April 22, 2003 – The Senate Post Audit Division at the direction of Sen. Adlah "Foncie" Donastorg, Finance Committee chair, will begin an audit of the V.I. Lottery on Wednesday. As far as Donastorg is concerned, it couldn't be soon enough.
Donastorg tried unsuccessfully for weeks to get Austin Andrews, V.I. Lottery executive director, before his committee to answer questions about lottery finances. (See "V.I. Lottery ignoring subpoenas, senator says".) Andrews appeared on Tuesday along with most of the documents subpoenaed by the Finance Committee on or about March 18.
However, the committee was left at the end of the day with at least as many more questions as answers.
Andrews said Tuesday that lottery financial statements for 2002 are still being prepared and indicated that he would provide them to the committee in the next few days. He said he had not appeared at previous Senate committee meetings because he had been advised not to do so while the video lottery gambling issue was in court. The V.I. government and Southland Gaming sued each other, then reached an out-of-court settlement on March 22 and asked that the cases be dismissed, which they were.
Donastorg didn't argue the point Tuesday, but he did ask Attorney General Iver Stridiron again to confirm that the Senate had a right to investigate the lottery's finances. Stridiron, as he had previously, said that was so.
The V.I. Lottery, which has been losing money for years, currently owes the General Fund about $4 million. But Andrews said repeatedly on Tuesday that with a change in the payment formula made by the 24th Legislature, revenues should improve. As a result of the change, the lottery now pays — or would if it had the money — 20 percent of its net proceeds into the General Fund; previously, it was required to pay 5 percent of gross lottery receipts. Andrews said the new formula is something "I can live with."
Appearing with Andrews and Stridiron was Paul Gimenez, the governor's legal counsel; Finance Commissioner Bernice Turnbull; Ed Lewis, vice president of Leeward Islands Lottery Holding Co., parent company of Caribbean Lottery Services, representing Robert Washington, CLS chief executive; and Randolph Lattimer, Property and Procurement Department deputy commissioner, representing Commissioner Marc Biggs, who is off-island.
Finance chief: No revenues from CLS or Powerball
The figures Andrews supplied Tuesday don't indicate a healthy turn for the troubled V.I. Lottery. He had said that, with the advent of CLS games, revenues should improve. But Turnbull told the senators she has not received any revenues from the lottery for either CLS or the Powerball game, which CLS manages in the territory. "We haven't gotten any revenues, so there's nothing to say," she said.
The V.I. Lottery has offered the Powerball game since last November. CLS began operations in the territory in January of 2002, offering a variety of games also available in other areas of the Caribbean, including Carib Lotto.
Donastorg repeatedly asked on Tuesday why the Virgin Islands gets such a minuscule share of CLS revenues. The V.I. gets 10 percent from Carib Lotto and 12.5 percent from Powerball, he said, while "most states get 20 percent, which goes into education."
The Source reported last November that while the national average of the proceeds from Powerball ticket sales going into government coffers is 31 percent, the average agreed to by the V.I. government apparently is 2.6 percent, calculated as 20 percent of the 13 percent that the Multi-State Lottery Association, or MUSL, is to pay to the V.I. Lottery. (See "V.I. Powerball percentage far below U.S. average".)
After intense questioning by Donastorg, Gimenez said he had worked "for months" trying to get 25 percent of Powerball revenues, with no success. That, he said, was because MUSL considers the Virgin Islands such a small market.
Donastorg said that the Virgin Islands being the first U.S. jurisdiction in the Caribbean for Powerball "opened the doors" for it to enter the U.S. market for only 10 percent. And that, he said, was a poor "benchmark."
Donastorg grilled the officials about why the contract awarded to CLS hadn't gone out to competitive bidding. "No one was notified," he said. If more companies had been solicited, he said, the territory could have gotten a more favorable percentage.
Gimenez and Stridiron maintained that there is no other company in the Caribbean that they are aware of offering such gaming services. Stridiron said it was a professional services contract and therefore not subject to competitive bidding unless proven "practicable."
Sen. Norman Jn Baptiste was sharply critical of CLS. "I said we were being given a Trojan horse, and I still say it," he said. He said CLS is taking business away from the local lottery dealers who sell the traditional V.I. Lottery paper tickets and asked Andrews about the livelihood of those sellers.
Andrews: Street vendor sales haven't improved
Andrews said most of the dealers are more than 60 years old, and "we are trying to keep them afloat." That is a major concern, he said. He said he had hoped that after a short decline with the advent of CLS sales, the street vendors' sales would improve, but that has not happened.
Andrews mentioned having hired several additional employees to deal with the new CLS and Powerball games.
Jn Baptiste asked Andrews his justification for increasing personnel and not "being able to pull yourself out of the hole." Andrews said the V.I. Lottery, the U.S. Customs service and the U.S. Treasury are forming a task force to try to eradicate $60 million to $70 million in illegal lottery ticket sales in the territory, and "we need additional personnel for that." He said he was not at liberty to say more about the task force.
Figures Andrews supplied citing revenues from CLS and Powerball didn't add up to the satisfaction of the senators. Andrews said that $900,000 had been paid to the lottery from CLS; however, the figures he supplied didn't back up that figure. His explanation was that CLS operates on a calendar year basis, while the lottery's figures are for the government's fiscal year.
That still didn't explain the discrepancies, the senators said. Sen. Louis Hill told Andrews: "It seems to me it has to be a lot clearer, when you are dealing in dollars and cents."
Hill and Donastorg wanted a breakdown of which revenues were from Caribbean Lottery Services and which were from Powerball. Andrews said CLS has gone through several accountants, and "every time you look, there's someone else new there." Andrews said he received a $100,000 check from CLS about three weeks ago, but the breakdown wasn't included. But he added that he estimates about 98 percent was from CLS and the balance, from Powerball.
CLS acts as the master agent for the V.I. with respect to Powerball games.
The V.I. Lottery's commission from CLS is due the 25th of every month, and it is late in payments, Andrews admitted. He said $900,000 should be paid this Friday, which is April 25.
Donastorg asked if the lottery assessed late penalties on past-due payments; Andrews said it does not, and Stridiron said the contract didn't include a late-payment clause.
Senators raise personnel, tax-break issues
Andrews also was grilled about personnel issues, in particular about his assistant Germain Greaux, whose Notice of Personnel Action (NOPA) has not been completed. Andrews suggested Gov. Charles W. Turnbull had yet to sign off on it. Hill, who was St. Thomas-Water Island administrator during the governor's first term, challenged that. "I have worked
for the governor, and I know he would not hold up a NOPA like that," Hill said, suggesting that Andrews contact the governor.
Donastorg said he knew of four V.I. Lottery employees who are owed money. "There are morale issues," he said. "Overlooking the pay scales of employees who have been there so long while newer employees are being compensated at higher levels doesn't help the situation."
Donastorg asked Lewis if CLS is getting Economic Development Commission tax breaks. Lewis said he couldn't answer that but he believed an application had been filed with the EDC. There were unconfirmed reports more than a year ago that such an application had been submitted in December 2001, before CLS began operations in the territory.
Lewis's comment appeared to astound Donastorg, who questioned the wisdom of contracting with a company that is behind in payments to the lottery and is applying for tax breaks.
Along with statistics from CLS and Powerball, the fate of the independent lottery dealers and morale problems within the agency; the committee members also expressed concerns about lottery marketing. "If we form an entity for a specific goal and it is not achieving that goal," Hill said, "we have to analyze that."
Donastorg, noting the many unresolved issues, scheduled another Finance Committee meeting for 10 a.m. May 12. By that time, he said, he should have some results from the audit, too. He told Lewis that Robert Washington should appear in person then, noting that the CLS chief executive already has failed to appear at two meetings to which he was invited.
Committee members present were Sens. Baptiste, Roosevelt David, Donastorg, Hill, Shawn-Michael Malone and Ronald Russell. Sen. Luther Renee was excused. Non-committee members present were Sens. Carlton Dowe and Celestino A. White Sr.
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