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Lottery Sponsors Fireworks, While Audit Finds Accounting Problems

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The Illinois Lottery is sponsoring Fourth of July fireworks shows in five cities -- at the same time a state audit has found $200 million in reporting errors in the lottery’s financial statements.

The fireworks shows will take place in Batavia, Rockford, Harvey, Chicago and Champaign. They’re intended to promote the lottery’s 4th of July Millionaire Raffle game. With tickets on sale until 2 a.m. on the 5th, the raffle offers two $1,000,000 prizes, ten $10,000 prizes, 1764 $10 prizes and 500 authentic Blackhawks jerseys.
 
Harvey is too broke to put on its own fireworks show. Considering it’s the kind of poor community the lottery targets, it’s probably owed one.
 
Meanwhile, Illinois Auditor General William Holland has issued a report, conducted by KPMG, finding evidence of sloppy record-keeping at the lottery. Some of the problems detailed in the report:
 
-- Historically, the Lottery had made cash transfers to the Common School Fund in excess of their income before transfers.  These excess cash transfers were reported as “Due from Other State funds” in the Lottery’s financial statements.  During testing, the auditors noted the “Due from other State funds”, did not meet the criteria for being reported / recorded as a receivable.  Subsequently, the Lottery, in conjunction with the Illinois Office of the Comptroller, concluded the balance should be eliminated and considered a prior period transfer.   This account was reported in the Lottery’s accounting records to the auditors with a balance of approximately $69.9 million.    
-- The auditors noted the prizes payable liability did not agree to underlying/supporting records.  During Department management’s subsequent review of the data, missing reconciling items were identified.  One item identified resulted in an overstatement of the liability of $30.3 million.  Department management appropriately recorded an entry to account for this reconciling item.   

-- The aggregate impact of all of the adjustments made since the initial June 30, 2012 GAAP Reporting Forms were submitted to the Illinois Office of the Comptroller was a $63.0 million increase in assets, a $45.7 million decrease in liabilities, a $106.3 decrease in expenses and a $1.5 million increase in revenue.  

-- The errors and inaccuracies noted, if not detected and corrected, can materially misstate the Lottery’s financial statements and negatively impact the statewide financial statements.  Accurate and timely preparation of the Lottery’s financial information is important and impacts the statewide financial statements reporting process.
 
Lottery Director Michael Jones is blaming Northstar Lottery Group, a private company -- chaired by former Cook County State’s Attorney Dick Devine -- that manages the lottery’s operations. According to Crain’s Chicago Business:
 
Lottery Director Michael Jones noted that the audit covered the year ended June 30, 2012, during which the lottery separated from the Illinois Department of Revenue. Financial glitches are "not uncommon" during such transitions, and have been remedied, he said.

Mr. Jones also blamed the problem on the lottery's private operator, Northstar Lottery Group LLC, which has been involved in a yearlong dispute with Mr. Jones about its compensation and related matters. “Most of the data” the lottery relied on came from Northstar, he said.

A spokeswoman for Northstar rejected that. "The audit dealt with how the lottery kept its own financial records — not the information we gave them," the spokeswoman said.
 
Outsourcing is always a gamble, isn’t it?
 

Related Topics Illinois Lottery, fireworks, audit
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