2014 Symposium: Is it time to audit lottery monies used for state programs?

Asheville: On paper, lotteries sound like a dream come true for states struggling with budget problems. They raise considerable revenue, which can be used to fund education, health care, and other budget priorities. They are funded voluntarily by people who choose to gamble, which means they avoid the political pitfalls of increased taxation. They’re popular, they’re fun, and they’re easy. Nothing could go wrong.

The problem comes in the distribution of that revenue to education or health care. In the 42 states where a lottery was implemented, though, total allocations for education have actually gone down. Rather than using the lottery money to supplement the state’s already allocated education spending, the lottery money was instead used to replace state spending on education. Take, for example, Virginia, where lottery revenues raised $450 million dollars annually. Rather than adding that to the existing education budget, Virginia law makers reallocate $450 million from their earmarked education funding to other areas.

This information is hardly secret. An audit would reveal the ways in which these states have used lottery revenue as cover for politically suicidal funding allocations, but would do little to combat the real problem. The greed of state legislators who seek to use legalized, state-sponsored gambling as cover for pet projects is the underlying difficulty. Stronger regulation is necessary to prevent this already wide-spread abuse. Laws which freeze education funding minimums and require lottery revenues to pay over the top of those amounts would help to combat these abuses.

Raleigh: Many people purchase lotteries in the U.S.A. thus contributing to lottery funds in the country. For example, in 2009 state lotteries raised $17.6 billion dollars for the states. Traditionally, these funds go to community projects such as education, environment, and similar programs marked for receiving lottery monies. While the causes—mainly education in most states—are certainly worthwhile, many analysts assert that they do not help that much because the legislators take lottery revenues into account when allocating budgets for these programs and provide less money from other sources as a result.

Should the government take better control of lottery revenues and monitor their spending more carefully? The answer should be positive. For example, Powerball is played in 44 states, Washington, D.C., Puerto Rico, and U.S. Virgin Islands. Since there is no national lottery, each state is free to come up with their own laws when allocating the lottery funds. However, it has been shown that the monies are often used in an inefficient and wasteful way. For example, in South Carolina the report from Legislative Audit Control found out that “few controls are currently in place to ensure that students receiving more than $222 million in lottery-funded scholarship funds are actually eligible to receive them. Students receiving the Palmetto Fellows, LIFE, HOPE, and other lottery tuition assistance must be U.S. citizens or lawful residents and residents of South Carolina at the time of their graduation from high school. Those students must also maintain a 3.0 GPA while in college to keep their merit-based scholarships”. However, there is no control as to who actually receives these scholarships and whether they fit the requirements. The same goes for the funds allotted for public schools which “should be spent on such projects as instructional salaries, teacher stipends, and materials. It is cannot be used for building construction and maintenance, furniture, or expenses incurred at school district offices”. However, there is a very little control and it’s difficult to track whether the monies were spent in an appropriate way.

Lottery monies should be used in an efficient way and contribute to the betterment of American education, environment, and other causes. The government should take better control of how they are actually spent.

Prescott Valley: Many states are already auditing lottery monies used for state programs. Several state lottery funds, such as Maryland’s State Lottery and Gaming Control Agency are audited. The agency is separated into four divisions that include: Administration, Finance, Operations and Information Technology. The commission oversees regulations of lotteries and gaming, and they monitor for potential abuses within the system. With lottery games bringing in one-third of the state’s income, it is incumbent upon the state to protect the monies. Sixty percent of lottery income is held in reserve to pay out prizes to players while the remaining funds are distributed to retailer commissions and operational expenses. Thirty percent of the revenues from the State Lottery funds are placed in the general fund of the state Treasury to support Maryland government programs in education, public health, public safety and the environment.

The question remains, are state lottery audits (including Maryland’s) within the state governmental structure honest? The fact that corruption is prevalent in many state governments, and that mishandling funds from all outside sources is a common fact, are auditors bribed to produce false reports concerning lottery money distributions?

In an age of widespread dishonesty, audits of state lottery funds should not occur within the individual state auditing system, unless the auditor is independent of the state government and has no connection to the lottery. If a state government does not follow a system of checks and balances, lottery money audits should be performed by an independent organization with no ties to any state governments, which allows an auditor the ability to perform audits objectively minus the pressure to return an audit to the liking of the prospective state.

While it is true that lottery funds are subject to mishandling and are in need of surveillance, there are other problems that distribution of lottery funds create. Once the funds are distributed, as in the case of the South Carolina Department of Education, a report through the South Carolina Legislative Audit Council indicated that a portion of the lottery funds that were allocated to the department of education were improperly distributed according to South Carolina state law. Although funds are allocated to all school districts, the South Carolina Department of Education was not giving priority to below average schools.

With these kinds of reports, it looks as though that not only do state lottery monies require audits, but state departments of education need to be audited as well. When it comes to the lottery, the audits apparently need to be extended to all systems receiving disbursements.

Cartwright: I think they are already being audited, but I think the issue is how the money is being spent and is it being spent judiciously. Many of the state lotteries are supposed to fund specific projects or causes—senior citizen programs, education or scholarships, and so on. I think this is all great, but when you’re dealing with the amount of money generated by the lotteries for these programs there is bound to be fraud and waste. I have long preached against fraud and waste in both government and the private sector, but sadly to no avail most of the time. I do believe that each of these state lottery programs should face very difficult scrutiny in how the funds are spent. That’s not to say that we should consider every scholarship awarded or every senior center built. We need to make sure that the stewards of these programs aren’t wasting money on unneeded centers or fraudulent scholarships. We need to make sure that the programs aren’t being manipulated by special interests. The site of senior center shouldn’t be decided by a politician or the landholder. Administrative costs and salaries should be minimized whenever possible. I’m not suggesting we micromanage, but I’m suggesting we have stringent oversight of the overall programs and how the money is allocated to projects. Overall, politicians should never dictate how the funds are spent and shouldn’t even have a hand in the process. The oversight should be handled by independent bodies comprised of normal citizens who don’t have any special interests and audited by independent accountants and independent government watchdogs. It’s probably idealistic, and I know that. There’s a lot of money at stake, and that money does a lot of good. But that money can do a lot more good and can go a lot further if we don’t allow it to be misappropriated and misused.

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