British Columbia Lottery Corporation

British Columbia Lottery Corporation

August 23, 2007 12:55 ET

Media Release: BCLC Releases Forensic Audit of Lottery Retailer "Win" Files

RICHMOND, BRITISH COLUMBIA--(Marketwire - Aug. 23, 2007) - The British Columbia Lottery Corporation (BCLC) today released copies of an audit recently completed by Vancouver-based Blair Mackay Mynett Valuations (BMMV), to the public. BCLC commissioned the audit in April as part of a number of actions taken to address questions about the frequency of wins by lottery retailers. BMMV is a private accounting firm that provides a variety of specialized accounting services, including forensic and investigative accounting.

"BCLC was very concerned that its processes for investigating and paying out prize claims by retailers meet appropriate standards to ensure fairness of lottery games and integrity of the lottery system," says Dana Hayden, CEO of British Columbia Lottery Corporation. "Although the BC Ombudsman was conducting her own investigation into broader issues related to the lottery at the time, BCLC engaged the services of a forensic auditor to undertake a detailed examination of retailer wins. In the interest of transparency we are making the results of BMMV's work available to the public, we are also implementing many of their recommendations."

BMMV reviewed all 190 of BCLC's identified lottery retailer win files from 2001 to 2007, and interviewed 10 multiple retailer winners, BCLC prize payout and security staff. The firm also reviewed relevant BCLC policy documents and lottery system forensic audits performed in other jurisdictions. Key findings of the audit include:

- BCLC's prize payout and investigation processes, particularly of retailer prize claims, had shortcomings (though improvements in these areas since 2006 were also noted);

- BCLC did not adequately enforce its retailer play policies (which, at the time, prohibited retailer play while "on active duty");

- It appears that the ability of retailers to win was directly related to both their ability to play often at their place of work and to bet large amounts (retailers played and won Keno and Sports Action games often; but higher levels of play/wins on other lottery games (ie. 6/49, BC/49, Super 7) was not apparent).

- No retailer win instances that were reviewed required reporting under Section 86(1) of the Gaming Control Act or to any other law enforcement agency because none involved an offence.

"Our review of the 190 retailer win files found no evidence or indication that prize payouts were made to anyone other than the rightful owners of the prize winning tickets," says Ron Parks of BMMV, who led the BCLC audit project. "When we conducted our audit BCLC was already making a number of changes following reviews undertaken in 2006, and these will have gone a long way to addressing some of the concerns we raised through our audit."

A copy of the BMMV report is available on the Corporation's web site at www.bclc.com.

In May 2007 the Minister of Public Safety & Solicitor General announced an independent audit of BCLC's lottery activities and the Gaming Policy & Enforcement Branch's oversight of them. That audit will be completed in October 2007.

BCLC is a provincial Crown Corporation reporting to the Minister of Public Safety and Solicitor General through a Board of Directors. Its mission is to offer responsible gaming entertainment, generating income for the public good.

(1) Under section 86 of the Gaming Control Act BCLC is required to notify Gaming Policy & Enforcement Branch (GPEB) about any incident related to gaming if BCLC believes that the incident involved the commission of an offence under the Act or under the Criminal Code.

Backgrounder

BCLC responses to Blair MacKay Mynett Valuations Inc. audit recommendations

1. BCLC should establish a clear and understandable definition of "insiders" and "retailers". Insiders should include:

- all BCLC employees, contractors and Board of Directors members

- spouses, children, parents and siblings of BCLC employees, contractors or Board members

Retailers should include:

- authorized lottery retailers and their:

- employees

- spouses, children, parents and siblings

BCLC Response: Retailer definition developed and communicated July 2007. BCLC is currently developing its insider definition and will ensure it is communicated once completed.

2. BCLC should establish a policy that prohibits retailers from purchasing or validating any type of lottery product at their own outlets. This should apply to retailers as defined above.

BCLC Response: BCLC prohibits lottery retailers (including any employee authorized to operate a lottery terminal or involved in the handling, selling and/or validation of lottery products) from playing, purchasing or validating their personal lottery products at their places of employment. The policy change was communicated in June 2007 and put into force on July 17 2007.

3. BCLC should establish a policy similar to the one governing purchasing/validating by retailers that would apply to insiders as well

BCLC Response: Employee "No Play at Work" (including PlayNow) was communicated to all staff in June 2007. The BCLC employee Ethical Standards document is pending approval by BCLC Board of Directors. Once the definition of "insiders" is complete, the "insiders" rule will also be communicated to all affected parties.

4. BCLC should establish a policy that deems any lottery product purchase or validation by a retailer or insider at their own outlets to be invalid. Furthermore, BCLC should refuse to pay out on any such winner by a retailer/insider.

BCLC Response: BCLC will take disciplinary action against a lottery retailer attempting to claim a prize from a winning ticket purchased at work - including the potential termination of the Lottery Operations Agreement. BCLC does not currently have the legal authority to withhold payments of prize winnings to lottery retailers who are found to have violated the "No Play at Work" policy, but is examining this suggested change.

5. BCLC should reduce the maximum retail location payout from $3000 to $999.

BCLC Response: BCLC will reduce the maximum prize payout at retail locations to $999.99 in September 2007. BCLC has communicated this change to retailers. Prizes between $1,000 and $9,999.99 can be claimed at any one of BCLC's regional prize payout centres located at casinos in Prince George, Kelowna, Victoria, Cranbrook, and Nanaimo and at BCLC offices in Richmond and Kamloops, or by mail. All lottery retailers claiming prizes of $1,000 or higher must come to the BCLC Richmond or Kamloops offices for pay out.

6. BCLC should reduce the maximum payout for the five authorized casinos to $999, consistent with the limit recommended above for retail locations.

BCLC Response: We are satisfied that BCLC's regional prize payout centres provide secure and reliable service to our players and ensure convenient access for winners not located in the Lower Mainland or Okanagan regions. BCLC Prize Payout staff at these locations are GPEB registered and certified to issue statutory declarations for any claim of $1000 and greater. Payout staff will cross reference all winners against BCLC's retailer database. Any prize payout for tickets held by a retailer will be put on hold and an investigation will be undertaken at BCLC's Kamloops or Richmond offices. All prize claims of $10,000 or greater must be made at a BCLC office.

7. BCLC should reduce the mail-in ticket redemption limit from $100,000 to $9,999. Mail-in winners should be required to obtain and complete a Request of Payment Claim form to accompany their winning ticket in the mail. All such winners would be subject to the same level of scrutiny and interviews as winners who present in person.

BCLC Response: BCLC has reduced the redemption limit for mail-in tickets to $9,999.99. Mail-in winners are currently contacted by telephone and the same security procedures are done as for those appearing in-person at BCLC offices. Should any concerns be identified, follow up investigations are conducted by BCLC Corporate Security investigators. We believe this offers a balance between our need to protect the integrity of the prize payout system while respecting the legitimate needs of prize winners who are not able to appear at a BCLC prize claim office in person.

8. BCLC should establish a complete database of all retailers and their employees who are allowed to sell BCLC products.

BCLC Response: The current BCLC database comprises all signatories to the Lottery Operations Agreement. BCLC is in the process of obtaining and adding the names of all lottery retailers (which includes any employee authorized to operate a lottery terminal or involved in the handling, selling and/or validation of lottery products). The complete database of all retailers will be established as training and certification is completed, within the next 12 - 15 months. BCLC's new training/certification requirement for operators of lottery equipment will also serve as a database management tool. Lottery retailers are required to update the database, which will be checked every 8 to 12 weeks by BCLC Sales representatives through frequent store visits.

9. BCLC should consider a policy that requires identification be produced by all winners of $200 or more, regardless of where prizes are claimed. If claimed at retail outlet, information should be passed on to BCLC by the retailer.

BCLC Response: Because of the high volume of winners in this category, and the fact that prizes up to $999.99 are provided by retailers, BCLC does not have a practical means of capturing winner identification for all prizes above $200. Each year, there are approximately 106,000 transactions between the $200 and $999.99 prize levels.

However BCLC is reducing prize payout limits and winners of prizes of over $999.99 must now claim prizes at BCLC offices or BCLC regional prize payout centres or in the mail. BCLC will ensure this winner identification information is entered into the prize winner database for winners of prizes greater than $999.99. These procedures will be subject to regular and random audits.

10. BCLC should consider a database of winners that is integrated in some way with the database of retailers so that all wins of $200 or more by retailers are flagged in the winner database.

BCLC Response: BCLC has implemented new procedures in the prize claim process for wins over $999.99 so that claimants must sign a declaration as to whether or not they are a lottery retailer (any employee authorized to operate a lottery terminal or is involved in the handling, selling and/or validation of lottery products), a close relative of a lottery retailer, or residing at the same address as a lottery retailer. BCLC is also creating a database of all lottery retailers to cross-check all prize claims to confirm they are not certified retailers claiming a prize for a ticket that they may have purchased at their place of employment.

11. BCLC should consider reducing the number of retail locations, currently at approximately 4,150, by a process of attrition.

BCLC Response: BCLC is not actively looking to reduce the number of retail outlets.

12. BCLC should ensure that all new policy, procedures and regulations are communicated clearly to all retailers. Written communication should be translated for existing retailers who have indicated a language preference other than English.

BCLC Response: BCLC is employing a comprehensive, 4 step process to communicate the Player First program to retailers. The process is designed to communicate key messages of the Player First program, solicit responses and feedback to gain maximum acceptance and compliance to the policy changes.

Step 1: Introduce the coming policy changes in the weeks prior to the formal adoption of the changes. Describe the policy changes in general terms, in monthly/quarterly newsletters, this introduction is used to elicit feedback and initiate discussion between retailers and their sales representatives.

Step 2: Issue the formal notification, whereby retailers are sent a paper-based information package describing the policy changes in extensive detail. These information packages describe the policy changes in a number of ways:

i. formal corporate language suitable for legal counsel;

ii. questions and answers written in accessible and simple English, describing the application of the policy change; and,

iii. flyers with illustrations, focusing on only the most basic actions required to implement the policy change.

Step 3: BCLC Sales representatives explain the policy changes to the retailers during a regularly scheduled meeting. This face-to-face communication is critical to ensuring the retailers understand how to put the new policy into practice.

Step 4: Issue reminders via electronic messaging through the lottery terminal. Reminders are brief communications reinforcing the key messages of our Player First program. Detailed information on new policies is also made available on a dedicated webpage, www.bclc.com/retailer info.

BCLC will look for ways to enhance communication efforts, including communicating in languages other than English where it is practical to do so.

BCLC's retailer training and certification program will also support retailer understanding and compliance with new polices and procedures.

13. BCLC should ensure that its Sales staff, and particularly Sales representatives who have direct contact with retailers, are kept informed regarding public complaints, non-compliance, retailer winners, and results of Corporate Security investigations. We also recommend that the Sales team take greater responsibility to communicate and discuss rules, restrictions and compliance issues with retailers and with the appropriate person of responsibility within BCLC; but in no circumstances should sales staff act on consumer complaints.

BCLC Response: The focus for BCLC Sales representatives is on training lottery retailers. Sales representatives are expected to have awareness of lottery retailer issues in their territory; this includes close contact with BCLC Corporate Security. BCLC Corporate Security, is responsible for compliance, and receives and investigates all complaints. BCLC Security will ensure that the relevant BCLC Sales representatives are apprised of public complaints, non-compliance, retailer winners, and results of Corporate Security investigations in their assigned territories.

14. BCLC should continue with its program of "mystery shoppers" for integrity and compliance audits at retail locations. This program should be expanded and formalized so that instances of non-compliance with policy and regulations lead to consequences.

BCLC Response: BCLC's "Mystery Shopper" compliance audit program has been expanded and responsibility for the program will be transferred from BCLC Sales to Corporate Security commencing September 2007. All lottery retail locations will be visited on a regular and random basis, checking compliance to equipment standards and post point of sale procedures, including validation of winning and non-winning tickets. Disciplinary action will take place as a result of non-compliance.

BCLC has communicated a new formal progressive discipline policy to all lottery retailers. The policy has clearly identified consequences for breaches of the Lottery Operations Agreement or related directives.

15. BCLC should continue to pursue its policy of installing Check a Ticket machines ("CATTs") until 100% of retailers have this service available for consumers.

BCLC Response: BCLC has 70% store coverage within the current retail network, and is committed to full coverage by November 2007.

16. BCLC should, in the long term, establish a Self-Validation program to eliminate the need for handling of tickets by retailers, for the purposes of validation.

BCLC Response: BCLC is committed to developing and implementing a player-initiated ticket validation system within 24 months. With this new process, the player would never have to relinquish their tickets to retailers, setting a new standard in lottery player protection and service. In the interim, a new validation procedure has been implemented requiring lottery retailers to return all winning tickets stamped "PAID" to the player.

17. BCLC should fully document its process for dealing with retailers and insiders who are not in compliance with policies, procedures and regulations. This should be clearly communicated to all retailers.

BCLC Response: BCLC has developed a lottery retailer progressive discipline policy. This policy was communicated to all retailers in July 2007.

18. We recommend that BCLC consider the requirement of having retailers and their staff sign an annual declaration recognizing their restrictions in purchasing and validating their tickets at their place of work.

BCLC Response: As part of BCLC's training and certification program, all lottery retailers will be required to sign a declaration that they understand and agree to the Lottery Retailer Code of Conduct which includes the "No Play at Work" prohibition. The Lottery Retailer Code of Conduct will be posted at retailer locations and a "No Play at Work" warning will be posted on lottery terminals.

19. We recommend that BCLC perform follow-up procedures to ensure that the new policies and procedures adopted are implemented and followed up on a consistent basis.

BCLC Response: BCLC will follow-up on all reported instances of non-compliance and customers complaints to ensure that procedures are adopted. The "Mystery Shopper" program will also be a critical element for this process. BCLC Sales representatives will ensure that retailers are adequately trained. Failure to comply will lead to disciplinary measures and may lead to the termination of the Lottery Operations Agreement.

20. We recommend that BCLC consider hiring a dedicated employee, or establish a position, to manage retailer and winner databases.

Response: BCLC will appoint an employee dedicated to manage the lottery retailer database. In addition, BCLC will appoint a senior management position for customer security including post point of sale prize payout of lottery products.

Backgrounder

Blair Mackay Mynett Valuations Inc. Audit Report

When concern with lottery retailer wins and prize payout validation procedures emerged in Ontario in the fall of 2006, BCLC commenced a vigorous internal review of its own procedures. To support that effort, BCLC commissioned an audit by Blair Mackay Mynett Valuations Inc., to:

- Review all 190 identified retailer prize claim files of $10,000 or more;

- Interview a sample of multiple prize-winning lottery retailers to determine whether rightful owners of prize winning tickets were paid, and;

- Review policies and procedures with respect to prize payout validation procedures and provide recommendations to improve these procedures

BCLC received the final Blair Mackay Mynett Valuations Inc., audit report in August 2007.

The BMMV audit report, in concert with the recommendations included in the Ombudsman's report of May 2007, provides an important contribution to BCLC's ongoing efforts to improve prize payout validation procedures, particularly those involving retailer winners.

Shortcomings in prize payout validation procedures

Consistent with the conclusions of the Ombudsman, the auditor identified shortcomings in BCLC prize payout validation procedures. In particular, the auditor noted that former BCLC policies with regard to prize payouts for retailers were followed on an inconsistent basis and that BCLC Corporate Security was insufficiently involved in payout procedures to ensure issues were adequately investigated and addressed.

BCLC is implementing improvements in these areas and will continue to review prize payout validation processes to ensure they meet new BCLC standards to ensure integrity. For example:

- No lottery retailer or their staff may purchase, play or validate lottery tickets at their place of employment (prior policies prohibited play while on active duty);

- All lottery retailers claiming prizes of $1000 or more are directed to the BCLC Richmond or Kamloops offices for payout where they are interviewed by both BCLC Prize Payout staff and corporate security investigators; and

- All winners will be checked against the retailer database for any matches.

BCLC will require all players winning prizes over $3,000 to sign a statutory declaration identifying whether or not they are a lottery retailer, a close relative of a lottery retailer, or residing at the same address as a lottery retailer. Each BCLC designated regional prize payout centre and BCLC office will be staffed with personnel certified as Commissioners for taking Affidavits. If a retailer has been found to have played at work, disciplinary actions will be taken, which may include losing the right to sell BCLC products.

Player protection and security improvements

The auditor noted recent improvements that BCLC had made with respect to player protection and ticket validation procedures. These include:

- Check-A-Ticket Terminals (CATTs) to be available at all retail locations by November 2007;

- CATTs that specify the exact amount of prize won;

- Customer display monitors (CDMs) secured in place so that they always face the player;

- Validation information that appears on CDMs for an extended period;

- Increased volume and duration of the winning jingle;

- Expanded "Mystery Shopper" audits focused on retailer compliance;

- "Play with Confidence" advertising to better inform players of key protection measures appears extensively across the province.

A number of these improvements were mandated by the Gaming Policy and Enforcement Branch (GPEB) in its 2006 review. The auditor notes that BCLC has successfully implemented, or is in the process of implementing, all of the recommendations from the GPEB review.

Further to these GPEB mandated improvements, BCLC is proceeding with additional equipment tamper-proofing enhancements, as recommended by the Ombudsman. These include such things as:

- Lottery terminals that automatically turn off should peripheral equipment such as Check-A-Ticket (CATTs) and CDMs be disabled (terminals will not be reactivated by BCLC until all equipment has been checked and is fully operational), and;

- Modifying lottery terminals to prevent unauthorized access for purposes of disabling the speaker.

Lottery retailer wins

The auditor reviewed BCLC's 190 files documenting lottery wins by identified lottery retailers from 2001 to 2007.

The auditor found "no evidence or indication that prize payouts were made to anyone other than the rightful owners of the prize winning tickets" based on the 190 known retailer files. Further, none of the files reviewed "warranted reporting under Section 86 of the Gaming Act or to any other law enforcement agency." Under section 86 of the Gaming Control Act, BCLC is required to notify GPEB about any incident BCLC believes involved the commission of an offence under the Act or under the Criminal Code.

The auditor also concludes that frequency of wins by lottery retailers was:

- "connected to the retailers' ability to play often at their retail outlets and bet large amounts"; and

- "highly dependent on the types of games played."

The majority of retailer wins were for lottery games such as: a) Keno, where draws take place every five minutes (with maximum wagers of up to $100 per ticket), and; b) Sports Action, where wagers are also determined by the player. The auditor found that prizes for games such as Lotto 6/49 were not won by retailers with the same frequencies as other games.

Acting on key audit recommendations

BCLC is taking action on two key recommendations made by the auditor:

- Prohibit lottery retailers from playing lottery games at work, and;

- Develop a player-initiated ticket validation process.

An essential element of BCLC's Player First program is a directive prohibiting all lottery retailers (including any employee authorized to operate a lottery terminal or involved in the handling, selling and/or validation of lottery products) from purchasing, playing or validating their personal lottery tickets at their place of employment. British Columbia is the only jurisdiction in Canada to implement a "No Play at Work" policy for lottery retailers.

Also as part of Player First, BCLC is working with GTech Corporation, a leading gaming technology and services company, to develop new lottery systems devices that will change the lottery ticket validation process. Under this new system, it will be players, not retailers, who initiate the ticket validation process allowing players to retain control of their tickets at all times. This will set a new standard in lottery player protection and service in North America.

In the interim, all winning tickets that are validated and paid out by lottery retailers will be returned to players (along with the validation slip) with a stamp marked "PAID".

Improved communications with retailers

The auditor identified "insufficient warnings (to retailers) regarding restrictions on purchasing tickets at their location". At the time of the audit lottery retailers were formally prohibited from playing lottery games while on active duty. BCLC agrees that this policy was both insufficient and not adequately communicated to lottery retailers. BCLC has implemented a number of new operating rules and conditions, including:

- Prohibiting lottery retailers from playing, purchasing or validating their personal lottery products at their places of employment;

- Lottery Retailer Code of Conduct;

- Compulsory training and certification of all employees operating lottery terminals;

- Reduced prize payout limits at retail locations (from $3000 to $999.99 or under);

- Return of all tickets with a validation slip, and if they are winning tickets they must be appropriately marked "paid" if paid out by the retailer; and;

- A formal progressive discipline program for non-compliance.

In support of these new operating requirements, a comprehensive and multi-layered retailer communications program has been implemented including formal correspondence and official directives from BCLC management, in-store visits by BCLC Sales staff, retailer newsletters, lottery terminal messaging, point-of-sale signage and training.

For additional information on BCLC's responses to the auditor's recommendations, go to Backgrounder: BCLC Responses to Blair MacKay Mynett Valuations Inc. Audit Recommendations, available on BCLC.com.

Note: The BMMV work was initiated by BCLC prior to the completion of the BC Ombudsman's investigation, and is not related to an audit announced by the Minister of Public Safety & Solicitor General in May 2007. This latter audit will be completed in October 2007.

Contact Information

  • British Columbia Lottery Corporation
    Robin Cook
    Corporate Communications Officer
    (604) 247-3004 or Cell: (604) 809-3623
    Email: rcook@bclc.com
    Website: www.bclc.com