Ernie P. earns his pay | Arkansas Blog

Wednesday, August 24, 2011

Ernie P. earns his pay

Posted By on Wed, Aug 24, 2011 at 2:32 PM

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Arkansas Lottery Director Ernie Passailaigue had plenty of questions to answer today at the legislature's lottery oversight committee. Gerard Matthews to be back with a report before long. The tax problem — and Ernie P.'s long lack of knowledge about it — top the agenda of discussion items, along with operating costs.

Sen. Jonathan Dismang did some sharp questioning of outgoing CFO Philip Miley, who defended not informing Passailaigue about the IRS penalty for an extended period, because he thought it was an IRS error that would be resolved. Dismang also asked Miley why he was departing. He cited a "hostile environment," press and other attention. He said the pressure wasn't worth $80,000. He wouldn't talk further on the subject afterward.

Find out more about today's meeting on the jump.

Lawmakers had a lot of questions for Lottery Director Ernie Passailaigue. Most were concerning the $99,673 penalty issued to the lottery by the IRS. Legislators wanted to know what types of controls were being put in place to keep such an error from happening again. The lottery was fined for making late payments of taxes withheld from lottery winnings. It was evident from the lawmaker's questions that they had received a lot of feedback about the issue from their constituents.

Passailaigue said he wasn't sure if late payments would be an issue in the future, but said the lottery's accounting staff was making daily payments to avoid further charges by the IRS. The IRS requires that taxes withheld from lottery winners that total over $100,000 must be deposited the very next day. Daily deposits should take care of the issue, Passailaigue said.

"We're doing daily payments even if it were as little as a dollar," Passailaigue told Sen. Jonathan Dismang, R-Beebe. In reference to IRS notices of late payments, Passailaigue said, "Ignorance is no excuse for [not complying with] the law."

"I agree with that," Dismang said. "We were paying for non-ignorance," in reference to Passailaigue's $324,000 salary.

Dismang made it clear that he felt the IRS penalty should have come up in conversations between outgoing Lottery CFO Philip Miley and the director. The lottery's internal auditor, Michael Hyde, said he had had conversations with Miley about making withheld tax payments to the IRS and Miley never mentioned anything was wrong. "Communication," Hyde said, "...is something we need to look at."

Dismang suggested that the committee should write a letter to Miley inquiring what happened, when he received notice from the IRS and when he informed his bosses. At the end of the meeting, Miley walked into the committee room and was promptly asked to take questions from committee members. He defended his response to the IRS letter saying he felt no need to immediately notify Passailaigue about the penalty because he felt strongly it was an error on behalf of the IRS and would be cleared up. Miley said he informed Passailaigue when the IRS refused to waive the penalties.

"At the point that the letter [to request a waiver of the penalties] was rejected, I brought it to his attention within three days," Miley said. "In my view this was an error on the IRS's part, not on our part. So therefore, I didn't see the need to bring him up to speed on the fact that we were working on this. CFOs deal with the IRS all the time as a daily part of their job. I've done that for 30 years and I've always handled tax matters on my own. I did not consider this to be a threat."

After a few more questions from other legislators, Sen. Dismang asked Miley why he was leaving the lottery in September.

"I'll be honest with you. The hostile environment that I work in is really just too much for me to handle," Miley said. "All the bad press, all the things that are going on that normally, in a normal business, would not be happening nor publicized, it's hard for me and it's hard on my family. And quite frankly, being paid $80,000 a year is not worth it."

Legislators left it at that. Miley had no further comment after the meeting. It wasn't clear from his remarks if the hostile work environment he spoke of was solely the product of intense media scrutiny - Miley has received his share of negative press - or if there was a larger issue with lottery staff or administration.

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