Summary

Summary of 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, 2008, and 2007, and the changes in the financial position and cash flows thereof for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Summary of Report on Internal Control and Compliance

In our opinion, Lottery management maintained, in all material respects, effective internal control over financial reporting.

The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards; however, we noted certain additional matters as summarized below.

Additional Matters

Information Technology Controls

Finding No. 1:    During our audit, we identified the need for enhancements to the Lottery’s IT control practices, many of which were recurring issues disclosed in prior audits of the Department. 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 again been notified of these issues.

Marketing and Research Support Funds

Finding No. 2:    The Lottery’s On-line ticket and Scratch-Off ticket gaming service vendors are contractually required to periodically make deposits into marketing and research support funds (fund).  In our prior reports, we recommended that the Lottery amend applicable provisions of each contract to include language that specifically addressed the ownership of each fund.  The Lottery executed a new contract with its Scratch-Off vendor effective October 1, 2008, that includes provisions stipulating that any remaining moneys in the fund will be returned to the Lottery and establishing the Lottery’s right to hold back final payment to the vendor if the moneys are not returned.  The Lottery had chosen not to pursue contract renegotiations with its On-line vendor, but intends to utilize all available moneys prior to the contract’s end.

Electronic Funds Transfer of Annual Prize Payments

Finding No. 3:    The Lottery pays the prizewinners of various games through a deferred payment (annuity) option rather than a single lump sum payment.  Our review disclosed that controls over related electronic funds transfer payments could be improved.

Minority Retailer Participation

Finding No. 4:    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(2), 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(3), Florida Statutes.  Our audit disclosed that as of November 3, 2008, retailers comprising one minority type totaled 63 percent of the total number of minority retailers.  A similar finding was included in prior reports.

Audit Objectives and Scope

Our audit objectives were to determine whether the Department of the Lottery (Lottery) had:

•  Presented the Lottery’s basic financial statements in accordance with generally accepted accounting principles;

• Established and implemented effective internal control over financial reporting and compliance with requirements that could have a direct and material effect on the financial statements;

• Complied with the various provisions of laws, rules, regulations, and contracts that are material to the financial statements; and

• Taken corrective actions for findings included in report No. 2008-069.

The scope of this audit included an examination of the Lottery’s basic financial statements of and for the fiscal years ended June 30, 2008, and 2007, and an examination of the effectiveness of the Lottery’s internal control over financial reporting.  With respect to internal control over financial reporting, our examination included obtaining an understanding of the internal control over financial reporting, testing and evaluating the design and operating effectiveness of the internal control, and performing such other procedures as we considered necessary in the circumstances.  We also examined various transactions to determine whether they were executed, both in manner and substance, in accordance with governing provisions of laws, rules, regulations, contracts, and grant agreements.

Audit Methodology

The methodology used to develop the findings in this report included the examination of pertinent Lottery records in connection with the application of procedures required by auditing standards generally accepted in the United States of America, and applicable standards contained in Government Auditing Standards issued by the Comptroller General of the United States.

Management’s response is included as Exhibit E.