Part 2 of a 10 Part Editorial ...
(Opinions by

EXPOSED & BUSTED!



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: Intro - August 1, 2013
Part 1: Posted August 1, 2013
Part 2: Posted August 4, 2013 - Below
Part 3: Posted August 7, 2013
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


- Let Me Introduce You To The Main Characters -
- Texas Lottery Staff Members Though Some Have Resigned Now -


Gary Grief

is the Executive Director - the
BIG Boss. All employees work
for him - either directly or indirectly
The Commissioners are
Mr. Grief's bosses. Mr. Grief is
NOT
a Certified Public Accountant.

Kathy Pyka

is the Director of the Finance Division.
Directors are the big bosses in their
respective divisions. All directors
answer to Mr. Grief. Ms. Pyka
is DIRECTLY responsible for
all Texas Lottery MONEY
including reconciling the accts.
Ms Pyka is a Certified Public
Accountant (CPA)

Ben Navarro

WAS a Manager under Ms. Pyka
in the Finance Division. The
checking account in question was
his baby
. (designated responsibility)
Resigned
He unexpectedly resigned,
by sending a text message, in
June 2012 and went to work for
the TX Comptroller. Mr Navarro
is a Certified Public Accountant (CPA).


Catherine ("Cat") Melvin

WAS the Director of the Internal
Audit Division and worked directly
for the Commissioners. Her division
investigates and reports their findings.

Ms Melvin is the author of the report
you will read about extensively
titled "An Internal Audit of Prize
Payment Account
." Ms Melvin is a
Certified Public Accountant (CPA) and
a Certified Independent Auditor (CIA).
Resigned
Ms Melvin surprisingly resigned her
position July 12, 2013.



"The Teams"
These are the 7 staff members
that Ms. Pyka claims was trying
to reconcile the prize payment
account beginning in 2006.
Did the "dream team" really exist?
Your guess will be is as good
as mine.

- The Commissioners - The Kings & Queens! -
(The Commissioners answer to all Members of the
Texas Legislature and to the Governor
)

(Commissioners section revised/updated 3/4/14)


Chariman
J. Winston Krause
(Mr Krause is an Attorney and
a Non Practicing
accountant
Previously served on
State Board of Accountancy
(Appointed March 2009)

Commissioner
Katie Stavinoha
(Appointed Sept 2013)
Commissioner
Jodie Baggett
(Appointed Sept 2013)

Commissioner
John W. Townes III
(Appointed Dec 2013)


Mary Ann Williamson
(Ms Williamson is a Certified
Public Accountant (CPA
)
(
Appointed 2008)

Resigned
Aug 13, 2013
----
Re-Appointed
March 13, 2014

Past
Commissioners

(FYI - This series
began August 1, 2013.
The Commissioners were
publicly informed about
the Missing Money and
staff's 4 year failure to
reconcile the prize payment
acct on Nov 8, 2012)


Commissioner
Cynthia Tauss Delgado

Resigned
AFTER
the Nov 8, 2012
Commission meeting
)
(
Appointed Sept 2011)



Commissioner
Veronica Ann Edwards

(
Appointed May 2013)
Resigned
during the Feb 13, 2014
Commission Meeting
(Effective 3/31/14)


EXPOSED! ... BUSTED!

The Best Kept TX Lottery Secret Is Revealed By Way of A Complaint ...


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

An Anonymous Complaint ...
was filed with the Special Investigations Unit [SIU] within the
State Auditors Office on November 4, 2010. When SIU received
the complaint, they sent a copy of the complaint to the Texas Lottery,
specifically the Internal Audit Division, Ms Catherine Melvin.

About SIU - The Special Investigation Unit (SIU) claims they
investigate allegations of impropriety and illegal acts affecting
state resources. Criminal offenses investigated by SIU
include but are not limited to:

• Theft
• Forgery
• Tampering with governmental record
• Securing execution of document by deception
• Misapplication of fiduciary property
• Conversion of funds
• Abuse of official capacity
• Gift to public servant by a person
subject to his or her jurisdiction
• Breach of computer security
• Organized crime
• Money laundering
• Bribery

Based on what they [SIU] say they do, it certainly appears
the complaint was sent to the RIGHT place. Now here's
what the complaint said ....

- The Anonymous Complaint That
Got The Ball Rolling -
- Sent Nov. 4, 2010 to State Auditors Office -

"I have been told by staff in the Office of the ·Controller at the Lottery that they have lost $600,000 during their change of accounts. They had scheduled to change accounts 09/01/2009. But due to whatever, as they would not explain it to anyone, they did not do it until 09/01/2010 - the amount of fraud being done by outside people to the lottery was such that we needed to change bank accounts - however, the OC [Office of Comptroller within Texas Lottery] took so long in doing so that a great deal of fraud continued.

And I am now being told that they are ·missing $600,000These are the people who get merits ·every 8 months, 5% plus once a year get a one-time bonus ·($1500 to $2500) no one but the Directors (Kathy Pyka) direct contacts. Her lower workers do not get merits at all and they lost no money.

No one else in the TLC get merits like ·this and now the merits are being frozen (as of Jan. 1, 2011). You can bet OC Director Kathy Pyka will make sure her direct contacts all get merits in the month of ·December. Yet, they will still not answer the $600,000 or the waste of money due to their not changing accounts in a timely manner.

Also their second in command, Ben ·Navarro, was recently disciplined for lying to his employees, telling them the lottery does not get merits ever (this was before the merit freeze) while meantime ·all the top dogs in the OC were getting them more than ·once a year (including Ben Navarro who was caught in more than just that lie and is in charge of the Lottery funds).

"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? Where do you find money to give that many merits and bonus when no one else in the agency has that kind of money?

Do an open records request on any of these things with the lottery OC divisions and you will see."

Editors Note
I have taken the liberty of underlining key words alleging wrongdoing for you ...


While you may think or see that the complaint was not
well written, I suspect it was purposely written this way
so that the author could remain anonymous. Remember,
we are talking about the Texas Lottery where employees
are NOT valued or respected - if they are not team
players - defined as followers, not leaders - then they are
generally disposed of - either by intimidation or outright
firings. Many of them continue to work in fear and
are always looking for another job.

Anyway, as it turns out, in my opinion, every
allegation contained in this complaint was true
which is what I'm going to show and demonstrate
to you. But now you've seen how it all got started.

By the way - some allegations were completely
ignored by the internal auditor. But they won't be
ignored by me - I'll be covering all allegations.

State Auditors (SIU) Foolishly Puts
Complaint In Texas Lottery Hands

Unfortunately, the State Auditors decided when
they received the complaint in 2010, to allow the
Texas Lottery to investigate itself. I do not agree that
this is or was the right course to take given the magnitude
of the allegations included in the complaint. But either way,
this was the decision the State Auditors Office made
in how to handle the complaint. I sincerely hope someone
finds out WHY this decision was made.

One would have to wonder what message the State Auditor
actually sent to the many "good" Texas Lottery employees who
knew first hand that things weren't right at the lottery. Seems like no
matter how hard the good employees try to be a "whistle-blower"
to protect the state, it always seems to backfire on them.

How very sad .....

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

- It's Official - There's A Complaint -
So What Happens Next?

Well, an investigation is supposed to occur. And an investigation was
launched in Dec 2010 by the Internal Texas Lottery Auditor,
Ms. Catherine Melvin. The Texas Lottery investigated
itself for allegations of wrong-doing and they took two years
to investigate themselves. They released their report in Nov 2012.
It was officially called "Texas Lottery - Internal Audit - 2012 -
Prize Payment Account Review."

However, they told the State Auditor they'd have a final report
much sooner. (See Exhibit 1A) Lies, lies, lies ....

- Exhibit 1A -
Email from State Auditors Office to the Texas Lottery Internal Auditor.
Notice that the State Auditor received the complaint in Nov 2010 and
expected a full report by Jan 2012 - but didn't get it until Nov 2012.

As you just read, the State Auditors received and sent the
Complaint to the Texas Lottery in Nov 2010. The SAO expected
a report in Jan 2012 then they expected it in Aug 2012 but
they didn't receive it until Nov 2012.

Guess we'll never know what conversations took place
behind closed doors regarding the delays and stall tactics
used to keep from releasing this report for the public
and press to scrutinize.

Plus let's not forget, the report confirms the Texas Lottery
was caught red-handed failing to reconcile their bank
account for 6 years so they were highly motivated to stall!
(Just wait until you see just how hard they
tried to hide the report!
)

Failing to reconcile the checking account was
a clear violation of policies and procedures.

Did you know ...
If you are a pilot with a major airline and you fail
to comply with policies and procedures, you will
get fired and your license may be revoked by the FAA.
But if you work for the Texas Lottery, you get a raise.
Boy, what a deal!

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

After TWO very long years, the investigation was
complete ... They finally have an "official report" ....


And sadly ... neither the public nor the State Auditor nor the
Governor is any closer to knowing who, what, why or how much
was missing. The report DID fault staff members, but those staff
members miraculously still have their jobs. This is incredible ...
I know employees who were fired - but were allowed to resign -
(resigning was another form of cover-up) "at will" for far less.

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

- A Complaint Instigated An Investigation But
The Content of the Complaint Wasn't Fully Disclosed -


Let's examine and grade just the cover letter to the final report first ....

This one page letter is actually supposed to tell the reader the whole story in a nutshell.

Ms Melvin's 1st paragraph in her cover letter -
shown in Exhibit 1 - lacks
very important FACTS which made the "accompanying" report appear
to the reader to be just another plane ole traditional & yearly audit report.

CLEARLY this was not the "purpose" of this "review" (as they called it) ...
Remember, they were supposed to be investigating allegations of
wrongdoing so the State Auditor wouldn't have to do it. The complaint
included allegations of fraud, embezzlement, $600K lost, merit raises etc ...

Failure to disclose pertinent facts is better known and
generally called a Cover-Up. Now go on and read the 1st paragraph ...

Exhibit 1 - 1st of only 3 paragraphs of Ms. Melvin's Cover Letter

Ms. Melvin Fails ...
to say WHY this "review" was conducted - that it
was initiated in Dec 2010 as a DIRECT result of a
complaint received by the State Auditor.

Her description of the "purpose" of the report SUCKS.

First paragraph gets an F - it's misleading ...

With Regards To ....
Ms Melvin's second paragraph of the reports Cover Letter - Exhibit 2 - was
fairly well written though she still fails to call it like it is and it lacks clarity.
This paragraph is actually concluding her findings after a two year
investigation. As you will see, she was unable to figure out where the
money went, she couldn't figure out exactly how much was missing
and she unable to determine if the balance shown in the acct
was correct. The readers of the letter, on the other hand,
are left completely in the dark which I explain after you
read the excerpt. ("Readers" meaning the public,
the legislature, the Governor, the press, SAO,
LBB, DA, AG, Sunset Commission, etc
)

Exhibit 2 - Cover Letter - 2nd Paragraph - The Official Findings



Of course it goes without saying that you'd have to
be privy to the contents of the complaint to know that
she's saying there could have been embezzlement, there
could have been
theft, there could have been MORE
fraud, staff did not protect the State's resources and
staff did not do the job they were paid to do and
YES, staff did get those merit raises as alleged.

By reading between the lines and knowing what
you know now, "confirm the amount of the
discrepancy
" you know that Ms. Melvin is actually
confirming monies were lost as alleged in the complaint.
She's just not sure if it was $622K or MORE nor does
she know where it went. She fails miserably to
make it clear to the reader - in this letter - that
"variance" meant the state lost money.

She uses two words that lowers her grade significantly ...
1) "variance" [which means shortage in this case] &
2) "unauthorized activity" [which equates to embezzlement,
and/or theft and/or fraudulent activity and/or staff incompetence.]

While Ms. Melvin's report, in my opinion, lacks
and distorts much, she absolutely makes it very clear
that she could NOT determine anything in her "conclusion"
and she absolutely nails the failures of "supervisory staff" in
many areas.
Interestingly, she's no longer employed at the
Texas Lottery while those who failed to do their
jobs are still there earning BIG BUCKS.

This paragraph gets a C-

Like I said, this could be the PERFECT CRIME.

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

Now let's examine the Executive Summary of the report
for content and clarity regarding JUST the Complaint ....


Excerpt 3
is THE first paragraph found in the Executive Summary -
the introductory if you will - and this same paragraph is also
found in the Detailed Review Results section of the final report.

This leading paragraph LACKS extremely important and vital FACTS ...
So much so that I have to call it nothing short of downright deceiving
and misleading - again it is regarding the content of the Complaint.
They are purposely NOT disclosing what they were really
investigating nor what the allegations actually were.

Excerpt 4 is THE purpose of the report - it falls directly under
the 1st paragraph in the Executive Summary ...

Quite obviously, they do not want the readers to know what's
"really" going on and are still "pretending" this is a yearly report ....

Excerpt 3 - 1st Paragraph of Executive Summary ...
This is how they described the contents/context of the Complaint ....
Remember, I just showed you the cover letter now
you are seeing the 1st page of the report.

Ms. Melvin Fails ...
to give an accurate reflection of the complaint. She failed
to mention anything about possible acts of fraud, the potential
for embezzlement nor does she mention the allegations of
alleged fiscal irresponsibility by Ms Pyka and Mr. Navarro.
Finally, she fails to mention the allegations of merit raises given
to the employees who failed to do their jobs - which, by the
way, was true. The employees directly responsible did
receive raises and promotions.

Not only does Ms Melvin fail to give vital information in
her report, but she also failed to include a copy of
the complaint in the report
.

Imagine if you will, a Complaint started what turned
out to be a TWO year investigation at taxpayer expense
yet the final report doesn't even show or explain exactly
what was alleged and why the investigation took place.

In the legal field, it is my opinion, the acts I've just described
are known as "lying by omission"
and "cover up."

Excerpt 4 - Purpose of Report ... Follows 1st paragraph
in Executive Summary ...

These words are fancy words without meaning to the lay-person
and they are nothing more than a cover up regarding the
real purpose of the "audit," "review" or "investigation."

It should not take 2 years to determine if the states assets
were safeguarded and if 'controls' were in place and if
the money was safeguarded - which it was NOT.

I do see where they say they are going to see if processes of
"prevention and detection" and "research and correction"
was evaluated. This means ... was it fixed correctly after it
was too late so everyone can go on about their merry
business as if nothing ever happened. I suspect,
somebody got away scot free with pocketing
a lot of money.

To me, only one line is significant which most people would never
catch in a million years unless you did State work. The second line
in the second group ... "Compliance with applicable requirements"
I will cover this line extensively for you later as it is my opinion
that the Texas Lottery failed to comply with statutes. I do applaud
Ms. Melvin for acknowledging this very specific requirement.

- Unbelievable -
Commissioners Say They Never Saw The Complaint

The Nov 8, 2012 Commission meeting was the day the
Internal Auditors gave the Commissioners their final report.
Their verbal report was extremely short - they opted to
allow the Commissioners to ask questions rather than to
give a detailed report on the record. At any rate, half way
through this item, the Commissioners requested the
Complaint be read to them
(Excerpt 5)

Excerpts - Nov 8, 2012 Commission Meeting


"CHAIRMAN WILLIAMSON: Okay. Now, this complaint comes in -- I've never seen the complaint. Does anybody have a copy of the complaint? Do you have it? I mean ...

MS. MELVIN: Yes, I have.

CHAIRMAN WILLIAMSON: Can you read that into the record for us so we know exactly what kind of brought this into your house, so to speak.

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

CHAIRMAN WILLIAMSON: Okay. Would you read it into the record for us, please.

MS. MELVIN: I sure will.

CHAIRMAN WILLIAMSON: And the specifics, when it came in --

MS. MELVIN: Absolutely.

CHAIRMAN WILLIAMSON:-- everything, you know, how you got it, all of that or whatever your email says.

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

CHAIRMAN WILLIAMSON:··What was the date of that? Is it on there?

MS. MELVIN: Well, this was sent to me contained in an email. And the -- excuse me. Let me open this up. The email was sent to me November 10th. I believe the date of the actual complaint was November 4th. [2010]

CHAIRMAN WILLIAMSON: Okay.So at this point in time, what happened after you received this complaint?

MS. MELVIN: Well, after I received the complaint, as I stated, I visited with the State Auditor's Officer as to the proper handling of the complaint. Their process is, is that after they receive complaints into their office, they can choose to keep them and do whatever they choose to do, or they turn them over to Internal Audit functions within state agencies.

And so I receive other complaints about the agency through their fraud, waste and abuse hotline. And typically these are more related to retailer concerns or, you know, "I tried to cash a ticket here, and this retailer wouldn't cash my ticket," or, you know, that type of thing. But every now and then, we might get a complaint actually about internal agency business.

And so I don't know that I see all those, but I see the ones that they forwarded to me. So in any case, I visited with our contact manager, Sandra Vice. And in reading the complaint, you know, I said, "
If Internal Audit handles it, what we'll do is, we'll do an internal audit of the prize payment account."

And so they said go forward and provide them the results when we were finished. And so we launched the audit in December of 2010. I spoke with Gary, it might have been the beginning of December, I believe, right before we launched that."

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

- Editors Note -
The Commissioners were given a copy of Ms. Melvin's
final report. But the final report does NOT contain a copy
of the Complaint. This means the Commissioners would have
had NO idea what allegations were included in the complaint.

That vague cover letter and vague mention of the
complaint found in the reports (mentioned earlier)
means the commissioners would not have had
a full and complete understanding of what and
why this report was actually being done.

Guess it's a good thing they requested to have it read
into the record? Huh??? It's too bad they obviously
have taken no actions regarding staff's failure to
reconcile the account and no action was taken
regarding the huge loss of revenue.

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

The Complaint ... A Few Facts & Questions

Question: Why didn't the Commissioners see this complaint
when it was sent to Ms. Melvin in Nov 2010?

Fact: Ms. Melvin, the Internal Auditor, worked directly for the
Commissioners. She did not work for the Texas Lottery per se'

Question
: Did she not communicate with her bosses?
Did they not know what she is investigating or how
she was spending her time?

Fact/Opinion: Over $622,000 was surreptitiously written off in Aug 2012. $622K
was never accounted for yet the Commissioners are just now (Nov 2012)
learning of and hearing of the complaint that alleged/revealed this very loss.
WOW - this complaint came in 2010. This is bad, bad, bad communications.

Question: Where did the $622,000 go? To write this "lost" money off,
doesn't staff have to at least confer with or advise the Commissioners?
(Advising the Commissioners should have been done prior to
the close of FY12 which was Aug 31, 2012.)

Question: Had a complaint never been filed, would we have ever
learned that our lottery did not bother to balance the checkbook
as required by policies and procedures and good business practices?


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

- My Allegation & My Opinion -
TWO Bold Attempts Were Made To Cover Up
The Lottery's Failure To Reconcile The Acct


1) Final Report Initiated by Complaint
Not Made Public by Texas Lottery
... Why? ...

It is imperative that you know that the Texas Lottery did NOT
post Ms. Melvin's report on the Texas Lottery website where
all Investigative/Audit Reports are supposed to be posted.
I requested for it to be posted but they refused. So
I contacted folks at the Capitol and miraculously
the report appeared for all to read several days later.

Exhibits 1 though 4 shows my attempts to have the
Prize Payment Acct report posted on the TLC website.
This report was initiated as a direct result of a Complaint.
Their refusal to post this report led me to conclude that
the Texas Lottery wanted to cover this whole ordeal up.
I can certainly understand WHY they would want to hide it.

- Exhibit 1 -
I email Gary Grief ....

- Exhibit 2 -
On Feb 5, 2013 - Ms Kelly Cripe replies for Mr. Grief ...


- Exhibit 3 -
On Feb 5, 2013, I write Ms Kelly Cripe back ....

- Exhibit 4 -
On Feb 5, 2013 - Ms Cripe replies ... tells me to obtain
the document through Open Records ...

Sorry Ms. Cripe, but I don't think one should have to obtain
an investigative report of this kind through Open Records.
This is why the Texas Lottery has an "audit report"
section on their website - these reports should be posted.

On Feb 13th, I contacted folks at the Capitol and
miraculously the report appeared on the Texas
Lottery website for all to read within a few days.

2) Texas Lottery posts testimony (Nov 8, 2012)
in unusual file format ... Many computers/visitors
/reporters can't open the file to read the testimony.

The Texas Lottery posted the commission meeting testimony in
a file format that was not user friendly. Why did they do this?
Why did it take legislative action to get it fixed?
Below are my emails to Legislators - a call for help.
Exhibit 5

Exhibit 5

- Feb 13, 2013 Email To Legislators -
- From

..... "Just so that you know, not only is the audit report not posted, but the file format for the Nov 8, 2012 Commission meeting can not be opened easily if at all. This was the day the audit report was discussed by staff and the $1 million in missing money was disclosed.

Ironically, one other transcript file format (comment hearing for Lotto Texas - Dec 5, 2012) is posted in the same format as the Nov 8th. No other transcript is posted using the file format these two use.

Here is a link to the Texas Lottery page I am referencing - try opening the Nov 8 and Dec 5th transcripts (be sure to click on the lottery rule link for Dec 5th) - then open any other meeting to see the differences. /> About_Us/Meetings/Commission_Meeting_
Transcripts/comm_meeting_transcripts_2012.html
" ...

- March 4, 2013 - 1:41 PM -
- Email To Legislators -

- From

..... "There is still a problem though. The Texas Lottery has not corrected the posting of the Nov 8, 2012 and Dec 5, 2012 transcripts.

The Texas Lottery receives their transcripts in two formats - 1) pdf and 2) ACSII text. Generally, the lottery transcripts are posted using the ACSII text - but NOT these two. They are different.

The problem is that older computers cannot open the pdf file the TLC has posted. Even when a person gets the Flash Player update, the file still can't be opened on older computers. I cannot open these two file from my desktop but I can open them from my laptop. (FYI - I just spoke with a reporter who cannot open the file at all - he's angry to say the least)

Why is that all transcripts can be opened easily except the ones for Nov 8, 2012 and Dec 5, 2012? Could it be that the Texas Lottery doesn't want the general public to read these transcripts?

Please ask them to change the format for the Nov 8 and Dec 5, 2012 transcripts so everyone can open the files and read what was said."

- March 4, 2013 - 5:15 PM -
- Email To Legislators -

- From

......... "I'm very pleased to report that the TLC finally fixed those transcripts (Nov 8th and Dec 5th, 2012). They can now be accessed and read by all.

Thank you so very much for any assistance you may have given to my request. I am truly sorry that I needed to ask for your assistance in this matter. This shouldn't have been the case." ....

I think these two examples clearly shows how hard the
Texas Lottery tried to minimize exposure to this mess.
You think? Do you agree with me??


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

Coming ... Part 3 ...
In Part 3, I will cover the allegations
that $622K was lost and that management
failed to do their jobs. To do this, I will take
excerpts directly from the Official Report
and show you what the Internal Auditor
found regarding these allegations.

The official findings contained in the final
report are - in part - remarkably true. It
exposes dereliction of duty -
inexcusable faults
and failures involving Texas Lottery executive
management YET the report is inconclusive,
deceiving, & alluding as well which will
be covered in Part 4.

---------

- FYI -
Below are links to the documents I will
be referencing throughout this series.

You may want to see and/or print
the official report. If so, here's a pdf.

The Nov 8, 2012 Commission meeting
testimony is posted on a page here
on my website so you can
reference it at any time.

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

Series Began: Intro - August 1, 2013
Part 1: Posted August 1, 2013
Part 2: Posted August 4, 2013 - Below
Part 3: Posted August 7, 2013
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
-------------------------------

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