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Senators Demand Documentation for Video Lottery Terminals

Aug. 9, 2007 — Officials with the V.I. Lottery faced sharp questioning about their management at budget hearings in Frederiksted Thursday in the wake of a critical federal audit this past June.
The V.I. Lottery oversees the state-sponsored numbers game of the same name, as well as video lottery terminals (VLTs) operated by Southland Gaming on St. Thomas. (See “Federal Audit of Lottery System Shows Serious Deficiencies.”)
“This audit report to some of us is a huge problem,” Sen. Ronald Russell said. “And there is a … letter from the Office of the Inspector General … saying they were unable to determine the total amount of revenues generated, because the Lottery is unable to process the documentation to make such a determination. … Based on this, don’t you think the VLTs should be moved from the Lottery to the Casino Control Commission?”
Lottery Executive Director Paul Flemming did not concur.
“That is what the audit says,” Flemming said. “But there are two sides to the story. We do not believe the audit is accurate.”
“If there is no proper documentation to verify,” Russell asked, “how can we be sure there is no skimming off the top?”
There is an automatic monitoring system in place, Flemming said. The system gathers real-time data from all the terminals and feeds it to two management terminals, he said, noting that one is in the control of Southland Gaming and the other at the V.I. Lottery main office.
“You can go to a video lottery terminal, put a dollar in and follow it through,” Flemming said. “We can see which machine you are using and track the activity as it happens.”
Sen. James Weber III asked Flemming if the VLTs were subject to gross receipts tax.
“There are mixed interpretations about gross receipts tax,” Flemming responded, adding that the contracts with vendors are involved in the dispute. He did not elaborate on the content of the contracts. Weber asked to see the contracts — one for Southland Gaming and one for Caribbean Lottery Services. Flemming said he would provide them early next week.
Despite the criticism, the Lottery hopes to expand its role. Flemming asked the Legislature to consider legislation giving the Lottery regulatory power over all bingo games in the territory. When Russell asked whether the lottery should be phased out, Flemming suggested putting the Casino Control Commission under Lottery.
“The lottery should be a mainstay,” Flemming said. “Look at the five-plus million it delivers to the General Fund. And the prizes to individuals, allowing them to build a home. … It might be necessary in time to put the Casino Control Commission under Lottery, because we generate a lot more money and we regulate more.”
Weber did not agree.
“I would not advocate anything like that whatsoever,” Weber said. At another point Weber said V.I. law requires the Lottery to submit monthly statements and asked Flemming to begin submitting such statements.
“That is up to the Lottery Commission,” Flemming said. The Lottery Commission is a volunteer board charged with overseeing the Lottery.
“No,” Weber said. “The Lottery Commission does not decide. The law does.”
Flemming said he would provide the monthly reports.
The Lottery contributes to the General Fund and pays its own expenses. Lottery officials project it will generate gross revenues of $8.7 million from the traditional lottery, and $9.2 million from the VLTs and Caribbean Lottery Services over the course of the upcoming fiscal year. Combined with some minor sources of income, they anticipate total revenues of $18.1 million. Of that, they anticipate paying out $7.2 million in lottery prizes. Another $4.1 million goes to the V.I. government: $2.3 million to the education fund, $1.4 million to the pharmaceutical fund and $426,000 to the General Fund.
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