Part 3 of a 10 Part Editorial ...
(Opinions by

- Busted & Exposed -
Evaluating The Official "Contentious" Report

(Texas Lottery - Internal Audit - 2012 - Prize Payment Account Review)



Texas Lottery
Where Is The Missing Money?
Was this the PERFECT Crime?
Was it embezzlement? Fraud? Theft?
Or sheer incompetence?

-------------------------

brought to you by
The sibkkc.ru

Series Began: August 1, 2013
Part 1: Posted August 1, 2013
Part 2: Posted August 4, 2013
Part 3: Posted August 7, 2013 - Below
Part 4: Posted August 13, 2013
Part 5: Posted August 20, 2013>
Part 6: Posted Oct 22, 2013
Part 7: Posted March 13, 2014
Part 8: Posted April 6, 2014
Part 9: Posted ??, 2014
Part 10: Posted ??, 2014



An introduction to the main characters of this
editorial was shown in Part 2. If you've forgotten,
click here for a refresher to see who's who.


Texas Lottery Commissioners

Chair J Winston Krause (Appointed March 2009)
Jodie Baggett (Appointed Sept 2013)
Katie Stavinoha (Appointed Sept 2013)
John W Townes (Appointed Dec 2013)
Mary Ann Williamson (Resigned 8/16/13 - Re-appointed 3/11/14)

Commissioner Veronica Edwards (Resigned 2/13/14 - Effective 3/31/14)

-------------------


- Part 3 -
Evaluating A Contentious Report

The State Auditor, who received a Complaint
against the Texas Lottery in Nov 2010, decided
to let the Texas Lottery investigate itself.
This was their way of handling the Complaint.

The official findings - with regards to the Complaint -
and submitted by the Texas Lottery's Internal Auditor
are - in part - remarkably true. It exposes dereliction
of duty - inexcusable faults and failures by
Texas Lottery executive management ...
YET ... the report is inconclusive,
deceiving, & alluding as well.
I will show you all of this
in my series ...

You are in for an interesting ride on this one!


--------------------------

Just in case you forgot ... the Complaint's
allegations included but paraphrased ...


• Management failed to protect State assets
• The prize payment account lacked supervision
• Implied management may be embezzling money
• Implied management was not doing their jobs responsibly
• The Texas Lottery lost/wrote off $600,000 when they changed accounts
• Fraudulent activity continued to occur as management stalled
in opening a new account
• Management personnel - policy breakers - kept their
jobs and received promotions and merit raises

- Important -
While the Complaint did NOT say anything DIRECTLY
about management's failure to reconcile the account, one can
easily conclude that it was the intent of the Author to expose this
fact as failing to reconcile a checking account is a MAJOR issue.

(NOTE: I did not list all allegations that were
actually contained in the Complaint. They will
be covered as we progress through the story
)

---------------------------

... The Audit Report Shows ...
• Who was responsible
• Fraudulent activity did occur
• State assets were not protected
• Repeated absence of supervisory review
• $600,000 was written off in the change of accounts

Incorrect entries were not detected by management
• The length and time errors went undetected was costly
• A host of errors and mistakes were identified in the Report
• Management failed to reconcile/maintain the account as required
• Anything was possible concerning the lost/written off money - it
could have been embezzled, could be theft, could be fraud,
and it could be management incompetence.

But remember - in Part 2, I showed you that
the "purpose" stated in the Report was NOT
specific to the Complaint. The report failed
to give a complete and accurate reflection of the
contents of the Complaint which leads readers to
believe the report appears to be just a typical
ole' annual audit - therefore - you have to have
firsthand knowledge that the Complaint instigated
the Report and these are the findings.

No where in the report does it ever say or confirm
DIRECTLY that the allegations contained in the
Complaint were valid and true even though that's
what all this is about and is was certainly confirmed.

Now let me show you what I just told you ...

------------------------



-----------------------------------------


The Report clearly identified those who were responsible
(Page 3 - 2012 Prize Payout Account Review Report)

(BofA = Bank of America)

As you see from the very first sentence, the Office of the Controller was
100% responsible for watching over this account. While individual "names" were
not mentioned publicly, three people are directly responsible and it is indisputable.
They are ... Mr. Gary Grief, Ms. Kathy Pyka and Mr. Benito (Ben) Navarro.
Here's proof of authority ...

Texas Lottery Key Personnel Directory Shows
Mr. Grief is THE man responsible for ALL!
The "Executive Director" ...


Excerpt from Oct 29, 2012 Interoffice Memo -
From Kathy Pyka to Catherine Melvin
Confirmation - #1 ... Ms. Pyka is THE Controller - The Big Chief!
(BTW - You will be seeing quite a bit from this particular
document as we move through this story)


- Excerpt from 2005 Organization Chart -
(Note - the 2006, 2007, 2008, 2009, 2010,
2011 organization charts show the same)
- Mr. Navarro was the Manager of the Department
in charge of reconciling the Prize Payment Account
2nd in Command - Worked directly for Kathy Pyka

-----------------------

Confirmed As Alleged ...
The Texas Lottery really did lose/write off a minimum of $622,000
(Page 4 - 2012 Prize Payout Account Review Report)


Wow, this says the Texas Lottery has not agreed with the bank's balance
since "at least" 2007. If you will remember, in Part 1, I showed you
that they were off by $187K in 2005. See ....

How on EARTH could any entity allow this? It is
completely beyond comprehension.

(Wait until you see how many times they ignored
warnings regarding the importance of reconciling
the account which will come later in the story.
)

"Can't determine the reason for variance?" Just how
many reasons can there be? Shoot, let's count them ...
1) embezzlement ; 2) fraud; 3) theft;
4) incompetent management and 5) lack of supervising
staff's work which would be the same as incompetent mgt.

While you read the "discrepancy" (also been called "variance") has remained
at $622,103, it isn't really clear in her report that this means the banks says the
Texas Lottery has $622K LESS than what they thought they had.
So, never fear ... here's proof - "variance" and "discrepancy" means shortage.

Above is the actual write-off dated 8/31/12.
Signed by Kathy Pyka.

(If you would like to see the entire document submitted
to me from an open records request, click here. (pdf))

Then ....
two months after writing the $623K off, Ms Pyka finds
or thinks she made a mistake in the way they reported
the fraudulent activity in their financial reports.
This is unbelievable ... mistake after mistake after mistake ...


Now, with regard to that mistake ....

- Excerpt from Oct 29, 2012 Interoffice Memo -
From Kathy Pyka to Catherine Melvin
Ms. Pyka writes that she is directly responsible ... #8 & #9

I wonder, did the Commissioners have any advance knowledge
that this money was written off? I'm certain they did not realize
State funds were actually lost based on their questions and
comments during the Nov 2012 meeting.

(I will cover the Nov 8, 2012 testimony in
detail later so you will see what I mean
)

-------------------------


Confirmed As Alleged ...
Fraud, management failed to protect State assets,
entry errors not detected, mgmt fails to catch errors,
and there's and absence of supervisory review. Imagine That!

(Page 5 - 2012 Prize Payout Account Review Report
- Administrative Checks)

"MUST be reconciled on a monthly basis." Let's see. The word
"MUST" is called mandatory language yet between 2005 - 2009,
with Ms. Pyka as the Director of the Department, the prize
payment account hadn't been reconciled on a monthly basis.
Mr. Navarro was the manager under Ms. Pyka and it
wasn't done under his watch in all those years either. I
think you should know that he was never removed from
this duty even though, OBVIOUSLY, he failed to do his job too.

An interesting twist to insert here ...
follow my reasoning ... Read #17 then #13 ...
Then read how I conclude my remarks about
"mandatory monthly" duty ...

- Excerpt from Oct 29, 2012 Interoffice Memo -
From Kathy Pyka to Catherine Melvin - Read #17

- Excerpt from Oct 29, 2012 Interoffice Memo -
From Kathy Pyka to Catherine Melvin - Read #13

Notice that Ms. Pyka acknowledges the fraud
as alleged in the Complaint in statement #13.

There is no way in hell that they can say that the account
was being taken care of monthly or yearly during this time
frame because if it had, it would have been IMPOSSIBLE
for fraudulent activity to have occurred and NOT been
caught. When they FINALLY identified the fraud, it was too
late for bank reimbursement and STATE monies were lost.
Records show that they were one year late in identifying the fraud.
(You will see details and proof of this later)

Now let me continue with the original excerpt ... Sorry for the interruption ... <grin>

(Page 5 - 2012 Prize Payout Account Review Report - Administrative Checks)

"posting the incorrect entry in the General Ledger?" ...


(Page 6 - 2012 Prize Payout Account Review Report - Administrative Checks)

"posting the incorrect entry in the General Ledger" ...
"Length and time the error went undetected" ...
"ensuring proper supervisory review"
I can understand making an error, I do it every day.
But errors should be caught. Because the account did
not balance back in 2005, you have to face the fact that
they had a HUGE clue that something was amiss.
WHY did it take 5 years to take action?

I am really sorry but I have to call this as I see it which
means this is nothing short of pure incompetence at executive
management level. Management is directly responsible for
training staff and if staff carried this kind of an error forward
for this many years, one cannot justify blaming the staff.

Let me share a quick story with you regarding my observations
of how the Texas Lottery trains their people. I was in Austin one day
shortly after they switched their lottery terminals and I needed to know
what the payouts were for the Pick3 and Daily 4. So I walked over to
the Claim Center hoping to get a payout slip from the terminal. Well,
needless to say, staff didn't know how to get the information out
of the terminal so I took it upon myself to educate them on how
to work the terminal. They were extremely kind and grateful to
me for sharing this tidbit with them.

(PS - I had no choice but to go to a terminal because the
Texas Lottery refuses to tell me how much money was
won during the day even if I'm looking them in the face.
)

Anyway, I want to make it perfectly clear that I was not angry
with staff as I recognized it was not their fault that they had not
been trained on the new terminal. I have also shown store clerks
as they didn't know how to work the new terminals either.

I FAULT the Texas Lottery and G-Tech completely
for lack of training.

This is exactly how I feel with reference to staff posting an incorrect
entry - I can assure you that both Ben Navarro and Kathy Pyka
should have caught this error a long time ago. There is absolutely no
excuse as they (upper management) should have caught these errors.

Well, OK, guess I should add they should have closed that
account too. By failing to close the account - they and
they alone, put the State at risk AND the State lost.

The quote ... "absence of supervisory review" ..
Let me show you something .... below are documents that
should have been signed by management but weren't ....
Note that "reviewed by" isn't signed off.

Procedures for completing the forms above - called
"Cash in Bank Reconciliation" reads in part ...

(Notice it says it is forwarded for review)

Well, as you can see, in December of all those years neither
Mr. Navarro nor Ms. Pyka approved whatever
work was done in reconciling the acct.
(FYI - I've requested all of these documents now.
I purposely requested only one per year initially
)

The un-signed documents were obtained through an open
records request. So that there are no misunderstandings,
you need to see exactly what I requested ....

- July 11, 2013 - Open Records Request by D Nettles -

I would like to receive a copy of the "Cash in Bank Reconciliation"
as shown in the Cash in Bank procedures for the following
months: Dec 2005, Dec 2006, Dec 2007, Dec 2008,
Dec 2009, Dec 2010, Dec 2011, Dec 2012.

Basically I want two copies of each - the first copy
would be the one signed off by the person who
prepared it and the second copy would be the copy
showing who signed off that they received and
approved it.

Just in case you want further clarifications - It is an excel
spreadsheet and there should be a document for every month
of every year. Based on the reconciliation issue, I would think
that these documents would not have been destroyed through the
records retention schedule. Also, each page is only one page so
my request should be 16 pages all total. A copy of this
document is included with my fax."

I failed to say I wanted these documents for the
Prize Payment Acct.


Katelind Power's response on July 19 ...
"Attached are documents responsive to your request."

If you would like to see the actual
documents in their entirety, click here.

Ms. Pyka earns a lot of money - she's been rewarded quite
nicely in the 7 years she's been there.

Yet the findings in the Prize Payment Acct Review makes it
appear the department is inefficient, inaccurate & negligent.
A reasonable conclusion most prudent people would
arrive at under the circumstances.

FYI - Ms. Pyka is currently the Director of the Office of the Controller.
She earns in excess of $168K per year and she is a CPA. And Mr. Navarro,
- on the other hand - and at the time he resigned, was earning in excess of $100K.
(Detailed income information will come when I cover the complaint
allegation referencing merit raises and promotions
)

--------------------------

- Confirmed -
Management failing to protect State assets

(Page 4 - 2012 Prize Payout Account Review Report)

The specific findings stated in this excerpt from the Report ...
"Adequate and effective control systems were not always
in place to ensure accuracy
" - is a very nice and polite
way of saying they were NOT protecting State assets


Controls COULD be enhanced - in other words, the

report is being completed in Nov 2012 yet things
STILL are NOT - were NOT - fixed.

Ms. Kathy Pyka admits ...
- Excerpt from Oct 29, 2012 Interoffice Memo -

From Kathy Pyka to Catherine Melvin - Read #3 & #4

"Adequate and effective control systems were NOT
always in place to ensure accuracy
" .... Well, as you can see,
Ms. Pyka writes and signs that she was responsible for this too.

Remember the Complaint that you read - it alleged ....

"This worries me in that the people in charge of money
for the school fund are not being very fiscal responsible
and may be embezzling money asks how do you lose $600,000?"

I would have to agree the lottery is "not being very fiscal responsible"
and they certainly did write off $600,000 and no one can explain it.

Important:
You just read where there was an
"absence of historical information" - well,
this topic will be covered extensively later.

FYI - You should know, the first sentence in this excerpt is inserted
repeatedly
in the report. It is the conclusion of the overall
findings. I hope you all realize the sentence is saying the
balance may or may not be right, it may or may not be
fairly presented and the reason for the "variance"
may or may not be fraud, embezzlement, theft
or management incompetence.

Like I've asked, "Was This The Perfect Crime?"

-------------------------

- As Revealed In the Complaint & Confirmed -
Lack of Supervisory Review ...
State Lost Money Due To Fraudulent Activity ...
(though they prefer to call it "unauthorized activity")
(Page 4 & 5 - 2012 Prize Payout Account Review Report)


One statement lacks vital data
and a couple of comments ...


Lacking Pertinent Data Creates A Delusion

"
not performed on a regular basis and were not current"
The findings should have stated the
exact time frame that they
found the account had not been reconciled. I just showed you
where Ms. Pyka claims she had "dedicated resources"
(later called teams) working to reconcile the account
beginning in 2006. But based on the FACT that
fraudulent activity occurred between 2007 - 2009, this
doesn't add up. It is just plane ole' common sense that IF
the account was being reconciled, then the fraudulent activity
would have been caught in time to report it to the bank.
Instead, the State had to cover their own losses - est at $50K.

On the Other Hand ...

This section of the report is actually very critical regarding
management's various and COSTLY failures. I'm impressed that
Ms. Melvin actually reported these findings. Among other things,
it's being revealed that there was definitely an absence of proper
supervisory review which resulted in the inability to receive credit
from the bank for the FRAUDULENT transactions that occurred
while the account was obviously and apparently being ignored.
At one point, I heard and/or read that Ms. Pyka admitted the
reconciliation had to take a back seat to everything else as
she was short staffed. In this case, I can only conclude that
extremely poor judgment in prioritizing was exhibited.

Ms Melvin's Report revealed - though carefully worded ...

1) "inconsistent performance of reconciliation"

2) "were not performed on a regular basis" ...
(Since some fraud was caught a year after the fact - I don't
really think the description "regular basis" is appropriate - do you?)

3) "inability to receive credit"
(A very nice way of saying the State lost money because
the bank refused to reimburse them due to the fact the fraud
wasn't reported timely - in fact- they were a year late)

4) "
... performed by the same individual each month, while other
staff members are knowledgeable of the basic preparation,
no others are experienced in performing reconciliation ...
"

Why on earth would management put all their eggs in ONE basket?
You have no idea how bad it is for a $3 billion per year business to
have only ONE person who can reconcile their checking account.

You should have seen my bankers face and one of the Texas Lottery's
indirect bankers faces when they read this tidbit. For me, it was a
priceless interview. But the bottom line advice was, FIRE all who
were responsible for this inexcusable ignorance, neglect and failure
to protect State assets.

Guess it's a good thing Gary Grief, Ben Navarro
and Kathy Pyka don't work for these bankers!

I feel the very last sentence is quite telling too.


----------------------

- Complaint Confirmation - More Errors Detected ....
Obviously management lacks proficiency!

(Page 7 - 2012 Prize Payout Account Review Report)

"erroneously sent to CPA ... "[Comptroller of Public Accounts] ???????

I am having difficulties with my patience. These people
are overseeing $3 billion per year in gambling revenue
and it is quite clear that are lacking in efficiency
and common sense. More errors found ...

How can the Commissioners read
this "toned down - carefully worded"
report
and not CLEAN house?

- It Is My Harsh & Critical Opinion -
Mr. Grief's stubborn decisions - since at least 2004 -
have resulted in literally killing Lotto Texas. He's thrown
money away as if he was minting it himself - he overpaid
Lotto Texas winners by $74.3 million since July 2010
and overpaid Texas 2 Step winners by $3 million.

Last year, Mr. Grief started a new online game that put the
State in an extremely high risk liability situation. Both Mr. Grief
and Ms. Pyka FAILED to recognize that a liability existed
with the new game. This is why they ceased playing it -
so they could fix the MAJOR unrecognized screw up.
(For the record ... I recognized the liability immediately. I
actually told them there was a "problem" with the rule -
I just didn't tell them exactly what was wrong -
I was purposely vague. They should have seen it.
)

Anyway, Mr. Grief was so busy bragging about inventing
All or Nothing (despite the fact that the EXACT same
game debuted in Ireland in 2009), going so far
as to say, "All or Nothing, quite frankly, is the
best draw game innovation in the last several
years in the lottery industry
, " that it appears... he
failed to read how Ireland protected itself against the
huge liability that actually existed in the game.

Gee, if lawmakers had fully understood the
impact that could have resulted to Texas' budget
had a certain set of numbers been drawn, I believe they
would be hollering at the top of their lungs. By the way,
this game is coming back so it will compete for dollars
with Texas' other games and will still be a risk to the state.
- in my humble opinion - but - only time will tell. Anyway ....

Now we find Mr. Grief, the EXECUTIVE DIRECTOR,
has allowed a checking account to remain open that
wasn't reconciled and I know for sure he knew it
wasn't reconciled in late 2007. State monies were
lost to fraudulent activity because the account
WAS foolishly left open and not reconciled. Plus,
after the Texas Lottery opened the new account
in 2010, Mr. Grief & Ms Pyka allowed the old
account to remain open for another 2 years
at the cost of $25K per year in bank fees.
WOW - what a waste of STATE money.

(I will cover these new allegations
extensively later in the story
)

I think one could conclude that Mr. Grief
did a poor job of supervising Ms. Pyka
and in protecting state assets.

And, if ALL this isn't bad enough, Mr. Grief is getting
ready to kill two more games - Pick 3 and Daily 4.
(Taking them to 4 draws per day)

----------------------

How can the Commissioners and the Legislature
ignore Mr. Grief's track record and his apparent lack
of accounting knowledge? How can they not recognize
that Gary Grief will not admit it when he's made a
mistake? In my opinion - this is a very bad quality
for any Executive to have. We ALL make mistakes
but most of us admit it.

--------------------------

Confirmed As Alleged ...
Another Area of Management Inept

(Page 6 - 2012 Prize Payout Account Review Report
)

"outstanding checks submitted earlier
and /or later
" than required


Tell me, just how much more are we supposed to
take in hearing how badly management has performed
and all the errors? This is nothing short of sloppy work.

Does anyone of authority not understand what
things like this are doing to employee morale?
Employees KNOW their bosses are bad bosses
- so to speak - and are failing or incapable of
doing the jobs they were hired to do. Some see
their bosses are too busy fooling around rather than
taking the time to supervise, train and teach their staff.

I've been hearing about "bad bosses" for at least
10 years and there's only been one common
denominator in all this time - Mr. Gary Grief.

Personally, I hold Mr. Grief accountable for the actions
of Ms. Pyka and Mr. Navarro. Just the same as Mr. Greer
was held accountable for the actions of staff who permitted
an unsupported jackpot to be inflated knowing full well
that if won, the jackpot could NOT have been paid legally.

(Of course, let us not forget that they originally denied there
was any validity in the allegation that the jackpot was inflated.
)

Folks in Part 1, I showed you how "abandoned" money was
supposed to be turned over to the Comptroller of Public Accounts
every year. By failing to turn over all funds and names related to
the abandoned money could be a sign that maybe someone is
wanting to pretend the checks were never written so they
could be written off or erased - a sure fire way to reduce
that "variance" or increase the unclaimed prize fund.

There will be much more to
come regarding the
abandoned money.


The evidence shown in Part 3 warrants a "real"
investigation - one where the outcome and the
language used to report the findings can not be
controlled by
executive management at the TLC.

---------------------------------------

- FYI -
Below are links to the two main documents we are
reviewing extensively. The official Report is a pdf
and the testimony is on another page here on
my website. Just click below if you want to print
them so you can follow along with me or should
you simply want to confirm what I will be
showing you. Or as one person said to me,
you have to see it to believe it!

Texas Lottery Commissioners
Chairman Mary Ann Williamson (Resigned 8/16/13)
Commissioner (Chairman) Winston Krause
Commissioner Veronica Edwards
Commissioner Jodie Baggett (Appointed Sept 2013)
Commissioner Katie Stavinoha (Appointed Sept 2013)

-------------

Coming ... Part 4 ...
In Part 4, I will continue to cover verifications that the
allegations contained in the Complaint was founded.
This means management failed in their job duties
and put State assets in jeopardy.

Additionally, I will begin to show you why I say
the report was inconclusive, deceiving, & alluding.
By seeing these things, you should understand
why I call the official report "Contentious!"

-------------------------

Series Began: August 1, 2013
Part 1: Posted August 1, 2013
Part 2: Posted August 4, 2013
Part 3: Posted August 7, 2013 - Below
Part 4: Posted August 13, 2013
Part 5: Posted August 20, 2013>
Part 6: Posted Oct 22, 2013
Part 7: Posted March 13, 2014
Part 8: Posted April 6, 2014
Part 9: Posted ??, 2014
Part 10: Posted ??, 2014

----------------------------

Texas Lottery Commissioners
Chair J Winston Krause (Appointed March 2009)
Jodie Baggett (Appointed Sept 2013)
Katie Stavinoha (Appointed Sept 2013)
John W Townes (Appointed Dec 2013)
Mary Ann Williamson (Resigned 8/16/13 - Re-appointed 3/11/14)

Commissioner Veronica Edwards (Resigned 2/13/14 - Effective 3/31/14)


Email

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(All About the Texas Lottery)





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