Summary

Report on Financial Statements

The financial statements prepared by the Department of the Lottery present fairly, in all material respects, the financial position of the Lottery as of June 30, 2006, and the changes in operations and cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Report on Internal Control and on Compliance and Other Matters

In our opinion, Lottery management maintained, in all material respects, effective internal control over financial reporting.  Also, for those items tested, the Lottery generally complied with significant provisions of laws, administrative rules, regulations, contracts, and other guidelines.

Other Observations and Findings

Information Technology (IT) Controls

During our audit, we identified the need for enhancements to the Lottery’s IT control practices.  Specific details of these matters are not disclosed in this report to avoid the possibility of compromising Lottery information.  However, the appropriate Lottery personnel have been notified of these issues.

Payments made to Advertising Agencies

Invoices received from Lottery advertising agencies sometimes included requests for reimbursement of subcontracted media vendor services (media air-time charges for Lottery advertisements).  Our audit disclosed that for these types of charges, the Lottery generally reimbursed the amounts invoiced based only on the receipt of a signed certification from an advertising agency representative declaring that the invoice accurately reflected advertising services received and documented in subcontractor invoices.  To provide assurance that the Lottery pays for only goods and services actually received, the Lottery should have in place procedures to either test the agency’s verification of media air-time charges or to obtain its own verification that Lottery advertisements were broadcast on the dates and at the times reflected by the charges.

Marketing and Research Support Funds

The Lottery’s On-line ticket and Scratch-Off ticket gaming service vendors are each contractually required to periodically make deposits into marketing and research support funds maintained by the vendors.  Due to the lack of contract terms addressing ownership of the moneys, the extent of the Lottery’s rights to claim the moneys in the event of contract termination was not clear.  Also, the lack of clarity made impracticable a reasonable determination as to how the existence and use of the funds should be reflected in the budgets and financial reports of the Lottery.  Also, our audit tests of ten disbursements disclosed that for eight of the ten related invoices, Lottery records did not contain documentation of either of the two required Lottery manager approvals. 

Minority Retailer Participation

Section 24.113, Florida Statutes, requires that 15 percent of the Lottery’s retailers shall be minority business enterprises, as defined in Section 288.703, Florida Statutes; however, no more than 35 percent of such retailers shall be owned by the same type of minority person, as defined by Section 288.703, Florida Statutes.  Our audit disclosed that as of October 9, 2006, retailers comprising one minority type totaled 64 percent of the total number of minority retailers.  A similar finding was included in Auditor General Report Numbers 2006-098 and 2005-089.

Management Response

In a letter dated January 19, 2007, the Secretary provided responses to our findings.  This letter is included in its entirety at the end of this report.

Related Reports

In its Report No. 06-04, the Office of Program Policy Analysis and Government Accountability (OPPAGA) provided recommendations to enhance the earning capability of the Lottery and improve the efficiency of Lottery operations.  The report also tracks the Lottery’s implementation of revenue enhancement initiatives and prior OPPAGA recommendations.  OPPAGA plans to issue a follow-up report in February 2007.