SACRAMENTO, CA — Senator Ling Ling Chang (R-Diamond Bar) made the following statement in response to the California State Auditor’s report of the California Lottery:
“The findings today demonstrate what we suspected all along. That the California Lottery has a culture of profits first and schools last. They owe our schools millions of dollars and I will be introducing legislation to ensure our schools get what they are owed.”
Last year The Joint Legislative Audit Committee approved Senator Chang’s request to audit the California Lottery who has history of controversy. After analyzing their profits and expenditures Senator Chang believed schools were not getting enough funding in proportion to skyrocketing lottery profits.
Our Key Recommendations
- The Legislature should require the Lottery to pay $36 million it owes to education and the SCO to conduct regular audits of the Lottery’s procurement processes.
- The Lottery should do the following:
» Determine optimal prize payout rates and use them when setting its future budgets.
» Develop procurement procedures that fully explain exemptions for noncompetitive bidding and identify the necessary justification and documentation to support noncompetitive bidding.
- The SCO should develop protocols to ensure that it reports all relevant findings in its audits and conducts effectiveness and efficiency reviews of the Lottery.
- Although it is required to maximize funding for education, the Lottery has not prioritized this funding when setting its budgets and, thus, has not funded education at the required level.
» In fiscal year 2017–18, it should have provided education with $36 million more than it actually did because its budgeting process is not designed to meet the education funding requirements.
» It does not have an up‑to‑date analysis of the optimal balance between prize payouts and education funding and, therefore, does not know if it is diverting too much funding to prize payments—its most current analysis is 10 years old.
- The Lottery may not have always received the best value on its procurements, which could reduce the funding it provides to education—it does not have current guidance for conducting procurement activities and lacks sufficient safeguards for using noncompetitive procurements.
» Our review of a selection of procurements disclosed that it often entered into noncompetitive agreements without adequate justification, raising concerns about the agreements—nearly 40 percent of its agreements over the past three fiscal years were noncompetitive.
» It entered into 17 agreements with hotels for its retailer trade shows but cannot show that it evaluated other options before entering into these agreements, some of which contained excessive costs for food and beverages.
- The SCO’s oversight of the Lottery’s performance has been ineffective, and its current approach to auditing the Lottery will not identify shortcomings in the Lottery’s performance.
» It inappropriately removed a significant finding, which questioned hotel costs of about $720,000, from a recent audit report after the Lottery requested changes.
» It did not adequately assess or report to the Legislature about the Lottery’s performance after significant changes were made to the law. Instead, the SCO submitted a report written by the Lottery about whether the Lottery was adequately fulfilling its mandate.