AZ Lotter Commission Performance Audit Report Highlights

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Arizona State Lottery
Commission and
REPORT Lottery should take steps to increase sales and
HIGHLIGHTS beneficiary distributionsPERFORMANCE AUDIT
The Lottery provides Colorado ranked 17th out of the 28 statesOur Conclusion
both instant ticket with sales of $102 per capita. Further,
(scratcher) andIn 1980 Arizona citizens Arizona lottery sales started leveling off in
established the Arizona drawing games for fiscal year 2007, and its beneficiary
State Lottery Commission the public to play. distributions not only leveled off, but
to oversee the Arizona The Lottery had actually declined in fiscal year 2009 (see
State Lottery ". . . to
$485 million in below). Source: Courtesy of theproduce the maximum
Arizona State Lottery. ticket sales andamount of net revenue
Increasing number of retailers—Arizona’s
consonant with the dignity other revenues in
low per capita lottery sales may stemof the State." Eleven fiscal year 2009, paying out over $282
partly from its having relatively few lotterydifferent programs or million in prizes and $129 million in
beneficiaries receive lottery retailers compared to other states. Fordistributions to beneficiaries, including the
revenues. We found that example, Colorado had over 40 percentState General Fund, the Localalthough sales and more retailers per capita than Arizona inTransportation Assistance Fund, the Gamebeneficiary distributions
fiscal year 2008. Colorado had one retailerhave increased over the and Fish Heritage Fund, and the State
for every 1,700 people, while Arizona hadyears, both have leveled Park Heritage Fund. Retailers also
off since fiscal year 2007. one retailer for every 2,444 people.received over $32 million for selling lottery
The Lottery can increase
tickets. During the audit, the Lottery began takingits sales and beneficiary
distributions by: (1) steps to increase the number of retailersAlthough Arizona lottery sales have
expanding its retailer by assigning an employee thegenerally increased since fiscal year 2000,
network, (2) increasing the responsibility to recruit new retailers, andper capita sales are low compared tonumber of players, and (3)
planning to develop relationships withother state lotteries. Compared to statesbetter managing its prize
existing and new retailers. In expandingexpenses and advertising with similar lottery games, Arizona ranked
the number of retailers, the Lottery shouldcosts. We also found that 24th out of 28 states in fiscal year 2008
the steps the Lottery takes strategically target the highest-producingwith sales of $73 per capita. In contrast,
to ensure game integrity
and player protection are
generally comparable to Lottery Sales Compared to Beneficiary Distributions
practices that other states
use or recommend, but $600
the Lottery can enhance
these steps in several $500
ways.
$400
$300
$200
$100
$02010
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Fiscal YearMarch • Report No. 10 - 03
Total Sales Drawing Sales Instant Sales Beneficiary Distributions
Dollars (In Millions)types of retailer. For example, grocery stores and
Costs (In Millions) FY 2008 FY 20099
restaurants/bars in Arizona have the highest average
Prizes $262 $282 lottery sales, and there are some grocery stores and
many restaurants/bars that are not lottery retailers. Administration 67 75
Increasing player base—The Lottery should also Beneficiaries 145 129
consider ways to increase the number of people
who play the Lottery’s games by using its market
lowest amount in prizes it can pay that stillresearch company to determine what might
encourages play and maximizes beneficiarymotivate nonplayers to play and casual players to
distributions. To ensure the Lottery effectivelyplay more often.
manages its advertising costs, it should reinstate its
Better managing costs—Beneficiary distributions practice of developing an annual marketing plan. In
declined in fiscal year 2009 because of increases in addition, to provide its Commission with a better
the amount of prizes and increases in administrative understanding of the impact of costs on lottery
costs—primarily advertising (see textbox). beneficiary distributions, the Lottery should report
these impacts over time and report how its costs
To help manage its prize expenses, when designing
compare to those of other comparable lotteries.
games, the Lottery should conduct formal analyses
cited in lottery literature that will help it determine the
Game integrity and player protection measures generally
match other states’ efforts, but can be enhanced
if further investigation is needed to ensure the ticketsThe Lottery helps ensure the games’ integrity and
were obtained legitimately.player protection by licensing reputable retailers. It
checks applicants’ criminal history records, and has
The Lottery also conducts routine compliance
denied new licenses and revoked existing licenses
investigations of licensed retailers. However, in
when necessary. The Lottery also conducts
August 2009, there was a backlog of 789 retailers
proactive investigations at retailer locations, and 111
that had not had an investigation as planned. To
of these occurred in fiscal year 2009. In 72 of these,
address the backlog, the Lottery should continue
the Lottery identified retailers who were not
focusing on higher-risk retailers, such as those with
complying with rules such as a rule prohibiting
findings during previous investigations.
retailer employees from selling tickets to
themselves. In a few cases, the problems involved The Lottery helps players protect themselves against
fraud or theft. For example, a clerk at one retailer theft of their potential prizes. For example, it:
would lightly scratch instant tickets, keep the
 Provides monitors that let players see if they have a
winners, and sell the nonwinners to the public. The
winning ticket;
Lottery works with law enforcement when
 Provides computer terminals that play a jingle when a
appropriate to address the problems its ticket is a winner; and
investigations find.
 Verifies tickets at its Phoenix and Tucson offices.
Other states take additional action to ensure
Further, some retailers provide self-check machinesretailers’ employees do not affect game integrity. For
and brochures on how to determine if a ticket is aexample, four of five states we contacted require
winner, how to claim prizes, and how to avoid fraud,winners to disclose if they are affiliated with a
theft, and scams. The Lottery could enhance theseretailer. Because the Lottery directly pays out prizes
player protections by posting on its Web siteover $599, for those prizes, its claim form could
measures players can take to protect their tickets,require disclosure of any relationship between the
such as signing the ticket upon purchase.claimant and any retailer. The Lottery could then use
this information to cross-check records to determine
A copy of the full report is available at: REPORTArizona State Lottery www.azauditor.gov HIGHLIGHTSCommission and Contact person:
PERFORMANCE AUDIT
Dot Reinhard (602) 553-0333 March 2010 • Report No. 10 - 03
page 2

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