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Lottery audit reveals excessive spending
by Michael Khoo, Minnesota Public Radio
February 19, 2004

The release of the audit of the lottery comes about three weeks after former Lottery Director George Andersen died, apparently by suicide. Andersen had met with auditors about the review the day before he was found dead. (Legislative Auditor)

A report from the Legislative Auditor's office criticizes the Minnesota Lottery for mismanagement and inefficiency. It recommends tighter controls over the agency's management. The evaluation also questions the lottery's relationship with the St. Paul-based public relations firm Media Rare. The findings come three weeks after Lottery Director George Andersen committed suicide.

St. Paul, Minn. — Legislative Auditor Jim Nobles stresses that his review of the lottery's business practices under George Andersen was an evaluation, not an investigation designed to ferret out criminal behavior. Nevertheless, he says his office uncovered significant patterns of inefficiency, poor judgement and, in some cases, minor violations of state law.

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"He engaged in some business practices that are very questionable. They were, I think, not cost-effective. I don't think they were -- some particular projects -- were well-managed. And I think he was running pretty close to things that appeared to be conflicts of interest," he said.

Nobles says he briefed Andersen on many of those conclusions late last month, just one day before Andersen was found dead outside his home in Hugo.

The report finds the Minnesota Lottery spent considerably more on its operating expenses than similar operations in other states. That left fewer dollars for general state programs as well as for specific environmental accounts that the lottery supports.

In particular, the audit found that the lottery spent excessively on promotional and marketing projects that were of questionable value in boosting lottery sales. Nobles singled out the agency's sponsorship of the Minnesota Pro/Am Bass Tour at a cost of almost $500,000 a year.

The report found the event was of "limited value" to the lottery. But Nobles says Andersen's personal interest in fishing and his relationship with the Bass Tour's owner may have clouded his judgement.

"That was somewhat questionable and possibly influenced Mr. Andersen and caused him not to have a completely arm's-length, independent, assessment of whether or not was productive for the lottery to be engaged in sponsoring the Bass Tour to the degree that it was," Nobles said.

The Bass Tour is owned by the St. Paul-based marketing firm Media Rare. And the auditor's report found numerous instances where the lottery contracted with Media Rare without seeking bids from competitors. The report flags that practice as a possible violation of state contracting procedures.

We found many things to question and criticize. ... We did not find evidence of criminal wrongdoing. - Legislative Auditor James Nobles

The evaluation also says that in many cases, the lottery overpaid Media Rare for services of dubious benefit. Media Rare officials issued a written statement, but declined to comment further. The statement makes no mention of the auditor's findings. Rather, it expresses faith in Acting Lottery Director Michael Vekich's ability to chart the agency's future.

Among Vekich's early actions was to withdraw lottery support for the the Bass Tour. Vekich was appointed by Gov. Tim Pawlenty shortly after Andersen's death. He says he's already begun implementing many of the auditor's recommendations.

"The report is a roadmap. Yes there are criticisms. But every good business goes through this process and should take those criticisms and work with them. And that's exactly what we're going to do," Vekich said.

The auditor's report recommends stricter oversight of lottery operations and giving the governor the power to dismiss its director. Legislators have already introduced bills to implement those measures. And at least one lawmaker is questioning whether the lottery's woes could hurt efforts to authorize one or more privately owned casinos in Minnesota. Many of those proposals would entrust operation of new slot machines to the state lottery.

But DFLer Jim Vickerman of Tracy says the lottery may have more than it can handle at the moment. Vickerman chairs the Senate committee with jurisdiction over gaming. Although he voted for creating the lottery in the late 1980s, he's opposed expanded gambling ever since.

"We've probably got enough gaming, gambling. There's 18 casinos and I don't know how many terminals there are for charitable pulltabs. I think we've reached a point that enough's enough," he said.

The auditor's report also appears to have prompted a Public Safety Department investigation. The department's gambling enforcement division has begun a review of the lottery's contracting practices.

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