Chad Skelton, With Files From Miro Cernetig, Vancouver Sun
Published: Wednesday, May 30, 2007
- Vancouver Sun story sparked probe by ombudsman
- Unheeded warnings of fraud date back five years
- One retailer won 11 times in 5 years for total of $300,000
- Alarm bells over retailer with $1M ticket
The B.C. government has ordered an independent audit of the way lottery tickets are sold in the province after a scathing report released Tuesday found the system open to abuse by unscrupulous retailers trying to cheat their customers.
“To say that I am unhappy is an understatement,” Solicitor-General John Les told a news conference, with the heads of the B.C. Lottery Corp. at his side.
Les said BCLC should have done more to investigate retailer fraud.
“There was not sufficient attention paid by the lottery corporation to those circumstances,” he said. “They should have gone down there like a rat down a drain pipe and figured it out. They didn’t do that.”
Les refused to say if any senior executives at BCLC would lose their jobs over the matter but noted that, in addition to retailer fraud, the audit will look at broader issues of management and corporate culture at BCLC.
B.C. ombudsman Kim Carter launched her investigation in December after The Vancouver Sun reported that lottery retailers in the province were winning major prizes at several times the rate of the general public.
According to internal lottery documents obtained by The Sun, over the past six years, those who sell lottery tickets have won 4.4 per cent of all lottery prizes over $10,000 — a rate three to six times what would be expected given their share of the population.
Retailer wins were more common for some games than others — with a high of 11.6 per cent for Keno.
The figures, obtained through a Freedom of Information request, raised fears that retailers may be stealing customers’ winning tickets.
Immediately following the revelations, BCLC said it had confidence in its lotteries and believed the high rate of retailer wins was simply due to retailers playing more often.
However, Carter’s report found major problems with virtually every aspect of BCLC’s security systems.
In an interview Tuesday, Carter said she and her team were “surprised at really how much dysfunction there was in the system. I think, like everybody else, we assumed that there were processes in place [to protect players].”
Retailers who claim prizes of more than $10,000 are asked a series of questions by BCLC security to ensure they are the legitimate owners of the tickets — including when and where they purchased their ticket.
But Carter’s report found “the interview process was not rigorous enough to reliably catch someone who acquired a ticket dishonestly.”
For example, she found, the date a ticket was purchased is usually printed right on it — as is the ID number of the retail outlet, which retailers may be familiar with.
And in the case of Keno, the report notes, the ticket also lists the draw number — which BCLC posts on its website, along with the exact time of each draw.
This would allow a retailer to check the exact date and time of a draw for someone else’s ticket.
“Perhaps this explains why the number of multiple retailer wins is so much higher for Keno,” the report notes.
Yet even when retailers weren’t able to answer such simple questions, the report found, BCLC would often still pay out the prize.
For example, one retailer was awarded a prize of more than $500,000 even though he couldn’t remember where he bought the winning ticket.
And another retailer was paid out a prize of more than $1 million even though she couldn’t remember the date of purchase.
Under BCLC rules, retailers are forbidden from buying lottery tickets while they are on shift. But Carter’s report uncovered several cases where retailers appeared to be working when a winning ticket was purchased.
“In all cases, the prize was still paid to the retailer,” the report notes.
The report also found that BCLC security staff made no effort to corroborate that what winning retailers told them was true — such as that they played the same winning numbers every week or bought the winning ticket from a co-worker.
While Carter found the security system for big prizes inadequate, she concluded the biggest gap in the system is for prizes under $10,000.
Such prizes — which make up 99 per cent of all winning tickets and 80 per cent of all prize money — are not regularly scrutinized by BCLC at all.
And retailers know this.
“Anyone familiar with BCLC prize payout procedures would know that these prizes would be the easiest to cash in,” the report states.
For example, BCLC has encouraged customers to sign the back of their tickets to protect themselves from fraud.
But the report notes that, since 1998, BCLC has adopted a “cash and trash” policy in which retailers throw winning tickets for smaller prizes into the garbage after paying them out instead of sending them back to BCLC.
As a result, if a retailer steals a customer’s ticket — or pays less than the full prize — customers have no way of later proving they were ripped off.
To get some sense of how often retailers win smaller prizes, Carter looked at claims made for small prizes at BCLC’s offices in Kamloops and Richmond — which pay out less than one per cent of all smaller wins.
That small spot-check alone found that, over a seven-year period, 21 BCLC retailers or retailer employees had won multiple prizes.
One retailer had won 11 times over five years — for a total of $300,000 in winnings.
Another had claimed more than $10,000 in wins every year for four years straight.
Yet despite these suspicious patterns of multiple wins, Carter’s report found BCLC dealt with each winning ticket as an individual case.
“While no one knows why these BCLC retailers and BCLC retailer employees won at the rate they did … BCLC should have been interested enough to try and find out,” Carter wrote.
Since BCLC doesn’t routinely review smaller wins, one of the only ways it is made aware of potential wrongdoing is when people complain to customer service.
Carter asked BCLC to tell her how often fraud complaints are passed on to its security staff — but the corporation said it had no way of collecting such data.
So Carter’s staff reviewed a sample of customer service logs itself.
That review found that, during one month, none of the 16 complaints about retailer fraud were turned over to security and, in a separate two-month period, more than 75 per cent of fraud complaints were not passed on.
And even when security did get involved, the report found, BCLC’s investigations were often inadequate.
In some cases, the report found, BCLC’s security staff asked retailers themselves to conduct the initial investigation — something it notes was a “clear conflict of interest.”
“Given that the retailer is the party being investigated, we do not find it appropriate for the retailer to be doing part of the investigation,” the report notes. “For example, in two files, the retailer reviewed its videotape surveillance to look for evidence of wrongdoing instead of BCLC reviewing the information.”
In 2002, the B.C. government created the gaming policy and enforcement branch to regulate and investigate BCLC. But Carter’s report found the branch conducted no audits or investigations of retailer fraud until media reports in 2006.
It reviewed BCLC’s payout procedures in November 2006, but its report only suggested minor changes to the system.
The agency “did not uncover many of the weaknesses in BCLC’s prize payout procedures that our investigation revealed,” states the report.
Carter’s report also found evidence that BCLC knew about the concerns over retailer fraud for years but did little to address them.
In February 2002, the report finds, an employee in customer service sent an e-mail to senior managers stating that an increasing number of customers were complaining about retailers trying to “rip them off.”
“There is no indication, however, that senior management … ever directed an audit or study of how prize payout procedures were working,” it says.
The report even found problems with the way BCLC handled The Sun’s original FOI request.
In October 2006, The Sun asked for a copy of all BCLC’s investigations into fraudulent lottery claims since Jan. 1, 2005.
In response, the BCLC provided a brief summary of 74 investigations it had conducted into retailer fraud — of which it said only four were substantiated.
But a review by Carter’s team found the real number was likely closer to 190 — and some of the investigations BCLC classified as unfounded were actually suspicious. “The resulting conclusion drawn that there was no significant problem was misleading,” the report states.
Carter’s report makes 27 recommendations, including requiring retailers and employees to use a swipe card or enter a code before each lottery purchase.
cskelton@png.canwest.com
© The Vancouver Sun 2007
© 2007 CanWest Interactive, a division of CanWest MediaWorks Publications Inc.
