REPORT DIGEST

DEPARTMENT OF THE LOTTERY

COMPLIANCE EXAMINATION
FOR THE TWO YEARS ENDED JUNE 30, 2021

Release Date:  May 26, 2022

FINDINGS THIS AUDIT:  14

CATEGORY:  NEW -- REPEAT – TOTAL
Category 1:  1 -- 1 -- 2
Category 2:  4 -- 7 -- 11
Category 3:  1 -- 0 -- 1
TOTAL:  6 -- 8 -- 14

FINDINGS LAST AUDIT: 14

Category 1: Findings that are material
weaknesses in internal control and/or
a qualification on compliance with
State laws and regulations (material
noncompliance).
Category 2: Findings that are
significant deficiencies in internal
control and noncompliance with State
laws and regulations.
Category 3: Findings that have no
internal control issues but are in
noncompliance with State laws and
regulations.

State of Illinois, Office of the
Auditor General
FRANK J. MAUTINO, AUDITOR GENERAL

To obtain a copy of the Report
contact:
Office of the Auditor General, Iles
Park Plaza, 740 E. Ash Street,
Springfield, IL 62703
(217) 782-6046 or TTY (888) 261-2887

This Report Digest and Full Report are
also available on the worldwide web at
www.auditor.illinois.gov

INTRODUCTION

This digest covers the Department’s
compliance examination for the two
years ended June 30, 2021.  A separate
digest covers the State Lottery Fund’s
financial audit as of and for the year
ended June 30, 2021.  In total, this
report includes 14 findings, 6 of
which were reported in the financial
audit.

SYNOPSIS

• (21-07) The Department has not
implemented the Lottery Sports
Wagering Pilot Program as mandated by
the Sports Wagering Act.
• (21-10) The Department did not
comply with statutory reporting
responsibilities.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

FAILURE TO IMPLEMENT LOTTERY SPORTS
WAGERING

The Department of the Lottery
(Department) has not implemented the
Lottery Sports Wagering Pilot Program
(SWP) as mandated by the Sports
Wagering Act (Act) (230 ILCS
45/25-70).

Public Act 101-0031, effective on June
28, 2019, created the Act and the
Department’s SWP for parlay wagers and
fixed odds parlay wagers as part of a
funding mechanism for vertical capital
projects.  Under § 25-70, the
Department is mandated to issue one
SWP central system provider license
for a fee of $20 million following an
open and competitive bidding process
for 2,500 retail locations through
June 22, 2020, which then increased to
5,000 retail locations thereafter.
Further, after the General Assembly
found an emergency existed and it was
necessary to the public interest,
safety, and welfare for the Department
to promulgate emergency rules to get
the SWP operational as soon as
possible, § 25-70(i) authorized the
adoption of emergency rules to
administer the SWP. Finally, §
25-70(k) sunsets the SWP on January 1,
2024.

In response, the Department took the
following actions during the
examination period:

Date(s)  --  Event
September 27, 2019:  The Department
posted a Request for Information (RFI)
on three gaming industry websites.

October 1-11, 2019:  The Department
received 10 replies from various
gaming entities to its RFI.

October 28-30, 2019 and November
12-14, 2019: During the General
Assembly’s Fall 2019 Veto Session, the
Department sought an amendment to §
25-70 in the trailer bill.  This bill,
like subsequently introduced bills,
attempted to (1) allow for integration
between the SWP’s independent central
system and the Department’s system,
(2) allow debit and credit card
transactions, (3) reduce the $20
million fee paid by the successful
SWP, (4) change the flow of funds
received by the Department from SWP,
and (5) extend the sunset date of the
SWP.

Spring 2020 Session	: The
Department sought an amendment to §
25-70 similar to the amendment sought
during the Fall 2019 Veto Session.

June 8, 2020: The Department sent pre-
draft administrative rules to the
Joint Committee on Administrative
Rules (JCAR), which were written
assuming the Department’s changes
would be approved by the General
Assembly.

June 18, 2020: JCAR sent a letter of
comments to the Department about the
pre-draft administrative rules, noting
the Department had several proposed
rules which were not supported by the
current statutory text of § 25-70.  As
of June 30, 2021, the Department had
not yet cleared JCAR’s comments.

Fall 2020 Veto Session: The Department
continued to seek an amendment to §
25-70 similar to the amendment sought
during the General Assembly’s Fall
2019 Veto Session.

Spring 2021 Session: The Department
sought an amendment to § 25-70 similar
to the amendment sought during the
General Assembly’s Fall 2019 Veto
Session.

March 2021: The Department completed a
draft Request for Proposals (RFP) to
issue the SWP’s Central System
Provider, who will serve as the
private manager overseeing the SWP’s
terminals, which was written assuming
the Department’s changes would be
approved by the General Assembly.

During testing, we noted the
following:

• The Department has not implemented
the SWP by issuing an RFP or adopting
administrative rules under current
law, which was effective over two
years ago.

Department officials indicated they
believe the General Assembly did not
set a time frame for when the
Department was required to fully
implement the SWP.

• The Department did not post the RFI
in the State’s online procurement
bulletin, BidBuy.
Department officials indicated the
Chief Procurement Officer did not give
the Department authorization to post
the RFI on BidBuy.

While it is possible an RFP issued
under current law may fail to yield
any responses, failure to adopt
administrative rules and issue an RFP
as soon as possible after Public Act
101-0031 passed and implement the SWP
guaranteed the Department (1) would
not collect the $20 million license
fee and (2) forewent potential
revenues from wagers not placed which
support both the Capital Projects Fund
and Lottery retailers wanting to
participate in the SWP. In addition,
failure to post the RFI on BidBuy
reduced public exposure of the
Department’s RFI. (Finding 7, pages
26-29)

We recommended the Department issue an
RFP to implement the SWP. Further, the
Department should work with the Chief
Procurement Officer to implement
controls so future RFIs are posted on
BidBuy in strict adherence with the
provisions of the Illinois
Administrative Code (IAC).

Department officials stated the
following:

The Department accepts the finding.
Public Act 101-0031, effective on June
28, 2019, created the Act. Section
25-70 of the Act created the SWP.
Prior to its passage the Department
sanctioned Illinois-specific research
to assess the impact and opportunity
of legalized sports betting in the
lottery environment. The Department
also identified the initial concerns
it had regarding the language included
in the bills which later became Public
Act 101-0031 and unsuccessfully
lobbied for changes. Upon passage of
the Act, the Department continued its
due diligence for the purpose of
implementing the SWP. The Department
began project planning, conducted
additional research and analysis, and
initiated the development of a RFI for
the purpose of determining the
feasibility of the SWP under the
current law.

The Department compiled and released
the RFI on the Department’s website as
well as reputable gaming websites used
by vendors that support the lottery
industry domestically and abroad.  The
RFI was also forwarded to all
interested parties listed on Bid Buy,
the state’s online procurement
bulletin, but as noted in the finding,
the RFI was not posted on Bid Buy
itself. The Department considered
posting the RFI on Bid Buy, but after
consultation with the state’s CPO,
agreed the RFI should be part of the
central system provider license bid
process which the Department had
statutory authority to complete
outside of the state’s procurement
process.  Even without the use of Bid
Buy, the RFI elicited 10 responses.

The preliminary research conducted by
the Department and the results from
the RFI indicated the SWP was not
feasible in its current form. These
results supported the Department’s
initial assessment. Additional
research and consultation with other
states who have implemented similar
programs, validated the Department’s
assessment. Despite those results, the
Department continues implementation
efforts by further developing its
plan, finalizing an RFP for the
central system provider, increasing
authorized headcount, and drafting
administrative rules. The Department
continues these efforts while
concurrently identifying modifications
to Public Act 101-0031 and lobbying
for their passage.

The Department believes it is in the
best interest of the State to apply
the results of the RFI and research
conducted in making modifications to
the law that have been found critical
in order to stand up a viable SWP
program. The Department remains
vigilant in its efforts to create the
best program it can in accordance with
the law.

In an accountant’s comment, we noted,
at this time, despite the Department’s
repeated efforts to seek a legislative
change, the General Assembly, as is
their exclusive right, has chosen not
to adopt the Department’s proposals
and change § 25-70 of the Act.  This
fact – when considered in light of
both (1) the ever diminishing
likelihood an RFP issued under current
law would yield any responses due to
the approaching sunset date on January
1, 2024, and (2) the General
Assembly’s determination that time was
of the essence by authorizing the
adoption of emergency rules to get the
SWP operational as soon as possible –
strongly supports our recommendation
Department management should issue an
RFP to implement the SWP.

Further, as requested by us during the
exit conference, Department management
has not provided documentation which
supports its assertion the SWP is not
subject to the State’s procurement
process, including the provisions of
the Illinois Procurement Code (Code)
and related administrative rules
within the IAC.  Unlike the
procurement process for the
Department’s Private Manager which is
explicitly exempted from the
provisions of the Code unless
specifically required by the
management agreement entered into by
the Department and the Private Manager
by the Illinois Lottery Law (Law) (20
ILCS 1605/9.1(e)), the Code is not
even mentioned in the Act nor is the
Act mentioned in the Code.  Like the
Law, the Code (30 ILCS 500/1-10(d))
explicitly only exempts the
procurement process for the Private
Manager under § 9.1 of the Law.  As
such, we continue to believe the SWP
is subject to the State’s procurement
process, including the requirements
for publishing RFIs within the IAC.
If Department management continues to
disagree with our recommendation, we
recommend they seek a formal, written
opinion from the Attorney General on
the applicability of the State’s
procurement process to the SWP.

INADEQUATE CONTROLS OVER REPORTING
REQUIREMENTS

The Department did not comply with
statutory reporting responsibilities.

During testing, some of the more
significant issues we noted included
the following:

• We continued to note the Department
did not submit a complete and accurate
Agency Workforce Report (Report) to
the Office of the Governor and the
Office of the Secretary of State
during both fiscal years examined.

• The Department’s controls over the
submission of its reports and
publications to the Illinois State
Library (Library) were not operating
effectively. Of the reports we were
aware of and which should have been
submitted to the Library, we noted the
following:

— The quarterly report on the private
manager’s actions and activities
required by the Illinois Lottery Law
(Law) was not submitted for the first
quarter of Fiscal Year 2020 and the
last three quarters of Fiscal Year
2021.

— The Fiscal Year 2021 annual report
on the private manager’s activities as
required by the Law was not submitted
to the Library.

— The eight quarterly reports on prize
payments up to $25,000 from a locally
held fund and the costs associated
with the locally held fund as required
by the Law during the examination
period were not submitted to the
Library.

— The Game Rules: Pick 3, Pick 4,
Lotto/Extra Shot®, Lucky Day Lotto®
with EZmatch™, MegaMillions®/
Megaplier®, and Powerball®/Power Play®
publication was not submitted to the
Library.

In addition, this finding was
originally noted during the
Department’s compliance examination
for the two years ended June 30, 2013,
eight years ago. As such, Department
management has been unsuccessful in
implementing a corrective action plan
to remedy these deficiencies. (Finding
10, pages 36-38)  This finding has
been repeated since 2013.

We recommended the Department prepare
and submit a corrected Fiscal Year
2019 and Fiscal Year 2020 Report with
the Office of the Governor and the
Office of the Secretary of State
within 30 days from the release of
this report, as required by the
Illinois State Auditing Act. Further,
the Department should ensure its
annual Report is properly prepared
from its underlying records, with the
final Report reviewed by a supervisor
to help ensure the accuracy and
reliability of the Report.

In addition, the Department should
ensure its controls which are designed
to submit all of its reports and
publications to the Library operate
effectively and that each person
responsible for the Department’s
publications are timely disclosed to
the Government Documents Section of
the Library.

Department officials accepted the
finding.

OTHER FINDINGS

The remaining findings pertain to
weaknesses with disaster recovery and
cybersecurity programs and practices,
an insufficient number of members on
the Lottery Control Board, and
inadequate controls over personal
services, State vehicles, and remote
access.  We will review the
Department’s progress towards the
implementation of our recommendations
in our next State compliance
examination.

ACCOUNTANT’S OPINION

The accountants conducted a State
compliance examination of the
Department for the two years ended
June 30, 2021, as required by the
Illinois State Auditing Act.  The
accountants qualified their report on
State compliance for Finding 2021-001
and Finding 2021-007.  Except for the
noncompliance described in these
findings, the accountants stated the
Department complied, in all material
respects, with the requirements
described in the report.

This State compliance examination was
conducted by Sikich, LLP.

JANE CLARK
Division Director

This report is transmitted in
accordance with Section 3-14 of the
Illinois State Auditing Act.

FRANK J. MAUTINO
Auditor General

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