiscal '05 is the first fiscal year 25 where we became extremely aggressive with our instant 0088 1 game introductions, where we were launching games 2 almost weekly. And then, as I said, for Fiscal '06 3 and '07, we're right around 76 percent for the instant 4 share of the total sales. 5 So, again, at Kathy mentioned a moment 6 ago, I think what this shows is pretty much for the 7 past three fiscal years, the product mix has been 8 pretty stable. We may see some fluctuations based on 9 large jackpots, which can help us on the on-line side 10 in terms of total on-line sales. 11 CHAIRMAN COX: So it seems that we 12 could conclude from that, if we look at '05, '06 and 13 '07 as pretty flat -- 14 MR. TIRLONI: Yes, sir. 15 CHAIRMAN COX: -- that if you put these 16 on a product life cycle curve, both the instant games 17 and the on-line games would be at about the same stage 18 of maturity? 19 MR. TIRLONI: Based on those 20 percentages remaining relatively stable, I would agree 21 with your comment. 22 CHAIRMAN COX: Yet, my perception is 23 that the instant games are still on the rise, on the 24 up slope of the product life cycle, where the on-line 25 games are probably on the other side of the hill, on 0089 1 down slope of the life cycle? 2 MR. TIRLONI: I think on instants, 3 because we have so many varying price point, I 4 think -- well, I think you have to look at almost each 5 price point individually to be able to gauge the 6 product life cycle, and you have to look at the number 7 of introductions that we do per year. And I think 8 each game actually has its own product life cycle. 9 And each price point does as well, I believe. 10 CHAIRMAN COX: That's a very good 11 point. So what you're saying is that we don't have 12 one or two product life cycles, we have maybe as many 13 as we have line items on that previous schedule. 14 MR. TIRLONI: I have we have numerous 15 product life cycles. 16 CHAIRMAN COX: We have several within 17 that single line of instants. One dollars may be 18 declining; fifties may be rising? 19 MR. TIRLONI: Correct. And we've taken 20 time and we've looked at our product life cycles. 21 We've had GTECH provide us information. And we 22 continue to look at the product life cycle by price 23 points to see where we might be able to improve or 24 where we might be able to change or adjust our game 25 introduction schedules to see if we can improve sales 0090 1 at individual price points. 2 CHAIRMAN COX: Thank you. 3 MR. TIRLONI: Commissioners, this next 4 slide shows our Fiscal Year '07 instant sales, which 5 totals $2.9 billion. And this is the pie chart we 6 show you on a regular basis. It's broken down by 7 price point. 8 Our $5.00 price point continues to be 9 our leading price point, followed by the two and then 10 the 10 and then the one. You'll note the $50 price 11 point is making up, for the fiscal year, about 12 3.4 percent of the total. 13 Chairman, last month we showed you a 14 pie chart that painted a different picture about the 15 success of the $50, and so we've carried that forward 16 this month. This pie chart shows us instant sales 17 broken down by price point, but it takes us from the 18 week ending May 12th through the end of the fiscal 19 year. And the week ending May 12th is the first week 20 for which we had sales for the $50 game. And so if we 21 look at the sales for that time period, they total 22 just under $931 million, but we see the $50 making up 23 just under or -- just under 11 percent, right around 24 10.5 percent of the total. And I know that was of 25 interest of you, so we've carried that forward for 0091 1 you. 2 We have been talking about that rather 3 large Mega Millions jackpot. Texas did sell one of 4 four jackpot tickets for the drawing on Friday, 5 August 31st. The jackpot ticket was sold in Humble. 6 The other states selling jackpot tickets were 7 Maryland, New Jersey and Virginia. 8 The estimated annuitized jackpot that 9 we were advertising for that August 31 drawing was 10 $330 million, and that is what sales supported. The 11 ticket that was sold in Texas is an annual payment 12 ticket. It was a Quick Pick. The value is 13 $82.5 million, paid out over 26 years. And the 14 payments would be approximately $3.2 million per year 15 for that 26-year time period. At this time we have 16 not had any contact from any potential claimants for 17 that prize. 18 The retailer who sold that jackpot 19 ticket is eligible for an $825,000 bonus. That was a 20 Kroger location in Humble, and the ticket was actually 21 sold from their self-service terminal. 22 CHAIRMAN COX: Is that the first big 23 winner sold from a self-service terminal? 24 MR. TIRLONI: No, sir. Actually, one 25 of the other Mega Millions jackpot prizes sold in 0092 1 Texas was sold at a self-service terminal somewhere in 2 North Texas. I don't remember the exact location. 3 But it's not the first. 4 CHAIRMAN COX: When you say "is 5 eligible for" as opposed to "will receive," what's the 6 difference? 7 MR. TIRLONI: There's criteria that the 8 retailer has to meet as part of our rules. You become 9 eligible when you sell the ticket. We go through a -- 10 or the retailer goes through a licensing check to make 11 sure their license is in good standing. We check to 12 make sure the retailer doesn't owe the State of Texas 13 any funds. This bonus will require an ADA check, 14 Americans With Disabilities check at that location. 15 And after they go through all of those different 16 requirements, then we actually can make the payment to 17 the retailer. 18 CHAIRMAN COX: Thank you. 19 MR. TIRLONI: I just wanted to provide 20 you a brief update -- this will be our last meeting 21 before our Daily 4 game starts. Daily 4 will launch 22 with the Sum It Up feature on Sunday, September 30th. 23 That's when game sales start. And then our drawings 24 will begin the next day, which is Monday, October 1st. 25 Of course, we have a few drawings per day, and the 0093 1 first drawing is at 12:27 p.m. on Monday, the 1st. So 2 everything is on track for that game launch, and I 3 just wanted to let y'all know about that. 4 I wanted to share some other 5 information with you on this game. This is one of our 6 new scratch-off games. It's our State Fair of Texas 7 game, and this game started right at the end of 8 August, on August 27th. This is our first successful 9 attempt at cooperative branding. And our instant 10 product coordinator, Dale Bowersock -- he's not here 11 today -- but he really deserves all of the credit for 12 making this game a success and taking it from concept 13 all the way through fruition. 14 Dale approached the representatives at 15 the State Fair of Texas, talked to them about doing a 16 scratch-off game. As you can see, we are able to use 17 the graphics that the State Fair uses. It's a 18 win/win. You know, the State Fair gets to promote the 19 dates of their events at Fair Park in Dallas. They 20 have their website on there. And it's certainly a win 21 for us, because for the three weeks that this game has 22 been out, it's ranked either No. 1 or No. 2 in sales. 23 So it's been exceeding sales for the $50, for one of 24 our $25 price point games. 25 And the best news is that this gave 0094 1 cost us zero dollars in terms of there were no 2 licensing fees or any other fees associated with this 3 game for us. So it's doing very well. We're very 4 pleased with the results, and we hope to be able to 5 continue to look at opportunities in the future that 6 will enable us to join, you know, with other 7 organizations and embark on some of these cooperative 8 efforts. 9 And with that, Dr. Sizemore is here to 10 give you an update on research. 11 DR. SIZEMORE: Thank you, Robert. 12 Good morning, Commissioner, Chairman. 13 I am David Sizemore, Research Coordinator for the 14 Texas Lottery Commission. And I have several slides 15 to present to you today having to do with the public 16 opinion material about the Texas Lottery Commission 17 that is gathered by Ipsos Reid on a monthly basis. 18 And we have previously presented this 19 to you on monthly terms. And after discussion in the 20 October 2006 meeting with you, the Commissioners 21 decided that you would prefer to see this on a 22 quarterly basis in terms of the data presented, rather 23 than a monthly data presentation. 24 The first slide has to do with the 25 extent to which respondents are informed about the 0095 1 Texas Lottery. And since the third quarter of 2005 2 time in which the question had the word "Commission" 3 removed, the responses have been relatively stable, 4 with the exception of the third quarter in 2006, with 5 a slight decline from 32 percent to 28 percent. 6 Roughly, however, over time, things are falling out in 7 the low thirties in terms of being informed about the 8 Texas Lottery. 9 CHAIRMAN COX: David -- 10 DR. SIZEMORE: Yes, sir? 11 CHAIRMAN COX: -- do you have any 12 qualitative comments about the last slide, about 13 whether that's good or bad? 14 DR. SIZEMORE: 33 percent is not a 15 significant portion of the population. It's a lot of 16 people, obviously, and these are big samples, 1,200 17 typically. And in the first quarter, those numbers 18 reach up to 2,000. So it is clearly representative. 19 Qualitatively, it's obviously the case 20 that most of the Texas population is not informed 21 about the Texas Lottery -- over 50 percent. 22 CHAIRMAN COX: Do you think that means 23 anything as far as something we should be doing that 24 we're not or is that just kind of the way it's going 25 to be no matter what we do? 0096 1 DR. SIZEMORE: Well, there are a number 2 of interesting things to me. The shift when we 3 removed the word "Commission" was large, having the 4 not informed segment dropping from 69 percent to 5 51 percent. And we discussed this in the past, about 6 semantics and issues of what simple wording might do. 7 And, obviously, that word may have thrown a wrench in 8 things in terms of perception. And we see that 9 through the rest of these slides which would, of 10 course, suggest something perhaps about state 11 agencies. 12 CHAIRMAN COX: Well, is it possible 13 that -- let's just look at the 32 percent and the 14 14 percent. Is that about the level of participation 15 we have in the state when we do our demographic study? 16 DR. SIZEMORE: The demographic study in 17 the most recent 2006 effort, I think it was 53 percent 18 or 54 percent -- 19 CHAIRMAN COX: Okay. So it may be that 20 that's -- 21 DR. SIZEMORE: -- within the last year. 22 CHAIRMAN COX: That may be just players 23 versus non-players? 24 DR. SIZEMORE: It could be. It's 25 really difficult to say. It also could be something 0097 1 about advertising. It could be something about 2 exposure in the media. There are any number of things 3 it could be. 4 CHAIRMAN COX: Of course, advertising 5 hopefully we're tracking separately. So this wouldn't 6 be, I don't think, a way to track advertising. And I 7 know I'm asking you a very difficult question. But 8 Chairman Clowe and I look at this every quarter, and I 9 thought we ought to at least think about what does 10 this tell us. And I guess maybe it tells us that the 11 people who play are informed and the people who don't 12 play are not informed. That's the best I'm going to 13 be able to do, I think, unless somebody tells me 14 something different. 15 DR. SIZEMORE: Well, there is something 16 that we could launch into in terms of what potential 17 there is in getting the word out about the Texas 18 lottery. Obviously, there is a large segment of the 19 population that claim they know -- or are not informed 20 about the lottery. It could be incumbent upon us to 21 increase efforts to get them aware. 22 CHAIRMAN COX: Well, I think we're 23 probably addressing that in advertising, and I don't 24 want to stir that up. 25 Chairman Clowe, do you have any 0098 1 thoughts on this? 2 COMMISSIONER CLOWE: I think you're on 3 the right track. I wondered if we changed the 4 question to, "Do you know there is a Texas lottery?" 5 How much the response would change. And then if you 6 asked -- and we've asked this question -- "Do you play 7 the Texas lottery?" And that was a point you made, if 8 the numbers wouldn't be about the same. 9 And I think your comment is certainly 10 correct. This doesn't represent a challenge that we 11 ought to go out and start trying to tell everybody who 12 we are and spend advertising dollars convincing people 13 that the Texas lottery is something that ought to be 14 taken up universally in the state. 15 You know, we're somewhat controversial 16 in what we do. And if you ask the question about 17 other activities in the state that people are for and 18 against, you might get the same numbers. I think it's 19 a good thing to be aware of and think about, but I 20 don't see any conclusion that we could draw or goal 21 that we ought to set or path we ought to put upon to 22 materially influence this. And I'm not sure that we 23 could and not bring on some activity that we really, 24 as you say, don't want to stir up. 25 CHAIRMAN COX: What does it cost us to 0099 1 gather this information? 2 DR. SIZEMORE: Each month we spend just 3 under $30,000 to survey 400 people. And it depends on 4 the questions that are asked and the extent of the 5 survey and length. 6 CHAIRMAN COX: Okay. So then I see 7 there Q-107, we did 2,000 people. 8 DR. SIZEMORE: Well, the quarterly 9 material is rolled up from all the monthly data 10 efforts. And that larger sample includes the 11 segmentation study that's done on an annual basis that 12 has -- what? -- 1,200 respondents for that month, 13 which is coming up in October, for example. 14 CHAIRMAN COX: Okay. Why do we do 15 this? 16 DR. SIZEMORE: We do this to keep 17 informed about what the market experiences. We do 18 this also for connection to what people think about 19 the lottery, where they're going, what kind of games 20 might be useful and so on. 21 COMMISSIONER CLOWE: And there are two 22 more pages to follow. 23 DR. SIZEMORE: Yes. And this is again 24 a -- 25 COMMISSIONER CLOWE: That's part of why 0100 1 we do this, I think. 2 DR. SIZEMORE: Correct. And this is a 3 much -- this is extracted from a much larger dataset 4 so that we ask upwards of 20 questions on a given 5 month that have to do with demographics, 6 participation, questions of specific interest in a 7 given month or a given time period, things that apply 8 specifically to what Operations might be interested 9 in, what the Commissioners might be interested in and 10 so on. 11 So, again, this is just one snapshot of 12 what we're actually doing overall. Okay? 13 CHAIRMAN COX: Okay. Gary? 14 MR. GRIEF: Good morning, 15 Commissioners. For the record, Gary Grief, Deputy 16 Executive Director. 17 Just as a refresher on this 18 information, this is just three slides that you see 19 out of numerous pieces of information that are very, 20 very useful to the agency in our efforts to reach the 21 players of Texas. These three slides, as a matter of 22 past practice by the Commission, I think going all the 23 way back to the days when Harriet Miers -- and I know 24 Executive Director Sadberry served on the Board at 25 that time -- that the Commission showed interest in at 0101 1 that time. There were things that were going on with 2 the agency that the Commission at the time believed 3 might show themselves through these kinds of surveys. 4 And we made this type of presentation 5 to you a year and a half, somewhere along those lines. 6 And there continues to be some thought among staff as 7 to the usefulness of these three slides for the 8 Commission. If it's something that you're interested 9 in seeing, obviously, we're happy to have our research 10 vendor go out and accumulate this data. 11 I see just on the first slide that 12 there's a struggle to see if this is information 13 that's useful to you or useful to us. So I would just 14 ask that as you look through these slides today or the 15 next quarter, that you would continue to keep that 16 thought your mind and help guide us as to whether or 17 not there is usefulness in these pieces of information 18 for you. 19 CHAIRMAN COX: Well, I think tradition 20 is very important. And certainly we have been 21 monitoring these for a long time, and I'm sure a lot 22 of thought has been given to it over the years. I 23 think the key thing I hear from you is that this is 24 collected as a part of a package of information, much 25 of which is very useful, which probably means that the 0102 1 marginal cost of these questions is nil. 2 DR. SIZEMORE: Yes. And if I may 3 interject, the questions themselves I think are $600, 4 $700 a month to ask individually. So these three 5 questions would cost us six or $700, as part of that 6 larger, overall monthly effort that includes many more 7 items. 8 CHAIRMAN COX: Okay. 9 DR. SIZEMORE: So it's a smaller piece. 10 CHAIRMAN COX: Gary, thank you very 11 much for that. 12 And, David, excuse me for the 13 interruption. Please go ahead. 14 DR. SIZEMORE: And I apologize for 15 having a less-than-historical perspective in terms of 16 everything that's meant. 17 CHAIRMAN COX: You can only know what 18 you know. 19 DR. SIZEMORE: Well, yes, sir. 20 COMMISSIONER CLOWE: Don't make it up. 21 (Laughter) 22 CHAIRMAN COX: No. 23 DR. SIZEMORE: I would rather not fly 24 by the seat of my pants, frankly. 25 COMMISSIONER CLOWE: I've got a friend 0103 1 who makes it up. 2 DR. SIZEMORE: Oh, no. This is as 3 empirical as it gets, whatever that means. 4 The next slide has to do with the 5 overall opinion of the lottery, which again shows a 6 measure of stability over time, particularly since the 7 third quarter of 2005, which at that point was the 8 highest mark we received in terms of positive overall 9 opinion among respondents. Since then, it's 10 fluctuated between 40 and 46 percent, again relatively 11 stable. 12 And on a monthly basis -- on a monthly 13 basis, I believe the same stability has been exhibited 14 in the last year. And as a side note, I should 15 emphasize that given that we do track participation in 16 this -- and you asked about the demographic study, but 17 it might be useful to understand participation as it's 18 drawn out from these studies -- in August '07, past 19 year participation in any game was about 58 percent, 20 which coincides rather nicely with the annual 21 demographic survey. 22 In the third quarter of 2007, 23 37 percent of the respondents had a negative overall 24 opinion, and this includes a collapsed measure. And 25 you can see the digits here at the top next to the 0104 1 terms "Positive." Neutral/Don't Care is simply a 2 middle-of-the-road measure, which we've discussed in 3 the past. And percent negative is 1, 2, 3. So you 4 can say extremely negative view, which would be a 1; 5 somewhat negative -- although it's not ranked like 6 this; it's simply a numerical range with positive at 7 one end, negative at the other -- but it's intended to 8 get a sense of extreme. 9 CHAIRMAN COX: That's interesting. 10 What would it look like if you said 3, 4 and 5 were 11 neutral and took only the poles? 12 DR. SIZEMORE: If you took the 13 extremes, it would change things markedly. However, I 14 can't speak to it because I don't have the data in 15 front of me. But we can certainly give that a look if 16 you would like to see it on an independent basis. 17 CHAIRMAN COX: Next time you report 18 this, why don't you take two cuts at neutral. 19 DR. SIZEMORE: Two cuts? 20 CHAIRMAN COX: Yes. One would be 4, 21 and one would be 3, 4 and 5. 22 DR. SIZEMORE: So two different sets? 23 CHAIRMAN COX: Yes. 24 COMMISSIONER CLOWE: In that regard -- 25 are you finished? 0105 1 CHAIRMAN COX: Yes, sir. 2 COMMISSIONER CLOWE: In that regard, I 3 didn't understand if you answered this question. And 4 then if you didn't answer if, I would like to ask it. 5 Did you rate 5, 6 and 7 and 1, 2 and 3 the same 6 rating, they have the same weight? 7 DR. SIZEMORE: Yes. Seven would be the 8 extreme, which again, the way the question is 9 worded -- 10 COMMISSIONER CLOWE: Rate from 1 to 7. 11 DR. SIZEMORE: Very positive would be 12 7; very negative would be one 1. 13 COMMISSIONER CLOWE: Why? 14 DR. SIZEMORE: And then people are left 15 to discern -- 16 COMMISSIONER CLOWE: Now, if the -- 17 DR. SIZEMORE: -- to decide those 18 numbers. 19 COMMISSIONER CLOWE: Is there any 20 difference between a 5 and a 7 in the report? 21 DR. SIZEMORE: The way it's reported 22 now? 23 COMMISSIONER CLOWE: Yes. 24 DR. SIZEMORE: No. It's all, quote 25 unquote, positive. 0106 1 COMMISSIONER CLOWE: Suppose you rated 2 7 with the weight of, say, 5 and 6 with the rate of 3 4 -- 6 with the rate of 4 and 5 with the rate of 3 and 4 the same thing for 1, 2 and 3? 5 DR. SIZEMORE: You would pull 6 everything towards the center? 7 COMMISSIONER CLOWE: You're just saying 8 love/hate, you're not saying really hate or I really 9 love? 10 DR. SIZEMORE: Well, very positive is 11 supposed to get at that extreme, or in very negative. 12 COMMISSIONER CLOWE: But you're 13 reporting it with the same weight -- 14 DR. SIZEMORE: Right. 15 COMMISSIONER CLOWE: -- that you do 16 with -- 17 DR. SIZEMORE: That's for simplicity's 18 sake more than anything, because I think that -- 19 CHAIRMAN COX: Well, let's don't be 20 simple. 21 DR. SIZEMORE: Once we disaggregate all 22 this stuff, it becomes very muddled. 23 CHAIRMAN COX: What let's do next time 24 is find a weighting system, like Chairman Clowe 25 suggested, and do it just like you've done it and do 0107 1 3, 4 and 5 as neutral and only 1, 2, 6 and 7 as -- and 2 let's see what they all look like. 3 You see, in my mind, what you've really 4 done is, you've just got three ratings there. 5 DR. SIZEMORE: Right. 6 COMMISSIONER CLOWE: One, 2 and 3 are 7 the same thing; and 5, 6 and 7 are the same thing. 8 And you've got one 4. 9 DR. SIZEMORE: Right. And the 4 is 10 simply a marker that falls out right in the middle of 11 these -- 12 COMMISSIONER CLOWE: I understand. But 13 you see what I'm saying about -- 14 DR. SIZEMORE: Yes, sir. 15 COMMISSIONER CLOWE: -- 1, 2 and 3 and 16 5, 6 and 7? 17 DR. SIZEMORE: Sure. They're -- 18 COMMISSIONER CLOWE: There is no 19 difference in 5 and 7 or 1 and 3. And if I really 20 hate it or I really love it, I'm not coming through 21 that way. 22 DR. SIZEMORE: Right. And those 23 qualitative distinctions don't necessarily come out 24 here. And it may be useful to get a broader spectrum. 25 COMMISSIONER CLOWE: Why do you ask it, 0108 1 then? If there is no difference between 1 and 3 and 5 2 and 7, why don't you just say 1, 2, 3? 3 CHAIRMAN COX: Gary, did you have 4 something you wanted to say? 5 MR. GRIEF: I did. Very good question, 6 Commissioner. Just to clarify, when we go back, then 7 we'll do exactly as you asked. We'll weight those. 8 Would you like us to go back in time so 9 you can see how that's changed? I think -- David, 10 correct me if I'm wrong -- you could actually gather 11 that data from, for example, the dates on the charts 12 so you can see how, given weights, it could change -- 13 DR. SIZEMORE: Right. 14 MR. GRIEF: -- it has changed. 15 Is that what you're interested in, 16 rather than just going forward starting with the next 17 quarter? 18 COMMISSIONER CLOWE: I just got a 19 questionnaire from a car manufacturer of the car that 20 I drive, and it has about seven choices. And I sat 21 down and I really looked at it carefully, and I 22 thought about the answers. And if I thought a 1 was 23 not rated anymore in that direction than a 3 or a 4 24 that I gave them, I wouldn't spend any time at all on 25 it. 0109 1 DR. SIZEMORE: Well, and 2 methodologically the intention is to get at those 3 subtleties between what you might consider a positive 4 rank: 5, 6 and 7. You give people the extreme of 7, 5 well, they're a little less warm on the idea. So a 6, 6 even less. So a 5 and down through the same side on 7 the negative. 8 CHAIRMAN COX: And, David, I think we 9 all understand that. What let's do is, as Chairman 10 Clowe suggested, let's redo the whole thing there, 11 weighting things like he suggested, where 7 gets more 12 weight than 6 and 6 gets more weight than 5 and 1 gets 13 more weight than 2 and 2 gets more weight than 3. And 14 then let's do it the way I suggested where we take 3, 15 4 and 5 and call them neutral and just see, 1 and 2 16 and 6 and 7, and let's see what we got. If it's more 17 meaningful, fine; and if it isn't, well, we had fun 18 trying. 19 DR. SIZEMORE: Okay. The whole 20 weighting thing might throw me off. 21 CHAIRMAN COX: You can handle it. 22 Surprise us. 23 DR. SIZEMORE: All right. 24 CHAIRMAN COX: You get the idea? 25 DR. SIZEMORE: More or less. But I 0110 1 might have to ask a question of Commissioner Clowe. 2 COMMISSIONER CLOWE: Yes. And I would 3 be happy to work with you on that. But I really want 4 you to understand my thinking, my theory on this, 5 that, you know, if good is 1 through 3 and bad is 5 6 through 7 -- 7 DR. SIZEMORE: Why not just have 1 and 8 3? Sure. 9 COMMISSIONER CLOWE: Just give me 1 and 10 give me 7. 11 DR. SIZEMORE: Right. 12 COMMISSIONER CLOWE: And if you're 13 weighting those exactly the same, you're not helping 14 me tell you what I really think about it. 15 DR. SIZEMORE: Right. And 16 statistically weighting has a different meaning. So 17 I'm not sure that that's necessarily what you want to 18 do. What it seems like you want to do -- and this is 19 my impression -- is simply see the way it falls off 20 for each one of those categories and then changing the 21 numbers so that 3 is the same as 2 and 2 is the same 22 as 1? I'm not sure how -- I'll have to think about 23 that one. 24 COMMISSIONER CLOWE: No. I want a 25 higher rating for extremes on either side, more weight 0111 1 given to those extreme answers, less weight as you get 2 in towards the middle, and the neutral is one number. 3 I like that. 4 DR. SIZEMORE: Okay. 5 COMMISSIONER CLOWE: And I understand 6 what you're trying to do. You're trying to give 7 people some shading of choices. But you've got to 8 weight that, in my mind, to hear how they really like 9 it or they really don't like it. 10 CHAIRMAN COX: Let me make a suggestion 11 and see if it works. And just keep asking folks 1, 2, 12 3, 4, 5, 6, 7, but we convert 4 to zero. We convert 3 13 to minus 1, 2 to minus 2, and 1 to minus 3. 14 DR. SIZEMORE: Minus 3. 15 CHAIRMAN COX: We make five plus 1, 6 16 plus 2, 7 plus 3. 17 COMMISSIONER CLOWE: Yes. 18 DR. SIZEMORE: That's possible. 19 COMMISSIONER CLOWE: Then what's your 20 score? 21 DR. SIZEMORE: Off the top of my head, 22 I think that the extremes are easily falling around 10 23 percent of the sample. So --- 24 CHAIRMAN COX: Whether that's 25 statistically valid or not, if it's good enough for 0112 1 Chairman Clowe, it's good enough for me. 2 COMMISSIONER CLOWE: It just gives us 3 an indication. And we don't want him to go back to 4 the beginning, do we? 5 CHAIRMAN COX: No, not back to '00. 6 COMMISSIONER CLOWE: How much time do 7 we want him to spend on this, how much data? 8 MR. GRIEF: How about that chart? 9 CHAIRMAN COX: I bet he's got a 10 computer that will do this so doggone fast, you won't 11 even believe it. 12 COMMISSIONER CLOWE: Do you really? 13 DR. SIZEMORE: Lickety-split, yes, sir. 14 COMMISSIONER CLOWE: You just write the 15 program and then run it and you can revise all the 16 data? 17 DR. SIZEMORE: We'll figure out a way. 18 Do you want to see it like this, though, in this 19 format? 20 COMMISSIONER CLOWE: I think it would 21 be meaningful to show it this way and then show it the 22 way Chairman Cox suggested with his schedule. 23 DR. SIZEMORE: So you want me to 24 transfer this slide into essentially three different 25 looks? 0113 1 CHAIRMAN COX: There you go. 2 COMMISSIONER CLOWE: If you can. 3 CHAIRMAN COX: And then we'll pick the 4 one that we like best going forward. 5 COMMISSIONER CLOWE: Don't blow up the 6 computer. 7 DR. SIZEMORE: If the lights dim, 8 you'll know something went wrong. 9 COMMISSIONER CLOWE: Yes. 10 CHAIRMAN COX: Okay. Good. 11 DR. SIZEMORE: The final slide has to 12 do with the extent to which respondents agree or 13 disagree with their perception that the Texas Lottery 14 is operated fairly and honestly. And this is the same 15 time frame -- 16 COMMISSIONER CLOWE: Now he's back to 17 your players and your people, or proponents and 18 opponents. 19 CHAIRMAN COX: Yes. 20 COMMISSIONER CLOWE: You know, that's 21 very close. 22 CHAIRMAN COX: Yes, sure is. There's 23 your 30 percent. 24 COMMISSIONER CLOWE: Yes. 25 DR. SIZEMORE: Most people think we're 0114 1 fair and honest. 2 Thank you. If you have any questions, 3 please let me know. 4 CHAIRMAN COX: Thank you very much. 5 MR. TIRLONI: Thank you. We'll be back 6 next month, starting to compare this current Fiscal 7 Year '08 to '07 for you. 8 CHAIRMAN COX: Good. 9 COMMISSIONER CLOWE: Chairman Cox, I 10 would like to make a remark before these folks leave. 11 I think this has been an informative discussion, and 12 it's always helpful to go into these subjects. And I 13 thought your exchange with Robert about the instant 14 ticket life and the price points and the games coming 15 up and down -- how many games have we get on the 16 street now? 17 MR. TIRLONI: We probably have about 75 18 to 80, roughly. We don't have that many available in 19 the warehouse to ship, but that's probably the maximum 20 that you could find available in any one location. 21 COMMISSIONER CLOWE: I think you were 22 in a very correct discussion there about it's not just 23 the instant ticket, it's all the instant tickets and 24 the different lifestyles that the tickets run and the 25 price point issue, and you've opened up that $50 0115 1 ticket fairly recently. You know, the Pick 4 is -- or 2 the Daily 4 is the newest thing that's happened since 3 Mega Millions and the Megaplier. And to me, those 4 games really are old and tired and the instants are 5 not. It looks like they're topping out, but they're 6 being rejuvenated. 7 The other comment I wanted to make was, 8 I'm sitting here thinking about this report that you 9 gave us. The care and attention now that's given to 10 the financial aspects of the Lottery's operation under 11 the direction of Ms. Pyka and her staff, all of those 12 who contribute to that, is vitally important and is 13 very impressive to me. 14 In the nine years that I've been on 15 this board, I have seen that improve exponentially. 16 And now we're at a level that, you know, the questions 17 that are asked of her are direct and meaningful, 18 thanks to your background and experience, and her 19 answers are unhesitating and she's on top of it. 20 CHAIRMAN COX: Yes, sir. 21 COMMISSIONER CLOWE: And as a guy who 22 went to the Harvard Business School for Finance for 23 executives who don't understand finance -- and I 24 learned how little I know about this -- I'm very 25 impressed with the job that she's done. And that 0116 1 gives me a sense of satisfaction, handling 2 $3.8 billion of people's money every year and all of 3 the things that happen that I'm very happy about. 4 And at this occasion of this year-end 5 report, I just want to tell you how important this 6 is -- and you well know it -- and express a hope on 7 your behalf as well as mine our appreciation for the 8 solid financial control and reporting that takes place 9 in this agency. 10 CHAIRMAN COX: I totally agree with all 11 of that. And I would add -- and I know you share this 12 view -- that the performance for this year, 13 particularly in light of where the performance was 14 back in February, is remarkable. And we appreciate 15 the work all of you have done to bring this year in 16 ahead of last year, which didn't seem possible a few 17 months ago. 18 COMMISSIONER CLOWE: Thank you, Mega 19 Millions. 20 MS. PYKA: Thank you so much for those 21 comments. And I certainly want to make certain that 22 all know that I could not do my job without the 23 support of my outstanding team, the leadership that 24 Ben, Kelly and Stacy provide to me in my shop. But 25 we've made a lot of changes down there, and I have a 0117 1 great team. And the leadership that I get from my 2 leadership is outstanding as well, and the support of 3 Robert and his team, as we put together these 4 presentations. It's a joint effort, and we couldn't 5 do it as a standalone team. 6 So thank you for that. 7 CHAIRMAN COX: Thank you very much. 8 AGENDA ITEM NO. XVI 9 CHAIRMAN COX: Item No. XVI, report, 10 possible discussion and/or action on transfers to the 11 state. 12 Ms. Pyka. 13 MS. PYKA: Thank you, Mr. Chairman. 14 This item does include information on 15 the agency's financial status. The first report 16 includes our transfers and allocations to the 17 Foundation School Fund and the allocation of unclaimed 18 prizes as of August of 2007. Total cash transfers to 19 the state amounted to $1.9 billion in Fiscal Year 20 '07 -- excuse me -- $1,009,000,000 for Fiscal Year 21 2007. And this does represent a minimal increase from 22 our cash transfers in Fiscal Year 2006. 23 The second page of your notebook 24 includes a detail of that transfer amount. Of the 25 $1,009,000,000, $1,003,000,000 was the amount 0118 1 transferred to the Foundation School Fund, with 2 $58.9 million transferred from unclaimed lottery 3 prizes. 4 The final document in your notebook 5 includes information on expenditures, sales and 6 transfers for the Fiscal Year 1992 to present. And 7 our cumulative transfers to the Foundation School Fund 8 through this period amount to $9.7 billion. 9 I would be happy to answer any 10 questions. 11 CHAIRMAN COX: No questions. Thank 12 you. 13 AGENDA ITEM NO. XVII 14 CHAIRMAN COX: Item No. XVII, report, 15 possible discussion and/or action on request for 16 additional FY 2008 Rider Capital Budget Authority. 17 Ms. Pyka. 18 MS. PYKA: Commissioners, this morning 19 I'm bringing another item back to you on Rider 2 20 Capital Budget Request. I'm seeking your approval to 21 submit a request to the Governor's Office of Budget, 22 Planning and Policy, as well as the Legislative Budget 23 Board, to exceed the transfer limitation on Fiscal 24 Year 2008 Rider 2 Capital Budget Limitation. 25 The request in the amount of $482,000 0119 1 would be submitted in accordance with Article IX, 2 Section 14.03, Paragraph (b) of the Appropriations 3 Bill where it relates to a limitation on expenditures. 4 A request to submit under this provision includes the 5 following requirements: It must be submitted by the 6 agency's governing board and must include, at a 7 minimum, the date on which the board approved the 8 request; a statement justifying the need to exceed the 9 limitation; the source of funds used to make the 10 purchase, as well as an explanation as to why the 11 expenditure cannot be deferred. 12 Commissioners, on June the 4th of '07, 13 we submitted a request to exceed the Commission's 14 Fiscal Year 2007 capital budget limitation, in the 15 amount of $479,845 to purchase a video spectral 16 comparator as well as upgrade the Commission's 17 hardware and software infrastructure. 18 While the Rider 2 request for Fiscal 19 Year 2007 was approved on August 30th of 2007, it was 20 limited to the approval of the video spectral 21 comparator. Our hardware and software upgrade item 22 did not receive approval. Based on feedback that we 23 received from legislative leadership, we are 24 submitting a request to you for approval to submit the 25 hardware and software infrastructure item again for 0120 1 Fiscal Year 2008 consideration. If approved, the 2 following capital budget item that was originally in 3 out '08-09 LAR then would include the hardware and 4 software infrastructure upgrade at $482,000. 5 I would be happy to answer any 6 questions. 7 COMMISSIONER CLOWE: So move. 8 CHAIRMAN COX: Second. 9 MS. PYKA: Thank you. And Ms. Kiplin 10 has the signature, the T-bar. 11 CHAIRMAN COX: All in favor, say "Aye." 12 COMMISSIONER CLOWE: Aye. 13 CHAIRMAN COX: Aye. 14 Motion carries 2-0. 15 AGENDA ITEM NO. XVIII 16 CHAIRMAN COX: Item XVIII, report, 17 possible discussion and/or action on Bingo indirect 18 and administrative expenses. 19 Ms. Pyka. 20 MS. PYKA: Thank you, Mr. Chairman. 21 Commissioners, at our previous two 22 Commission meetings, I provided you an overview of the 23 funding issues related to Bingo indirect and 24 administrative expenses. I do not have any new 25 information to report to you, as the Commission is 0121 1 still awaiting a response on the issuance of the 2 letter of intent related to this matter. 3 I would be happy to answer any 4 questions. 5 COMMISSIONER CLOWE: No questions. 6 CHAIRMAN COX: No questions. 7 MS. PYKA: Thank you, Commissioners. 8 CHAIRMAN COX: Is everyone else as cold 9 as I am? 10 FROM THE FLOOR: Yes, sir. 11 CHAIRMAN COX: Could we save about 12 maybe two degrees on the thermostat and maybe I won't 13 need an overcoat. 14 MS. WOELK: I'll tell them, 15 Commissioner, as soon as I finish this. 16 CHAIRMAN COX: Is there anybody but you 17 that can tell them? 18 MS. WOELK: I'm sure someone is telling 19 them right now -- 20 CHAIRMAN COX: Okay. Great. 21 MS. WOELK: -- hearing your request. 22 There it goes. We've been 23 acknowledged. 24 CHAIRMAN COX: Okay. 25 AGENDA ITEM NO. XX 0122 1 CHAIRMAN COX: Item XX, report, 2 possible discussion and/or action on the amendment to 3 the agency's lottery operations and services contract. 4 Mr. Fernandez. 5 Mr. Fernandez. 6 MR. FERNANDEZ: Good morning, 7 Mr. Chairman, Mr. Commissioner. My name is Mike 8 Fernandez. I'm the Director of Administration. 9 This item is to advise you that Staff 10 is developing an Amendment No. 10 to the contract for 11 lottery operations and services. As a follow-up to Ed 12 Rogers' presentation at your August Commission 13 meeting, this amendment will remove the provision 14 regarding incomplete transactions included as Section 15 Q in Amendment 8. 16 If you have any questions, we would be 17 happy to answer them. 18 CHAIRMAN COX: No questions. Thank 19 you. 20 Move approval of the Staff 21 recommendation -- or does this require approval? 22 MR. FERNANDEZ: No, sir. 23 CHAIRMAN COX: This is within the 24 Director's authority? This is just a report? 25 MR. FERNANDEZ: Yes, sir. 0123 1 CHAIRMAN COX: Thank you. 2 AGENDA ITEM NO. XXI 3 CHAIRMAN COX: Okay. Item No. XXI, 4 report, possible discussion and/or action on the 5 agency's contracts. 6 Mr. Jackson. 7 MR. JACKSON: Good morning, 8 Commissioner, Chairman Cox. For the record, my name 9 is Tom Jackson, Purchasing and Contracts Manager for 10 the Commission. 11 Commissioners, in your notebooks under 12 Tab No. XXI is a report on the prime contracts that 13 has been updated for your review. I would be happy to 14 answer any questions. 15 COMMISSIONER CLOWE: No questions. 16 CHAIRMAN COX: Tom, did everything that 17 needed to get done by August 31 get done by August 31? 18 MR. JACKSON: Yes, sir, it did. 19 CHAIRMAN COX: Okay. Is there any 20 effort to relieve any of that deadline to move 21 contracts to other dates or is that just a lost cause? 22 MR. JACKSON: No, it's not. We are 23 working diligently to move dates as we can. We have 24 moved dates on some of the non-prime contracts. As 25 renewals come up, amendments come up, we make an 0124 1 effort to work with the vendors to move those dates. 2 Some we can't move, but we are working on every single 3 contract to move the dates around. 4 CHAIRMAN COX: Okay. I recognize the 5 convenience of having contracts and fiscal years 6 coincide. At the same time, the peak load that it 7 puts on folks around here, if there is anything we can 8 do to relieve it, it would be good if we can. 9 MR. JACKSON: Okay. 10 AGENDA ITEM NO. XXII 11 CHAIRMAN COX: Item XXII, report and 12 possible discussion and/or action on the agency's HUB 13 program and/or minority business participation, 14 including agency's Mentor Protégé Program. 15 Ms. Bertolacini. 16 MS. BERTOLACINI: Good morning, 17 Chairman Cox and Commissioner Clowe. For the record, 18 my name is Joyce Bertolacini, and I am the agency's 19 Historically Underutilized Business Coordinator. 20 A copy of the July HUB minority 21 contracting activity report has been provided in your 22 notebooks today, and this report includes all Fiscal 23 Year 2007 expenditures paid from September 1st of 2006 24 through July 31st of 2007. Our total qualifying 25 expenditures as of July 31st were approximately 0125 1 $138.1 million, and our estimated HUB minority 2 participation was $37.3 million, which equates to 3 27.02 percent. 4 Regarding the agency's Mentor Protégé 5 Program, I recently followed up with our mentor 6 companies to inquire about any possible agreements 7 that may be formed. And although there are still no 8 agreements to be signed as of this time, the mentors 9 are continuing their efforts. And I will be making 10 further contact with them in the coming weeks to 11 encourage their progress. 12 And I would be happy to answer any 13 questions that you have at this time. 14 COMMISSIONER CLOWE: No questions. 15 CHAIRMAN COX: Good report. Thank you. 16 MS. BERTOLACINI: Thank you. 17 CHAIRMAN COX: Okay. Sarah, it looks 18 like it's your turn. 19 AGENDA ITEM NO. XXIII 20 CHAIRMAN COX: Item No. XXIII, 21 consideration of and possible discussion and/or 22 action, including proposal of repeal, on 16 TAC 23 403.402 relating to Exemption of Vehicle Inspection 24 (sic) Requirements. 25 Ms. Woelk. 0126 1 MS. WOELK: Thank you. Sarah Woelk, 2 Special Counsel. This proposal is an outgrowth of the 3 rule review of Chapter 403 -- 4 COMMISSIONER CLOWE: Sarah, I don't 5 think your mike is on. 6 MS. WOELK: Oh, I'm sorry. 7 There. Is that good? 8 COMMISSIONER CLOWE: And, Mr. Chairman, 9 you read that -- 10 MS. KIPLIN: It's "Inscription." 11 COMMISSIONER CLOWE: My -- well, pardon 12 me. Go ahead. 13 CHAIRMAN COX: Did I read it wrong? 14 MS. KIPLIN: I'm sorry, Mr. Chairman. 15 COMMISSIONER CLOWE: I was trying to 16 discreetly help you out. 17 (Laughter) 18 CHAIRMAN COX: Thank you. I would 19 appreciate some discreet help, although it's probably 20 no longer possible. 21 COMMISSIONER CLOWE: I lost that 22 battle. 23 CHAIRMAN COX: Okay. Counsel, what did 24 I do wrong? 25 MS. KIPLIN: You read a word 0127 1 incorrectly, and it's "Inscription." 2 CHAIRMAN COX: Which one? 3 MS. KIPLIN: On the vehicle. You said 4 "Inspection." 5 CHAIRMAN COX: Oh, "Inspection." It's 6 "Inscription" requirements. 7 MS. KIPLIN: We had the right rule 8 cite, so I was going to let it go. 9 CHAIRMAN COX: Thank you. "Vehicle 10 Inscription Requirements." 11 MS. WOELK: All right. I'll start 12 afresh. I'm Sarah Woelk. I'm the Special Counsel. 13 This proposed repeal is an outgrowth of 14 the rule review of Chapter 403. The Transportation 15 Code allows an agency, by rule, to exempt a 16 surveillance vehicle from certain inscription 17 requirements. 18 CHAIRMAN COX: What is an inscription 19 requirement? I knew what an inspection requirement 20 was. 21 (Laughter) 22 MS. WOELK: I think it allows you to 23 disguise the vehicle. It allows you to -- 24 CHAIRMAN COX: Oh, it puts the state 25 seal on the side? 0128 1 MS. WOELK: Right. 2 CHAIRMAN COX: Okay. 3 MS. WOELK: Right. It allows you to 4 not give your surveillance away so easily. And we did 5 some looking into this. And this rule can only apply 6 to a vehicle used exclusively for surveillance 7 purposes. We don't currently have any vehicles that 8 are used exclusively for surveillance. And Jim 9 Carney, the Director of Enforcement, says he does not 10 foresee the possibility that we will have any such 11 vehicles; therefore, we are recommending that you 12 propose to repeal this rule. 13 CHAIRMAN COX: So we no longer have any 14 unmarked cars? 15 MS. WOELK: Right. 16 COMMISSIONER CLOWE: Move adoption of 17 the Staff recommendation. 18 CHAIRMAN COX: Second. 19 All in favor, say "Aye." 20 COMMISSIONER CLOWE: Aye. 21 CHAIRMAN COX: Aye. 22 Motion carries 2-0. 23 MS. WOELK: And I think I'll just stay 24 here for my next one, while Deanne does her rule, if 25 that's -- 0129 1 CHAIRMAN COX: Okay. 2 AGENDA ITEM NO. XXIV 3 CHAIRMAN COX: Deanne, Item XXIV, 4 consideration of and possible discussion and/or 5 action, including proposal, on amendments to 16 TAC 6 403.101 relating to Open Records. 7 Ms. Rienstra. 8 MS. RIENSTRA: Yes, sir. Thank you. 9 Deanne Rienstra, Assistant General Counsel. 10 Commissioners, attached for your 11 consideration are proposed amendments to 16 Texas 12 Administrative Code 403.101 relating to Open Records. 13 The amendments are the result of the Commission's 14 recent review of Chapter 403. 15 Specifically, the amendments clarify 16 that charges to a person requesting reproductions of 17 any readily available record of the Commission will be 18 the charges established by rule in accordance with the 19 Texas Government Code, Chapter 552, Subchapter F, and 20 to change "Open Records Specialist" to "Open Records 21 Coordinator." 22 The staff recommends that the 23 Commission initiate the rulemaking process by 24 publishing the proposed amendments to 16 TAC 403.101 25 in the Texas Register in order to receive public 0130 1 comments for a period of 30 days. I would be happy to 2 answer any questions. 3 COMMISSIONER CLOWE: And does this 4 conform with what law we have on this? 5 MS. RIENSTRA: Yes, sir. 6 COMMISSIONER CLOWE: Why are we doing 7 this, then? 8 MS. RIENSTRA: We are doing this 9 because our rule used to specify the Texas Building 10 and Procurement Commission, and now it's the Office of 11 the Attorney General that handles those charges. 12 COMMISSIONER CLOWE: So we're really 13 just doing some housekeeping? 14 MS. RIENSTRA: Yes, sir. 15 COMMISSIONER CLOWE: No further 16 questions. 17 CHAIRMAN COX: Okay. If I understand 18 Items XIII, XIV and XV, they're a part of this every 19 four-year rule review clean up, paint up, fix up kind 20 of deal? 21 MS. KIPLIN: Yes. 22 CHAIRMAN COX: Okay. Move approval of 23 Staff recommendation. 24 COMMISSIONER CLOWE: Second. 25 CHAIRMAN COX: All in favor, say "Aye." 0131 1 COMMISSIONER CLOWE: Aye. 2 CHAIRMAN COX: Aye. 3 Motion carries 2-0. 4 Thank you, Deanne. 5 AGENDA ITEM NO. XXV 6 CHAIRMAN COX: Item XXV -- 7 MS. WOELK: I'm Sarah Woelk, Special 8 Counsel. And this is -- 9 CHAIRMAN COX: Wait. I haven't called 10 it yet. 11 MS. WOELK: Oh, I'm sorry. I'm sorry. 12 CHAIRMAN COX: I was going to, until 13 counsel handed me something to sign. 14 MS. KIPLIN: My apologies. 15 CHAIRMAN COX: Okay, Item XXV, 16 considering of and possible discussion and/or action, 17 including proposal, on amendments to 16 TAC 403.301 18 relating to Historically Underutilized Businesses. 19 Ms. Woelk. 20 MS. WOELK: Thank you, Chairman. I'm 21 Sarah Woelk, Special Counsel. 22 This is the third proposal that grew 23 out of the rule review of Chapter 403, and this is a 24 similar kind of change. State law has always required 25 that we in our HUB practices follow the rules of the 0132 1 state agency that administers the HUB program. That 2 was until September 1st of this year. The Building 3 and Procurements, or whatever name it currently had, 4 and that has been moved to the Office of the 5 Comptroller. 6 So this is a similar clean-up proposal 7 where our rule is referring to the correct 8 administrative agency. And so we are recommending 9 that you propose to publish in the Texas Register 10 these amendments to 16 TAC 403.301. 11 COMMISSIONER CLOWE: Move the adoption 12 of the Staff recommendation. 13 CHAIRMAN COX: Second. 14 All in favor, say "Aye." 15 COMMISSIONER CLOWE: Aye. 16 CHAIRMAN COX: Aye. 17 Motion carries 2-0. 18 Thank you, Sarah. I see the next one 19 is yours as well. And it will take me a while to read 20 this one. Pardon me, Counsel. 21 MS. KIPLIN: If you would like, you can 22 just reference the number of the item as referenced in 23 the open meetings notice, if you would like to do 24 that. 25 CHAIRMAN COX: Okay. Good. 0133 1 AGENDA ITEM NO. XXVI 2 CHAIRMAN COX: Item XXVI, Ms. Woelk. 3 MS. WOELK: These are proposed 4 amendments to a number of rules regarding lottery 5 games. It's a lot of changes to really make one 6 general change. As part of the review of incomplete 7 transactions, a proposal arose to change the way the 8 central computer system works, to allow transactions 9 that are initiated before the beginning of draw break, 10 to be completed after draw break. So this means if 11 there is a temporary breakdown in the electronic 12 communication, a ticket can keep trying to come back 13 and get printed. 14 The way draw break was defined 15 previously, it basically said that all activity of the 16 central computer system would have to stop when draw 17 break began. And Kim used a good analogy. What we 18 want is, you can't place any more orders but you can 19 still get your hamburger after draw break begins. 20 So all these changes are really a group 21 of changes just to allow the buffer concept to be 22 consistent with our rules. It requires you to propose 23 to amend the rule that defines draw break and then any 24 rule that governs all on-line games, to specify that a 25 draw break must be established for each on-line game, 0134 1 and then this proposal would eliminate any reference 2 to the draw break in any specific game rule, because 3 there is no need to cover it in the specific game 4 rules because it would be covered in the general 5 on-line game rule that would apply to every on-line 6 game. So it's a lot of paperwork for a pretty simple 7 concept, and we're just trying to make the rule 8 consistent with the buffer concept. 9 So Staff recommends that you initiate 10 the rulemaking process by proposing this series of 11 rules for publication in the Texas Register. And this 12 is a rule on which we would have a public comment 13 hearing, or the proposal would include a public 14 comment hearing. 15 COMMISSIONER CLOWE: No questions. 16 CHAIRMAN COX: Move approval of the 17 Staff recommendation. 18 COMMISSIONER CLOWE: Second. 19 CHAIRMAN COX: All in favor, say "Aye." 20 COMMISSIONER CLOWE: Aye. 21 CHAIRMAN COX: Aye. 22 Motion carries 2-0. 23 24 25 0135 1 AGENDA ITEM NO. XXVII 2 CHAIRMAN COX: Item No. XXVII, 3 consideration of and possible discussion and/or 4 action, including proposal, on the agency's rule 5 review of 16 TAC 401 relating to the administration of 6 the State Lottery Act. 7 Ms. Woelk. 8 MS. WOELK: Thank you. I'm Sarah 9 Woelk, Special Counsel. 10 This is the third and final piece of 11 the rule review process. We have completed rule 12 review for one of our three chapters of the rule. 13 Earlier Sandy addressed the chapter that deals with 14 the Bingo rules. And here you would be proposing to 15 review the rules in Chapter 401, which are essentially 16 the meat of the lottery operation. This is a pretty 17 significant review, and we would begin that. And this 18 would include some of the game rule changes that we've 19 discussed in previous meetings. 20 So all we're asking you to do today, 21 though, is simply to vote to publish the intent to 22 review Chapter 401, in the Texas Register. 23 COMMISSIONER CLOWE: So move. 24 CHAIRMAN COX: Second. 25 All in favor, say "Aye." 0136 1 COMMISSIONER CLOWE: Aye. 2 CHAIRMAN COX: Aye. 3 Motion carries 2-0. 4 MS. WOELK: Thank you. 5 AGENDA ITEM NO. XXVIII 6 CHAIRMAN COX: Item No. XXVIII, 7 consideration of and possible discussion and/or 8 action, including approval of the FY 2008 Internal 9 Audit Activity Plan, on external and internal audits 10 and/or reviews relating to the Texas Lottery 11 Commission and/or on the Internal Audit Department’s 12 activities. 13 Ms. Melvin. 14 MS. MELVIN: Good afternoon, 15 Commissioners. For the record, Catherine Melvin, 16 Director of the Internal Audit Division. 17 Commissioners, today we have two items 18 of discussion for you. For the first item, I would 19 like to provide a very brief update related to 20 external audits of the agency. 21 The firm Maxwell, Locke & Ritter will 22 be conducting the annual financial audit of the agency 23 and in agreed-upon procedures engagements specifically 24 related to the Mega Millions transactions. Upon 25 completion of their audit, we anticipate the auditors 0137 1 providing a report of their conclusions at a future 2 Commission meeting. 3 And if you have no questions about 4 that, I'll move on to the next item 5 COMMISSIONER CLOWE: No questions. 6 CHAIRMAN COX: No questions. 7 MS. MELVIN: Okay. The next item 8 before you is the proposed Fiscal Year '08 Internal 9 Audit Activity Plan of which we are seeking your 10 approval today. With me are two members of the 11 Internal Audit team, and they will present that 12 proposed plan to you. 13 MS. OBALLE: Good morning, 14 Commissioners. For the record, I am Susan Oballe. 15 And to my right is Brenda Winkler, both from the 16 Internal Audit Division. 17 Commissioners, I would first like to 18 walk you through how we derived our plan, and then 19 Brenda will discuss the plan itself. 20 Internal Audit developed the Fiscal 21 Year 2008 audit activity plan by requesting the 22 agency's key processes from the executive management. 23 We conducted training sessions from agency management 24 to help facilitate the identification of the agency's 25 key processes. We then reviewed and consolidated the 0138 1 key processes received from executive management to 2 determine the auditable units of the agency. We also 3 reviewed the Strategic Plan, the Business Impact 4 Analysis, organizational chart, policies and 5 procedures as well as prior Internal Audit risk 6 assessments to ensure that the key processes of the 7 agency were accounted for. 8 We then conducted interviews with staff 9 identified as contacts for each key process as well as 10 agency management. Using the information we obtained 11 from our interviews, we then assessed the risk of each 12 auditable unit using factors that focus on critical 13 agency objectives. We developed the audit plan before 14 you based on the following: 15 The risk identified for each auditable 16 unit through our risk assessment; 17 Current work being performed by 18 Internal Audit; 19 External audit coverage for the Fiscal 20 Years 2007 and 2008; 21 As well as requests we received during 22 or risk assessment interviews. 23 And if there are no questions at this 24 time, Brenda will go ahead and discuss the plan. 25 COMMISSIONER CLOWE: No questions. 0139 1 MS. WINKLER: Thank you, Susan. 2 For the record, I'm Brenda Winkler with 3 Internal Audit. 4 And as Susan explained, Internal Audit 5 performed a rigorous risk assessment this year to 6 identify the processes that are at the core of the 7 security and integrity of the lottery and charitable 8 bingo. And we believe we've identified projects that 9 will provide audit coverage of some of the agency's 10 key responsibilities. 11 We'll be providing a variety of 12 assurance reviews and total activities this year. And 13 our plan is comprised of projects that have been 14 identified as critical processes in our risk 15 assessment and some projects that were requested by 16 management. We've also built flexibility into the 17 plan to allow for unanticipated projects that may 18 arise during the year. And these requests may come 19 from you, Commissioners, or from management or outside 20 interested parties such as the State Auditor's Office. 21 In addition we'll begin performing a 22 self-assessment this year in preparation for a peer 23 review. In accordance with auditing standards, as you 24 may be aware, we are required to participate in a 25 quality assurance review once every three years. In 0140 1 this year's plan, we believe we've focused our 2 resources on the most important priorities and risks. 3 Our bottom line is, we believe we'll be performing 4 audits that have a direct impact on the integrity and 5 security on both the lottery and bingo operation. 6 MS. MELVIN: Commissioners, that 7 concludes our presentation. I would like to certainly 8 thank management and staff that participated and 9 assisted us throughout the risk process, risk 10 assessment process that Susan explained, and also in 11 the ultimate development of the Audit Plan. 12 We're happy to answer any questions 13 that you may have. 14 COMMISSIONER CLOWE: Mr. Chairman, I 15 have a couple of questions, or a comment and a 16 question. 17 I like the reservation of 20 percent of 18 the hours for requests. I think that that's 19 important. And I'm glad to see that you thought 20 ahead. There will always be those kinds of requests 21 and those needs. And I'm glad you haven't proposed a 22 plan that's so tight you have to put something else 23 aside to do whatever has to be done when it comes up. 24 MS. MELVIN: Yes, sir. 25 COMMISSIONER CLOWE: And the standard 0141 1 question that I always ask an auditor is: Do you have 2 the resources you need to do this job? And are you 3 properly staffed and feel comfortable about this plan? 4 MS. MELVIN: Yes, sir, we were very 5 pleased. We added an extra position in the Internal 6 Audit Department just this year, and so that certainly 7 helps build the plan. It allows us a little more 8 flexibility. Certainly we can't cover everything that 9 we would love to cover, but I feel very comfortable 10 with this plan. I feel that with the resources we 11 have, we can hit the priorities within the agency. 12 COMMISSIONER CLOWE: I feel very 13 comfortable about our Internal Audit function. And I 14 think this is another area that is vitally important, 15 as you have educated me in the past. And I draw a lot 16 of satisfaction from the work that this unit is doing 17 here, and I'm very pleased with this plan. And I'll 18 be happy to vote for it if it's your pleasure. 19 CHAIRMAN COX: Excellent. 20 Catherine, I share Chairman Clowe's 21 view that it's important to reserve some time for 22 special requests. I believe, though, in our 23 discussion, that you have plenty of things set up for 24 that as backup if those special requests don't come 25 through? 0142 1 MS. MELVIN: Yes, sir, we do. I can 2 speak a little bit about that. 3 CHAIRMAN COX: My concern really was 4 just that I didn't want anyone to think that y'all are 5 just going to take the day off if none of those 6 special requests -- 7 COMMISSIONER CLOWE: They better not. 8 CHAIRMAN COX: -- come in. But you do 9 have a Plan B. 10 MS. MELVIN: We do have a Plan B. 11 CHAIRMAN COX: Excellent. 12 Do we need to formally approve this 13 plan? 14 MS. KIPLIN: Yes, sir. It's required 15 by statute, specifically 2102.008 of the Texas 16 Government Code does require the annual audit plan 17 developed by the Internal Auditor to be approved by 18 the state agency's governing board. 19 CHAIRMAN COX: Okay. Well, I move 20 approval of this plan as presented to the Commission. 21 COMMISSIONER CLOWE: Second. 22 CHAIRMAN COX: All in favor, say "Aye." 23 COMMISSIONER CLOWE: Aye. 24 CHAIRMAN COX: Aye. 25 Motion carries 2-0. 0143 1 MS. MELVIN: Thank you, sirs. 2 CHAIRMAN COX: Thank you very much. 3 AGENDA ITEM NO. XXIX 4 CHAIRMAN COX: Item No. XXIX, report, 5 possible discussion and/or action on the Mega Millions 6 games and/or contract. 7 Director Sadberry. 8 MR. SADBERRY: Good morning Chairman, 9 Commissioner. For the record, my name is Anthony 10 Sadberry, Executive Director. 11 You may recall I previously informed 12 you of certain litigation the State of California 13 Lottery is involved in with respect to their 14 participation in the Mega Millions game. I'll share 15 with you the essential substance of a press release 16 issued by the Director of the California Lottery, 17 dated September 14, 2007, in which she informs the 18 public of a response received from the Court in which 19 that litigation is pending, acknowledging the efforts 20 of the California Lottery to resolve the final issue 21 in the Mega Millions lawsuit and indicating that the 22 Court also recognized that the current legislation 23 sponsored by the California Lottery would address the 24 Court's concerns. And the Court subsequently granted 25 the California Lottery additional time to work with 0144 1 the Legislature on this issue. 2 That concludes the report on Mega 3 Millions. I would be happy to answer any questions. 4 COMMISSIONER CLOWE: No questions. 5 AGENDA ITEM NO. XXX 6 CHAIRMAN COX: Item XXX, report, 7 possible discussion and/or action on GTECH 8 Corporation. 9 Director Sadberry. 10 MR. SADBERRY: Commissioners, again, 11 Anthony Sadberry, for the record. 12 On the GTECH report to continue the 13 report on the consultant activities that we receive 14 monthly, in the most recent monthly consultant report, 15 GTECH noted that to ensure compliance with Texas laws 16 and regulations that require a person providing 17 administrative assistance to a registrant to also 18 register, a staff assistant for one of GTECH's Texas 19 consultants has registered as a lobbyist on behalf of 20 all of that registrant's clients. GTECH contends that 21 the staff assistant is not a principal under the 22 contract with the registrant and that any services 23 that are rendered are purely administrative. 24 COMMISSIONER CLOWE: No questions. 25 CHAIRMAN COX: No questions. 0145 1 MR. SADBERRY: That concludes my 2 report. 3 AGENDA ITEM NO. XXXI 4 CHAIRMAN COX: Okay. Item XXXI, 5 consideration of the status and possible entry of 6 orders. 7 Ms. Kiplin. 8 MS. KIPLIN: Commissioners, Letters A 9 and B are disciplinary actions against licensed sales 10 agents, and it has to do with insufficient funds being 11 available at the time that the Lottery swept their 12 accounts for the monies that were owed to the Texas 13 Lottery. The Staff does recommend that you adopt the 14 proposal for a decision that was issued by the State 15 Office of Administrative Hearings Administrative Law 16 Judge in each of these cases. 17 CHAIRMAN COX: Move approval of the 18 Staff recommendation. 19 COMMISSIONER CLOWE: Second. 20 CHAIRMAN COX: All in favor, say "Aye." 21 COMMISSIONER CLOWE: Aye. 22 CHAIRMAN COX: Aye. 23 Motion carries 2-0. 24 MS. KIPLIN: Commissioners, Letter C is 25 a request by Staff for you-all to adopt the Memorandum 0146 1 of Agreement and a Consent Order and enforcement 2 action against a retailer lottery sales agent. And 3 the facts of this matter had to do with an individual 4 who was an officer in this retailer's -- it's a 5 corporation. The facts were laid out in this case. 6 The agreement with the retailer is that this 7 individual who did hold an officer position be removed 8 from the corporation and not have anything to do with 9 the retail location as it relates to the sale of 10 lottery tickets. And the case was taken up on a 11 failure to disclose the underlying conviction and 12 change in the license information. 13 Staff does recommend you enter this 14 order. 15 CHAIRMAN COX: Move approval of Staff 16 recommendation. 17 COMMISSIONER CLOWE: Second. 18 CHAIRMAN COX: All in favor, say "Aye." 19 COMMISSIONER CLOWE: Aye. 20 CHAIRMAN COX: Aye. 21 Motion carries 2-0. 22 AGENDA ITEM NO. XXXII 23 CHAIRMAN COX: Item No. XXXII, report 24 by the Executive Director and/or possible discussion 25 and/or action on the agency's operational status, 0147 1 activities relating to the Charitable Bingo Operations 2 Division, agency procedures and FTE status. 3 Director Sadberry. 4 MR. SADBERRY: Commissioners, again 5 Anthony Sadberry. 6 In your folders are documents 7 indicating the status of FTE positions as of 8 September 6, 2007. 9 That concludes my report. I would be 10 happy to answer any questions. 11 COMMISSIONER CLOWE: No questions. 12 CHAIRMAN COX: No questions. Thank 13 you. 14 AGENDA ITEM NO. XXXIII 15 CHAIRMAN COX: Item No. XXXIII, public 16 comments. Is there any public comment? 17 Okay. No public comment. 18 AGENDA ITEM NO. XXXIV 19 CHAIRMAN COX: Item XXXIV. 20 At this time I move the Texas Lottery 21 Commission go into executive session: 22 A. To deliberate the duties and 23 evaluation of the Executive Director, the Deputy 24 Executive Director, Internal Audit Director and 25 Charitable Bingo Operations Director and to deliberate 0148 1 the duties of the General Counsel, pursuant to Section 2 551.074 of the Texas Government Code; 3 To receive legal advice regarding 4 pending or contemplated litigation pursuant to Section 5 551.071(1)(A) and/or to receive legal advice regarding 6 settlement offers pursuant to Section 551.071(1)(B) of 7 the Texas Government Code and/or to receive legal 8 advice pursuant to Section 551.071(2) of the Texas 9 Government Code, including but not limited to: 10 Cynthia Suarez v. Texas Lottery 11 Commission 12 Shelton Charles v. Texas Lottery 13 Commission and Gary Grief 14 First State Bank of DeQueen, et al v. 15 Texas Lottery Commission 16 James T. Jongebloed v. Texas Lottery 17 Commission 18 Employment law, personnel law, 19 procurement and contract law, evidentiary and 20 procedural law, and general government law 21 Lottery Operations and Services 22 contract 23 Mega Millions game and/or contract. 24 Is there a second? 25 COMMISSIONER CLOWE: Second. 0149 1 CHAIRMAN COX: All in favor, say "Aye." 2 COMMISSIONER CLOWE: Aye. 3 CHAIRMAN COX: Aye. 4 The vote is 2-0. The Texas Lottery 5 Commission will go into executive session. The time 6 is 11:56 a.m. Today is September 19, 2007. 7 (Off the record: 11:56 a.m. to 1:21 8 p.m.) 9 AGENDA ITEM NO. XXXV 10 CHAIRMAN COX: The Texas Lottery 11 Commission is out of executive session. The time is 12 1:21 p.m. 13 Is there any action to be taken as a 14 result of executive session? 15 If not, let's move back to Items VI and 16 VII on the agenda. 17 Ms. Joseph. 18 AGENDA ITEM NOS. VI AND VII (continued) 19 MS. JOSEPH: Yes. Thank you, Chairman. 20 I did prepare, as you directed, orders 21 for Items VI and VII that comport with the changes 22 that you requested. I discussed those changes with 23 Mr. Fenoglio, who was designated by Mr. Bresnen, prior 24 to making the changes. And he agreed that what I had 25 planned to do was agreeable to him. 0150 1 I have handed you copies with 2 highlighted portions indicating changes that have been 3 made both to the body of the rule and to the 4 explanation or preamble portion of the order. 5 I recommend that you sign these orders 6 adopting the general audit rule -- excuse me -- the 7 compliance audit rule and the dispute resolution rule. 8 CHAIRMAN COX: Okay. Let's first deal 9 with Item VI, which is the repeal. I move approval of 10 staff recommendation to repeal 16 TAC 402.500 relating 11 to general audit. 12 COMMISSIONER CLOWE: Second. 13 CHAIRMAN COX: All in favor, say "Aye." 14 COMMISSIONER CLOWE: Aye. 15 CHAIRMAN COX: Aye. 16 Motion carries 2-0. 17 Okay. Now on Item VII, that is 18 402.715. That's both -- that's this document. So in 19 that one, we're changing the language from "10 20 calendar days" to "15 working days" and we're changing 21 on who is to come to the meetings. We're changing it 22 from "will" to "may "on Page 7, and we're adding (D), 23 "any other officer or director." Is that correct? 24 MS. JOSEPH: That's correct. 25 CHAIRMAN COX: And I see a yellow -- 0151 1 okay. And then under (r(1), we have made the same 2 change, "may require" -- this is as to the exit 3 conference -- "may require" and have added (D), "any 4 other officer or director." 5 MS. JOSEPH: Yes, sir. 6 CHAIRMAN COX: So those are the 7 changes, change "will" to "may," add "any other 8 officer or director" and change from "10 calendar 9 days" to "15 working days"? 10 MS. JOSEPH: Yes sir. 11 CHAIRMAN COX: Okay. Any discussion, 12 Chairman Clowe? 13 COMMISSIONER CLOWE: No, sir. 14 CHAIRMAN COX: Move approval of the 15 Staff recommendation. 16 COMMISSIONER CLOWE: Second. 17 CHAIRMAN COX: All in favor, say "Aye." 18 COMMISSIONER CLOWE: Aye. 19 CHAIRMAN COX: Aye. 20 Motion carries 2-0. 21 Okay. Ms. Joseph, Item VII. 22 MS. JOSEPH: Yes. And this is the 23 order for the dispute resolution rule, 16 TAC 24 §402.708. And the changes that you requested and 25 directed to be made have been made in this order for 0152 1 your consideration. 2 CHAIRMAN COX: Okay. And this was 3 the -- again, this one was from "20 calendar days" to 4 "15 working days," to make it consistent with the 5 previous one and to allow the Commission the option of 6 proceeding when no agreement is reached on a matter? 7 MS. JOSEPH: That's correct. 8 CHAIRMAN COX: Did I say that artfully 9 enough or would you like to amend that? 10 MS. JOSEPH: No, I think that's fine. 11 CHAIRMAN COX: Okay. 12 MS. JOSEPH: And, in addition, we added 13 a sentence and deleted a sentence -- this was in 14 Paragraph (e)(3) -- to clarify that in the event of an 15 unforeseen circumstance and upon agreement of the 16 parties, a conference could be rescheduled. 17 CHAIRMAN COX: Okay. So we didn't 18 leave anything in there about 24 hours? 19 MS. JOSEPH: We still retained the 20 sentence about 24 hours, but that changed -- 21 CHAIRMAN COX: And you changed the next 22 one on Page 6, then, at the bottom, "However, in the 23 event of unforeseen events" -- 24 MS. JOSEPH: Yes. 25 CHAIRMAN COX: -- "upon agreement of 0153 1 the parties, a dispute resolution conference may be 2 rescheduled." Okay. So you can contact 24 hours to 3 reschedule. I guess that's on a no-questions-asked 4 basis? If you want to reschedule, you can just 5 reschedule? 6 MS. JOSEPH: Yes, sir. 7 CHAIRMAN COX: Okay. And then you 8 could always mutually agree on doggone anything, can't 9 you? 10 MS. JOSEPH: Right. 11 CHAIRMAN COX: Okay. 12 COMMISSIONER CLOWE: No questions. 13 CHAIRMAN COX: Move approval of the 14 Staff recommendation. 15 COMMISSIONER CLOWE: Second. 16 CHAIRMAN COX: All in favor, say "Aye." 17 COMMISSIONER CLOWE: Aye. 18 CHAIRMAN COX: Aye. 19 Motion carries 2-0. 20 MS. KIPLIN: Commissioners, I have 21 orders on each of these rulemaking notes. 22 AGENDA ITEM NO. XXXVI 23 CHAIRMAN COX: Okay. I believe that 24 concludes the meeting. 25 COMMISSIONER CLOWE: Yes, sir. 0154 1 CHAIRMAN COX: Business done. The 2 meeting is adjourned. 3 (Meeting adjourned: 1:27 p.m.) 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0155 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Aloma J. Kennedy, a Certified 5 Shorthand Reporter in and for the State of Texas, do 6 hereby certify that the above-mentioned matter 7 occurred as hereinbefore set out. 8 I FURTHER CERTIFY THAT the proceedings 9 of such were reported by me or under my supervision, 10 later reduced to typewritten form under my supervision 11 and control and that the foregoing pages are a full, 12 true and correct transcription of the original notes. 13 IN WITNESS WHEREOF, I have hereunto set 14 my hand and seal this 3rd day of October 2007. 15 16 17 ________________________________ 18 Aloma J. Kennedy Certified Shorthand Reporter 19 CSR No. 494 - Expires 12/31/08 20 Firm Certification No. 276 Kennedy Reporting Service, Inc. 21 Cambridge Tower 1801 Lavaca Street, Suite 115 22 Austin, Texas 78701 512.474.2233 23 24 25