By John Lyon
Arkansas News Bureau

LITTLE ROCK — The legislation laying the groundwork for Arkansas’ lottery does not require it, but officials say they expect the lottery system to include a security division that will be on the lookout for fraud by retailers.

The problem of fraud by lottery retailers gained new attention in the U.S. in the wake of a 2007 scandal in Canada, where investigators found that retailers and their employees were winning a disproportionately large number of prizes.

Between 1999 and 2006, at least 78 retail owners and 131 retail employees in Canada won major lottery prizes, according to the report “A Game of Trust” by Ontario Ombudsman Andre Marin.
Dateline NBC reported recently that insider wins are common in the U.S. as well. According to the report, individual retailers in California, New Jersey and New York have cashed in hundreds of tickets apiece for winnings ranging from $160,000 to $500,000. In Illinois, four employees at one store and five of their relatives cashed 556 tickets for more than $1.6 million.
Wins by retailers can be legitimate, but Dateline reported that lottery investigators conducting a recent sting in California found that fraud was common.
The investigators presented tickets with winning numbers at about 500 stores. At 59 of the stores, owners or clerks kept the tickets and later tried to collect prize money for themselves. Typically, the owners and clerks falsely told the investigators they did not have winning tickets.
In Minnesota, the security office of that state’s lottery announced in March that its investigators had presented tickets with winning numbers at 186 stores. Clerks at five of the stores kept the tickets and later tried to collect prizes for themselves, officials said.
House Speaker Robbie Wills, D-Conway, who sponsored enabling legislation for the state-run lottery that Arkansas voters approved in November, said he is confident the Arkansas Lottery Commission will create a security division to keep retailers honest.
“They’ve got a number of positions available to them … and if they follow the model of other states, they’ll have people on staff whose job it is to investigate,” Wills said.
“It would basically be the security arm of the lottery,” Wills continued. “We’ve had some other states that have recommended that, that we have people who basically function like Alcoholic Beverage Control agents function for that agency, to make sure that the retailers are following the rules and not selling to people under 18, for instance.”
The Lottery Commission’s chairman, Ray Thornton, said he expects the commission to hire enforcement officers. The commission is authorized to hire up to 75 people in addition to the 13 positions specified in Act 606 of 2009, the legislation that created the commission.
Act 606 also authorizes the commission to conduct background checks of retailers and inspect their facilities “at times determined solely by the commission.”
“We think that honesty and integrity is vital in this, and we’re going to do everything possible to make sure that the public is treated with dignity and honesty,” Thornton said. “We’ll have enforcement people, we’ll be reviewing the actions of our licensees and our vendors, and we will have the ability to discipline anyone who does not live up to those values.”
Lawmakers have said they expect the first lottery tickets to be sold by the end of the year. Thornton has said he expects tickets to be available at about 2,000 retail outlets in the state.
One question for officials to consider is whether anti-fraud efforts should be proactive or reactive. Iowa Ombudsman William Angrick released a report last month that criticized the Iowa lottery’s enforcement arm for what he deemed a failure to detect fraud independently from customers’ complaints, making it difficult to know how much fraud is occurring.
“Unfortunately, when we sought to learn what was being done to prevent and police theft by lottery retailers, the answer we arrived at was, ‘Not much,’” Angrick wrote.
Lottery officials say enforcement is important, but it is also important for players to protect themselves from being defrauded.
“The top thing that we encourage our players to do is sign the back of their tickets,” said Kimberly Chopin, spokeswoman for the Louisiana Lottery. “If someone comes in to claim a prize that’s above $600, if that signature line is altered in any way, we’re going to conduct an immediate investigation.”
Players also should also get a receipt when collecting prize money and should not leave tickets with retailers, Chopin said.
“There is no reason why a retailer needs to keep a non-winning ticket,” she said.
Chopin said the Louisiana Lottery has two enforcement officers to police the state’s 2,600 retailers who sell lottery tickets. The officers do not perform stings like those in California and Minnesota, she said.
Susan Goedde, spokeswoman for the Missouri Lottery, said one of the most important things players can do is learn how to check tickets on their own.
“We offer ticket ‘check-it’ machines at retail locations, where you could put the ticket in and check it,” she said. “We also have (winning) numbers on our Web site.”
When a retailer does check a ticket for a customer, the prize amount appears on a screen that the customer can see, Goedde said.
Goedde said the Missouri Lottery has two enforcement officers to police the state’s nearly 5,000 lottery retailers. The officers do not perform stings, she said.
One possible way to cut down on fraud would be to ban licensed retailers from playing the lottery. Ontario’s ombudsman has said he is considering recommending such a ban in Canada.
But lottery officials say banning retailers from playing would have drawbacks.
“There are a lot of retailers who play, and it would probably affect our sales,” Goedde said.