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Ombudsman: Iowa Lottery Should Focus On Fraud

The Associated Press

DES MOINES, Iowa (AP) — The state ombudsman's office released a report Tuesday that criticizes the Iowa Lottery for failing to protect its customers from fraud and theft by retailers.

The 210-page report includes 60 recommendations for improving customer security and retailer accountability.

"In general, the Ombudsman found that the lottery has maintained a weak, reactive enforcement system that fails to detect retailer dishonesty independently of customer complaints," Ombudsman Bill Angrick said in a news release that accompanied the report.

The report was the result of a year-and-a-half investigation prompted by cases in Canada where retailers won a disproportionately large number of prizes, sometimes by defrauding customers.

Angrick's office reviewed three years of lottery investigations and found numerous customer complaints that went unexplored.

"Many of these were the types of cases where the lottery investigator would need to 'make the case,'" the report said. "Most of the time they didn't even try."

The report also said that even when the lottery discovered cases of fraud or theft by retailers, the retailer wasn't held accountable.

The Ombudsman found problems with the lottery's response to eight customers who complained they were sold tickets that appeared to be tampered with. The lottery also failed to adequately investigate a retail store owner's theft of $86,000 in lottery tickets by four employees, the report said.

The Ombudsman also noted at least nine retailers and store employees who collected five or more major prizes. They included a store owner and clerk who each claimed $250,000 in prizes within three months of each other in 2007; a retailer who claimed 67 prizes for more than $100,000 since 2005; and a convenience store manager who claimed 17 prizes totaling more than $33,000.

In that case, the manager with charged with first-degree theft in connection with the theft of $45,000 in lottery tickets and cash from a pull-tab machine in 2007.

The report indicated that in interviews with the Ombudsman, lottery investigators acknowledged that retailers who play receive no more scrutiny that other customers.

The Ombudsman also found that the lottery routinely failed to seek recovery of prize money that was won through stolen tickets and has allowed store owners to determine whether clerks who steal tickers or defraud customers should be referred for prosecution.

"What our investigation revealed is a pattern of indifference and incuriosity in an area where customers depend on government to protect their interests," Angrick said. "Unfortunately, when we sought to learn what was being done to prevent and police theft by lottery retailers, the answer we arrive at was 'not much.'"

Among the Ombudsman's recommendations are:

—Installing "ticket-checkers" at retailers, which allow customers to insert their tickets into a machine to find-out if they won, removing the clerk from the process.

—Changing Iowa law to prohibit retailers and store employees from buying and redeeming lottery tickets at their place of employment.

—Developing a mandatory e-registration system for all Iowa Lottery retailers that would require all retailers and employees to electronically register their names and other pertinent information before than get a code to operate an Iowa Lottery terminal.

—Modifying the winner claim form to include a question about whether the person is a "related-party"; begin tracking and analyzing higher-tier prizes by "related-parties"; and investigate any prize above a certain threshold when the winner is a "related party."

—Developing protocols to ensure that alleged violations are properly investigated.

—Developing a system to ensure the licensing status of retailers is assessed when violations are found.

—Install a musical jingle to alert customers that their ticket is a winner, making it more difficult for a retailer to trick a customer.

Lottery officials issued a written response to the report, saying the report did not uncover a case of "large-scale fraud" involving the lottery.

"That's good news for anyone who has ever played an Iowa Lottery game," said Terry Rich, the lottery's chief executive officer.

Rich said every one of the recommendations is a "concept we believe in, which is protecting the integrity of the Iowa Lottery.

"One fundamental difference is the intrusion and red-tape and impractical business application in the retail environment which makes enforcement impractical," he said.

He said the lottery supports the installation of the ticket checker machines but wants to delay the move for a year to get new technology.

"It's easy for the Ombudsman's office and me to second guess what happened in the past," Rich said. "It also would be easy to simply agree with all of the recommendations from the Ombudsman's office and start putting in place new requirements and restrictions, some of which in my opinion would be massively ineffective.

"We will make those improvements that bring about effective change," Rich said.

Rich also said the report was a validation of unannounced security checks done this year by the lottery. He said the checks showed that all prizes were properly paid at 140 Iowa retailers.

"I think that shows the effectiveness of the lottery's system ... and the seriousness with which we take security-related matters," Rich said.