0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 REGULAR MEETING OF THE § TEXAS LOTTERY COMMISSION § 6 THURSDAY, OCTOBER 5, 2006 § 7 8 COMMISSION MEETING 9 THURSDAY, OCTOBER 5, 2006 10 BE IT REMEMBERED THAT on Thursday, 11 the 5th day of October 2006, the Texas Lottery 12 Commission meeting was held from 9:00 a.m. to 13 p.m., at the Offices of the Texas Lottery 14 Commission, 611 East 6th Street, Austin, Texas 78701, 15 before CHAIRMAN C. TOM CLOWE, JR., and COMMISSIONER 16 JAMES A. COX, JR. The following proceedings were 17 reported via machine shorthand by Aloma J. Kennedy, a 18 Certified Shorthand Reporter of the State of Texas, 19 and the following proceedings were had: 20 21 22 23 24 25 0002 1 APPEARANCES 2 CHAIRMAN: 3 Mr. C. Tom Clowe, Jr. 4 COMMISSIONER: Mr. James A. Cox, Jr. 5 GENERAL COUNSEL: 6 Ms. Kimberly L. Kiplin 7 EXECUTIVE DIRECTOR: Mr. Anthony J. Sadberry 8 CHARITABLE BINGO EXECUTIVE DIRECTOR: 9 Mr. Billy Atkins 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 TABLE OF CONTENTS 2 PAGE 3 AGENDA ITEM NO. I - Meeting Called to Order...... 7 4 AGENDA ITEM NO. II - Consideration of and possible discussion and/or action, including 5 adoption, on amendments to 16 TAC §402.102 relating to the Bingo Advisory Committee......... 7 6 AGENDA ITEM NO. III - Report, possible 7 discussion and/or action on bingo pull-tab ticket financial information..................... 10 8 AGENDA ITEM NO. IV - Report, possible 9 discussion and/or action on a comparison on Texas charitable bingo activity and other 10 activities' financial information................ 24 11 AGENDA ITEM NO. V - Report, possible discussion and/or action on the 12 implementation of recommendations contained in the Internal Audit report on bingo audit 13 services ........................................ 26 14 AGENDA ITEM NO. VI - Report, possible discussion and/or action on the agency's 15 contracts........................................ 40 16 AGENDA ITEM NO. VII - Consideration of external and internal audits and/or reviews 17 relating to the Texas Lottery Commission, and/or on the Internal Audit Department's 18 activities....................................... 43 19 20 21 22 23 24 25 0004 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. VIII - Commission may meet in Executive Session: 4 A. To deliberate the duties and/or evaluation of the Executive Director 5 and/or Deputy Executive Director pursuant to Section 551.074 of the 6 Texas Government Code. B. To deliberate the duties and 7 evaluation of the Internal Audit Director pursuant to Section 8 551.074 of the Texas Government Code. C. To deliberate the duties and 9 evaluation of the Charitable Bingo Operations Director pursuant to 10 Section 551.074 of the Texas Government Code. 11 D. To deliberate the duties of the General Counsel pursuant to Section 12 551.074 of the Texas Government Code. E. To receive legal advice regarding 13 pending or contemplated litigation and/or to receive legal advice 14 pursuant to Section 551.071(1)(A) or (B) of the Texas Government Code 15 and/or to receive legal advice pursuant to Section 551.071(2) of the 16 Texas Government Code, including but not limited to: 17 Cynthia Suarez v. Texas Lottery Commission 18 Shelton Charles v. Texas Lottery and Gary Grief 19 Stephen Martin vs. Texas Lottery Commission 20 Employment law, personnel law, procurement and contract law, 21 evidentiary and procedural law, and general government 22 law Lottery Operations and Services 23 contract Mega Millions game and/or 24 contract .......................... 99 25 0005 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. IX - Return to open session for further deliberation and possible action 4 on any matter discussed in Executive Session..... 100 5 AGENDA ITEM NO. X - Consideration of the Status and possible entry to orders in: 6 A. Master Docket No. 362-06-990713.B relating to the Removal of Certain 7 Individuals from the TLC's Registry of Approved Bingo Workers -- 8 Teresa Ogle B. Docket No. 362-06-2680 - Lone Star 9 Food #2 C. Docket No. 362-06-2679 - Ruben Raul 10 Cruz D. Docket No. 362-06-2674 - Super Stop 11 Eagle Lake E. Docket No. 362-06-2681 - Westpark 12 Food Store F. Docket No. 362-06-2677 - Checkered 13 Flag G. Docket No. 362-06-2676 - Super Quick 14 H. Docket No. 362-06-2678 - Super Quick Mart #1 15 I. Docket No. 362-06-2995 - Bellville Quick Stop 16 J. Docket No. 362-06-2998 - Sam's Quick Stop 17 K. Docket No. 362-06-2822 - Kwik Discount Store 18 L. Docket No. 362-06-2823 - Brenham Food Mart 19 M. Docket No. 362-06-2996 - Duke Stop #3 N. Docket No. 362-06-2825 - Primetime 20 Drive-Inn O. Docket No. 362-06-1019 - LaPorte Shell 21 P. Case No. 2006-793 - Wilmer Texaco Q. Case No. 2006-811 - Knights of 22 Columbus 4771........................... 53 23 24 25 0006 1 TABLE OF CONTENTS (continued) 2 PAGE 3 AGENDA ITEM NO. XI - Report by the Executive Director and/or possible discussion and/or 4 action on the agency's operational status and FTE status....................................... 97 5 AGENDA ITEM NO. XII - Report by the 6 Charitable Bingo Operations Director and possible discussion and/or action on the 7 Charitable Bingo Operations Division's activities....................................... 98 8 AGENDA ITEM NO. XIII - Public Comment............ 98 9 AGENDA ITEM NO. XIV - Adjournment................ 101 10 REPORTER'S CERTIFICATE........................... 102 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0007 1 P R O C E E D I N G S 2 THURSDAY, OCTOBER 5, 2006 3 (9:00 a.m.) 4 AGENDA ITEM NO. I 5 CHAIRMAN CLOWE: Good morning. It's 6 9:00 a.m., October 5, 2006. The Texas Lottery 7 Commission will call this meeting to order. 8 Commissioner Cox is here. My name is Tom Clowe. 9 AGENDA ITEM NO. II 10 CHAIRMAN CLOWE: We'll go to Item No. II 11 on the agenda, consideration of, possible discussion 12 and/or action, including adoption, on amendments to 13 16 TAC 402.102 relating to the Bingo Advisory 14 Committee. 15 Ms. Joseph. 16 MS. JOSEPH: Good morning, 17 Commissioners. My name is Sandy Joseph, Assistant 18 General Counsel. 19 Before you is the proposed amendment to 20 Charitable Bingo Rule 16 TAC, Section 402.102 21 pertaining to the Bingo Advisory Committee. The 22 purpose of the amendment is to clarify the BAC's 23 responsibility to report to the Commission and the 24 basis for removal of a BAC member. 25 More specifically, the amendment to 0008 1 Subsection (e) requires that the BAC annually report 2 to the Commission the BAC's perspective on the state 3 of charitable bingo in Texas, with specific comments 4 on certain items, including net receipts. 5 Subsection (e) currently provides that the BAC 6 annually report to the Commission with specific 7 recommendations for improvement, the status of certain 8 areas relating to charitable bingo. 9 The proposed amendment to Subsection (k) 10 specifies that a BAC member may be removed if 11 delinquent in payment of any prize fees or gross 12 rental taxes for which a final jeopardy determination 13 has been made by the Commission. The rule currently 14 provides for removal if delinquent in any liability to 15 the state. 16 The proposed rule was published in the 17 Texas Register on August 18th. A public hearing was 18 held on August 29th in order to receive comments. No 19 comments were received. Therefore, the staff 20 recommends that you adopt the proposed amendment. 21 I would be happy to answers any 22 questions you may have 23 COMM. COX: Sandy, help me remember how 24 this ties in with the discussion we had when we 25 received the annual report from the Bingo Advisory 0009 1 Committee about recommendations for legislation. 2 MS. JOSEPH: I believe at that time 3 there was some discussion about wanting to be sure 4 that the BAC also commented on the net receipts. That 5 was not previously in the rule, and so there was a 6 desire expressed by the Commissioners to have 7 specifically net receipts considered. 8 Furthermore, I believe out of that 9 discussion, the Commissioners expressed a desire to 10 make it clear that what the Commission was looking for 11 was the BAC's perspective on these various items as 12 opposed to specific recommendations for improvement in 13 those areas, because many of the things might be 14 outside -- that they could specifically recommend 15 might be outside the Commission's jurisdiction to do 16 anything about. 17 COMM. COX: Okay. Now, is that 18 discussion, which I believe took place after this rule 19 was exposed. Is that correct? 20 MS. JOSEPH: Well, I believe -- my 21 recollection is that -- and I do have a copy of the 22 transcript -- is that that occurred at least partially 23 before this rule was proposed. 24 COMM. COX: Okay. So this rule is not 25 inconsistent with the idea that the BAC's job is not 0010 1 to recommend legislation? 2 MS. JOSEPH: No, it's not inconsistent. 3 COMM. COX: Okay. 4 MS. JOSEPH: In fact, I think it would 5 further, if anything, clarify that that's not their 6 role. 7 COMM. COX: Thank you. 8 MS. JOSEPH: Okay. 9 COMM. COX: Thank you, Mr. Chairman. 10 CHAIRMAN CLOWE: Move the adoption of 11 the staff recommendation. 12 COMM. COX: Second. 13 CHAIRMAN CLOWE: All in favor, please 14 say "Aye." 15 COMM. COX: Aye. 16 CHAIRMAN CLOWE: Aye. 17 Opposed, "No." 18 The vote is 2-0 in favor. 19 Thank you, ma'am. 20 MS. JOSEPH: Yes. I have an order for 21 you. 22 AGENDA ITEM NO. III 23 CHAIRMAN CLOWE: The next item, III, 24 report, possible discussion and/or action on bingo 25 pull-tab ticket financial information. 0011 1 Mr. Sanderson. 2 MR. SANDERSON: Good morning, 3 Commissioners. For the record, my name is Phil 4 Sanderson, Assistant Director of the Charitable Bingo 5 Operations Division. 6 At the September 6th Commission meeting, 7 Chairman Clowe asked, "Why do you have that dip in 8 '06?" referring to the drop in prize payout percentage 9 for instant bingo from 2005 to 2006 for the second 10 quarter? 11 Before I get to the answer of that 12 particular question, I would like to provide you with 13 additional information as it relates to this 14 particular slide. This slide indicates the prize 15 payout percentage for both regular and instant bingo 16 for the second quarter only for each year 2002 through 17 2006. As you can see, the payout percentage for 18 regular bingo has continuously increased from 19 72.4 percent to 77.6 percent, while instant payout 20 percentage has increased from 70.4 percent to 73.4 21 percent from 2002 through 2005, with a decrease to 22 72.6 percent in 2006. 23 First, to try to explain the increased 24 percentage for regular bingo prizes, this chart 25 demonstrates the decline and the average gross 0012 1 receipts per occasion for regular bingo, while the 2 average prize payout per occasion has remained 3 constant. Thus, organizations appear to be continuing 4 to offer the same prize payout per occasion while 5 taking in less money, which results in a negative 6 effect on the bottom line. 7 For instant bingo, you can see that the 8 trend is a little different, in that both the average 9 gross receipts per occasion and the averages prizes 10 per occasion are increasing, and there even appears to 11 be a greater separation between the two each year. 12 Thus, this has a positive impact on the bottom line. 13 Now back to the original question. Here 14 is the comparison of prize payout percentages for 15 instant bingo for the second quarter only for each 16 year 2002 through 2006. You asked why that dip in 17 '06. First, we wanted to see if these percentages 18 were unique just to a particular quarter of the year. 19 When we compared the prize payout 20 percentage for the entire year, except for 2006, which 21 is only the first two quarters, you see very little 22 difference, if any, in the percentages between the 23 second quarter only and those percentages for the 24 whole year. 25 Manufacturers and distributors only 0013 1 report to us the cost of the products that they sell, 2 broken out by paper, pull-tab, equipment sales and 3 equipment leases. We do not receive any information 4 relating to a particular game or instant bingo game, 5 other than when we approve them for testing. 6 Therefore, we're not able to identify 7 which specific games are actually sold in the market 8 during a particular quarter or during a particular 9 year, nor do we know what the prize payout percentages 10 for those games sold are at this time. 11 We do, however, approve pull-tab games 12 that are sold in Texas. So we put together the 13 average payout percentage for the pull-tab games that 14 were approved during the Years 2002 and 2006. As you 15 can see, the average prize payout percentage for the 16 pull-tab games that are approved during this period is 17 fairly sporadic, but it does show an overall decrease. 18 Now, keep in mind this information is 19 strictly based on the date that we issue the approval 20 letter for the instant pull-tab game and not the 21 actual date that it may enter the Texas market. Some 22 games do not enter the market immediately. 23 Additionally, there may be games that were approved in 24 2003 that are very popular and are still being sold in 25 2006. 0014 1 So in answer to the question, the 2 decrease in pull-tab prize payout percentages is just 3 based on the information that's being -- you know, the 4 pull-tabs that are sold in the market during that 5 particular time period. And prize payout percentages 6 range from 65 percent to 80 percent on the games that 7 are in the market or have been approved in the market. 8 That concludes my report for this agenda 9 item, and I'll be glad to answer any questions you may 10 have 11 COMM. COX: Phil, I think you made an 12 important point that I want to emphasize -- and I've 13 discussed this with Billy and with Kathy Pyka as 14 well -- is that when we look at variations in the 15 lottery revenues, we have a much fuller dataset to 16 look or variations, because we run the lottery -- 17 MR. SANDERSON: Yes, sir. 18 COMM. COX: -- and we're responsible for 19 its operations. Whereas, in bingo, your role is much 20 different. You're a regulator. And while you're 21 interested in these results, you do not necessarily 22 collect data to gather management information as we do 23 in the lottery. 24 So I think you've done a good job of 25 explaining inferences here, and I accept that and 0015 1 recognize that we're just not meant, in bingo, to have 2 the kind of information about sales that we have in 3 the lottery. 4 MR. SANDERSON: Yes, sir. 5 CHAIRMAN CLOWE: And to that point, 6 Commissioner Cox, Phil was present at the Senate 7 Finance Committee hearing Tuesday of this week. And I 8 believe that you were aware of that and that you were 9 watching to some extent on television, but you were 10 not present in the room. 11 COMM. COX: Correct. 12 CHAIRMAN CLOWE: Billy was there and 13 gave testimony. There were some questions about the 14 state and its receipt of funds from one member of that 15 committee. I would ask you, Phil and Billy, you as 16 well, if you feel like those questions were answered 17 to that member's satisfaction and if there is any 18 follow-up that might be beneficial in regard to that 19 general area of interest as expressed by that member 20 in regard to this type of information as covered by 21 this agenda item? 22 MR. ATKINS: And we are, Mr. Chairman. 23 That was Sen. Brimer that asked those questions. And 24 Ms. Trevino and her staff are in the process of 25 scheduling a follow-up meeting with his office to 0016 1 offer my additional information he may have on the 2 questions he asked, as well as, you know, he 3 referenced the concept of a charity poker game and his 4 interest in that. And we'll attempt to answer any 5 questions that we can regarding that matter as well. 6 CHAIRMAN CLOWE: That's fine. And I 7 would like for you to furnish all members of the 8 committee with whatever data you give that member as 9 well regarding revenue the state receives. He had a 10 question about percentage of proceeds. And there was 11 an attempt on your part, I think, Billy, to clarify 12 that. But it's always a different thing. 13 And I think Commissioner Cox's point is 14 well made, that the lottery is one thing, bingo is a 15 different thing. And the basis upon which the state 16 collects funds is very different in bingo than it is 17 in the lottery operation. I think there is an 18 opportunity there to clarify in those members' minds 19 about bingo, what that procedure is and what those 20 amounts are. I would like to ask you to avail 21 yourself of that opportunity. 22 MR. ATKINS: Yes, sir, we will do that. 23 CHAIRMAN CLOWE: Thank you. 24 MR. SANDERSON: Yes, sir. 25 MR. ATKINS: And if I could just follow 0017 1 up to Mr. Sanderson's presentation, Commissioners. 2 Given the popularity of pull-tabs since the September 3 2002 rule revision, I think it's a good time for the 4 staff to provide you with an updated presentation on 5 pull-tabs. 6 So with your permission, at the second 7 meeting in November, the staff would like to present 8 you with a report that would include a brief history 9 of pull-tabs in Texas, information on the number of 10 pull-tabs submitted and approved, information on the 11 different types of event tabs submitted or approved 12 and any changes or trends in the sales of pull-tabs 13 we'll able to identify from the information we 14 receive. 15 CHAIRMAN CLOWE: Very good. 16 COMM. COX: One question I would like to 17 add to that, and I know that I'm going right in the 18 face of what I said about we don't have the same kind 19 of information for bingo that we have for lottery. 20 But on the last slide -- Phil, if you would put it 21 back up -- we've got two years there that the payout 22 percentage is 73.0 percent and 73.4 percent; yet, on 23 average, in no year have we approved games that got 24 that high. See if you can find something that has to 25 do with that. 0018 1 MR. SANDERSON: Well, I can partly 2 answer that question. When I was getting this 3 information together, during that period of time -- of 4 course, 2002, or at the end of the 2002 is when the 5 event tabs started. And the first round of approvals 6 of those games had a higher payout percentage, but 7 there were not that many games that we approved at 8 that higher payout percentage. 9 So it's a stratification of the game 10 approvals, like I said, between 66, 65 percent prize 11 payout on some games, up to 80 percent on some other 12 games, and so depending on how many games were 13 approved at that particular payout percentage. 14 COMM. COX: What I'm hearing you say, I 15 think, is that one of these is, by definition, a 16 weighted average, because it includes what was sold, 17 and the other may be an arithmetic average of the 18 games without regard to how many were printed. 19 MR. SANDERSON: That's correct; yes, 20 sir. 21 COMM. COX: Okay. 22 CHAIRMAN CLOWE: And I think, Phil and 23 Billy, that this information should certainly be put 24 in the hands of the members of the BAC so that they 25 can see it and have whatever beneficial impact they 0019 1 may be able to feed back into the industry. 2 Mr. Fenoglio, do you wish to make a 3 comment? 4 MR. FENOGLIO: Briefly, Mr. Chairman and 5 Commissioner Cox. And I'll give a witness affirmation 6 form. My name is Stephen Fenoglio. I'm an attorney 7 in Austin and represent over 750 charitable and 8 business organizations. 9 We visited briefly with Phil about this. 10 I have with me Knowles Cornwell who is one of the 11 principals and a distributor, Goodtime Action 12 Amusement Games, K&B Sales out of Dallas. They are 13 the largest seller of pull-tabs in the state to 14 charities. And, coincidentally, they're the larger 15 designer, if you will, of pull-tabs for a specific 16 market where they will go to a manufacturer and 17 establish a relationship with a manufacturer of 18 pull-tabs and develop a proprietary product for them. 19 And the staff is aware of that relationship and 20 activity. 21 One of the questions, Commissioner Cox, 22 and you asked questions concerning the green line 23 versus the red line, superficially doesn't make sense. 24 But when you understand how pull-tabs are sold and not 25 sold, it's easy to see. 0020 1 I've not had a chance to visit with 2 Mr. Sanderson about this. But I can tell you, from my 3 own experience, not every pull-tab is going to be 4 sold. And typically -- and I believe it's the rule 5 that says they can close a deal when a certain level 6 of winning pull-tabs, at $5.00, remain. 7 And the reason they'll close that deal 8 is, customers will be very angry when you say, "Well, 9 nominally, there's a $500 pull-tab, but it's already 10 been sold." If you don't tell them that, they're 11 going to get angry. So there's always a bunch of 12 deals that are closed, the deals of pull-tabs, with 13 the small winners in them. So the percentage, 14 consequently, is swung higher on the payout. 15 The other issue we'll visit -- I would 16 like to visit with Billy and Phil about the analysis 17 that Billy is going to present, because there's some 18 proprietary products out there. The market has 19 changed a little bit. When the instant tickets first 20 came out, they were much higher, as a general rule, 21 prize payouts on event tabs as opposed to traditional 22 instant bingo product. 23 There's some new product that was 24 introduced during the second quarter that went back to 25 a smaller payout -- cash prize boards, Billy -- and so 0021 1 consequently -- I mean, the staff had that data, but 2 they're not in the market. And you're absolutely 3 correct, Commissioner Cox, they're not in the market, 4 if you will, on the bingo side like lottery is on the 5 lottery side. The data is there, but they're not 6 seeing that product and that mix of product that's 7 actually being sold. 8 They know it's been approved. They 9 could determine how many are sold more often than what 10 the manufacturers or distributors report. I'm not 11 suggesting that they do that. They can go get any 12 data from a manufacturer or distributor. But when you 13 look at it from a distributor's perspective or a 14 charity's perspective, it may have been approved that 15 quarter, but they don't know -- the staff doesn't know 16 how much of that product is being sold today as 17 opposed to if it was approved 90 days ago. 18 So we'll be happy to work with staff on 19 that. And I think you'll see some of that swing down 20 is directly attributable to -- we believe a 21 substantial portion of that -- to a new product mix 22 that's come on the market with a little lower prize 23 payout percentage. 24 Be happy to answer any questions. As I 25 indicated, Mr. Cornwell is here if you have any other 0022 1 questions. Otherwise, we'll be quiet and go home. 2 COMM. COX: Thank you. 3 CHAIRMAN CLOWE: And, Mr. Fenoglio, you 4 understand that our interest in this is almost one of 5 being academic about it. We don't have any right to 6 dip into this or to direct or in any way be anything 7 other than interested. And our hope is that the Bingo 8 Division can provide information along these lines 9 that will educate and perhaps result in good things 10 that might happen to the industry through knowledge, 11 and we're happy to do that. But we want to make it 12 clear, we're not in any way entering into the running 13 of these businesses except as it is our responsibility 14 under the statute. 15 MR. FENOGLIO: Understood. I understand 16 there is clearly a difference and a distinction 17 between the Commissioners' role in the lottery side 18 versus the charitable bingo side. You bet. 19 Thank you. 20 CHAIRMAN CLOWE: Knowledge is strength 21 or power. I can't remember -- 22 COMM. COX: Well, maybe it's both. 23 CHAIRMAN CLOWE: Yes. Thank you. 24 MR. FENOGLIO: Thank you. 25 COMM. COX: Mr. Chairman? 0023 1 CHAIRMAN CLOWE: Yes? 2 COMM. COX: On this subject, could we 3 call Ms. Melvin? 4 CHAIRMAN CLOWE: Yes. 5 Ms. Melvin, would you come up, please. 6 COMM. COX: Catherine, Chairman Clowe 7 and I have been talking about the general idea that 8 it's to be expected that we will have less management 9 data about bingo than we have about the lottery, 10 because we're managing the lottery and we're not 11 managing bingo. Now, you have looked in some depth 12 into bingo auditing, and I think you have scheduled 13 now a look at some of the other functions in bingo. 14 Will you be looking at the data-gathering as well? 15 MS. MELVIN: Yes, sir. For the record, 16 my name is Catherine Melvin. I'm the Director of 17 Internal Audit. 18 And to answer your question, yes, we 19 anticipate looking at that exactly. Our next step 20 into the Charitable Bingo Operations Division is a 21 pretty big review. As you stated, we have concluded 22 our review in the Audit Services function within that 23 division. But our next step is to really look at the 24 remaining areas. And so our approach will be 25 performance audit, and so that includes a pretty wide 0024 1 range or pretty broad scope of review there. And that 2 would include data-gathering or management tools that 3 they use and how they go about assessing that 4 information. 5 COMM. COX: So you'll be looking 6 specifically at whether the data being collected is 7 appropriate -- that is, neither too much nor too 8 little -- for the purpose for which we collect it? 9 MS. MELVIN: Absolutely. The focus -- 10 and this is true for most performance audits. The 11 focus is to look at the effectiveness and efficiencies 12 of the function. And so in the area of effectiveness, 13 I would look at what their charge is and the data that 14 they're collecting to meet that charge and then any 15 efficiencies needed along those lines, too. 16 COMM. COX: Excellent. Thank you. 17 Thank you, Mr. Chairman. 18 CHAIRMAN CLOWE: Thank you. 19 MS. MELVIN: Thank you. 20 AGENDA ITEM NO. IV 21 CHAIRMAN CLOWE: Next, Item IV, report, 22 possible discussion and/or action on a comparison on 23 Texas charitable bingo activity and other activities' 24 financial information. 25 MR. ATKINS: Commissioner, Mr. Chairman, 0025 1 if I could take that. This item was placed on the 2 agenda in response to a discussion that you had at the 3 last Commission meeting regarding information supplied 4 in the Bingo Advisory Committee 2005 Annual Report. 5 Specifically you had discussed topics such as net 6 revenue and cash return and bingo compared to other 7 businesses. 8 And I had asked the staff to see if 9 further information could be developed regarding your 10 discussion. Also I asked for assistance from the 11 Office of the Controller and the agency's research 12 staff. Since that time, I've had the opportunity to 13 discuss the matter with Commissioner Cox, and he's 14 provided some additional direction. But the staff is 15 not prepared to offer their report at this time, and I 16 would like to request that the item be passed. 17 Also, I would like the opportunity again 18 to follow up with Commissioner Cox on the information 19 we found and, if it results in a meaningful 20 comparison, come back to the Commission at a future 21 date. 22 COMM. COX: I would agree. 23 CHAIRMAN CLOWE: Very good. Thank you, 24 Billy. 25 0026 1 AGENDA ITEM NO. V 2 CHAIRMAN CLOWE: Next item, V, 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 Mr. Atkins. 7 MR. ATKINS: Thank you, Commissioners. 8 As you know, at the September 6th Commission meeting, 9 the regulatory objective and audit charter were 10 adopted. There have been a number of steps taken to 11 publicize these items, both the staff and licensees. 12 This includes placement on the division's website and 13 the agency intranet. We've also updated the Bingo 14 Operations Manual to include both of these items, as 15 well as incorporating information on the charter and 16 regulatory objective in the operator training program. 17 Detailed information on the regulatory objective and 18 audit charter has been included in the Bingo Bulletin, 19 which is scheduled for posting on our website. It's 20 also scheduled to be mailed tomorrow, October 6th. 21 Finally, we've created a link on our 22 website to the GAO Yellow Book site and provided 23 notice to that link in the Bingo Bulletin as well. 24 As I mentioned at the last meeting, 25 there is an implementation team which meets bi-weekly. 0027 1 The team has formed 10 subgroups addressing the 2 following areas, based on the recommendations in the 3 Internal Audit report. Those include audit procedure 4 revision, workpaper documentation, audit report 5 revision, internal control standards, books and 6 records requirements, cost standards, general audit 7 rule revision, audit violation revision, employee 8 reference manual and fair conduct of bingo and house 9 rules. 10 Each work group has developed or is 11 developing an action plan with milestones and goal 12 dates. We do not anticipate that the activities of 13 all of the work groups will be completed at the same 14 time. Also we fully expect the activities of some of 15 the groups to impact or otherwise be dependent on the 16 results of other groups. 17 As we move forward, we're mindful of the 18 changes that will be developed and how best to 19 implement those changes. Therefore, as we develop 20 each item, we will be considering a phase-in timeline 21 that will allow licensees a period of adjustment to 22 become familiar with and compliant with any changes we 23 adopt. 24 I would be happy to answer any questions 25 you may have. 0028 1 COMM. COX: Billy, those are some fairly 2 lofty topics that you formed those work groups to 3 address, and some of them are going to require 4 significant change from what has been done in the 5 past. What kinds of resources do you have on those 6 work groups that will give the expertise that is going 7 to be needed to generate that kind of change? 8 MR. ATKINS: The work groups at this 9 time, Commissioner Cox, consist of staff within the 10 Bingo Division. I have been meeting with others in 11 the agency regarding the different matters of the 12 Internal Audit implementation, including staff from 13 the Legal Division, the Enforcement Division and the 14 Office of the Controller. 15 COMM. COX: Okay. Catherine, have you 16 looked at these work groups? 17 MS. MELVIN: Commissioner, I am aware of 18 the work groups. I'm not a party to them, and so I 19 don't participate in their meetings. 20 COMM. COX: How closely can we get you 21 involved in this? I don't want this thing to go down 22 the road and we get to the end of the road and find 23 that we haven't done anything because the expertise 24 that was there wasn't sufficient to satisfy the ideas 25 that you set out in your audit. How do we keep from 0029 1 getting too far down the road before we discover that 2 we don't have enough expertise involved? 3 MS. MELVIN: That certainly is a 4 challenge in implementing any audit recommendation. 5 And I think it's a challenge for the auditor, too, 6 because, as you are aware, there is a delicate 7 balance. I can audit and offer recommendations, but I 8 certainly can't direct or approve the management 9 corrective actions taken. 10 It's a delicate balance because I'm sure 11 Billy is fully aware that it's very likely an auditor, 12 or maybe another auditor, an external auditor might 13 come in at some point in the future and perform 14 follow-up to determine whether those actions did, you 15 know, actually achieve the desired result. 16 COMM. COX: Well, there is going to come 17 a time, Catherine, when we're going to say to you, 18 "Has the Charitable Bingo Division done what you 19 recommended they do? We know they're tried, but have 20 they done it?" And that's where I don't want that to 21 be the first time we find out that they didn't have 22 the expertise to do what they've been trying to do. 23 MS. MELVIN: Well, Billy and I do meet 24 monthly at a minimum, and we've done that prior to the 25 audit. And in those meetings, and then more ad hoc 0030 1 meeting, we meet and discuss. Billy shares his plans 2 on moving forward, and he has sought advice and 3 additional recommendations on implementing the 4 specific recommendations in the report. So we talk 5 about that. 6 In addition, I have pointed Billy to 7 some outside resources that he should feel free to tap 8 into. I'm very comfortable in, you know, pointing him 9 to some external assistance, whether it's other state 10 agencies that have external audit functions or it's 11 other entities that are familiar with training 12 auditors and, you know, with their resource needs. 13 COMM. COX: Mr. Chairman, could we ask 14 Ms. Pyka to come up? 15 CHAIRMAN CLOWE: Certainly. 16 COMM. COX: Good morning, Kathy. 17 MS. PYKA: Good morning, 18 Mr. Commissioner. 19 COMM. COX: I heard Billy mention your 20 name as being involved in this. Would you address the 21 same question that I asked Catherine to address. 22 MS. PYKA: I would be happy to. For the 23 record, Kathy Pyka, Controller for the Lottery 24 Commission. 25 Commissioner, I'm not actually involved 0031 1 in the work group that Billy identified. I have been 2 meeting with Billy on another task as it relates to 3 the one audit finding that pertains to organization 4 structure. And myself, along with an individual from 5 the Enforcement Division and then an individual from 6 the Administration Division has begun meeting with 7 Billy on that particular item. 8 COMM. COX: Do you believe that in the 9 area where you are working -- that is, in 10 organizational resources -- that there is sufficient 11 expertise to address the problem and solve it? 12 MS. PYKA: Sir, we have just begun with 13 our initial meeting yesterday, and we have another 14 meeting scheduled this week. So it might be premature 15 to respond to that. But I do feel like with the team 16 that we have put together, we should be able to 17 accomplish the task. I just think we're in the 18 premature stage of getting that task moving forward. 19 COMM. COX: Mr. Chairman, the purpose of 20 this, of course, is just to be sure that we have the 21 resources that we need, both internal and external, to 22 do this job. And I'm not sure I have the comfort 23 level that I really need to say, "Okay. I'm satisfied 24 that we've got it," but I'm also not sure how to get 25 there. 0032 1 CHAIRMAN CLOWE: Well, I share in that. 2 And I would like to take it to another level on the 3 path I think you're on. 4 When this Commission received the 5 internal audit report from Ms. Melvin, I think we can 6 characterize it as an unsatisfactory performance. And 7 we have asked Billy to correct those issues that 8 needed to be corrected, and we're hearing that that is 9 a process. 10 And you have directed, particularly I 11 think with my certainly support, Executive Director 12 Sadberry, based on his knowledge, experience and 13 expertise, to help Billy, as well as Ms. Pyka and 14 Ms. Melvin. I'm reaching out for some action and some 15 progress. And the issue of timeliness is in my mind, 16 and I'm sure it's in yours as well. 17 This Commission has had a full 18 explanation from Ms. Melvin. And Billy has agreed and 19 management has accepted all the recommendations that 20 the internal auditors made. But I'm also concerned 21 not only about the resources but what the plans are 22 for the future. 23 I think we're dealing with two elements 24 here in addition to the program of work, if you might 25 call it that. One is personnel and the other is the 0033 1 organization. Now, I have been informed that Chairman 2 Flores of the House Licensing Committee is going to 3 have a hearing on October the 25th, and this subject 4 is going to be on the agenda for discussion. 5 And my understanding is that Mr. Atkins 6 and Ms. Melvin have been asked to be there. I have 7 been asked to be there as well. And my sense is that 8 there will be some questions at that time about, you 9 know, where are we in this process? And the 10 Commission, in its discussion of this matter, has 11 wanted to give adequate time to this process to see 12 that it's done properly. 13 And I think we need to have preparation 14 for that meeting on the 25th of this month to be 15 forthcoming from Billy and from Catherine in specifics 16 about the details of the audit and where there were 17 less than satisfactory performances -- if anybody, for 18 example, was unfairly audited, which has been a 19 concern of yours. 20 And those are the kinds of issues that I 21 think are going to come on the table. And I don't 22 want us to be in the position of saying, "Well, you 23 know, we don't have that answer. We're going to have 24 to look into this. We're going to have to come back 25 to you with a response." 0034 1 And I am using this opportunity to try 2 to put a finer point on the line of thinking that 3 Commissioner Cox I think has started, and I'm very 4 much in support of, that we need to move towards a 5 result that is productive and is positive and is the 6 right one. And we want you to have the resources to 7 get the job done, but we want the job done. 8 I would like to add the other subject of 9 licensing to this discussion as well, if that falls 10 within the agenda, Counselor. 11 MS. KIPLIN: Yes, I think it falls 12 within the agenda under the legislative response that 13 you're talking about in terms of the legislative 14 hearing, in terms of audit work that's being 15 undertaken or will be asked to be undertaken by your 16 internal auditor, as well as the audit -- Bingo 17 Division's implementation of the current audit 18 recommendations. 19 CHAIRMAN CLOWE: So my sense is that 20 what we've told Mr. Atkins, as the Charitable Bingo 21 Division Director, Commissioner Cox, is we want him to 22 look at the entire division, we want him to look at 23 everything that's happening there. The two big 24 subjects in my mind are auditing and licensing. And 25 we want to see, you know, if our performance is where 0035 1 we want it to be. 2 I'm told that Chairman Flores is less 3 than satisfied with some of the licensing practices 4 that have gone on regarding this division. And I 5 would like to be prepared to make answers to him to 6 whatever questions he might ask in that regard 7 concerning the statute as we see it, the limitations 8 and the opportunities we have, the timeline regarding 9 application for responses on behalf of the division 10 and responses on behalf of the applicant for the 11 licensing procedure, and then what the granting time 12 is for licenses, all of those kinds of things that I 13 think ought to be opened up and aired, not only before 14 this Commission but before the Licensing Committee and 15 answering fully whatever questions they might have. I 16 see that as an opportunity to ask for help from the 17 Legislature in the forthcoming regular session to 18 whatever needs they can address regarding the statute. 19 But my sense is, particularly in 20 auditing, this division has not done its job 21 satisfactorily, and we need to have an understanding 22 of what we can do to improve that. And then I would 23 like to include licensing as well as we go forward. 24 Let's not miss an opportunity. 25 How do you feel about that, Commissioner 0036 1 Cox? 2 COMM. COX: I feel that that's the way 3 we've got to go on this. 4 Billy, the thing to me that is most 5 important -- and you're managing this process -- is 6 that you be aware of the expertise that's needed on 7 the project and be sure it's being brought to bear, 8 that you, through using Ms. Melvin and Ms. Pyka, 9 Director Sadberry, whatever other resources are 10 available to you in this building, develop the 11 awareness of what additional resources you might need 12 that aren't on your team and bring them to bear. 13 MR. ATKINS: Yes, sir. 14 CHAIRMAN CLOWE: Do you-all feel -- and 15 I'm addressing this to you, Ms. Melvin and Ms. Pyka -- 16 do you-all feel that there is anything else you can do 17 to support Billy in this activity and be involved in 18 this process so we get a positive result? 19 MS. PYKA: Certainly, as we study this, 20 you know, I will certainly express any ideas that I 21 might have. I've shared some of those with Billy with 22 regard to some of the other agencies that have 23 monitoring functions or audit functions. I think 24 there's some very good resources available in other 25 governmental entities that we could tap into and bring 0037 1 those resources to this agency. There's a lot of good 2 monitoring guides out there that I think that we can 3 take and use as a starting point to try to get to that 4 audit standard that we're looking for with our Bingo 5 Division. And we visited on those issues, and we'll 6 continue to visit on those items. 7 CHAIRMAN CLOWE: Anything further, 8 Commissioner? 9 COMM. COX: No. I think Catherine is 10 wanting to say something else. 11 MS. MELVIN: Commissioners, I was going 12 to say I don't have much more to add to that. I'm in 13 full agreement that we look at other state agencies 14 that have such monitoring and regulatory 15 responsibilities. 16 One thing is, a lot of work has been 17 done, I would say over the last maybe 10 years in the 18 area of monitoring, and not just contract monitoring 19 but this regulatory type of auditing. And so I think 20 we can look at other agencies that may have reviewed 21 their business processes and may have some, you know, 22 ideas that they can share with us. 23 I'm aware of -- I'm certainly plugged 24 into the internal audit community, and so I'm aware of 25 other internal audit functions that have looked at 0038 1 their third-party auditing, the groups within their 2 agencies. And so I know that a lot of activity has 3 been done in other state agencies. 4 COMM. COX: Director Sadberry -- 5 MR. SADBERRY: Commissioner. 6 COMM. COX: -- there is one other issue 7 here that I think may arise; and that is, to my 8 knowledge at least, the Charitable Bingo Division has 9 limited experience with contracting out. And your 10 agency, of course -- the Lottery Commission -- has 11 extensive experience with contributing, including 12 interagency contracts. So to the extent that you and 13 your staff can help Charitable Bingo with any 14 procurements that are necessary in this area, it would 15 be much appreciated. 16 MR. SADBERRY: Commissioner, thank you. 17 And certainly that will be done. And I would like to 18 add, if I may, in response to your specific point 19 here, as well as the general discussion that I've 20 heard, I certainly concur in the objective of the 21 Commissioners, that the agency as a whole combine its 22 resources to assist with the tasks that are before the 23 Bingo Division, and that is being done. 24 I would point out, in addition to what 25 has been discussed this morning, Deputy Executive 0039 1 Director Grief has put in significant time and effort 2 directly with his expertise in a number of areas, 3 including the audit issues and the organizational 4 structure issues and will continue to do so, as well 5 as other resources within the agency. 6 Certainly the concept of external 7 resources is timely, and I believe that is where the 8 agency should take the opportunity to take full 9 advantage of a combination of those resources. While 10 it's not my function to be directly responsible for 11 the overall result, I think as an agency, whatever 12 result obtains from the Bingo Division relates to the 13 entire agency. And that's the concept that we are 14 using and employing throughout the agency and that we 15 will do at your direction outside the agency to 16 whatever extent we can identify it or it can be 17 identified to us and that we can assist and 18 participate, while at the same time obviously 19 observing the lines of authority and responsibility 20 internal to the agency. That's statutory as well as a 21 rule of the agency. 22 COMM. COX: Thank you, sir. 23 Thank you, Mr. Chairman. 24 CHAIRMAN CLOWE: Talk you-all very much. 25 0040 1 AGENDA ITEM NO. VI 2 CHAIRMAN CLOWE: Next, Item VI, report, 3 possible discussion and/or action on the agency's 4 contracts. 5 Mr. Jackson. 6 MR. JACKSON: Good morning, 7 Commissioners. For the record, my name is Tom 8 Jackson, purchasing and Contracts Manager for the 9 Commission. 10 Commissioners, in your notebook under 11 Tab No. VI is a report on prime contracts that has 12 been updated for your review. I'll be happy to answer 13 any questions you might have. There have been no 14 changes from last Commission meeting. 15 COMM. COX: Tom, when I came here, I 16 looked at the contract expiration schedule, and I saw 17 that everything expired on August 31st. And I 18 suggested that maybe that was a peak load and maybe 19 some of these should be staggered so that they expired 20 at different dates. And four years later, they still 21 all expire on August 31st. Am I wrong? Is there no 22 peak load or what's going on here? 23 MR. JACKSON: Commissioner, there is a 24 peak load to some extent in the Purchasing Department. 25 However, in contracting, many of these have options to 0041 1 extend. Those options are simply a one-page 2 extension. We have the exclusive right to extend a 3 contract. They're very simple to do. If the contract 4 itself expires without any renewable periods, then 5 that goes into a much more detailed procedure, which 6 we do do. 7 COMM. COX: You landed right on my 8 point, which is I am concerned that there might come a 9 time or has come a time in the past when we would do 10 the simple option exercise because we didn't have time 11 to do a new procurement, even if we needed a new 12 procurement. So for that reason, I would still like 13 to encourage you to get these things staggered so that 14 we always have time to do what's right, not just what 15 we have time to do. 16 MR. JACKSON: Yes, sir, we will do that. 17 COMM. COX: Thank you, Mr. Chairman. 18 CHAIRMAN CLOWE: Well, I've heard it 19 said, "We'll do that" before. And just explain to us 20 how you're going to do that and when you're going to 21 do that. 22 MR. JACKSON: It will take some time, 23 Commissioners. These are set up. But any new 24 contracts, we can certainly coordinate the dates, 25 stagger those, if you will. However, the existing 0042 1 contracts, we'll have to work through those the 2 process. We could possibly amend those contracts, if 3 that's your wish, to change dates or to alter the 4 schedule somewhat, but that will take some time. 5 I will assure you that we will do that. 6 On new contracts, we will modify the dates. We'll try 7 to work dates maybe by the annual year, not the fiscal 8 year, however it fits within that contract. But these 9 are something we have to be very careful with and go 10 through very slowly, but we will do that. 11 COMM. COX: Okay. 12 CHAIRMAN CLOWE: You satisfied with 13 that? 14 COMM. COX: When Tom tells me, "We'll do 15 it" and Director Sadberry hears him saying it, I'm 16 satisfied. 17 CHAIRMAN CLOWE: And you'll be around 18 here long enough to see that it gets done. 19 COMM. COX: I would hope so. 20 CHAIRMAN CLOWE: Okay. 21 MR. JACKSON: Commissioners, if that's 22 your will, we will do that. 23 CHAIRMAN CLOWE: Well, I think 24 Commissioner Cox, as he said, has been asking for it 25 for four years. It's just so easy to do what's been 0043 1 done, and I think that's to roll these things over on 2 the extension basis and then to bid them on the 3 expiration date for the renewal following. I don't 4 think anybody has been listening to him, quite 5 frankly. And you have an opportunity now to do 6 something that he's been asking for, and I think it's 7 good business practice. I would like to see some 8 action. 9 MR. JACKSON: It will be done. 10 CHAIRMAN CLOWE: Thank you. 11 MR. JACKSON: Yes, sir. 12 AGENDA ITEM NO. VII 13 CHAIRMAN CLOWE: Next, Item VII, 14 consideration of and possible discussion and/or action 15 on external and internal audits and/or reviews 16 relating to the Texas Lottery Commission and/or the 17 Internal Audit Department's activities. 18 Ms. Melvin. 19 MS. MELVIN: Good morning again, 20 Commissioners. For the record, my name is Catherine 21 Melvin of the Internal Audit Division. I have no 22 items of update this morning but am available to 23 answer any questions you might have. 24 COMM. COX: Have we replied to all of 25 the state auditor's reports? 0044 1 MS. MELVIN: Yes, sir, with the 2 exception of our current financial audit that's just 3 started. 4 COMM. COX: Okay. So we have replied to 5 and submitted a work plan to get in conformity with 6 all the audit plans that the state auditor has issued 7 so for? 8 MR. SADBERRY: Yes, Mr. Commissioner, 9 that is correct. And if I may add, in addition to 10 that, in a monitoring/compliance mode, the agency, 11 primarily again through the stewardship of Deputy 12 Director Grief, the agency is providing periodic 13 reports on a monthly basis to reflect the compliance 14 with the management response commitments that have 15 been made to each of those audit phases. That is 16 being provided to the Chairman of the House Licensing 17 and Administrative Procedures Committee. It's 18 certainly available to the auditor's office if 19 required, and it's used internally as well through all 20 the division directors and shared with the internal 21 auditor, is my understanding. 22 So we feel that there are instances -- 23 at least two I'm aware of -- in which there may be a 24 question of meeting the deadline, and that is done 25 only when there is an interpretation and a decision or 0045 1 determination made that there is a reasonable basis 2 for that and that's noted and documented. 3 But in a general mode, we are in 4 compliance in that sense. We have responded fully, 5 and we are reporting update progress as we go forward. 6 COMM. COX: Excellent. 7 CHAIRMAN CLOWE: And, Director Sadberry, 8 you were asked I think three questions at the Senate 9 Finance Committee hearing last Tuesday regarding the 10 state audit report on this agency. Did you feel that 11 your answers were as full as you wanted to make at 12 that time? Do you plan any follow-up on that? 13 MR. SADBERRY: (A), I do not believe 14 that the answer fully captured the multiple parts to 15 the entire question that the senator, who I think was 16 acting chairman at the time of asking the question and 17 may have asked that question on behalf of the chairman 18 of the committee, is my understanding. I do not 19 believe every element of that question was necessarily 20 addressed. I think in general, the sense of the 21 question was addressed. 22 And, (B), yes, we are planning to follow 23 up, and we already have taken steps to do that. We 24 have obtained the audio recordings and will have those 25 transcribed so that we can fully lay out what the 0046 1 question is, all elements of the question. And the 2 plan is to provide a full written response to the 3 chairman and all members of the committee to every 4 element of the question as asked, as we understand it. 5 And, as well, we are seeking currently, 6 through contact from our Governmental Affairs 7 Division, with the staff of the Senate Finance 8 Committee, we're requesting already whether they are 9 in need of any additional or supplemental information 10 from us of their own accord. So we have a bilateral 11 approach to that, the objective being that we fully 12 vet the question and fully respond to it. 13 CHAIRMAN CLOWE: Very good. 14 COMM. COX: Catherine, what role do you 15 play in the process of the agency's acting to correct 16 the observations of the state auditor? Do you do any 17 checking off there or do we just wait -- is the next 18 audit when the state auditor comes in and says yes, we 19 did it, or yes, we didn't? 20 MS. MELVIN: Veil, let me answer your 21 question in two parts. First is, it would be based 22 upon risk. I mean, as you know, each year I perform a 23 risk assessment. And so whether or not I follow up on 24 state auditor recommendations or any other external 25 audit recommendations would fall into that overall 0047 1 risk assessment that I perform. 2 The other piece is, is that certainly at 3 the request of management or you, the Commissioners, 4 if there is something specific that you're interested 5 in, internal audit can certainly review that. 6 But I would say, you know, just as a 7 ongoing practical matter, we don't audit or oversee 8 the management corrective action process. 9 COMM. COX: Are you involved in any way, 10 as a consultant or otherwise, in that process? 11 MS. MELVIN: Yes, I am. I would say I'm 12 invited to meetings where there's discussions asked to 13 corrective actions or the progress in moving forward 14 or decisions that need to be made. I believe just 15 here very recently, I sat in on some meetings 16 regarding an issue that has come out of the audit on 17 Lotto Texas jackpot transactions. 18 COMM. COX: So the resources of your 19 department are being brought to bear as necessary to 20 help Director Sadberry and Deputy Director Grief as 21 they solve these problems? 22 MS. MELVIN: Absolutely. In my opinion, 23 that is the role of your internal audit function, that 24 we assist management in their movement forward on 25 corrective actions, you know. And as I mentioned 0048 1 earlier, it is a delicate balance because I could be 2 called in later to audit those actions taken. So my 3 role in any of that always is as an adviser, never a 4 decisionmaker. 5 COMM. COX: Thank you, Mr. Chairman. 6 CHAIRMAN CLOWE: And while we're on the 7 subject of the internal audit activities with external 8 audits, do you anticipate another audit from the state 9 auditor, an overall audit which had been mentioned at 10 sometime in the past? 11 MR. SADBERRY: Chairman, we did, in 12 fact, early on expect that, and it was expressed that 13 we should expect to receive it. It has not been 14 mentioned by the auditor's office to us recently, nor 15 have we inquired. So I cannot tell you that it is to 16 be expected. 17 If you would like, we can certainly 18 inquire. We have among ourselves discussed it and 19 thought that we understand the results of each audit 20 phase, and we believe that the original intent of 21 having the summary, an overall audit, was intended to 22 address certain global concepts by the agency such as 23 the environment, the culture, the matters that were 24 expressed as being of concern regarding the agency at 25 the outset of the audit process, without being 0049 1 presumptuous. 2 But based upon the general nature of the 3 discussions we've had and the interactions our 4 respective offices have had, we're not certain that 5 that concern continues to pervade. We're not certain 6 that it has the level of heightened consciousness or 7 awareness as it may have had or been perceived at some 8 point in time; again, not being presumptuous. 9 So if that be the case, it may well be 10 determined from a resources standpoint that a summary 11 audit, a global audit not occur. But again, that's 12 just my perception of it. But as we sit here, we have 13 not been informed that it's being undertaken or that 14 it's forthcoming as far as we know. 15 CHAIRMAN CLOWE: I thank you for that 16 explanation. And my answer to your question, you 17 know, do I think you ought to ask for it, it would be, 18 "No, I don't think so." But I tell you what I would 19 be interested in asking you to do. We discussed with 20 the auditors, when they made their human resources 21 report, the surveying of employees relative to an 22 ongoing effort to measure the extent that we were 23 achieving a more positive culture change within this 24 agency under your leadership. And I would like to see 25 some attention devoted at this point in time to the 0050 1 development of the next survey. I'm not sure that 2 either survey that was taken and discussed in that 3 report, the one initiated by the state auditor or the 4 one that was initiated that the state conducted -- and 5 I can't remember the name of that one offhand. 6 MR. SADBERRY: Survey of organizational 7 excellence. 8 COMM. COX: Survey of organizational 9 excellence. 10 CHAIRMAN CLOWE: Organization 11 excellence. Thank you, Commissioner -- are the best 12 ones. I think we need to look for the next survey -- 13 and certainly we're going to be into Calendar Year '07 14 very quickly -- and determine what would be the best 15 vehicle. 16 There was a question about whether or 17 not, with the survey of organizational excellence, the 18 answers were really going to be confidential or not. 19 And I think the surveying by the state auditors was 20 done in a way that maybe it lacked some objectivity as 21 well. I don't know. But I would like to see us put 22 our minds to how the next survey can be better and we 23 can benefit from the experience of those two prior 24 surveys, to continually understand by gaining valid 25 feedback from the employees of this agency how they 0051 1 feel about their work here. 2 I think that's an input that you are 3 sensitive to. I think you're doing that probably on a 4 daily basis. But I think it would give the 5 Commissioners, and yourself as well, as well as other 6 members of the management team, an opportunity to hear 7 on a realistic basis how the culture change is 8 advancing. 9 MR. SADBERRY: Mr. Chairman, I totally 10 concur. And I certainly agree that what you say is a 11 multi-faceted concept and has many different 12 opportunities in it. We, from the agency standpoint, 13 would be responsible to address the management plan 14 that we responded to that particular audit finding and 15 recommendation on regarding internal surveys being 16 conducted. 17 And I have asked for recommendations 18 from the Deputy Director and the Human Resources 19 Director regarding that. And we intend to involve the 20 ombudsman's office in that in accordance with that 21 plan. So our minds are in sync on that as well as our 22 staff's commitment of resources to that effort -- the 23 timing of it, the composition of it, what it seeks to 24 achieve, how it should be accomplished, the 25 methodology to employ, are all things that go into the 0052 1 process. 2 The overall objective is to do exactly 3 what you say, is to have a true test and finger on the 4 pulse of the feelings within the agency regarding the 5 environment of the workplace. Every other human 6 resources process, activity that takes place is 7 intended to address that by action; that is, to have 8 the employees sense and realize that there is a fair 9 process that is fair to the agency and fair to the 10 staff and that we balance those competitive 11 interests -- and I say "competitive" only to say that 12 that's how it's perceived. Now, we hope -- the 13 long-term objective is that they be considered mutual 14 interests, but we have to reach that point. 15 At this point, I would think -- I must 16 tell you it's perceived as a competitive interest, and 17 that's what I'm trying to help balance through the 18 process. I think the experience of a fair process 19 drives the fair result, and that's what we are 20 attempting to achieve. Then what we want to do is 21 test that by a meaningful and reliable evaluation 22 survey process. And that is undergoing as we speak. 23 CHAIRMAN CLOWE: Very good. 24 Anything further, Commissioner? 25 COMM. COX: No. 0053 1 CHAIRMAN CLOWE: Thank you, ma'am. 2 MS. MELVIN: Thank you. 3 AGENDA ITEM NO. X 4 CHAIRMAN CLOWE: Next, Commissioner, 5 with your permission, I would like to go to Item No. 6 X, consideration of the status and possible entry of 7 orders in those dockets represented by the Letters A 8 through Q. 9 Ms. Kiplin. 10 MS. KIPLIN: Commissioners, with your 11 permission, I would like to take these in different 12 categories. And in particular, I would like to take 13 Letters A -- well, Letter A alone. 14 Commissioners, this is a matter that was 15 brought to your attention at the time when we had the 16 mass docket on the entry of orders relating to bingo 17 workers either being removed from the registry of 18 workers or being refused to be added. 19 After the hearing on the mass docket and 20 the proposal for a decision was issued, in particular 21 on one worker, the worker contacted us and gave us 22 information that we did not have previously that 23 suggested that, in fact, there was not a conviction 24 against this particular worker. 25 We have since been able to gather 0054 1 additional information. And we do believe that, in 2 fact, this was not a conviction on this particular 3 worker. Regrettably, it seems as though she was the 4 subject of an identity theft by her sister. And so we 5 believe justice is served by moving to dismiss the 6 case against her, and that is the case against Teresa 7 Ogle. 8 And so what we have filed with your 9 office -- and mainly because the State Office of 10 Administrative Hearings takes the position that after 11 they issue the proposal for a decision, they lose 12 jurisdiction, that we want to resolve this matter once 13 and all for this particular worker -- and so we filed 14 a motion to dismiss this case with you-all and are 15 recommending that -- pardon me -- motion to withdraw 16 and recommending that you enter the order withdrawing 17 it so that we can conclude this matter. 18 COMM. COX: Ms. Kiplin -- 19 MS. KIPLIN: Yes? 20 COMM. COX: -- did we act on this as 21 expeditiously as you would have liked? Are we able to 22 act on this kind of thing -- where a mistake is made, 23 it's unavoidable but the person has been harmed, are 24 we able to move as rapidly as you think is fair? 25 MS. KIPLIN: Yes, I think so, given the 0055 1 different offices that we need to work through to 2 actually get the conviction papers. In this case, if 3 I'm not mistaken, this individual has not been harmed 4 because this individual is currently on the registry. 5 And so she has continued -- 6 COMM. COX: She was not -- the order to 7 remove her was not ultimately entered? 8 MS. KIPLIN: Correct. 9 COMM. COX: Okay. So what you're doing 10 is stopping it from being entered? 11 MS. KIPLIN: That's right. 12 COMM. COX: Okay. Thank you. 13 MS. KIPLIN: That's right. At this 14 point, staff would recommend that you enter the order 15 to withdraw this case against this worker. 16 CHAIRMAN CLOWE: I would like to get on 17 the record a little bit more information, other than 18 her sister stole her identity, in regard to how this 19 mistake occurred initially and then flesh out the 20 details on how the correction came about or, in other 21 words, the person coming forward and offering 22 information, I suppose. Give us that on the record, 23 if you will. 24 MS. KIPLIN: Sure. I'll be glad to. 25 The conviction that was an indication it 0056 1 was hers was credit card fraud. In these instances -- 2 and I'm looking to see if Mr. Rogers might be here to 3 step on me if I'm wrong in terms of process 4 But in these instances, the DPS is 5 running this based on tapes, based on identifying 6 information but I don't believe fingerprint cards. 7 And so what was picked up that we received was an 8 alias, an a/k/a. The alias was a different name, but 9 it was attributed to her. 10 We moved forward. She got notice of the 11 hearing. She never responded, saying anything, no 12 response whatsoever. It was only after the proposal 13 for a decision was entered that she notified the 14 agency that she had been victimized in this particular 15 way. 16 Based on that, we -- 17 CHAIRMAN CLOWE: Let me ask you a 18 question at that point. Do we have on the record any 19 proof of the fact that she got notice? 20 MS. KIPLIN: Yes, I think we do. And 21 the proof is the proposal for a decision that was 22 entered with regard to the address she provided us. 23 It's the same address that the State Office of 24 Administrative Hearings used to provide her a copy of 25 the proposal for a decision which, in fact, triggered 0057 1 her calling us. 2 CHAIRMAN CLOWE: And that's how she did 3 say that she got notice of the POD? 4 MS. KIPLIN: Yes; the proposal for 5 decision, yes. Same address. 6 CHAIRMAN CLOWE: PFD. 7 MS. KIPLIN: You know, why she didn't 8 respond before, you know, it would have been better if 9 she had of. That's the whole -- 10 CHAIRMAN CLOWE: But that's unknown? 11 MS. KIPLIN: That's unknown. 12 CHAIRMAN CLOWE: Okay. 13 MS. KIPLIN: But the bottom line is, we 14 did obtain fingerprints. That's the only way to 15 ensure it really is the person, is going by finger- 16 prints, so we did obtain the fingerprints. We spent 17 the fingerprints off. And there was some issue in 18 terms of DPS not getting the fingerprints. We had to 19 do it again. But that was a bit of a frustration, to 20 answer your question, the earlier question, yes. 21 But because she was currently on the 22 registry, my feeling was that she was not being harmed 23 by that. Got the fingerprints, got the conviction 24 paper. It was clear that it's not her; it was, in 25 fact, what she said. At least we believe that, and 0058 1 that's why we believe that justice is served. So 2 that's why we're moving forward at this time to 3 request that the Commission enter an order withdrawing 4 this case against her. 5 Is that responsive to your questions? 6 CHAIRMAN CLOWE: Yes, it is. 7 And I guess my follow-up, if you don't 8 have a question -- 9 COMM. COX: No questions. 10 CHAIRMAN CLOWE: -- would be what 11 practice, if any, can the Commission institute that 12 would help us avoid this situation in the future, or 13 is it unavoidable? 14 MS. KIPLIN: I think -- Mr. Rogers is 15 now here, and he can talk about the process in terms 16 of identification -- but I think to some extent, when 17 we're dealing with 254 counties, we're dealing with 18 outside agencies and we're processing these many 19 applications for registration, I think there are 20 occasions where these situations may arise. 21 What I would like to think is the 22 overall due process safety net, if you will, is the 23 fact that we provided notice of the hearing. A 24 hearing occurred. A proposal for decision is sent to 25 the individual, based on the address information that 0059 1 this individual provides us. And so at the end, 2 that's what did occur. 3 COMM. COX: Mr. Chairman, at almost 4 every meeting I'm complaining, "Why isn't this guy who 5 was convicted four years ago already off the rolls?" 6 And I guess this is the case that kind of tells us 7 why, that the process is pretty thorough and that 8 maybe it works. 9 CHAIRMAN CLOWE: And I think that the 10 current status of the addresses has improved, hasn't 11 it, Billy, over the years? Aren't we seeing now, 12 through the operator training program and the on-line 13 availability of information, addresses that are valid 14 for responsible persons? 15 I remember earlier in my tenure on this 16 board, there would be cases where licensees would come 17 forward and say, "You know, you sent the notice to a 18 person that hasn't been associated with us for a year 19 or two, and that's the reason we didn't renew or we 20 didn't comply in some way." Aren't our addresses more 21 current and correct now than they were sometime ago? 22 MR. ATKINS: I believe, Mr. Chairman, as 23 you said, due in part to the operator training program 24 and other educational efforts, the contact information 25 for organizations, yes, has improved. In this case, 0060 1 this is an individual. 2 Now, I didn't hear Ms. Kiplin indicate 3 that the notification that we had sent this individual 4 had come back as being undeliverable. But I think you 5 have to balance licensees, organizations that actually 6 get a license, versus individuals on the registry of 7 workers. And I think it's not uncommon for us to get 8 mail returned to us for individuals. 9 CHAIRMAN CLOWE: And how many 10 individuals list the address of the licensee as their 11 address? 12 MR. ATKINS: I don't know. There are, 13 you know, a number of individuals that may list a 14 claim location as the address where they want to 15 receive their mail. 16 CHAIRMAN CLOWE: I guess a better 17 question is, is that a common or an uncommon address 18 for workers? 19 MR. ATKINS: I would say it's common. 20 MR. SANDERSON: Phil Sanderson, for the 21 record. 22 It's fairly common that the address of 23 record that we have for I say not all the 24 organizations but a number of them are the address of 25 the bookkeeper that does the quarterly reports and 0061 1 filing of applications and so forth. Then there are a 2 few that have the address of the playing location as 3 their contact information. 4 Once again, on the individuals, we do 5 between 30 and 35,000 backgrounds a year on 6 individuals, so there's a number of addresses that are 7 related to those individuals. So those can change 8 because some of the workers do move around from city- 9 to-city and so forth. 10 CHAIRMAN CLOWE: Thank you. 11 Anything further, Commissioner? 12 COMM. COX: Thirty to 35,000? 13 MR. SANDERSON: This last fiscal year I 14 believe was somewhere around 33,000 backgrounds, yes, 15 sir. 16 COMM. COX: That's a lot of background 17 checks. How much of that is done with internal 18 resources and how much of it's done at the Department 19 of Public Safety? 20 MR. SANDERSON: Well, there were about 21 33,000 individuals last year. What happens is, the 22 system, the ACBS system picks up individuals that are 23 due a background check -- they're checked every 11 24 months -- and automatically e-mails the DPS with a 25 list of those individuals and the information that 0062 1 they need. And the next morning, we have it e-mailed 2 back from the DPS, indicating how many of them had 3 hits. 4 COMM. COX: Okay. So some of these are 5 fairly automated? 6 MR. SANDERSON: The majority of it is 7 automated, yes, sir. 8 COMM. COX: Okay. Now, does the 9 Department of Public Safety provide this service 10 without charge for state regulatory agencies? 11 MR. SANDERSON: We pay one dollar per 12 person. 13 COMM. COX: One dollar per person. 14 Okay. Thank you, Mr. Chairman. 15 CHAIRMAN CLOWE: Any other questions in 16 regard to this recommendation? 17 COMM. COX: No, sir. 18 CHAIRMAN CLOWE: Move the adoption of 19 the staff recommendation. 20 COMM. COX: Second. 21 CHAIRMAN CLOWE: All in favor, please 22 say, "Aye." 23 COMM. COX: Aye. 24 CHAIRMAN CLOWE: Aye. 25 Opposed, "No." 0063 1 The vote is 2-0 in favor. 2 MS. KIPLIN: Commissioners, if I could 3 take up Letters B through N together, these were all 4 lottery retailers. And each one of these is an 5 insufficient fund case where money was owed to the 6 Lottery and the money was not there when we swept the 7 account. And each one went to hearing, and the staff 8 is recommending that you adopt an order revoking their 9 licenses. 10 COMM. COX: Mr. Chairman, move the entry 11 of those orders, Items B through N. 12 CHAIRMAN CLOWE: Second. 13 All in favor, please say "Aye." 14 COMM. COX: Aye. 15 CHAIRMAN CLOWE: Aye. 16 Opposed, "No." 17 The note is 2-0 in favor. 18 MS. KIPLIN: Do you want me to hold 19 these? Would it be better for you? 20 COMM. COX: Do you want to sign them 21 now? 22 CHAIRMAN CLOWE: No. Let's get through. 23 We can sign them all -- if that suits you. 24 COMM. COX: Yes, sir. Did you say we'll 25 sign them all now? 0064 1 CHAIRMAN CLOWE: No. Let's wait. But 2 let her -- 3 MS. KIPLIN: Okay. I'm sorry. 4 Commissioners, now if I could take up Letter O by 5 itself. This is a case where the staff -- at the very 6 beginning, let me just say the staff is recommending 7 that you not revoke or suspend the licensee's license 8 based on this particular case. 9 And the background on this case is that 10 we had a retailer who was charged with a particular 11 offense. And at the time of the criminal proceeding, 12 there was a plea to reduce conviction -- reduce 13 offense and reduce sentence. And we moved forward, 14 the staff did, based on the conviction in terms of it 15 being a disqualifying criminal conviction. At the 16 time of the hearing -- and I should ask if 17 Mr. Thompson is present. Mr. Thompson, he is the 18 attorney of record for the licensee, and we did notify 19 him. 20 Okay. So I'm seeing nobody indicating 21 that they wish to come forward. But in any event, at 22 that time the attorney for the licensee submitted, and 23 it was entered into evidence, an order that would void 24 out the judgment on the conviction. And it was based 25 on the fact that when the plea agreement was entered, 0065 1 the sentence for the offense was greater than what the 2 sentence should have been, and so the judgment was 3 void at that point. 4 And staff went forward on two matters. 5 One was the conviction itself, and then the other one 6 was a failure to notify within 10 days of a change in 7 license information -- the conviction -- moved forward 8 on that matter. The Administrative Law Judge in this 9 case concluded that the judgment was void ab initio; 10 in other words, from the beginning. And so, 11 therefore, there was no conviction, and the focus of 12 the case really turned to the violation of the State 13 Lottery Act on the failure to notify the Lottery 14 Operations Division Director within 10 days of a 15 change in licensing information at the time that the 16 conviction occurred. 17 There have been pleadings that have been 18 filed in this case, and I've looked at all of these 19 pleadings. I've also spoken with Mr. Anger regarding 20 this matter, who is Lottery Operations Division 21 Director. Based on the specific facts of this case 22 and based on the fact that the conviction is void 23 ab initio, the staff and the -- and so when you link 24 the violation, the 10-day violation to a judgment 25 that's void, the staff is not willing to recommend to 0066 1 the Commission that you revoke or suspend the license 2 based on a void conviction. 3 Now, having said that -- and this is I 4 think important because I think it goes to the 5 authority and the power of a governing body of an 6 executive administrative agency and is an 7 overreaching, if you will, by the Administrative Law 8 Judge's authority. 9 And so what the staff has got before 10 you -- and I'll be glad to pass these down to you if 11 you would like -- is an order that does not take 12 administrative action against the licensee or what was 13 pled in the notice of hearing for this case but does 14 indicate that you're not adopting Proposed Finding of 15 Fact 13 and Proposed Conclusions of Law 5, 6 and 7. 16 And the reason for that is because the 17 Administrative Law Judge characterizes in his proposed 18 finding of fact that for this window of time in which 19 the conviction occurred with the failure to notify, 20 that that's a technical obligation, recognizing even 21 though it's a void conviction, it is an obligation, 22 but he characterizes it as a technical obligation. 23 That in and of itself in my opinion is 24 not a fact; it's an opinion of an administrative law 25 judge. They're supposed to be finding facts and 0067 1 making conclusions of law based on their findings of 2 facts. And the other reason is because I don't think 3 that it is a finding of fact. I think whether 4 something is or is not an obligation of law is a 5 conclusion of law. And so the recommendation is that 6 you reject that finding of fact outright. 7 Likewise, in a consistent theme, the 8 same with Conclusion 5, 6 and 7, because of the 9 characterization of it being a technical violation. 10 The adjective "technical" is not a correct statement 11 of law. A violation of law is either -- an act that 12 goes to whether it is a violation of law or not is 13 just that; it is either a violation or not a 14 violation. I think that the reason that the 15 Administrative Law Judge wants to place emphasis on 16 the technical part is really to emphasize a mitigating 17 factor as it relates to this particular case. 18 And I liken it or draw the analogy of I 19 may have an emergency, I may be faced with an 20 emergency and I'm taking into my mind a decision that 21 I'm going to run a red light. Well, I ran the red 22 light. It is a violation of law. But whether there 23 are mitigating factors or aggravating factors, that's 24 a different analysis. 25 I also think within his own exceptions 0068 1 and -- I mean, pardon me -- findings and conclusions, 2 there is a disconnect because he's acknowledging by 3 his own findings and conclusions that, in fact, there 4 was this obligation to comply with the law, but then 5 he wants to characterize it as a technical violation. 6 So we are requesting that you reject the 7 Finding of Fact 13, Conclusion of Law 5, 6 and 7 for 8 those reasons, enter a new conclusion of law that is 9 very clear that the licensee did, in fact, violate 10 this particular statute for the failure to notify 11 within 10 days, but that based on the facts of this 12 case, the revocation of the license is not warranted. 13 The order concludes by making it clear 14 that you're taking this action based on this docket 15 and you're making no -- you're forming no order, 16 entering any orders that relates to the underlying 17 conduct of this case. 18 I would be glad to answer any questions 19 that you may have. 20 COMM. COX: Ms. Kiplin -- 21 MS. KIPLIN: Yes, sir. 22 COMM. COX: -- what we've got here is, 23 sounds like we've got somebody that was convicted of 24 something that's still out there selling lottery 25 tickets. I have a problem with that. 0069 1 MS. KIPLIN: Yes, sir. I -- 2 COMM. COX: Do you have any remedy for 3 my problem? 4 MS. KIPLIN: Yes, sir, I would like to 5 think that I do. I would say to you that the 6 conviction actually was void, and so there is no 7 conviction. 8 COMM. COX: But now you used this thing 9 "technical" -- 10 MS. KIPLIN: I did not. 11 COMM. COX: I understand. Somebody did. 12 It sounds to me like it was a technical voiding. 13 MS. KIPLIN: Well, it -- 14 COMM. COX: A real conviction and a 15 technical voiding. The guy was found by a court to 16 have done something that was some kind of violation of 17 a gambling statute, and that's a specific reason for 18 revocation of license; and, yet, we can't get his 19 license? 20 MS. KIPLIN: Not under these pleadings, 21 no, not under these pleadings. I will tell you -- and 22 I want to be very careful about my comments -- that 23 the staff is evaluating, currently evaluating the 24 underlying conduct that led to the conviction. In 25 this case, the staff made a decision to move forward 0070 1 on the conviction itself and not the underlying 2 conduct, and there were strategic reasons why the 3 staff made that decision. You know, if hindsight were 4 foresight, would we do it differently? I think where 5 we sit now, yes, we would, but we didn't. And we are 6 within the four corners of what we pled as a notice of 7 the hearing in this case. 8 But we are -- I will tell you that we 9 are currently evaluating or proceeding on another case 10 as it relates to the underlying conduct that was the 11 subject of the criminal conviction which was void. It 12 was voided out. 13 COMM. COX: Okay. One of the things I 14 have been told that we do from time to time is assist 15 local law enforcement agencies and prosecutors with 16 gambling cases, because we have expertise that they 17 don't necessarily have on a local basis. Is that 18 still something that we do? 19 MS. KIPLIN: I'm not sure -- I can tell 20 you that there has been no attorney at this agency 21 that has prosecuted a criminal case in a criminal 22 court. We may -- 23 COMM. COX: It was my understanding from 24 the folks in the former Security Division that that's 25 one of the things they did, was help local law 0071 1 enforcement officers find the right kind of evidence 2 and the prosecutors do the right kind of prosecution. 3 MS. KIPLIN: Well, in this case I think 4 the prosecutor -- one of the strategic decisions and 5 why we went the way we did is because, frankly, the 6 conviction came down very quickly. It was on a plea, 7 but it came down very quickly. 8 COMM. COX: You said it was a plea. Did 9 this person plead guilty? 10 MS. KIPLIN: He pled out, yes. As I 11 recall, he pled -- 12 COMM. COX: So now it's even worse. 13 We've got somebody that pled guilty, and the 14 conviction has been reversed and he's out there 15 selling lottery tickets. 16 MS. KIPLIN: That's right; that's right. 17 The order that was -- 18 COMM. COX: We have no remedy? 19 MS. KIPLIN: I'm hoping that we do have 20 a remedy. 21 COMM. COX: But we have no fast remedy? 22 MS. KIPLIN: We will need to move 23 forward with affording this gentleman due process. 24 COMM. COX: There's the other side of 25 that coin. 0072 1 CHAIRMAN CLOWE: In light of your 2 comments, Counselor, and Commissioner Cox's question, 3 what would be the ramifications of either the 4 Commission passing on this item and not taking any 5 action or sending it back for a new hearing? 6 MS. KIPLIN: I think the problem with 7 sending it back for a new hearing is that it's not 8 properly pled in this case. And what we're looking at 9 doing is properly pleading it. But we need to make 10 sure that we have the evidence that we need to 11 properly plead it. This conviction is void. It would 12 make no -- it would not serve a purpose to remand it 13 back on the notice that was pled because this 14 conviction has been void. It was on an application 15 for a writ of habeas corpus. That writ was approved 16 by a district court judge. 17 CHAIRMAN CLOWE: You've satisfied me on 18 that. How about the second part of my question -- 19 MS. KIPLIN: I'm -- 20 CHAIRMAN CLOWE: -- passing the item? 21 MS. KIPLIN: I see no reason to pass the 22 item. 23 CHAIRMAN CLOWE: What would be the 24 status if the Commission didn't take any action? 25 MS. KIPLIN: The status would be that 0073 1 this retailer is still licensed. And this is a matter 2 that needs resolution. We can keep it in abeyance, 3 but it is a matter that needs resolution. What we're 4 making clear in this case is that by entering this 5 order that no administrative action be taken, it's 6 based on the specific allegations that it had a 7 disqualifying conviction. 8 CHAIRMAN CLOWE: Yes. All this is, in 9 my mind, less than a clear situation. 10 MS. KIPLIN: Yes. 11 CHAIRMAN CLOWE: I'm trying to determine 12 if the Commission is helping by acting on this or 13 becoming a part of a convoluted situation by acting. 14 And if the Commission just stepped back from this and 15 passed it, you've indicated to us that there is an 16 investigation ongoing which may result in some action 17 that might put to rest some of the concerns 18 Commissioner Cox has expressed. I'm looking for what 19 is the best course for this Commission at this time. 20 MS. KIPLIN: Well, I think the best 21 course is to conclude this docket and to proceed with 22 another case that we believe the evidence exists and 23 we can prove the allegations in another contested case 24 proceeding. 25 COMM. COX: We can best move in that 0074 1 direction by adopting the staff recommendation? 2 MS. KIPLIN: Yes, I think so. I mean, I 3 think the other option that you have -- and we will be 4 glad to prepare orders if you would like -- is to land 5 on the fact that you believe the failure to notify -- 6 you don't have a conviction, so it can't be the 7 conviction, but the failure to notify within 10 days 8 of a change in licensing information you believe is a 9 violation of the law and warrants revocation. 10 COMM. COX: Do you believe that? 11 MS. KIPLIN: I have to say my concern is 12 whether we treat other people the same. I don't know 13 whether these are a unique set of facts. 14 CHAIRMAN CLOWE: It might be a reach. 15 MS. KIPLIN: But I would be very 16 concerned about a revocation based on that as the 17 violation of the rule. 18 CHAIRMAN CLOWE: Director Sadberry, let 19 us call on you and your legal expertise and 20 experience. Do you have a view on this case? Have 21 you had a chance to look at it? 22 MR. SADBERRY: Yes, I have, 23 Mr. Chairman. Ms. Kiplin and I have discussed it on 24 several levels, including the record that was made 25 before the Administrative Law Judge. I concur that on 0075 1 the record, as I understand it, that was created, that 2 there is no administrative action that should lie 3 against the license, which is the recommendation to 4 you both by the Judge as well as staff. 5 I concur that the characterization of 6 the technical violations are not proper within the 7 order, and the Commission's action should be, as 8 proposed, to not adopt those characterizations. The 9 purpose of that is so that there is no precedent 10 that's allowed -- that this decision could be allowed 11 to be used in characterizing a violation of statute as 12 somehow being de minimis and, therefore, having no 13 practical or legal effect. 14 But going to the question I think that's 15 really on the table here of what to do about it, I 16 understand the staff is currently looking at the 17 practicalities of using factual evidence that may 18 exist or may be capable of being developed, to go back 19 in an administrative process to develop that case 20 before the ALJ. 21 And I think, in direct answer to 22 Commissioner Cox, the process here is an evaluation of 23 a strategy of whether you go to the hearing with your 24 briefcase full of all potential elements that you 25 might use to prove your case, or do you make an 0076 1 assessment that you have a sufficiency to rely on the 2 existence in this case of a conviction which is 3 sufficient? So you can do it all or just support 4 what's necessary as you see it at the time. 5 That was the election that was chosen. 6 That's a strategy. And I think what comes out of it 7 is, in working together as we are doing here within 8 the agency in this particular function, is to develop 9 strategy of what may appear to be efficient on the 10 front end, turns out not to be the most efficient 11 course. It does not address the most expedient result 12 that you would like to see. That's a learning 13 process, and I think that's how we would use this case 14 as that opportunity. 15 Now, whether the Commission should take 16 action on this and whether taking action or not taking 17 action helps or is not effective at all in the overall 18 process, presuming there is no time limit on the time 19 frame within which you receive a recommendation from 20 the ALJ and you act upon it, there is no prejudice in 21 not taking action. 22 The only benefit I see in taking action 23 would be that, as Ms. Kiplin points out, you close the 24 record. It's not pending, it's not hanging, so you 25 can close it out and put it on the shelf. There is 0077 1 some value in that. You remove one case from the 2 census. But whether that is usable in some way, 3 arguably by the subject of these proceedings, to say 4 by taking some action you have done something and you 5 may be precluded from doing something later. 6 We talked about, for example, there is a 7 legal concept of the issue of preclusion, and part of 8 this order seeks to avoid that result; that is, by 9 taking some action, even though you don't specifically 10 act on a particular issue, you might be precluded from 11 acting on it later. 12 I don't think there is a risk the way 13 the order is written, but that is a potential. So 14 there is no harm in not taking action. And at least 15 you then can't be argued to have done something that 16 precludes you from doing something in the future 17 If I were sitting there and if I were 18 advising you in that regard, I would say that would be 19 the one consideration I would have. And if I were at 20 all in doubt about it, maybe I would pass it for one 21 meeting, to give the full opportunity to explore all 22 of these potential consequences. 23 Now, the only concern I would have if we 24 do that is, is does that preclude going forward with 25 any other administrative action while this one is 0078 1 pending, with the same subject in mind? There may be 2 a concern about that having a bilateral course of 3 action with the same -- I don't know if that's a 4 problem or not. 5 MS. KIPLIN: No, I don't think it is. I 6 think at some point, if we don't take action, we will 7 get a request from the State Office of Administrative 8 Hearings on what occurred with this matter. And I 9 believe -- and I may be wrong in this -- but they have 10 a requirement to report on what cases are held out 11 because, you know, there was a legislative interest in 12 having executive agencies rely on the State Office of 13 Administrative Hearings. "And if they don't like an 14 order that they get, they just don't enter it," would 15 obviously frustrate that whole process. 16 CHAIRMAN CLOWE: I see no harm in 17 passing this for the time being, and not necessarily 18 just for one meeting or two meetings. But I think -- 19 I understand what Ms. Kiplin has told us and, 20 additionally, Director Sadberry. And it is a muddled 21 situation. And I see no harm in this body passing it 22 until further developments might occur in dealing with 23 it at some point in time in the future. 24 Would you proceed, please ma'am. 25 MS. KIPLIN: Yes. If I can go to letter 0079 1 P. Commissioners, this is a proposed consent order on 2 a licensing matter. Commissioner Cox, you had a 3 question about this some meetings ago. And your 4 question -- this is Wilmer Texaco -- your question had 5 to do with quoting a particular statute in connection 6 with the conduct at play. In particular, I think the 7 statute that you were focused on was the one that has 8 to do with influencing the selection of a winner and 9 whether, in fact, that was an interpretation that you 10 were to employ with regard to this conduct. 11 Well, what we decided was to really 12 focus on the facts and the fact that we believe that 13 the facts, setting aside that statute, went to impact 14 the integrity of the lottery. And the facts are that 15 the retailer had an employee that was -- it's a word, 16 "pinholing tickets" and trying to determine whether a 17 ticket or tickets were winners and, if they weren't 18 winners, putting them back for sale to the public. 19 The retailer itself was not alleged to 20 have engaged in this conduct, but the retailer did 21 know that he had an employee that had been selling 22 tickets that had already been determined to be 23 non-winning tickets. And so for that reason, we're 24 not moving forward to recommend revocation, but we are 25 moving forward to entry of a consent order. It was 0080 1 not his conduct. It was the employee -- I do not 2 believe the employee is with this retailer anymore. 3 The retailer has agreed to a 10-day 4 suspension, a 10 consecutive day suspension where 5 there will be no sales that will occur in this retail 6 location. 7 And I will be glad to answer any 8 questions that you have. Mr. Anger I believe also is 9 here as well as Mr. Rogers. The staff is recommending 10 that the suspension, if you would adopt this, would 11 begin October 16th and end October 25th. 12 CHAIRMAN CLOWE: Any questions? 13 COMM. COX: So let me see if I 14 understand this correctly. It was an employee that is 15 no longer there that was pinholing the tickets. That 16 employee was not charged with any crime, he's just 17 gone off into the night? 18 MS. KIPLIN: That part I don't know. 19 COMM. COX: And how much did the owner 20 know and when did he know it, about the fact that his 21 employee was pinholing tickets? 22 MS. KIPLIN: I think he knew it after 23 the fact. I don't think he knew it at the time. And 24 I also think that the -- 25 COMM. COX: And you say you think, 0081 1 Ms. Kiplin. Do you know? 2 MS. KIPLIN: I would call on Mr. Rogers 3 and Mr. Anger to help me with that. My recall in 4 reviewing this case, Commissioners, that it was after 5 the fact but that he didn't prevent the sale of those 6 tickets and, in fact, I think recognized that the 7 non-winning tickets were being sold. 8 COMM. COX: That is a whole lot 9 different than knowing after the fact. 10 MS. KIPLIN: Well -- 11 MR. ROGERS: For the record, my name is 12 Ed Rogers. I'm the acting Enforcement Division 13 Director. At the time that we were looking into this 14 situation, I was the Retailer Services Manager in 15 Lottery Operations. 16 As I recall this -- 17 COMM. COX: In that role, Ed, did this 18 come directly under your purview? 19 MR. ROGERS: Parts of it did, yes. The 20 evaluation and looked in conjunction and in 21 cooperation with Mr. Anger, we evaluated the 22 investigation. And the staff in Retailer Services are 23 the folks who basically do the legwork to move the 24 cases to Legal for hearing and also may testify at 25 SOAH. 0082 1 This retailer has employees in his store 2 who were engaged in this activity. He wasn't clear. 3 He knew that something was going wrong in his store, 4 according to the investigation. He wasn't clear at 5 the time exactly what they were doing. 6 He did have some tickets that had been 7 separated and I believe placed in a plastic bag. He 8 did sell some of those tickets, but then his sales rep 9 I believe discovered that he had these tickets in this 10 bag, they were not in the dispenser, and told him that 11 he had to stop selling them. 12 I'm not sure exactly how the complaint 13 came to us, to the Enforcement Division at the time. 14 But an investigation was conducted. And in 15 interviewing this retailer, he did identify that these 16 employees had been pinholing. He admitted to selling 17 some of these tickets after that had occurred. 18 He did say that he wasn't clear on what 19 they had done, but they knew that they had done 20 something wrong. He terminated those employees, and 21 he's taken some other remedial action in the general 22 conduct of lottery ticket sales in his stores -- 23 monitoring his inventory, looking at his tickets, 24 putting in video and things like that to try to 25 prevent these kinds of activities from occurring in 0083 1 his store in the future. 2 COMM. COX: So no one has been convicted 3 of anything? 4 MR. ROGERS: I don't know if we pursued 5 the filing of criminal charges against the employees. 6 I can get that information for you, probably in short 7 order, in going back and looking at the case. I don't 8 know that we had evidence sufficient to pursue 9 criminal charges against the employees that were 10 actually engaged in the pinholing. 11 COMM. COX: What about the operator who 12 was selling tickets that he knew were funny and maybe 13 didn't do any investigation to find out how funny they 14 were or why they were funny, just taking them out of 15 paper bag when he probably knew that wasn't right? 16 MR. ROGERS: Yes, sir, I think he did 17 admit that he had some knowledge that there was 18 something wrong with those tickets. He didn't know 19 what. He didn't really understand, according to the 20 interview that was done by the investigator, what the 21 employees had done wrong. He did admit that he had 22 sold some of those tickets. 23 But, you know, he was very cooperative 24 with the investigator. He did, again, terminate the 25 rest -- two employees that he terminated. And then in 0084 1 considering the 10-day suspension and not something 2 more severe, we are considering the remedial action 3 that he has taken to try to, you know, prevent this 4 sort of thing from happening in his business in the 5 future. 6 COMM. COX: So y'all think that 10 days 7 in these circumstances is appropriate, or is it just 8 kind of all we can get because nobody has been accused 9 of any crimes? 10 MR. ANGER: I think it's appropriate 11 based on the facts that were presented to this 12 Commission. For the record, I'm Michael Anger, 13 Lottery Operations Director. 14 Commissioner, going into this and during 15 the course of the initial investigation, my largest 16 concern came with regard to the licensee and 17 specifically what his actions were. It's clear from 18 the investigation that there was action taken with 19 regard to the employee matter. 20 But his level of involvement in this 21 potential activity and his level of knowledge as to 22 what was going on was really the center of my 23 attention in discussions that I had with Mr. Rogers 24 when he was serving as the Retail Services Manager. 25 And a lot of the information was 0085 1 developed -- in fact all of the information that was 2 developed was by one of our in-house investigators in 3 an initial report. And because of the concerns that 4 both Mr. Rogers and I shared, we went back to the 5 investigator to request that further information be 6 developed. And he actually did a supplemental report 7 that laid out more clearly for us the facts of the 8 retailer's involvement, his level of understanding and 9 his level of cooperation with regard to this matter. 10 And it's my belief that, you know, the 11 retailer has some culpability here. I don't think he 12 fully understood what was taking place in this 13 location. But as to your point, he should have taken 14 more proactive measures on his own to gain a better 15 understanding. There's a number of resources that the 16 agency makes available, both directly and through our 17 lottery operator, to assist our licensees with regard 18 to management of our products in their stores, and he 19 didn't do that. And I think to that extent, he was 20 negligent. 21 And, you know, there is nothing to 22 indicate and it wasn't the investigator's sense that 23 he engaged in any willful activity to conduct any 24 inappropriate activities with regard to our product. 25 And so from that perspective, I believe that the 0086 1 suspension, as opposed to pursuing revocation or even 2 longer term, is probably the appropriate place for us 3 to land. 4 COMM. COX: Do we have any kind of 5 matrix that lists violations along one axis and 6 appropriate punishment for first, second, third, 7 et cetera, violations across the other axis? 8 MR. ANGER: What we're doing, 9 Commissioner, is, this process and taking these 10 actions to do suspensions versus revocations and some 11 of the other actions and the degree to which we take 12 these, stems from a standard penalty chart which was 13 adopted a couple of years ago under our Administrative 14 Code. And your concern is also my concern; and 15 that's, you know, the need for the agency to be 16 consistent in its evaluation of these matters over 17 time and being consistent in the actions that we take 18 with regard to these matters. 19 So this is something that we have been 20 working jointly with the Enforcement Division on. 21 We're using our compliance activity monitoring system 22 that was put in place to take in agency complaints, 23 and we're using that to leverage that to kind of 24 record these types of events so that when similarly 25 situated events come up in the future, we can go back 0087 1 and pull some of these similarly situated cases, 2 review the facts and land in a consistent manner. 3 So to answer your question, there is not 4 a matrix, per se, and it would probably be pretty 5 complicated to, because of all the extenuating facts 6 and circumstances, to build in what would be the ideal 7 way, and you could just move down the path and point 8 to something and say, "This is the action it would 9 take." But to the extent that we were building a 10 database that will allow us to be consistent and be 11 fair in our evaluation of these matters, we're 12 absolutely doing that. 13 COMM. COX: And those are the two words 14 I was looking for, "consistent" and "fair." 15 MR. ANGER: Yes, sir. 16 MS. KIPLIN: Commissioners, on looking 17 at the investigative report, I wanted to respond to 18 what happened with the individuals. And this is a 19 difference, I guess, between -- well, I should say, 20 yes, it is the difference between criminal prosecution 21 and a lesser burden. The investigator has indicated 22 he was unable to develop enough direct evidence 23 against the individuals to meet what he believed were 24 the elements necessary for criminal prosecution, 25 because he didn't have the original copies of the 0088 1 actual tickets, the evidence itself, and it wasn't 2 complaint driven. And there was the no video; there 3 was no documentary evidence, no video. So we didn't 4 have enough evidence to move forward with a criminal 5 prosecution with these individuals. But certainly the 6 responsibility of the retailer over the operations, we 7 believe that we did. 8 CHAIRMAN CLOWE: Is there a motion? 9 COMM. COX: I move that we adopt the 10 staff recommendation. 11 CHAIRMAN CLOWE: Second. 12 All in favor, please say "Aye." 13 COMM. COX: Aye. 14 CHAIRMAN CLOWE: Aye. 15 Opposed "No." 16 The vote is 2-0. 17 MS. KIPLIN: Commissioners, with your 18 permission, I will enter the time period on the 19 original order of October 16th through October 25th. 20 CHAIRMAN CLOWE: Yes. We understood 21 that was your recommendation. 22 MS. KIPLIN: Commissioners, if you would 23 like, I would be glad to proceed to the last case. 24 CHAIRMAN CLOWE: I have outstanding B, C 25 and Q. 0089 1 MS. KIPLIN: Did I miss one? 2 COMM. COX: I believe we covered B. 3 CHAIRMAN CLOWE: Did we? 4 COMM. COX: I checked off that we had 5 done B through N in one block. 6 CHAIRMAN CLOWE: Well, maybe I 7 misunderstood. I thought you said "D." 8 MS. KIPLIN: I'm sorry. Let me go back 9 and clarify. For B and C, those were also cases that 10 are against lottery retailers for insufficient funds 11 being available. And the staff would recommend that 12 you revoke those two licenses. 13 CHAIRMAN CLOWE: Did you say "B" instead 14 of "D"? 15 COMM. COX: My motion was B through N. 16 CHAIRMAN CLOWE: All right. Then we've 17 covered that, and Q is the only one remaining, with 18 that clarification. 19 MS. KIPLIN: Commissioners, this is a 20 proposed agreed order. It's a bingo matter. It has 21 to do with -- it's against the Knights of Columbus 22 4771. And the heart of it really has to do with an 23 operator actually reserving cards for a player, his 24 wife, holding back cards, and that's a violation of 25 our rules. 0090 1 And it did have a prior history of 2 violations, not anything that I would consider 3 significant. But in this case, there was the 4 violation of the hold-back of the cards, reserving 5 cards. And the agreement is a $400 penalty for the 6 reserving of bingo cards, and that is within the entry 7 of the order. And it's to be paid within ninety days. 8 We also asked that this particular 9 gentleman, who is an operator, attend a bingo operator 10 training program so that he'll understand the rules 11 and statutes and not reserve cards for players. 12 COMM. COX: What would it mean to 13 reserve a card? How would one go about doing that? 14 MS. KIPLIN: Holding it back. And 15 Mr. Sanderson may . . . 16 MR. SANDERSON: For the record, Phil 17 Sanderson. 18 In general terms, the bingo cards -- and 19 probably in this case here, maybe a sheet of paper 20 with a number of faces on it -- they would hold back a 21 book or particular sheets for this individual to play 22 whenever she came in. One of the consequences of that 23 or an action of that could be that based on the game 24 program of different bingo games being played that 25 session, some organizations have what's called an 0091 1 odd/even game or a wild card game, a wild number game. 2 Bingo faces are unique. They have an 3 identifying number so you know exactly what the 4 configuration of a particular bingo face is. So that 5 there could be the potential of a game, say an 6 odd/even game where the first number drawn is even, so 7 you daub all the even numbers on the card. There are 8 some bingo faces that have an all-even face or, you 9 know, one short. So they would have an unfair 10 advantage in that particular game if they knew which 11 card that was. 12 COMM. COX: Thank you. 13 CHAIRMAN CLOWE: $400 seems like a light 14 penalty to cheat. I just don't think that's a very 15 heavy penalty. 16 What's your reaction? 17 COMM. COX: It does sound like cheating. 18 It looks like using the house advantage to set up a 19 winner. 20 MR. SANDERSON: I don't have the penalty 21 chart. I believe it's based under the penalty chart I 22 think Ms. Kiplin is looking at. 23 COMM. COX: That's the chart that we 24 approved? 25 MS. KIPLIN: Yes. 0092 1 COMM. COX: And that's the chart 2 Mr. Atkins said is under significant study at this 3 point? 4 MS. KIPLIN: It is. And again -- 5 MR. ATKINS: That's correct. 6 MS. KIPLIN: I would say this: This is 7 a case of first impression. It's been some time since 8 any agreed orders have been presented to you-all. And 9 the penalty here is a case of first impression as it 10 relates to holding back cards. I'm not aware of a 11 case with that as a particular allegation coming 12 before you. 13 COMM. COX: Establish rules -- 14 MR. SANDERSON: And this is also the 15 first offense for that organization on this matter. 16 COMM. COX: Although you said this 17 individual has a previous offense? 18 MR. SANDERSON: There were some other 19 previous violations, but I don't believe it was this 20 type of a violation. 21 MS. KIPLIN: And I would say that it is 22 included, but it's the failure to have a toll-free hot 23 line to run card-minding devices. And it appeared at 24 a time where there were actually less toll-free 25 number, but it doesn't go directly to the issue that 0093 1 you have in front of you. It's just to keep a record 2 of the history. It doesn't go to the holding back of 3 cards. 4 COMM. COX: Okay. 5 CHAIRMAN CLOWE: A little bit more 6 administrative, however. This is a serious thing in 7 my mind. This is cheating. This is a person that is 8 conducting that you trust, holding back cards that he 9 anticipates are more possibly likely to win and giving 10 them to a family member, with the hope that that 11 person will win. That's cheating everybody that buys 12 a card. 13 COMM. COX: What happened? Did his wife 14 win? 15 MR. SANDERSON: I don't recall the 16 case -- I mean, I don't recall the instances. I 17 believe -- 18 COMM. COX: How much money might she 19 have won if the advantage she had actually turned out 20 to influence the outcome? 21 MR. SANDERSON: You know, the maximum 22 prize for one game is $750. I don't recall what the 23 program for this organization was. I can review the 24 audit report. 25 MR. ATKINS: And I don't know, 0094 1 Commissioners, if the individual specifically did the 2 scenario that Mr. Sanderson laid out whereby he looked 3 through to find a card that was primarily or if he 4 just held some cards back. 5 COMM. COX: So what Phil gave us was a 6 possible reason but not necessarily the reason in this 7 case? 8 MR. ATKINS: That's correct. 9 MR. SANDERSON: Yes, sir. I was laying 10 out the purpose of that rule. The reason we have that 11 section in our rules is, that's the potential result 12 of reserving cards. 13 CHAIRMAN CLOWE: What would be the 14 difference? 15 COMM. COX: Well, I remember when I was 16 quite young, we played bingo in a place in Arkansas -- 17 we used to go in the summer -- and my favorite number 18 was 066, and I always went down to get a card that had 19 066 on it. Now, that is just pure superstition. That 20 was obviously no statistical advantage to me whatever. 21 But what I heard you describing sounds 22 like it does have a statistical advantage. And there 23 must be some reason why there is a requirement that 24 these be sold in order, and I guess that would be the 25 reason? 0095 1 MR. SANDERSON: Yes, sir. 2 COMM. COX: Is it possible for us to 3 find out exactly what did happen in this case? 4 MS. KIPLIN: I've got the audit report 5 in front of me. I can tell you that what the audit 6 report indicates is that the operator -- the 7 individual in question -- this goes against the 8 organization, not the individual. 9 COMM. COX: So the individual who gave 10 it to his wife is not going to have to pay $400? 11 MS. KIPLIN: No. It's the organization, 12 because of the way the Bingo Enabling Act is 13 structured. 14 CHAIRMAN CLOWE: So the licensee -- 15 MS. KIPLIN: That's right. 16 COMM. COX: -- they decide what to do 17 with him? 18 MS. KIPLIN: That's right. The 19 operator, Mr. Bleess, confirmed the allegation, that 20 he normally did purchase cards for his wife before she 21 arrived and set them on a table for her, because she 22 usually arrived late. This issue impacts the 23 perceived integrity and fairness of the bingo game 24 being conducted. 25 Efforts to correct violation: 0096 1 Mr. Bleess said that he was unaware that purchasing 2 and reserving cards for his wife was a violation of 3 the rules and would discontinue this practice. 4 Other information: During the course of 5 the investigation, several witnesses were questioned 6 concerning the manner in which the cards were sold. 7 In particular, Mr. Bleess picked card sets for his 8 wife from within the stack of cards. None of the 9 witnesses had ever observed Mr. Bleess picking, 10 quotation, certain cards, closed quotation, out of the 11 stack of cards. 12 COMM. COX: So she was late. He did her 13 the service of setting up her place with tickets, but 14 we have no evidence that he cherry-picked the tickets? 15 MS. KIPLIN: Yes. 16 CHAIRMAN CLOWE: Well, that makes it 17 less serious -- 18 COMM. COX: Yes. 19 CHAIRMAN CLOWE: -- the way you've 20 explained it from the audit report. 21 MS. KIPLIN: Yes, sir, it is. 22 CHAIRMAN CLOWE: Now, this is an agreed 23 order? 24 MS. KIPLIN: Yes, sir, it is. 25 CHAIRMAN CLOWE: I would be inclined to 0097 1 go along with it. 2 COMM. COX: Second. 3 CHAIRMAN CLOWE: All in favor, please 4 say "Aye." 5 COMM. COX: Aye. 6 CHAIRMAN CLOWE: Aye. 7 Opposed, "No." 8 The vote is 2-0. That was a motion to 9 adopt the staff recommendation. 10 MS. KIPLIN: Thank you. 11 CHAIRMAN CLOWE: I think that completes 12 your cases, does it not? 13 MS. KIPLIN: Yes, it does. 14 CHAIRMAN CLOWE: We'll sign these. And 15 then, Director Sadberry, we'll call on you for your 16 report, please, sir. 17 AGENDA ITEM NO. XI 18 CHAIRMAN CLOWE: Item No. XI, the report 19 by the Executive Director. 20 Mr. Sadberry. 21 MR. SADBERRY: Commissioners, for the 22 record, my name is Anthony Sadberry, Executive 23 Director. 24 There are materials in your notebooks 25 under this item for your review regarding the status 0098 1 of positions as of September 27, 2006. Other than 2 that, I have no additional items to report to you at 3 this time, and I would be happy to answer any 4 questions. 5 CHAIRMAN CLOWE: Are there any 6 questions? 7 COMM. COX: No, sir. 8 CHAIRMAN CLOWE: Thank you, 9 Mr. Sadberry. 10 AGENDA ITEM NO. XII 11 CHAIRMAN CLOWE: Next item, No. XII, 12 report by the Charitable Bingo Operations Director. 13 Mr. Atkins. 14 MR. ATKINS: Commissioners, I didn't 15 have anything to add to my report. There is not the 16 spreadsheet that contains the normal activity. We 17 didn't have access to the network at the time when we 18 were preparing that, but we will have it in the next 19 report for you. 20 CHAIRMAN CLOWE: Are there any 21 questions? 22 COMM. COX: No, sir. 23 AGENDA ITEM NO. XIII 24 CHAIRMAN CLOWE: Is there anyone wishing 25 to make public comment to the Commission at this time? 0099 1 AGENDA ITEM NO. VIII 2 CHAIRMAN CLOWE: Commissioner, with your 3 approval, I'll move that we go into executive session. 4 COMM. COX: Yes, sir. 5 CHAIRMAN CLOWE: At this time I move the 6 Texas Lottery Commission go into executive session to 7 deliberate the duties and evaluations of the Executive 8 Director, Deputy Executive Director, Charitable Bingo 9 Operations Director and Internal Audit Director, and 10 to deliberate the duties of the General Counsel 11 pursuant to Section 551.074 of the Texas Government 12 Code, to receive legal advice regarding pending or 13 contemplated litigation and/or to receive legal advice 14 pursuant to Section 551.071(1)(A) or (B) of the Texas 15 Government Code and/or to receive legal advice 16 pursuant to Section 551.071(2) of the Texas Government 17 Code, including but not limited to: 18 Cynthia Suarez vs. Texas Lottery 19 Commission; 20 Shelton Charles vs. Texas Lottery 21 Commission and Gary Grief; 22 Stephen Martin vs. Texas Lottery 23 Commission; 24 Employment law, personnel law, 25 procurement and contract law, evidentiary and 0100 1 procedural law and general government law. 2 Is there a second? 3 COMM. COX: Second. 4 CHAIRMAN CLOWE: All in favor, please 5 say "Aye." 6 COMM. COX: Aye. 7 CHAIRMAN CLOWE: Aye. 8 The vote is 2-0 in favor. The texas 9 Lottery Commission will go into executive session. 10 The time 11:00 a m. Today is October the 5th, 2006. 11 (Off the record: 11:00 a.m. to 12:14 12 p.m.) 13 AGENDA ITEM NO. IX 14 CHAIRMAN CLOWE: The Texas Lottery 15 Commission is out of executive session. The time is 16 12:14 p.m. 17 Is there any action to be taken as the 18 result of the executive session? 19 If not, I believe we have completed the 20 agenda as it was published. 21 Commissioner Cox, is there any further 22 business that you want to conduct? 23 COMM. COX: No, sir. 24 25 0101 1 AGENDA ITEM NO. XIV 2 CHAIRMAN CLOWE: Thank you all. We are 3 adjourned. 4 (Adjourned: 12:15 p.m.) 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0102 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 9th day of October 2006. 15 16 ________________________________ 17 Aloma J. Kennedy Certified Shorthand Reporter 18 CSR No. 494 - Expires 12/31/06 19 Firm Certification No. 276 Kennedy Reporting Service, Inc. 20 Cambridge Tower 1801 Lavaca Street, Suite 115 21 Austin, Texas 78701 512.474.2233 22 23 24 25