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Legislative Audit Commission

Minutes

February 19, 2004

The Legislative Audit Commission meeting was called to order by Representative Tim Wilkin, Chair, at 10:30 A.M. in Room 15, State Capitol.

Members present:

Representative Lyndon Carlson    Senator David Hann
Representative Sondra Erickson Senator Sheila Kiscaden
Representative Jeff Johnson Senator Thomas Neuville
Representative Aaron Peterson Senator Ann H. Rest
Representative Connie Ruth Senator Claire Robling
Representative Paul Thissen Senator Jim Vickerman
Representative Tim Wilkin Senator Yvonne Prettner Solon

Members excused:

Representative Dan Larson

Members absent:

Senator Richard Cohen

Representative Wilkin recognized James Nobles, Legislative Auditor. Mr. Nobles indicated the purpose of the meeting was to review the program evaluation report on Minnesota State Lottery and introduced John Yunker, project manager. Mr. Nobles reviewed the reasons the Commission directed the Program Evaluation Division to conduct the study and gave an overview of what was contained in the report. He reviewed the impact of the death of Lottery Director, George Anderson and noted that his office had considered removing references to Mr. Anderson from the report, but ultimately decided to leave those references in the report as Mr. Anderson played such a key role in Lottery management decisions. Mr. Nobles noted that others who worked on the study were David Chein, Evaluation Specialist, and Patrick Phillips, Financial Auditor.

Representative Wilkin recognized Mr. Yunker. Mr. Yunker reviewed the evaluation questions addressed in the report, and reviewed the findings concerning the Lottery’s and decision-making process and relationship with public relations firm, Media Rare. He noted that the report contained 49 recommendations for action by the Lottery and 15 recommendations for action by the Legislature. He gave a summary of the recommendations and answered questions from members.

In response to a question from Senator Rest, Mr. Nobles indicated they had found no inappropriate relationships between the Lottery or Media Rare and any legislators. Senator Vickerman noted that he hoped some of the unclaimed prize money would go to environmental issues rather than the General Fund, inasmuch as the Legislative Commission on Minnesota Resources’ budget had been greatly reduced. In response to a question from Representative Erickson, Mr. Yunker indicated that there was no data on Indian gaming and they would be unable to tell if this has had a direct impact on Lottery sales. In response to a question from Senator Hann, Mr. Yunker indicated that a private accounting firm reviews the Lottery’s financial statements, but only to see if the dollars are posted correctly. Mr. Nobles indicated that the Financial Audit Division in the Office of the Legislative Auditor has conducted several audits of the Lottery in previous years, but that some of the recommendations were not followed. He noted that financial audits do not look at the quality of management decisions, but program evaluations do. Mr. Nobles noted that it was difficult to get financial information concerning the Lottery’s relationship with Media Rare because the Lottery has it’s own accounting system and is not using MAPS.

Senator Rest indicated that she and Representative Wilkin were sponsoring a bill that would change the appointment of the Lottery Director to one that serves at the pleasure of the Governor, rather than a position where the director could only be removed for cause, and that would require the Lottery’s budget be subject to the approval of the Legislature, similar to other state agencies.

In response to a question from Representative Erickson, Mr. Nobles indicated that Mr. Anderson operated the Lottery without a written plan. He noted that Mr. Anderson had an intuitive sense regarding promotions, but that there was little documentation to back it up and that there was no internal evaluation of the value of certain promotion efforts.

In response to a question from Senator Robling, Mr. Yunker indicated the lease agreement on the promotional truck was never bid and was a “sloppy business relationship.” In response to a question from Senator Kiscaden, Mr. Nobles indicated there were patterns that raised questions concerning ethics. He noted that the relationship between Mr. Anderson and the previous owner of Media Rare was too personal and decisions were made that were not objective. He also noted evaluators looked only at Media Rare’s relationship with the Lottery and not their other business relationships. In response to a question from Senator Hann, Mr. Yunker indicated there had originally been 191 Lottery employees but after budget cuts, they had 158 employees. In response to a question from Representative Erickson, Mr. Nobles indicated that while the Department of Public Safety does have security oversight responsibility for the Lottery, Mr. Anderson did not welcome their oversight and relied heavily on the Lottery’s own security unit.

Representative Wilkin recognized Michael Vekich, Acting Director of the Minnesota Lottery, and Don Feeney, Director of Planning and Research. Mr. Vekich summarized the Lottery’s response to the report, indicating that the report was fair, accurate, and a road map for the future to get the Lottery on track. He outlined actions already taken and those planned for the future. In response to a question from Senator Kiscaden, he indicated the Lottery is not broken, that security is good, but an area needing improvement is the cost and benefit of advertising. Mr. Vekich noted that in the past, Mr. Anderson oversaw all promotions and that Lottery division directors were not provided with such data. He noted this will not happen in the future.

Representative Wilkin recognized Don Feeney, Research and Planning Director for the Minnesota Lottery. He felt that Mr. Anderson was the right person for the start-up of the Minnesota Lottery, but it was debatable if he was the appropriate person to lead a mature organization, noting that the lines of responsibility and authority to take action had been muddy and that the responsibility ultimately rested with Mr. Anderson.

It was noted that the Department of Public Safety plans to review Lottery operations.

The meeting adjourned at 12:05 P.M.

_______________________________________
Representative Tim Wilkin, Chair

_______________________________________
Jean Barnhill, Recording Secretary

 

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