State Lottery Wasted Millions, Audit Finds

SACRAMENTO — The installation of a convenient, efficient system for cashing Scratcher tickets was delayed for years while the California lottery wasted millions of dollars on a lawsuit that it had virtually no chance of winning, a new audit found Thursday.

In an 83-page report to the Legislature, state Auditor Kurt Sjoberg said a pattern of poor management decisions at the highest levels of the lottery not only caused the ticketing system delays but resulted in inefficiencies in the internal computer operations that made it difficult for other divisions to function effectively.

As for the Scratcher contract, the audit said that “poor contract management, unfair expansion of the scope of work and a questionable decision to terminate the contract” had caused the lottery to incur at least $7.5 million in unnecessary expenditures.

The lottery contracted in 1992 with High Integrity Systems, a Sacramento-based company, to install a ticketing system that would allow players to cash winning Scratchers at any lottery outlet. A year later, former Director Sharon Sharp abruptly canceled the $68-million contract, and the lottery sued the company, claiming that it had failed to perform.

The audit said documents amassed by both sides in the case soon made it clear that the lottery itself was at fault for most of the failures. Yet, it said, the lottery waited months before it began settlement talks and did not reach an agreement with the company to reinstate the contract until July 1995. By then, it said, the state had spent $7.2 million in legal fees.

The new system wasn’t fully operational until December 1996.

Calling the audit criticism “past history,” the lottery’s new director, William Popejoy, did not dispute the findings but said that over the last year the agency has started to restructure its operations, hired a new manager for its computer functions and begun to cut costs.

But, he said, “I think it’s going to be a cold day in hell before the lottery terminates a contract in the future without making awfully sure that the termination is completely, 100% justified.”

Assemblywoman Debra Bowen (D-Marina del Rey), who requested the audit, said it showed that “previous directors made terrible decisions that have stolen millions of dollars from education.”

Lottery profits go to public schools in California.