0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 REGULAR MEETING OF THE § TEXAS LOTTERY COMMISSION § 7 WEDNESDAY, NOVEMBER 1, 2006 § 8 9 COMMISSION MEETING 10 WEDNESDAY, NOVEMBER 1, 2006 11 12 BE IT REMEMBERED THAT on Wednesday, 13 the 1st day of November 2006, the Texas Lottery 14 Commission meeting was held from 9:00 a.m. to 15 10:41 a.m., at the Offices of the Texas Lottery 16 Commission, 611 East 6th Street, Austin, Texas 78701, 17 before CHAIRMAN C. TOM CLOWE, JR., and COMMISSIONER 18 JAMES A. COX, JR. The following proceedings were 19 reported via machine shorthand by Aloma J. Kennedy, a 20 Certified Shorthand Reporter of the State of Texas, 21 and the following proceedings were had: 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 NO. 3 AGENDA ITEM NO. I - Meeting Called to Order...... 6 4 AGENDA ITEM NO. II - Report, possible discussion and/or action on the 5 implementation of recommendations contained in the Internal Audit report on bingo audit 6 services......................................... 6 7 AGENDA ITEM NO. III - Report, possible discussion and/or action on the agency's 8 contracts........................................ 11 9 AGENDA ITEM NO. IV - Consideration of and possible discussion and/or action on 10 external and internal audits and/or reviews relating to the Texas Lottery Commission, 11 and/or on the Internal Audit Department's activities....................................... 17 12 AGENDA ITEM NO. V - Consideration of and 13 possible discussion and/or action on Commission meetings, including frequency 14 and format....................................... 19 15 AGENDA ITEM NO. VI - Report, possible discussion and/or action on the 79th 16 and 80th Legislature............................. 33 17 AGENDA ITEM NO. VII - Consideration of the status and possible entry of orders in: 18 A. Master Docket No. 362-06-990829.B relating to the refusal to add the 19 names of certain persons to the TLC's Registry of Approved Bingo Workers - 20 Cesar Balassu, Mando Barriga, Shawn Bergin, Daniel Boswell, Marva Bullock, 21 Jermaine Butler, George Cantu, Ramon Castillo, Kasey Clifton, Veretta Cooper, 22 Antonio Gonzales, Carmen Holt, Kirk Hunter, James Jellem, David Meyers, 23 Frances Ramirez, Margarita Ramirez, John Roy, Janice Ruiz, Cindy Sager, 24 Felix Villanueva, Stanley Weddle, Melissa Winterroth 25 0004 1 TABLE OF CONTENTS (continued) 2 PAGE NO. 3 B. Master Docket No. 362-06-990829.B relating to the removal of certain 4 individuals from the TLC's Registry of Approved Bingo Workers - Mary 5 Alcocer, Kimberly Booker, Omar Brown, William Brozowski, Jessica Castillo, 6 Ruddy Frazier, Cindy Garcia, Rick Garza, Steve Jackson, Matthew Maurer, 7 Matthew Myer, Shawana Parker, Betty Rios, Julie Roth, David Soules, Rickey 8 Thuma, Lukeia Towler, Gloria Vasquez, Herman Vasquez, Jack White, Derrick 9 Worthy................................... 39 10 AGENDA ITEM NO. VIII - Report by the Executive Director and/or possible discussion and/or 11 action on the agency's operational status and FTE status...................................... 40 12 AGENDA ITEM NO. IX - Report by the 13 Charitable Bingo Operations Director and possible discussion and/or action on the 14 Charitable Bingo Operations Division's activities...................................... 41 15 AGENDA ITEM NO. X - Public Comment.............. 42 16 AGENDA ITEM NO. XI - Commission may meet in 17 Executive Session: A. To deliberate the duties and/or 18 evaluation of the Executive Director and/or Deputy Executive Director 19 pursuant to Section 551.074 of the Texas Government Code 20 B. To deliberate the duties and evaluation of the Internal Audit 21 Director pursuant to Section 551.074 of the Texas Government Code 22 C. To deliberate the duties and evaluation of the Charitable Bingo 23 Operations Director pursuant to Section 551.074 of the Texas 24 Government Code 25 0005 1 TABLE OF CONTENTS (continued) 2 PAGE NO. 3 D. To deliberate the duties of the General Counsel pursuant to Section 4 551.074 of the Texas Government Code 5 E. To receive legal advice regarding pending or contemplated litigation 6 and/or to receive legal advice pursuant to Section 551.071(1)(A) or 7 (B) of the Texas Government Code and/or to receive legal advice 8 pursuant to Section 551.071(2) of the Texas Government Code, including but 9 not limited to: Cynthia Suarez v. Texas Lottery 10 Commission Shelton Charles v. Texas Lottery 11 and Gary Grief Stephen Martin vs. Texas Lottery 12 Commission Employment law, personnel law, 13 procurement and contract law, evidentiary and procedural 14 law, and general government law 15 Mega Millions game and/or contract.......................... 42 16 AGENDA ITEM NO. XII - Return to open session 17 for further deliberation and possible action on any matter discussed in Executive Session..... 44 18 AGENDA ITEM NO. XIII - Adjournment.............. 45 19 REPORTER'S CERTIFICATE.......................... 46 20 21 22 23 24 25 0006 1 P R O C E E D I N G S 2 WEDNESDAY, NOVEMBER 1, 2006 3 (9:00 a.m.) 4 CHAIRMAN CLOWE: Good morning. Today is 5 November 1, 2006. It's 9:00 a.m. Commissioner Cox is 6 here. My name is Tom Clowe. 7 AGENDA ITEM NO. I 8 CHAIRMAN CLOWE: We'll call this meeting 9 of the Texas Lottery Commission to order. 10 AGENDA ITEM NO. II 11 CHAIRMAN CLOWE: The first item on the 12 agenda, No. II, report, possible discussion and/or 13 action on the implementation of recommendations 14 contained in the Internal Audit report on bingo audit 15 services. 16 Mr. Atkins. 17 MR. ATKINS: Thank you, Commissioners. 18 The first draft of a rule relating to 19 internal controls has been completed and is currently 20 being circulated among all staff and the Audit 21 Department for review and comment. Additionally, I 22 submitted a copy of this draft to the internal auditor 23 on October 25th for her review and comment and to help 24 ensure we're moving in the right direction on this 25 specific recommendation. 0007 1 We plan on six additional drafts being 2 completed by work groups between now and mid-November. 3 These drafts will also be made available for review 4 and comment to the audit staff as well as Internal 5 Audit. Bill Sanderson, the division Assistant 6 Director, met on October 26th with members of the 7 agency's Purchasing and Contract staff, in preparation 8 of developing a request for quotes, to obtain training 9 for the audit staff on yellow book standards, 10 workpaper documentation and report writing. This 11 training is currently targeted for the February- 12 March 2007 period. 13 Also on October 26th, I met with Joann 14 Benton. Ms. Benton is the Director of Contract 15 Monitoring for the Texas Workforce Commission. 16 Ms. Benton was recommended by both Ms. Melvin and 17 Ms. Pyka as a potential external resource the division 18 could look to as we continue to move forward with the 19 implementation of the Internal Audit recommendations. 20 Ms. Benton has extensive state government experience 21 in the areas of audit and program monitoring, 22 including the development of risk assessments, audit 23 workpapers and audit standards. We had a good 24 discussion and covered the Internal Audit 25 recommendations and the actions the division is 0008 1 currently taking to implement the recommendations as 2 well as her experience in the field of audit. 3 We also discussed TeamMate, which is an 4 electronic working papers application that is used by 5 several state agencies, including the Workforce 6 Commission, Health and Human Services, the SAO and the 7 Lottery Commission's Internal Audit Division. 8 As a result of this discussion and 9 additional information the Audit Department staff has 10 obtained in the course of their research for various 11 work groups, we are going to continue our examination 12 of this product for possible incorporation into our 13 audit program. 14 Additionally, as it relates to external 15 resources, I am scheduled to meet with the Assistant 16 Director of the Center for Public Policy and Dispute 17 Resolution at the UT School of Law on November 7th. 18 Sandy Joseph of the TLC legal staff will be attending 19 this meeting with me. We will be exploring any 20 recommendations the Center may have on both the 21 alternative dispute process recommended in the 22 internal audit, as well as suggestions for increasing 23 or otherwise improving stakeholder input and 24 communications as we move forward with implementation. 25 The Bingo Rule and Regulation Work 0009 1 Group, comprised of Bingo, Legal and Enforcement 2 staff, has been reviewing bingo functions in detail 3 and completed its review of division functions earlier 4 this week and will now begin the process of reviewing 5 existing and needed rules as well as the corresponding 6 statutes. 7 Finally, the Bingo Organizational Work 8 Group has developed a substantial amount of background 9 materials and begun the review of the existing 10 organizational structure in the Audit Department, the 11 specific audit functions currently performed, 12 workloads and job descriptions. 13 And that completes my report, and I 14 would be happy to answer any questions. 15 COMM. COX: Billy, on the last item, the 16 organization of your Audit group, who is on the work 17 group? 18 MR. ATKINS: It consists of myself, 19 Kathy Pyka, Ed Rogers, Toni Erickson and Janine Mays. 20 COMM. COX: Okay. So you don't have 21 anybody from your audit staff on that. Are they 22 serving as resources to that group? 23 MR. ATKINS: Yes, sir. 24 COMM. COX: Okay. Thank you. 25 That's all I have, Mr. Chairman. 0010 1 CHAIRMAN CLOWE: Billy, this agency was 2 scheduled to appear before the House Licensing 3 Committee last month and report on this audit, and 4 that item has been placed on their agenda. That 5 meeting was canceled. Are you keeping that committee 6 up to date in regard to items that you have now 7 reported to the Commission on and trying to answer any 8 questions that they might have had in lieu of that 9 meeting? 10 MR. ATKINS: We have prepared a status 11 report spreadsheet that we supplied to the committee, 12 in anticipation of the previous meeting that was 13 scheduled. I believe it was scheduled for 14 October 25th. Our intent is to update that 15 spreadsheet and supply it to the committee on a 16 quarterly basis. We have since then received an 17 additional request for information from the Chairman 18 of the committee, on the internal audit, that we are 19 now in the process of gathering information on and 20 responding to. 21 CHAIRMAN CLOWE: I think I've seen two 22 letters from Ms. Trevino furnishing information in 23 regard to that scheduled appearance before it was 24 canceled, and I'm sure that that information was 25 transmitted to them, along with those letters, one 0011 1 item -- that spreadsheet was an item mentioned. And 2 then I'm sure Ms. Trevino will report on her item on 3 this agenda in more detail about those matters. 4 But I just want to bring this up in this 5 report to make sure that you're keeping that committee 6 up to date. 7 MR. ATKINS: Yes, sir. 8 CHAIRMAN CLOWE: Thank you. 9 AGENDA ITEM NO. III 10 CHAIRMAN CLOWE: We'll go on, then, to 11 Item No. III, report, possible discussion and/or 12 action on the agency's contracts. 13 Mr. Jackson. 14 MR. JACKSON: Good morning, 15 Commissioners. For the record, my name is Tom 16 Jackson, Purchasing and Contracts Manager for the 17 Commission. 18 Commissioners, in your notebooks under 19 Tab No. III is a report on prime contracts that has 20 been updated for your review. Contract staff is 21 continuing to review contract expiration dates and 22 will stagger expiration dates when appropriate to do 23 so. 24 In addition, when an amendment to a 25 contract is necessary, we will address the effect an 0012 1 expiration date change would have on that contract and 2 then proceed according to those dates. 3 If you have any questions, I would be 4 happy to respond. 5 CHAIRMAN CLOWE: Any questions? 6 COMM. COX: One question. 7 CHAIRMAN CLOWE: Yes, sir. 8 COMM. COX: Tom, in the past there has 9 been discussion about whether the drawing studio and 10 Production Services are handled in just the best 11 possible way, and I see that contract is coming up for 12 expiration in 10 months. Are we looking at any 13 alternative methods of obtaining those services or is 14 this the only -- have we determined that this is the 15 best way to do this? 16 MR. JACKSON: This is the Drawing Audit 17 Services? 18 COMM. COX: Yes. 19 MR. JACKSON: To my knowledge, I have 20 not been notified to make any change to the Drawing 21 Studio Audit Services. We have the option to extend. 22 We have the documentation that wishes to extend that 23 contract. I don't have anything that says to go out 24 to rebid it, no, sir. 25 COMM. COX: Okay. So it would be, then, 0013 1 not your department's responsibility to determine 2 whether an alternative method of achieving that goal 3 would be appropriate? 4 MR. JACKSON: We send out a request to 5 the divisions responsible for the contract, providing 6 them with the information. And it's their decision if 7 they want to make a change, if they want to rebid it, 8 put it up for bid again, or to continue. They will 9 provide us with that information within seven days of 10 sending that out. We normally send that out within 11 six months of the expiration of that contract. 12 COMM. COX: Okay. I gather that must be 13 your department, Michael? 14 MR. ANGER: That's correct, 15 Commissioner. 16 COMM. COX: Okay. 17 MR. ANGER: The Validations and Drawings 18 Department that oversees. And there's two contracts 19 on here that are relevant. There is the Drawings 20 Audit Services that was referenced by Tom, and that's 21 the required auditing services -- 22 COMM. COX: That's statutory, isn't it? 23 MR. ANGER: Yes, sir, that's correct. 24 COMM. COX: That we have to do. 25 MR. ANGER: Yes. 0014 1 COMM. COX: But the Drawing Studio and 2 Production Services, there are alternatives. Is that 3 correct? 4 MR. ANGER: That's correct. There are 5 alternatives to that. And that is something that we 6 have in the past conducted a full review and presented 7 in front of the Commissioners before -- and I'm sorry. 8 For the record, my name is Michael Anger, and I am the 9 Lottery Operations Director. 10 We looked at different alternatives. 11 And there was a presentation probably about a year 12 ago, Commissioner, looking at different strategies. 13 We looked at the overall coverage that we are 14 receiving from television stations for broadcasting of 15 the drawings. We evaluated -- there are some things 16 that fall under this production contract. Part of 17 that is what we pay for satellite fee time to actually 18 uplink it so that it's available for the stations to 19 pull that down. And there was a presentation done I 20 believe at the time by the Creative Coordinator, 21 Chelsea McCullough. 22 COMM. COX: Yes, I remember that. 23 MR. ANGER: We do not get a lot of 24 coverage for our televised drawings. That's pretty 25 limited. In part, that stems from the length of the 0015 1 broadcast. You know, when we started out, we just had 2 the Lotto Texas game. We only had two drawings a 3 week, Wednesdays and Saturdays. And the station 4 needed to give up, you know, approximately 30 seconds 5 of their advertising time to broadcast our drawings, 6 because we don't pay for that service. 7 But as the number of games have expanded 8 and then the length of the telecast has expanded, 9 that's gotten up to where it's about two minutes now. 10 So it's essentially an entire commercial segment for 11 stations to run the drawings, and many have opted not 12 to do so. 13 Now, what we did learn through that 14 analysis was that they do use what we put up on the 15 satellite. They typically don't run the entire 16 drawing. Sometimes they will choose to pick up pieces 17 of the drawing or show certain drawings when the 18 jackpots are high, maybe for Lotto Texas or Mega 19 Millions. 20 But what they do pick up and run is the 21 result screens, and we also did some research through 22 our contracted research firm, IPSOS REID, and learned 23 that a number of people obtain the results from 24 television newscasts and also from newspapers. 25 So what we learned from that analysis 0016 1 was essentially: We are getting coverage. We're not 2 get coverage of the live drawings. And due to timing 3 reasons, staff recommended at that time that we 4 continue with these services. 5 Now, as Mr. Jackson indicated, as these 6 contracts come up for renewal, we will certainly 7 revisit that and refresh the analysis that we did 8 previously. 9 COMM. COX: Okay. So as I understood 10 Tom to say, you send out the information request six 11 months ahead? 12 MR. JACKSON: Yes, a minimum of six 13 months. 14 COMM. COX: And, of course, you know 15 this is coming down, so you know that if it's going to 16 take longer to do the analysis and the contract and 17 enter into an alternative contract process, et cetera, 18 you need to start sooner? 19 MR. JACKSON: Absolutely. 20 COMM. COX: So you're right on top of 21 this? 22 MR. JACKSON: Yes, sir. 23 COMM. COX: Good. 24 Thank you, Mr. Chairman. 25 CHAIRMAN CLOWE: Thank you. 0017 1 Anything further, Mr. Jackson? 2 MR. JACKSON: No, sir. 3 AGENDA ITEM NO. IV 4 CHAIRMAN CLOWE: Next, Item IV, 5 consideration of, possible discussion and/or action on 6 external and internal audits and on reviews relating 7 to the Texas Lottery Commission and/or on Internal 8 Audit Department's activities. 9 Ms. Melvin. 10 MS. MELVIN: Good morning, 11 Commissioners. For the record, my name is Catherine 12 Melvin, Director of the Internal Audit Division. 13 I do not have any items of update for 14 you this morning, but I'm happy to answer any 15 questions. I would like to just mention there that is 16 still currently one external audit ongoing, and that's 17 our required annual financial audit. 18 CHAIRMAN CLOWE: Ms. Melvin, you're 19 serving as a resource and a support function to the 20 work that Billy is doing in looking at the various 21 facets of the division and considering changes and 22 improvements that may be called for as a result of 23 your audit, are you not? 24 MS. MELVIN: Yes, sir. 25 CHAIRMAN CLOWE: What other individuals 0018 1 are participating in that along with you, in your 2 division? 3 MS. MELVIN: Within my division? 4 CHAIRMAN CLOWE: Yes, ma'am. 5 MS. MELVIN: Currently the two primary 6 auditors that worked on that audit, that would be 7 Brenda Winkler, assisting your auditor with us, and 8 Susan Oballe. 9 CHAIRMAN CLOWE: And are you satisfied 10 that you have the resources to provide that service 11 and still carry on with the audit program that you've 12 laid out for us and that we approved I think in our 13 last meeting? 14 MS. MELVIN: Yes, sir, I do. Their work 15 is more limited than my review and my involvement. 16 Their resources are going to be focused on the 17 continuing performance audit of the division. And 18 we'll be bringing in two other auditors to join them 19 in that much larger review. And so the ongoing 20 assistance and consultation of that Internal Audit is 21 providing Billy is primarily my services. 22 CHAIRMAN CLOWE: Well, I think your work 23 there is very important, and we would like for you to 24 be a part of that and, as I say, support that effort. 25 But at the same time we want to make certain that you 0019 1 have the assets that you need to perform your normal 2 duties. So if that becomes a problem, we'll hear back 3 from you, I hope? 4 MS. MELVIN: Yes, sir. 5 CHAIRMAN CLOWE: Very good. 6 Anything further? 7 COMM. COX: No, sir. 8 CHAIRMAN CLOWE: Thank you, ma'am. 9 MS. MELVIN: Thank you. 10 AGENDA ITEM NO. V 11 CHAIRMAN CLOWE: Next, Item V, 12 consideration of, possible discussion and/or action on 13 Commission meetings, including frequency and format. 14 Mr. Sadberry. 15 MR. SADBERRY: Good morning, 16 Commissioners. For the record, my name is Anthony 17 Sadberry, Executive Director. 18 Commissioners, you requested that staff 19 revisit the frequency and the format of the Commission 20 meetings. We have done so. Since April 2006, the 21 Commission has held two meetings per month. While the 22 twice-a-month meetings have provided a good 23 opportunity to Commission and to the staff to have 24 matters addressed, there is now a sense that reverting 25 to a once-a-month Commission schedule is best at this 0020 1 time. The items to be presented to the Commission for 2 discussion and/or action can be accomplished in this 3 setting without sacrificing timeliness of the item to 4 be considered and acted upon, if action by the 5 Commission as required. 6 What has worked very well is having the 7 Commission meeting scheduled so that the presentation 8 of the items to the Commission can be planned and 9 managed in an orderly fashion. I recommend that this 10 approach be continued to the extent individual 11 Commissioner's schedules will allow, but also 12 recognizing that certain matters may require the 13 calling of a Commission meeting out of schedule. 14 At the last Commission meeting, 15 Commissioner Cox, you requested that I review the 16 concept of different categories of a Commission 17 meeting. Specifically you identified the concept of 18 consent agenda as part of the meeting. I have 19 considered that concept and have reviewed other 20 agencies to get a broader view of how state agencies 21 approach their agendas in order to efficiently and 22 effectively carry out the business of these boards and 23 commissions. 24 While I believe the items on the 25 Commission meeting agenda can be organized 0021 1 differently, I do not recommend utilizing a consent 2 agenda. Based on my review, as I understand that 3 concept, it is to separate items into categories of 4 considerable discussion, deliberation and/or action 5 from items that may not require discussion and/or 6 action and that are more in the nature of staff report 7 or staff activities. 8 I think we can accomplish the same 9 objective by including materials on particular items 10 in the Commission notebooks for your review but not 11 necessarily for oral presentation by the staff. These 12 items would be contained within the open meetings 13 notice posted for the meeting. 14 In connection with these items, the 15 Commissioners could then deliberate the information 16 and/or call on staff, if that is the desire of the 17 Commissioners. But staff would not automatically take 18 up time in a Commission meeting to present information 19 in an oral format. These items would be items where 20 no action is required by the Commission. 21 Additionally, for each Commission 22 meeting, I will be reviewing the materials to be 23 provided to the Commission in the Commission notebooks 24 before the open meeting notice is filed, to ensure 25 that the matters are ripe for presentation to the 0022 1 Commission. And if in my view the matter is not ripe, 2 I will not request the matter be included on the 3 Commission meeting agenda. 4 In saying this, I would defer to the 5 Internal Auditor Director and the Charitable Bingo 6 Operations Director for those matters that are within 7 their respective purviews. And, of course, I will 8 take my direction from the Commission on items the 9 Commission wants to have presented to it and will 10 ensure that those items are timely presented for the 11 Commission's consideration and/or action. 12 Also in connection with the Commission 13 meetings process is the preparation and distribution 14 of the Commission meeting notebooks. I understand 15 that each Commissioner receives a Commission notebook 16 five business days before the Commission meeting. If 17 a Commissioner desires, we would be happy to send the 18 materials in a soft copy format and have the notebook 19 available for the Commissioner the day of the meeting. 20 In that regard, I ask that you please let me know your 21 preference. 22 If the Commission is so inclined, I 23 would recommend that we revert to one meeting per 24 month schedule, beginning now, and would request that 25 the Commissioners schedule the meetings on a 0023 1 particular day of the month beginning with the 2 December 2006 meeting. 3 I would be happy to address the matter 4 further or to answer any questions. 5 COMM. COX: Do you want to go first on 6 that? 7 CHAIRMAN CLOWE: I'm very happy with the 8 recommendation. What are your thoughts? 9 COMM. COX: The only thing that I'm not 10 sure I heard you cover, Anthony, there is one concern 11 that I have had, and I attribute it to the fact that 12 we've been having two meetings. And by the time one 13 is over, you're bumping up against preparing agenda 14 for the other. 15 But we have had some items in which I 16 would like to have seen the material in advance and 17 have not seen it. And I don't feel that I -- if I 18 don't have an opportunity to study and develop the 19 questions that I want to ask in advance, I don't feel 20 that I'm able to address things as I would like to. 21 Would your proposal include something 22 to, if not ensure, at least try to bring forward 23 materials to us either with the hard or soft book or 24 as they become available but before the meeting? 25 MR. SADBERRY: Yes, Commissioner Cox. 0024 1 I'm aware of your concerns in that regard and have 2 taken them into full account. 3 To elaborate further on the practice 4 that goes with this proposal, as you may be aware, we 5 typically have what we refer to as a dry run process 6 that would occur before the Commission meeting to 7 determine readiness of presentation of the items. 8 However, by that point in time, you, (A) already have 9 the notebooks; (B) the Commission meeting notice has 10 already been filed. 11 So the practice will be revised now to 12 have the dry run to occur the day before the filing of 13 a notice is required. At that dry run, the actual 14 materials on any particular item that has been 15 suggested as a meeting item will be presented and 16 vetted, and that's what I refer to as determining the 17 ripeness and readiness of that item. 18 Those materials must be available in 19 that dry run session in final format, and they will 20 then be -- if it is determined that it's prepared for 21 your review as part of the Commission meeting agenda 22 item, then those materials will be included in the 23 notebook and that item will be included on the agenda. 24 That will ensure the readiness of the materials and 25 that you receive the material. And then, of course, 0025 1 the way we will organize it, you can then determine, 2 after review, whether it should be part of the 3 deliberation or not, but at least you will have that 4 information. 5 And so we would not have, as you have 6 seen in the past, the automatic presentation by staff, 7 such as what has occurred already today, of a 8 particular items. But you may call on staff, and 9 staff will be available for you should you call on 10 staff to do so. And that would be deferred to the 11 Internal Audit Director with respect to audit items 12 and the Bingo Director with respect to bingo items. 13 Now, we do recognize in that process 14 that there will be some need to have additional 15 materials presented to you, for example, such as 16 financial data. That can't be presented to you in the 17 notebook in its final form. You may have what is 18 available at the time of the completion of the 19 notebook, but we would anticipate things of that 20 nature would still be updated. 21 But, for example, proposals that may 22 have come and staff responses to proposals. To use as 23 an example, Prof. Busald's recommendations, Ipsos Reid 24 matters, things of that nature that may typically have 25 been presented to you either after you received the 0026 1 notebook or maybe even for the first time during the 2 meeting. Those would be contained in the notebook 3 now, and they would not be placed on the agenda if 4 those material are not prepared at the time of the dry 5 run. That was intended to take into full account your 6 concerns in that regard. 7 COMM. COX: Let me see if I understand 8 what I just heard. You would hold the dry run the day 9 before the board meeting? 10 MR. SADBERRY: The day before the notice 11 filing is required. 12 COMM. COX: Okay. 13 MR. SADBERRY: That's the change. 14 COMM. COX: Okay. I'm sorry. I thought 15 I heard the day before the board meeting. The day 16 before the notice. So it won't be on the agenda 17 unless you believe that the materials in the board 18 book will be adequate to enable us to prepare for it? 19 MR. SADBERRY: That is correct. 20 COMM. COX: Excellent. 21 MR. SADBERRY: And we will be the 22 gatekeeper. I'm the ultimate gatekeeper, but the 23 Internal Auditor and the Bingo Director will serve 24 their functions with regard to their items and their 25 materials. But ultimately, once the dry run occurs, 0027 1 if materials are not prepared, that item will not be 2 placed on the agenda and those materials will not be 3 in the book. And they also will not be brought on to 4 you at the Commission meeting. 5 COMM. COX: Excellent. I'm fine with 6 the updated financial information. I think that's the 7 appropriate thing to do. And you put your finger 8 right on the matter, which I was immediately thinking, 9 which was Prof. Busald's response -- or the response 10 to his questions. And I would like to have had those 11 well in advance to study the staff's recommendations 12 and ask questions if I needed to, and you have 13 obviously addressed my concern there. 14 MR. SADBERRY: Yes, Commissioner, that's 15 the intent. 16 COMM. COX: Excellent. 17 Thank you, Mr. Chairman. 18 CHAIRMAN CLOWE: Commissioner Cox, as I 19 indicated, I'm responsive to the suggestion that 20 Director Sadberry has laid out. I just wonder if we 21 really need to have a second meeting in November. 22 We're coming into the holiday season. I'm seeing, by 23 virtue of this agenda, a fairly light agenda. I don't 24 know if you held off matters for a second meeting in 25 November. 0028 1 My understanding, Counselor, is that the 2 statute calls for this board to meet six times a year. 3 And we have been meeting by practice, for the time 4 that I've been on the board, once a month. And then 5 we stepped up in April to twice a month. 6 I'm open to your comment, Commissioner, 7 on the idea of perhaps making this our only meeting in 8 November, meeting perhaps the second Wednesday in 9 December, which might be a good time relative to 10 taking care of business timely among the holidays that 11 are coming up, and then going on into '07 with one 12 meeting a month on a pre-determined basis -- I think 13 that's a good idea -- subject to the availability of 14 the Commissioners and any other matters where the 15 Commission might need to call a meeting. 16 COMM. COX: Sure. 17 CHAIRMAN CLOWE: But my sense is that 18 the load has been reduced, for a number of reasons, 19 more than likely. 20 COMM. COX: Yes. 21 CHAIRMAN CLOWE: And I think it's a good 22 idea to go back to one meeting a month. And I see no 23 reason at this point to have a second meeting this 24 month, unless you have a feeling about it. 25 COMM. COX: Well, I guess my -- let me 0029 1 ask Director Sadberry a question first. 2 CHAIRMAN CLOWE: Sure. 3 COMM. COX: Anthony, have you and your 4 staff developed a date that you think would be best, 5 considering when financial statements are available, 6 et cetera, the second Wednesday, the third Wednesday, 7 the fifth Thursday? 8 MR. SADBERRY: We have discussed it 9 conceptually. We had considered the first Wednesday. 10 I think the second Wednesday is a good suggestion. 11 Kathy is here if she has any specific 12 information beyond that. I think the financial data 13 would be the most impacted by this, and any contested 14 case issues from General Counsel might want to weigh 15 in. 16 MS. PYKA: Thank you. For the record, 17 Kathy Pyka, Controller of the Lottery Commission. 18 With regard to the financial data, the 19 weekly sales data, in my opinion it doesn't matter 20 which Wednesday or which week of the month. But with 21 regard to our month-end data, certainly the second 22 Wednesday of the month might be a little tight with 23 regard to financial close. But if needed, we could 24 defer that to the following month. I mean, it just 25 depends on the will of the Commission and what the 0030 1 preference of the Commission is. 2 CHAIRMAN CLOWE: So the third Wednesday 3 would be a better date, perhaps, for financial 4 information? 5 MS. PYKA: It would. But also when we 6 think about we're presenting the financial data four 7 times a year, we're doing it on a quarterly basis now, 8 you know, it's -- 9 CHAIRMAN CLOWE: It's interesting. This 10 month has five Wednesdays, and we're meeting on the 11 first day of the month. 12 MS. PYKA: Right. 13 CHAIRMAN CLOWE: And, you know, it's 14 going to change from month-to-month. 15 What does the General Counsel think 16 about the legal issues? 17 MS. KIPLIN: The only thing that comes 18 to mind for me would be acting timely in a motion for 19 rehearing, because that's controlled by a pretty firm 20 deadline or timeline in the Administrative Procedures 21 Act. 22 But the Commission has addressed those 23 in the past. There are orders that delegate authority 24 to extend the time for the Commission to act on a 25 motion so that it wouldn't be overruled by operation 0031 1 of law. And my thinking is that that practice would 2 continue. 3 So in saying that, I don't see an 4 immediate adverse impact on enforcement cases. 5 CHAIRMAN CLOWE: Billy, do you have any 6 comment? 7 MR. ATKINS: The only comment I had 8 Commissioners -- and it's something that Mr. Sadberry 9 and I discussed -- with the two meetings a month, it 10 was somewhat burdensome for the Bingo Division, 11 particularly on those months where we also had BAC 12 meetings, because we in effect were preparing for 13 meetings three weeks in a row. The BAC this year had 14 scheduled their meetings out on a quarterly basis, on 15 the third Wednesday of each month. And as the 16 Commission went to two meetings a month, they changed 17 those to the second Wednesday. 18 I don't think the date in and of itself 19 will make that much difference to the BAC. I do think 20 they will benefit from knowing what date the 21 Commission is considering having their monthly 22 meetings on, because that is an agenda item for their 23 consideration at their meeting next week, to set their 24 2007 meeting schedule. 25 You know, for example, if the Commission 0032 1 chooses the second Wednesday or the third Wednesday, 2 then that way the BAC will know what dates they have 3 available that won't conflict with the Commission. 4 CHAIRMAN CLOWE: My hope is, you'll soon 5 be the Chair of this Commission, so I would like for 6 you to lead the way on this. 7 COMM. COX: Anthony, would you rather 8 have the second Wednesday or the third Wednesday? 9 MR. SADBERRY: I would really appreciate 10 the input of the Controller. I heard third Wednesday. 11 If that benefits the Controller, that would be a 12 reason to have it the third Wednesday. 13 MS. PYKA: It definitely benefits us 14 for -- I mean, the monthly transfer calculation and 15 for month-end financials. There is no doubt we have 16 to have the transfers in by the 15th of each month. 17 And so having the ability to have that full 15-day 18 time period in order to do the calculation, the 19 reconciliation, and that is helpful to have it the 20 third Wednesday of the month. That would be our 21 preference. But certainly we will work with the 22 schedule of the Commission. 23 COMM. COX: Well, the second or the 24 third are the same to me. 25 And, Anthony, I guess the other question 0033 1 I would ask: Do you see a need for a second meeting 2 in November? 3 MR. SADBERRY: I see no need that has 4 been brought to my attention. And the proposal 5 envisioned that you would not have a second meeting in 6 November and that we would begin the once-a-month 7 meeting strategy in December. 8 COMM. COX: I'm good for that, 9 Mr. Chairman. 10 CHAIRMAN CLOWE: Good. Let's say, then, 11 that we'll meet the third Wednesday of December, and 12 thereafter on the third Wednesday of each month in 13 '07, unless we decide to do otherwise. And we will 14 not have a second meeting this month. 15 Thank you, Mr. Sadberry and 16 Commissioner. 17 AGENDA ITEM NO. VI 18 CHAIRMAN CLOWE: Next, Item VI -- thank 19 you, Ms. Pyka -- report, possible discussion and/or 20 action on the 79th and 80th Legislature. 21 Now, Ms. Trevino. 22 MS. TREVINO: I apologize. I was a 23 little anxious. 24 Good morning, Commissioners. For the 25 record, I'm Nelda Trevino, the Director of 0034 1 Governmental Affairs. And I have a brief report to 2 provide this morning. 3 Chairman Clowe, as you mentioned 4 earlier, the agency was asked to appear before the 5 House Licensing and Administrative Procedures 6 Committee on October the 25th to discuss the Internal 7 Audit report on Bingo Audit Services. Again, however, 8 that committee hearing was canceled. 9 It's our understanding the committee has 10 plans to reschedule this hearing for a date later this 11 month. We continue to work with Chairman Flores' 12 office in responding to their Request For Information 13 And as Billy indicated -- and, Chairman 14 Clowe, you also stated we have been providing some 15 additional information in hopes that we're sharing 16 some information on the status of the Internal Audit 17 report, in addition to the spreadsheet that Billy 18 mentioned that tracks the implementation of each of 19 the recommendations. 20 We have also provided the committee 21 various Commission meeting transcript excerpts that 22 included discussions when the Commission had 23 discussions on this Internal Audit report. So just to 24 provide you that information, that's also been 25 provided to the committee. 0035 1 We also understand the committee plans 2 at their hearing to consider recommendations on their 3 interim charges. And you may recall that one of the 4 committee's interim charges relates to the lottery in 5 regards to evaluating some alternative locations where 6 lottery tickets may be sold. And so we'll keep you 7 posted on the committee's actions in regards to any 8 recommendations that they may adopt for the 80th 9 Legislature to consider. 10 We also continue to monitor other House 11 and Senate interim committee activities. And again, 12 we'll keep you posted on any recommendations that may 13 be adopted that impact this Commission. 14 As I mentioned at the last Commission 15 meeting, prefiling for the next regular legislative 16 session begins on November the 13th, and we are 17 beginning our process to track any legislation that 18 may impact the Commission. 19 That concludes my report. And I will be 20 happy to answer any questions that you may have. 21 CHAIRMAN CLOWE: Ms. Trevino, I have 22 read that material that you referred to, the 23 transcripts and the responses, in preparing my 24 testimony before the committee, which I was prepared 25 to give, I think you mentioned on October the 25th. 0036 1 And that was very responsive, I think. 2 Now, Billy, I think, was the addressee 3 on the letter from Chairman Flores on requesting 4 information relative to the audit which you've 5 mentioned. That was a rather extensive letter, if I 6 recall, as I read it. I think it was over four pages. 7 MS. TREVINO: There have been two 8 requests, Chairman Clowe, that we have received from 9 the committee. 10 CHAIRMAN CLOWE: I'm thinking about the 11 latest one -- 12 MS. TREVINO: The latest one. 13 CHAIRMAN CLOWE: -- which has come 14 within the last week. 15 MS. TREVINO: That's correct. We 16 received something -- I believe it was on Monday, if 17 I'm not mistaken, of this week. And I don't have the 18 letter in front of me, but I believe there were 18 19 items that were listed on the letter. 20 CHAIRMAN CLOWE: And it was very 21 detailed and it was in-depth and it was very 22 comprehensive. And the concern I have is whether 23 Billy and his staff can spend the appropriate time and 24 have the appropriate resources to provide the Chairman 25 and the members of that committee with full and 0037 1 complete answers that I want to see offered up. 2 That's my concern. Have you discussed that with Billy 3 and where do you-all stand on that? I think he gave a 4 deadline of November the 10th, if I remember 5 correctly. 6 MS. TREVINO: That's correct. And 7 Catherine just provided me a copy of the letter. And 8 you're correct. The request does indicate that we 9 provide responses by November the 10th. 10 And again, we did receive the letter on 11 Monday, on October the 30th. It was faxed to Billy's 12 attention. And what we've done, Commissioners, is 13 that we have met internally, the Governmental Affairs 14 staff -- Catherine as the Internal Auditor, Billy and 15 some of his staff, and Executive Director Sadberry. 16 We've gone through the 18 items and 17 tried to, as best as we possibly can at this point, 18 identify responsive documents or how we're best going 19 to approach a response to each of the 18 items that 20 are listed. 21 And again, we've discussed a timeline 22 with that November date, November 10th date, in mind, 23 of trying to have all the information compiled for 24 review and certainly give the Commissioners an 25 opportunity to review the information prior to us 0038 1 submitting that on November the 10th. 2 CHAIRMAN CLOWE: Well, I want to make 3 certain that there is an understanding that the 4 Commissioners want full and complete response, and a 5 very accurate response. And in order to be responsive 6 to the detailed requests that are laid out in that 7 letter, I'm concerned about the time period. 8 If that is identified as a problem early 9 on, I would like for Billy to communicate with the 10 Chair of the Licensing Committee, keeping the 11 Commissioners informed as to what his capabilities are 12 and what they are not relative to that November the 13 10th date. I don't want incomplete or inadequate 14 information offered up that is short of a full and 15 complete response. 16 MS. TREVINO: Absolutely. And we will 17 certainly communicate with Chairman Flores and his 18 staff, just to keep them posted as we're developing 19 the responses. And if we do have some issues in 20 potentially providing a complete response -- for 21 example, there are a couple of items where some 22 information has been requested for a five-year period. 23 And I believe Billy and his staff are reviewing 24 those -- again, as an example -- those items to see if 25 we're able to compile the information for the time 0039 1 frame that's been requested. 2 So if we find that we're not in a 3 position to gather the information for the time period 4 that's been requested, we'll certainly communicate 5 that and make sure that we're all on the same page 6 prior to the final submission on November the 10th. 7 COMM. COX: Excellent. 8 CHAIRMAN CLOWE: Very good. Thank you, 9 ma'am. 10 COMM. COX: Could we have a break? 11 CHAIRMAN CLOWE: Yes, sir. We'll have a 12 short recess. 13 (Off the record: 9:38 a.m. to 9:48 14 a.m.) 15 CHAIRMAN CLOWE: We'll come back to 16 order. 17 AGENDA ITEM NO. VII 18 CHAIRMAN CLOWE: Item VII, consideration 19 of the status and possible entry of orders in master 20 dockets represented by the Letters A and B. 21 Counselor. 22 MS. KIPLIN: Commissioners, each of 23 these are bingo worker registry cases. One is a mass 24 doing on the refusal to add individuals to the 25 registry, and the other one is a mass docket on 0040 1 removing people from the registry. They were 2 presented to SOAH in a mass docket. 3 In each one of these cases, there is a 4 disqualifying criminal conviction pursuant to the 5 statute, and the staff does recommend the adoption of 6 the State Office of Administrative Law Judge's 7 proposal for a decision. 8 CHAIRMAN CLOWE: Commissioner? 9 COMM. COX: So move. 10 CHAIRMAN CLOWE: Second. 11 All in favor, please say "Aye." 12 COMM. COX: Aye. 13 CHAIRMAN CLOWE: Aye. 14 Opposed "No." 15 The vote is 2-0 in favor. We'll sign 16 the orders. 17 AGENDA ITEM NO. VIII 18 CHAIRMAN CLOWE: Next, Item VIII, report 19 by the executive director and possible discussion or 20 action on the agency's operational status and FTE 21 status. 22 Director Sadberry. 23 MR. SADBERRY: Commissioners, again, 24 Anthony Sadberry, Executive Director, for the record. 25 There are materials in your notebooks 0041 1 for your review regarding status of positions as of 2 October 24, 2006. That concludes the report that I 3 have for you, and I would be happy to answer any 4 questions at this time. 5 CHAIRMAN CLOWE: Are there any 6 questions? 7 COMM. COX: No, sir. 8 CHAIRMAN CLOWE: Thank you, Director 9 Sadberry. 10 AGENDA ITEM NO. IX 11 CHAIRMAN CLOWE: Next, Item No. IX, 12 report by the Charitable Bingo Operations Director and 13 possible discussion and/or action on the Charitable 14 Bingo Operations Division's activities. 15 Director Atkins. 16 MR. ATKINS: Commissioners, we did file 17 the notice for the Bingo Advisory Committee meeting 18 yesterday. That meeting will be November 8th at 19 10:00 a.m., here in this room. 20 Also third quarter quarterly reports for 21 2006 were due on October 25th. Those are being 22 processed, and we will be preparing a report for you 23 on that information for a future Commission meeting. 24 CHAIRMAN CLOWE: Are there any 25 questions? 0042 1 COMM. COX: No, sir. 2 CHAIRMAN CLOWE: Thank you, sir. 3 AGENDA ITEM NO. X 4 CHAIRMAN CLOWE: Next, Item X, public 5 comment. Is there anyone wishing to make comment to 6 the Commission at this time? 7 AGENDA ITEM NO. XI 8 CHAIRMAN CLOWE: Commissioner, if you're 9 ready, I'll move that we go into executive session. 10 COMM. COX: Please. 11 CHAIRMAN CLOWE: At this time I move the 12 Texas Lottery Commission go into executive session to 13 deliberate the duties and/or evaluation of the 14 Executive Director and/or Deputy Executive Director 15 pursuant to Section 551.074 of the Texas Government 16 Code, to deliberate the duties and evaluation of the 17 Internal Audit Director pursuant to Section 551.074 of 18 the Texas Government Code, to deliberate the duties 19 and evaluation of the Charitable Bingo Operations 20 Director pursuant to Section 551.074 of the Texas 21 Government Code, to deliberate the duties of the 22 General Counsel pursuant to Section 551.074 of the 23 Texas Government Code, to receive legal advice 24 regarding pending or contemplated litigation and/or to 25 receive legal advice pursuant to Section 551.071(1)(A) 0043 1 or (B) of the Texas Government Code and/or to receive 2 legal advice pursuant so Section 551.071(2) of the 3 Texas Government Code, including but not limited to: 4 Cynthia Suarez vs. Texas Lottery 5 Commission; 6 Shelton Charles vs. Texas Lottery and 7 Gary Grief; 8 Stephen Martin vs. Texas Lottery 9 Commission; 10 Employment law, personnel law, 11 procurement and contract law, evidentiary and 12 procedural law and general government law. 13 Is there a second? 14 COMM. COX: Second. 15 CHAIRMAN CLOWE: All in favor, please 16 say "Aye." 17 COMM. COX: Aye. 18 CHAIRMAN CLOWE: Aye. 19 The vote is 2-0 in favor. The Texas 20 Lottery Commission will go into executive session. 21 The time is 9:58 a.m. Today is November 1, 2006. 22 (Off the record for executive session: 23 9:58 a.m. to 10:40 a.m.) 24 25 0044 1 AGENDA ITEM NO. XII 2 CHAIRMAN CLOWE: The Texas Lottery 3 Commission is out of executive session. The time is 4 10:40 a.m. 5 Is there any action to be taken as a 6 result of the executive session? 7 If not, we'll return to the agenda. 8 And, Commissioner, we have covered the 9 agenda. Is there anything further that you want to 10 cover at this meeting? 11 COMM. COX: No, sir. 12 CHAIRMAN CLOWE: Director Sadberry? 13 MR. SADBERRY: No, sir, Commissioners. 14 CHAIRMAN CLOWE: Commissioner, I believe 15 we have conducted the shortest meeting on record of 16 the Texas Lottery Commission. I defer to Commissioner 17 Sadberry and General Counsel Kiplin, who have a longer 18 knowledge than I do. Has there ever been a shorter 19 meeting? 20 MR. SADBERRY: I can't recall it. The 21 record would show, but this would be very close. If 22 not the shortest, it's very close. 23 MS. KIPLIN: My answer would be no, this 24 is the shortest. 25 CHAIRMAN CLOWE: Director Atkins, have 0045 1 you any knowledge? 2 MR. ATKINS: I have no independent 3 recollection. 4 CHAIRMAN CLOWE: They've taken the 5 fifth. 6 COMM. COX: They have. 7 AGENDA ITEM NO. XIII 8 CHAIRMAN CLOWE: We are adjourned. 9 Thank y'all very much. 10 (Texas Lottery Commission meeting 11 adjourned: 10:41 a.m.) 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0046 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 15th day of November 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