By John Lyon
Arkansas News Bureau

LITTLE ROCK — A co-chairman of the state legislative committee that oversees the state lottery says he will seek closer scrutiny of the lottery program following the recent release of an audit report citing significant deficiencies.

The move apparently will not come with another effort to oust embattled Lottery Director Ernie Passailaigue despite the latest of several missteps.

The lottery’s first annual audit, released Nov. 12, found that, among other things, officials failed to prepare financial statements in accordance with generally accepted accounting principals; entered into a contract with a vendor that cost more than the contract reviewed by the oversight committee; issued travel reimbursements that were not properly documented or exceeded the maximum rate without prior approval; and hired people without prior background checks.

Sen. David Johnson, D-Little Rock, the oversight committee’s Senate chairman, said he would ask the oversight committee to review the commission’s operations bi-monthly instead of once a year.

“There were numerous troubling findings about loose ends at the Lottery Commission,” Johnson said. “There are lots of things that need to be tightened up over there, and I don’t want to sit back and wait for a year or however long before the next regular audit.”

Johnson said he wants to see the lottery operating as tightly as other state agencies a year from now, “and if we have to have meetings every two months to make sure it happens, I want to do it.”

The 2009 state law setting up the lottery gives the oversight committee authority to review the Lottery Commission’s actions but not to approve or disapprove them.

Asked what the committee could do if it was not satisfied that lottery officials were fixing internal problems, Johnson said the panel may not be able to take action directly, but “we can help put a spotlight on what’s happening, and I believe that spotlight will generate change.”

Some legislators have voiced dissatisfaction with Passailaigue over the audit.
“If this happened in a regular or another state agency, the director would be gone,” Rep. Jane English, R-North Little Rock, said.

Reaction to the audit is the latest in a series of controversies for Passailaigue, who ran South Carolina’s lottery before being hired by the Arkansas Lottery Commission at an annual salary of $324,000.

Passailaigue has been criticized for filling top positions at the lottery with former employees of South Carolina’s lottery; handing out salaries that far exceeded the pay for comparable positions in other state agencies; failing to notice a change in the lottery law regarding unclaimed prize money, resulting in lowered lottery revenue projections; and awarding compensatory time to salaried staff members, including himself, who would have been ineligible for comp time at other state agencies.

Passailaigue awarded the comp time after the Lottery Commission declined to approve it.

The lottery director has said he accepts full responsibility for the audit findings. Two lottery commissioners who previously sought Passailaigue’s dismissal told the Arkansas News Bureau last week they were embarrassed by the audit report but did not say they would call again for Passailaigue’s head.

In September, commissioner Ben Pickard of Searcy moved for Passailaigue’s dismissal over the comp time matter, but only one other commissioner, Joe White of Conway, voted with Pickard.

In an interview last week, Pickard called the audit report “embarrassing” and said the lottery must do a better job of complying with the basic rules and regulations that apply to state agencies. He said his level of confidence in Passailaigue was “not at a high level” but would not say whether he would vote again for Passailaigue’s dismissal.

White said he was “deeply embarrassed” by the audit report. He said he did not have any plans to call for Passailaigue’s dismissal “at this time,” but the problems identified in the report must be addressed quickly.

“The gaming side of the lottery has functioned very, very well,” White said. “Administratively it’s broken — that was evident by the legislative audit report. There’s work to be done, and we will get it corrected, I’m confident.”

The lottery netted $106 million for college scholarships in its first fiscal year. About 30,400 students have been awarded lottery-funded scholarships.

Rep. Barry Hyde, D-North Little Rock, House chairman of the lottery oversight committee, said he was disappointed by some of the audit findings but chalked some up to decisions made “in the heat of battle” during the lottery’s startup.

The lottery launched Sept. 28, 2009, less than three months after Passailaigue’s first official day on the job.

“I still have adequate confidence in Ernie,” Hyde said. “I think that Ernie has done a very good job. He was key in getting this thing started as quickly and to the level that it’s gotten started, with the results that we’ve got.”

Hyde said Passailaigue “probably thought that somebody else was going to pick up these administrative issues, or was watching them more closely. I would imagine that he has addressed that with whoever he was relying on.”

Appearing before the Joint Auditing Committee on Nov. 12, Passailaigue said many of the problems identified in the audit report have been fixed, and the others will be addressed. He said he wished more time had been spent on administrative issues during the lottery’s startup.

Asked later by reporters if the lottery’s startup was too rushed, Passailaigue said, “You’d have to ask the 30,000 students on scholarships whether we were in too big a rush.”