Wednesday, April 11, 2012

UPDATE: Lottery Commission approves deal with Scientific Games

Posted By on Wed, Apr 11, 2012 at 3:07 PM

GONE BUT NOT FORGOTTEN: A rich contract Ernie Passailaigue personally authorized for a lottery vendor is still causing headaches today.
  • GONE BUT NOT FORGOTTEN: A rich contract Ernie Passailaigue personally authorized for a lottery vendor is still causing headaches today.
The Arkansas Lottery Commission is no Jeff Long.

Rather than stand up for integrity and demonstrate independence from the forces of ill (giant vendors that wrangled sweetheart contracts from former lottery director Ernie Passailaigue), the commission voted today to give after-the-fact approval to a contract with Scientific Games that didn't receive commission approval. This is costing gamblers and scholarship recipients $7 million a year. Lottery Director Bishop Woosley, who was legal counsel procurement director under Passailaigue when he agreed to the amendment, has defended the legality of the deal.

Two commissioners — Bruce Engstrom and George Hammons — voted against the approval. Instead of losing jobs for this deal, as Engstrom had reported employees had feared, they essentially got a round of applause. Scientific Games is going to give back about $2 million of the $21 million or so in excess revenue it could reap from this deal.

Earlier, the Legislative Oversight Committee also washed its hands of inquiring further into or objecting to the way in which Arkansas was snookered. It said it saw no need for further review.

Most everyone involved wants no further inspection that might further substantiate what seems increasingly obvious — Arkansas is getting snookered by veterans of the game, which is after all, a game for suckers.

The big question remaining is whether the Lottery Commission will now punish internal auditor Michael Hyde for turning up the important and uncomfortable questions about vendor contracts and for also being a persistent check on the travel and personnel abuses of the Passailaigue era. This is what auditors are supposed to do. Except at places content to let foxes guard the henhouse.

UPDATE (from LM): After spending nearly an hour in executive session, the commission reconvened — without Commissioner Engstrom, who left quickly after the commission announced it would reconvene — to report that no action was taken on the employee evaluations (no names were officially mentioned, but the commission was obviously evaluating Hyde and Woosley). Commission chair Dianne Lamberth said the evaluations would continue when the commission next meets in May.

MORE: Internal Auditor Michael Hyde told the commission that none of the findings in his audit had changed and recommended that it seek outside legal counsel and, should the contract be deemed invalid, seek financial redress. Despite that recommendation, the commission voted to reaffirm the contract with Scientific Games (SGI) and allow Director Bishop Woosley to continue negotiating.

After Commissioner Ben Pickard made the motion to reaffirm the contract, Commissioner Bruce Engstrom proposed delaying action, considering the governor’s recent statement that he’d asked his legal counsel to look into the matter and that it might take an attorney general’s opinion to resolve.

Attorney General spokesman Aaron Sadler said today that no one had requested an opinion on the matter.

Following the vote, Woosley spoke of the potential risks of invalidating the contract.

“You have to weigh, do you want to cancel a contract and invalidate a contract, and suspend sales for three or four months to six months, when we’re making nine or $10 million or $11 million a month in scholarship money? If the allegation is that we should sue to collect $20 million dollars — which I disagree with — but if it’s true, you invalidate the contract, it’s going to take you four to six months to get a new instant ticket vendor, you’re going to lose $40 million in the process and you’re going to lose customers and sales and you’re going to cost people sales. It’s a business decision. It’s not cut and dried. It’s very grey.”

“Anything that was questionable to me was done by our previous administration,” said Pickard. “They are no longer here. We've been working under this contract for two and a half years. It is in my mind an ongoing contract. The ramifications for us no longer contending are somewhat mind-boggling. So I felt like it was time to finish this and get on with it.”

Asked why SGI would be willing to negotiate further with the lottery after the commission reaffirmed the contract, Woosley said, "They have advised us yesterday that they will continue to negotiate with us. But they may not. They may. But they are our instant ticket vendor. It constitutes 84% of our revenue. You need to have a good relationship with them."

Later he added, "Frankly, I don’t know if they owe us anything. I think this is something where they’re coming back to us and saying, “Look, there are some inconsistencies and ambiguities and we like being your vendor and want to have a good relationship with the state of Arkansas, so this is what we’re doing. Hopefully we can negotiate more."

Asked why the commission did not follow Hyde’s recommendation and seek outside counsel, Lamberth said, “This was not an outside counsel issue at the time. We just wanted to affirm because we knew that the contract we were under — we’d been paying them as they were supposed to be paid, they’d been performing as they were supposed to be performing. We’d already been through the audits. The audit had been cleared by our auditor, by leg audit, it had been looked at by legislative oversight committee, it had been looked at by our commission.”

Pressed further on the value of an internal auditor if the commission is going to ignore his recommendations, Lamberth said, “Sometimes you can agree to disagree about the audit. We don’t have to always accept the audit. They bring things to us and at that point we made an educated decision on whether to accept it or not accept it. We do it very very thoughtfully and very, very thoroughly.”

Following the conclusion of the meeting, which included a nearly hour-long executive session to review Woosley and Hyde in which no action was taken, Engstrom said he feared the commission might vote to fire Hyde.

“I’ve always thought his job is in jeopardy and there’s nothing that happened today that changed that,” he said.

Asked if he said, "If this gets out, we're going to lose our jobs," upon first seeing Hyde's preliminary audit, Woosley said Engstrom, who recalled the conversation to the Times, had taken him out of context.

“My memory is that when I was initially showed the report and the way it was written I thought there were inaccuracies and inconsistencies and information that omitted certain facts and circumstances. What I said at that point, if I remember correctly, if I said anything, was that this is a situation where this report is inaccurate and if something FOIs this or you release it, people could lose their jobs and its an inaccurate report. I think it was taken out of context a little bit. I understand Commissioner Engstrom saying it, and it may be something I said, but the context was, this is not an accurate report and you need to release an accurate report.”

Engstrom stood by his account of the meeting.

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