Who Would Ever Have Believed It? Department: The first audit of the Arkansas Lottery Commission reveals that the agency ignores state financial rules, feathers the nests of top lottery officials and fattens the pocketbooks of the big gambling contractors.
A few legislators this week were shocked—shocked!—at the lack of fiscal controls (doing right with the public’s money) at the state lottery commission when they reviewed the first legislative audit of the two-year-old lottery.
The auditors found that the agency did not follow standard accounting rules, ignored state financial-control laws, gave millions of dollars in extra subsidies to the big international gaming companies without the prior approval of a legislative oversight committee as the law required, put an extra $29,184 a year into executive director Ernie Passailaigue’s state pension account above what the law allowed, reimbursed Passailaigue and other officials for travel expenses in ways that violated state laws and regulations, made improper retroactive payments to employees and, well, the list goes on.
One lawmaker remarked that the head of any other state agency that operated so haphazardly would be fired.
But that is the point. The state lottery is not like any other government agency. It was set up to be pretty much above the law, or at least to give the lottery officials and the governing commission as much latitude as they wanted. They wanted a lot.
You will remember that the constitutional amendment that established the lottery gave the lottery agency a high degree of independence from the usual tethers of government. Proponents said a lottery was a very special government creature that did not need to be restrained if it was going to have games and promote sales that would bring in the most money. The law did not spell out exactly what state controls the lottery could ignore, so lottery officials exercised as much freedom as they dared even after the enabling legislation passed by the General Assembly and signed by the governor sought to impose some of the controls that apply to other government agencies and employees.
We have long known what happens when you give a government agency “independence,” as they call it. The state Game and Fish Commission enjoys independence, created by the Constitution nearly 70 years ago. In 1998, it also got its own lucrative source of money, again protected by the Constitution, when voters amended the Constitution to levy a 1/8th of 1 percent sales tax to benefit the wildlife agency and the state parks and publicity program. No one could ever touch a dime of the money, which was dedicated forever to the wildlife agency. Gov. Mike Huckabee stumped the state promoting the tax.
We have seen the fruits of that in recent months: a little more than one state car for every Game and Fish employee, salaries and benefits that are out of line with other agencies and a free-wheeling arrogance about freedom of information.
We knew from the start that the lottery would take independence to a new level. The auditors’ exceptions are too numerous to mention, but a few will suffice.
The lottery contracts with big international gambling companies to run various legs of the lottery.
The Legislative Oversight Committee, a group of legislators who look over the shoulder of the lottery commission and the director, is supposed to pass on the contracts first. After the oversight, lawmakers reviewed a contract to pay one gambling syndicate 1.75 percent of the sales for running the games, the lottery commission picked some more options from the company’s menu and paid it an extra $4.7 million last year. (The state paid the gambling companies a grand total of $20.5 million of the $224 million collected by the lottery for fiscal 2010. Scholarships got $82.8 million.) Passailaigue’s office explained that the legislative committee could easily see that the commission could choose some other options when it reviewed the proposed contract.
The lottery law for obvious reasons prohibits the payments of lottery prizes to members of the lottery commission, any of its employees or immediate family members of the commission. The commission had to set up a database of employees, commissioners and family members along with their addresses and social security numbers to check against abuse. But 75 percent of the employees, including Passailaigue himself, did not list their Social Security numbers, a few employees were not listed in the database at all or information about them was incomplete. The auditors said that could allow people to illegally collect prizes and jeopardize the fundamental integrity of the lottery.
Passailaigue’s salary is $354,007 a year, one of the highest in all of government. The commission by law is to base its monthly state retirement contributions for him on the base salary of $141,603, but it based his pension contribution on the larger amount, resulting in an overpayment of $29,184 last year and, of course, a much fatter pension when he retires. The auditors recommended that the agency seek reimbursement.
The legislature will reconvene in January. It wouldn’t hurt to tighten the lottery law to see if the public can get some accountability and efficiency from the lottery, which so many people wanted.
That might work no better than the current restrictions, but there is no harm in trying.
