Jerry Kopel

Lottery's Wang Wang Blues

Oct. 26, 2008

By Jerry Kopel

Call it the "Wang Wang Blues".

The computer system the Lottery began with in 1982 is still being used. Perhaps the lottery staff also have manual typewriters, quill pens, and bottles of ink.

The state auditor in the recent five-year lottery performance audit found lots of problems in the "back office" of the state lottery, many of them tied directly to the Wang computer system.

Who is to blame? The auditor assigned most of the responsibility to the Revenue Department under the previous governor and the Lottery Division, with lesser fault on Scientific Games (hereafter called Sci Games.)

Conclusion by the State Auditor: "The Revenue Dept. and Lottery's failure to effectively manage the Sci Game contract has cost the state money and severely impacted the implementation of the contract".

Obviously this column can't condense everything set out in 20 pages of the 78-page report. But here's some things to chew over:

Most of what the Lottery does is contracted with outside vendors, from computer-system gaming terminals, oversight of lottery purchase traffic, to producing tickets for scratch games, to multimedia advertising.

The present largest contract is with Sci Games, a nine year $58.1 million contract that was added to in 2004 and 2005. The contract expires in 2012. There are two other Sci Games contracts totaling $13.8 million.

Both additional contracts develop and improve scratch games. The auditor reported that "One Match Play" a jackpot game would have brought in $19.4 million the first year according to Lottery Division. projections. The Lottery had to scratch the game because neither Wang nor Sci Games could handle it.

Zooming in on the Lottery Division, the auditor stated "The Lottery's continued use of the Wang computer system (going all the way back to 1982) puts the state at risk of suffering substantial disruption in the lottery's ability to perform basic functions, such as billing retailers in a timely manner for millions of dollars in revenue from ticket sales."

Back office functions for billing, inventory, cash reconciliation, sales and marketing events are done through Wang.

"Twelve years after first indicating its intention to implement a new back office system, the lottery is still using the Wang," wrote the auditor. The result is neither retailer billing nor scratch ticket inventory has been fully migrated into Sci Games systems and Sci Games and the Lottery are unable to agree on what to do."

The auditor reflects the Lottery continues to claim it will get off the Wang system. They never do, despite the possibility of not finding adequate replacement parts except in (my opinion) third world countries.

The state auditor's response: A top priority. Get off Wang. Get a new back office system, if you want to generate more money for Colorado.

As to Sci Games: "Neither the Revenue Dept. nor the Lottery has held Sci Games accountable for complying with contract terms. The contracts has not been fully implemented three years after the (present) gaming system first became operational in May, 2005. It is questionable whether the state has received full value for the $22 million spent on the contract as of June 30,2008".

Up until now there has not been a good monitoring procedure. The Lottery response: We have made the changes needed to provide direction, oversight and coordination with Sci Games and a new back office system. (Well, proof is in the pudding. The state auditor should really check in 2009. The statute allows him or her to do so.)

Who is in charge?

The auditor found no one was in charge on the contract. Lots of staff, like a colony of ants, had tiny parts of the performances to look at, and no power to do anything about it, from 2003 to 2008. The Lottery response: The lottery director has limited involvement. Most decisions were made by Gov. Bill Owens' Revenue Director.

In February, 2008, the present Revenue Director gave authority to a lottery chief operating officer.

The auditor found the 2003 contract, and subsequent modifications vague in describing what the lottery expected of Sci Games as to retailer billing and scratch ticket inventory systems. The lottery told Sci Games to prepare for Wang being replaced and Sci Games went ahead to provide their changes, but then Wang wasn't removed.

"From December 2007 to May 2008, the Department paid Sci Games .. $628,000 for functions the Lottery has determined have not been provided, such as immediate reports, retailer transaction reports, and tax reporting software."

There have been liquidated damages assessed against Sci Games from May 2005 through January 2008. Liquidated damages totaled $2.4 million. Inappropriate damage waivers have been removed as of August 2008. More damage claims may be available.

In my opinion, based on the enormous amount of lottery cash flow, some legislators must become specialists on the lottery and push hard to make the state auditor's recommendations turn into reality.

(Jerry Kopel served 22 years in the Colorado House.)

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