0001 1 2 3 4 * * * * * * * * * * * * * * * * * * * * * * * * * * * 5 6 TEXAS LOTTERY COMMISSION 7 MEETING 8 9 MAY 3, 2006 10 11 * * * * * * * * * * * * * * * * * * * * * * * * * * * 12 13 14 15 16 17 18 19 BE IT REMEMBERED that the TEXAS LOTTERY 20 COMMISSION meeting was held on the 3RD of MAY, 2006, 21 from 9:00 a.m. to 12:35 p.m., before Shelley N. Jones, 22 RPR, CSR in and for the State of Texas, reported by 23 machine shorthand, at the Offices of the Texas Lottery 24 Commission, 611 East 6th Street, Austin, Texas, 25 whereupon the following proceedings were had: 0002 1 APPEARANCES 2 3 Commissioners: Chairman Tom C. Clowe, Jr. 4 Commissioner James Cox 5 General Counsel: Ms. Kimberly L. Kiplin 6 Acting Executive Director: 7 Mr. Anthony J. Sadberry (not present) 8 Charitable Bingo Director: Mr. Billy Atkins 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 INDEX 2 3 Appearances....................................... 2 4 5 AGENDA ITEMS 6 ITEM NUMBER I.................................... 7 Call to order 7 ITEM NUMBER II................................... 7 8 Report, possible discussion and/or action on the status of organizations 9 at playing locations 10 ITEM NUMBER III.................................. 55 Report, possible discussion and/or 11 action on implementation of the new Administrative Penalty Guideline Rules 12 ITEM NUMBER IV................................... 62 13 Report, possible discussion and/or action on the 2005 Charitable Bingo 14 Annual Report 15 ITEM NUMBER V.................................... 64 Consideration of and possible 16 discussion and/or action on nominations and/or appointments to the Bingo 17 Advisory Committee 18 ITEM NUMBER VI................................... 64 Report, possible discussion and/or 19 action on the agency's Strategic Plan for 2007-2011 20 ITEM NUMBER VII.................................. 57 21 Consideration of and possible discussion and/or action on the 22 external and internal audits and/or reviews relating to the Texas 23 Lottery Commission and/or on the Internal Audit Department's activities 24 25 0004 1 AGENDA ITEMS, CONTINUED 2 ITEM NUMBER VIII............................... PASSED Report, possible discussion and/or 3 action on GTECH Corporation 4 ITEM NUMBER IX................................. PASSED Consideriation of and possible 5 discussion and/or action on the lottery operator contract, including 6 whether the negotiation of the lottery operator's contract in an open meeting 7 would have a detrimental effect on the commission's position in negotiations 8 of the lottery operator contract 9 ITEM NUMBER X.................................... 66 Report, possible discussion and/or 10 action on the agency's contracts 11 ITEM NUMBER XI................................... 67 Consideration of and possible 12 discussion and/or action on the appointment and employment of an 13 executive director 14 ITEM NUMBER XII.................................. 81 Executive Session: 15 To deliberate the appointment, 16 employment, evaluation, and/or duties of the executive director, acting 17 executive director, and/or deputy executive director pursuant to Section 18 551.074 fo the Texas Government Code; 19 To deliberate the duties and evaluation of the internal audit director pursuant 20 to Section 551.074 of the Texas Government Code; 21 To deliberate the duties and evaluation 22 of the charitable bingo operations director pursuant to Section 551.074 of 23 the Texas Government Code; 24 25 0005 1 AGENDA ITEMS, CONTINUED 2 To receive legal advice regarding pending or contemplated litigation 3 and/or to receive legal advice pursuant to Section 551.071(1)(A) or (B) of the 4 Texas Government Code and/or to receive legal advice pursuant to Section 5 551.071(2) of the Texas Government Code, including by not limited to: 6 Cynthia Suarez vs. Texas Lottery 7 Commission; Shelton Charles vs. Texas Lottery and Gary Grief; Stephen Martin 8 vs. Texas Lottery Commission; 9 Employment law, personnel law, Procurement and contract law, 10 evidentiary and procedural law, and general government law; 11 Lottery Operations and Services 12 contract; Mega Millions game and/or contract 13 To deliberate the negotation of the 14 lottery operator's contract pursuant to Section 467.030 of the Texas Government 15 Code 16 ITEM NUMBER XIII................................. 83 Return to open session for further 17 deliberation and possible action on any matter discussed in Executive 18 session 19 ITEM NUMBER XIV.................................. 67 Consideration of the status and 20 Possible entry of orders in: 21 A. Docket No. 362-06-0776 B. Docket No. 362-06-0775 22 C. Docket No. 362-06-0777 D. Docket No. 362-06-1014 23 E. Docket No. 362-06-1241 F. Docket No. 362-06-1259 24 G. Docket No. 362-06-1503.B H. Docket No. 362-06-1538.B 25 I. Docket No. 362-06-0470.B 0006 1 AGENDA ITEMS, CONTINUED 2 J. Case No. 2006-690 3 ITEM NUMBER XV................................. PASSED Report by the Acting Executive 4 Director and/or possible discussion and/or action on the agency's 5 operational status, and FTE status 6 ITEM NUMBER XVI.................................. 79 Report by the Charitable Bingo 7 Operations Director and possible discussion and/or action on the 8 Charitable Bingo Division's activities 9 ITEM NUMBER XVII................................. 81 Public Comment 10 ITEM NUMBER XVIII................................ 83 11 Adjournment 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0007 1 May 3, 2006 2 Texas Lottery Committee Meeting. 3 CHAIRMAN CLOWE: Good morning. We'll 4 come to order. Today is May 3rd, 2006. It's 5 9:00 a.m. Commissioner Cox is here. My name is Tom 6 Clowe. We'll call this meeting of the Texas Lottery 7 Commission to order. 8 We'll begin with Item II on the agenda, 9 report possible discussion and/or action on the status 10 of organizations in claim locations. 11 Mr. Sanderson. 12 MR. SANDERSON: Good morning, 13 Commissioners. For the record, my name is Phil 14 Sanderson, assistant director of the of the Charitable 15 Bingo operations division. At the April 5th, 2006 16 commission meeting questions were posed regarding the 17 stability of organizations conducting charitable 18 bingo. Specifically it was asked if the stability of 19 the organization was related to the hall rather than 20 the organization itself. 21 Additionally, staff was asked about the 22 turnover and the, quote, better halls, unquote, and if 23 new organizations are, quote, doomed to failure 24 because they are at marginal locations and can't 25 really penetrate the good locations because those 0008 1 charities aren't turning over, unquote. We put in a 2 request at information resources to handle location 3 information extracted out of the data base. 4 Due to daily conversion, also the way 5 the organizations report their location address, 911 6 emergency system implementation, address changes as a 7 result of honoring an individual or group, this 8 information had to be reviewed on a line-by-line 9 basis. 10 Just to give you some of the 11 information that was obtained as a result of this 12 research. Over the 11 year period between 1994 and 13 2004, bingo was conducted in 1,358 different 14 locations, of which 1,021 or 75 percent had two or 15 less organizations conducting bingo. 16 Bingo was also conducted in 455 17 different cities. Of these 455 different cities, 70 18 percent of those had only two or less locations. The 19 vast majority of these one and two organizations and 20 one or two locations were veterans or religious 21 organizations as well as a few fraternal 22 organizations. During this same period from '94 to 23 2004, of the 1,358 locations, 477 of those were in 24 continuous operation and they were located in 231 25 cities. 0009 1 As of last Monday, May the 1st, there 2 were 575 different locations in 258 cities and 134 3 counties. It is interesting to note that 77.5 percent 4 of the cities have one or two locations, while 53 5 percent of the counties have one or two locations. 6 COMMISSIONER COX: May I see that 7 again? 8 Thank you. 9 MR. SANDERSON: The top six cities and 10 the number of locations in each are San Antonio with 11 41; Houston with 29; Dallas and Fort Worth each have 12 17; Austin has 12; and Corpus Christi, nine. This 13 chart represents the 477 locations that were in 14 continuous existence between 1994 and 2004. 15 Here we've added a number of locations 16 each year during the 11 year period. As you can see, 17 the number of locations where charitable bingo is 18 conducted each calendar year has been on a decline 19 from 1,053 locations in 1994, to 627 locations in 20 2004. 400 -- that's a little more than a 40 percent 21 drop in locations. 22 Of the 627 locations in 2004, 447 of 23 those had one or two organizations, while the 24 remainder 180 had three or more organizations. When 25 you compare this to the 477 locations that were in 0010 1 operation through the 11 year period, 358 of those had 2 one or two organizations, and the 119 had three or 3 more. In both instances over 70 percent of the 4 locations had one or two organizations. 5 Now to put a little bit different 6 perspective on some of this information, these numbers 7 are graphed for the number of locations each year. 8 The yellow line represents those locations with one to 9 two organizations and the red line represents those 10 locations that have three or more organizations. You 11 can see that in 1994, 834, or 79 percent, of the 12 locations had one or two organizations. 13 That number has declined over the years 14 to 447, or 71 percent of the locations in 2004. This 15 is a decline of more than 46 percent. However, the 16 locations with three or more organizations, that 17 number is declined from 219 in 1994, to 180 in 2004, 18 and it's just under an 18 percent decline. 19 This chart shows the number of 20 locations and their respective length of operation. 21 As you can see, the success rate for a location is 22 very similar for that of the individual 23 organizations. It is previously reported 26.8 percent 24 of the organizations that were conducting charitable 25 bingo were only in operation for three years or less. 0011 1 While this represents the locations, 31.2 percent of 2 the locations where charitable bingo was conducted 3 were in operation for three years or less. 4 So with all this information, we've 5 come to the following conclusion. The vast majority 6 of the organizations conducting bingo during this 7 period stayed at the same location. The 8 one-or-two-organization location is still in the 9 majority, but they are declining -- declining at a 10 higher rate. The multi organization halls tend to 11 have the same organizations over the years and appear 12 to be more stable. 13 So in answer to your three questions; 14 is the stability of an organization related to the 15 hall rather than the organization itself? The 16 research on this question is inconclusive. The 17 majority of the halls in operation over the 11 year 18 period had the same organizations conducting bingo. 19 Is there a turnover in the better halls. The research 20 indicates that there appears to be little turnover at 21 these locations. 22 Are new organizations doomed to failure 23 because they're at marginal locations and can't really 24 penetrate the good locations because those charities 25 aren't turning over. New organizations may be, quote, 0012 1 doomed to failure, unquote, if they cannot acquire a 2 slot in an existing location. There were several 3 instances over the 11 year period where organizations 4 attempted to start a new location and they only lasted 5 one to three years. 6 The overall analysis is inconclusive as 7 to the relevance of whether a stability of an 8 organization is related to the organization itself or 9 the hall. Single- or two-organization locations 10 appear to be able to survive in both the urban and the 11 rural environment. For example, close to half of the 12 41 locations in San Antonio are one-to 13 two-organization locations. 14 We think this is relevant because there 15 has been an assumption these single location 16 organizations could not survive in the urban 17 environment. The assumption was that large halls 18 could draw bigger crowds because they were conducting 19 bingo seven days a week, while the 20 one-to-two-organization locations could only conduct 21 bingo three to six days a week. 22 This research has indicated that the 23 majority of the locations are one-to-two-organization 24 locations, and that even in the larger metropolitan 25 areas, they are able to successfully operate. 0013 1 Currently, information resource staff are writing a 2 program to validate addresses not only for claim 3 locations but all addresses in our database. Once 4 this program has been developed, tested, and 5 implemented, we will be able to form a more detailed 6 analysis and get more -- get down to a more detailed 7 level. 8 That concludes my report, and I'll be 9 glad to answer any questions you may have. 10 COMMISSIONER COX: Okay, Phil. I saw 11 your conclusions. The data looked, to me, to say that 12 there are certain successful locations that maybe 13 aren't declining but aren't increasing either. And I 14 kind of got the impression, and I can't tell you 15 exactly why, that there are charities out there that 16 would populate a new hall if one were open, a 17 commercial establishment, but that they're not being 18 opened. 19 MR. SANDERSON: Over a period of time 20 there were several instances, mainly, I want to think, 21 back in the 2000 -- 1999, 2000, 2001 time frame, where 22 organizations formed together to open a new location. 23 And most of them lasted one, two, or three years. And 24 then they may have moved back to the previous location 25 or just quit playing bingo altogether. 0014 1 COMMISSIONER COX: I wonder if it would 2 be appropriate to ask Mr. Fenoglio what he observed. 3 CHAIRMAN CLOWE: I think Mr. Fenoglio 4 wants to tell us. He has filed an appearance form. 5 And, Commissioner Cox, if you would like, we'll call 6 on him at this point to make a comment. 7 MR. FENOGLIO: Thank you, Mr. Chairman. 8 Commissioners, for the record, my name 9 is Stephen Fenoglio. And I filed an appearance slip. 10 I have requested the data but I have not had a chance 11 to receive it yet. So I'm taking it at first blush 12 right now. 13 A little history. In '91, or 14 thereabouts, I was a new board member for the Arc of 15 the Capital Area. And we had a problem. And this was 16 when TABC regulated bingo. And it turned out that our 17 lessor was stealing from us. And so the five 18 organizations came together and formed their own 19 call. And it's been discussed in commission meetings 20 before that that hall representing bingo in Austin is 21 the model hall that some point to as pure charity run. 22 We are the commercial lessor of the 23 charities and manage it for the benefit of those five 24 charities. And it's been very successful. But it -- 25 but it was extremely difficult and it -- it was 0015 1 organized and formed. Again, the five organizations 2 left that location, found their own location, acted as 3 their lessor. We have two board members who were 4 attorneys and could provide the legal analysis to pull 5 it all together. 6 Three of the five organizations were 7 extremely strong financially and absentee lessor and 8 negotiate a lease on a 13,000-square-foot-hall 9 location. We had to provide our own startup. Capital 10 costs, as you might imagine, was extensive. It 11 happened at a time in the real estate market in Austin 12 that had been in severe decline. This space had been 13 absent for two years and was purchased out of the old 14 ROTC, if you'll recall, those unglamorous real estate 15 times in Texas. And so the landlord was begging for a 16 tenant. And we did not have to put personal 17 guarantees on the loan from board members. The 18 organizations basically just said, we'll do the best 19 we can, and moved in, and were successful. 20 Those -- that type of perfect storm 21 economics ideas or economic opportunity won't happen 22 in the foreseeable future. So there's a huge problem 23 in starting up organ -- and I've worked with 24 organizations sometimes not intending to be pro bono 25 but it turned out that way in trying to get them 0016 1 organized and replicate. 2 And it's extremely difficult as you 3 might imagine. Because you're looking at -- typically 4 you've got to have working capital to start a -- what 5 I call a commercial working of a hall of between 50 6 and 150 thousand dollars to get up and running and to 7 weather the storm for the first 90 days, because 8 you're going to bleed cash. 9 Turning to Mr. Sanderson's 10 observations, I believe that in the commercially run 11 halls -- and I'll be happy to work with Mr. Sanderson 12 to provide some additional analysis -- that the 13 commercially run halls have very little turnover. I 14 think there was a period in the late '90s when there 15 was more turnover than there has been in the last 16 three to five years. And those are considered the 17 stable halls, where the largest charitable 18 distributions occur. 19 The locations where the one to two 20 locations --or one to two organizations conducting, 21 those are going to be your VFW and American Legion 22 posts, where the primary activity is not the conduct 23 of bingo. And it's been, certainly in -- and, for 24 example, Bowie, Texas, where I'm from, they conduct, I 25 believe, twice a week. And it's on Saturday afternoon 0017 1 and, I think, Friday evening. That's not their 2 primary purpose for being in existence. I don't 3 really know what their distributions are, but my sense 4 is that most VFW posts and American Legion posts that 5 are out in the hinterland, they're not making a lot of 6 money. 7 So in addition to the analysis that 8 Phil looked at, I think an additional analysis would 9 be those locations where are they -- where are the 10 most distributions occurring. Are they occurring at 11 the 180 -- 219 locations that have three or more in 12 '90 -- I'm sorry -- '94, or 180 locations that have 13 three or more organizations in '04. Or are they in 14 the one-to-two-organization locations. 15 My sense is that's not where the most 16 profit or charitable distribution will occur. And I 17 think if you're going to look at that, that's another 18 level of analysis that you would want to know. 19 COMMISSIONER COX: Sure. 20 MR. FENOGLIO: They're always going to 21 be some exceptions. And by the way, some of those 22 exceptions may be instrumental in, quote, getting 23 thing the word out, quote, to getting charitable 24 organizations. This may be an opportunity for you. I 25 hope I've answered your question. 0018 1 COMMISSIONER COX: That's very 2 helpful. Thank you. 3 MR. FENOGLIO: Thank you. And thank 4 you for asking these type of questions to drill down 5 to that type of analysis. 6 CHAIRMAN CLOWE: Steve, stay there, if 7 you will, because I have a couple of questions that 8 you may want to comment on. 9 First, to Phil, you, and Billy: In 10 your opinion, as the division director and -- Phil, in 11 your official capacity from the time that you-all have 12 been involved in regulating bingo, in your opinion, do 13 you see any impact on this division's activities that 14 will in any way cause the decline of these halls or 15 the number of players or the contributions that have 16 occurred? 17 MR. ATKINS: I'm not sure, 18 Mr. Chairman, if I understand your question. Are you 19 asking, is it -- is it our opinion that it's anything 20 the bingo division has done that has caused this 21 decline? 22 CHAIRMAN CLOWE: That's my question. 23 MR. ATKINS: No, sir. There's -- 24 there's nothing that I can think of. I don't have the 25 figures, off the top of my head. But one of the 0019 1 things that we've done -- and I'm not sure how long 2 we've been doing it -- is when organizations don't 3 renew their license, we have, in the past, sent them a 4 questionnaire asking them some of the reasons why. 5 And typically the reasons have been a -- a lack of 6 player. They just -- you know, it hasn't been cost 7 effective for them. 8 So I think that we have seen the 9 increase and the competition for gaming dollars within 10 the State of Texas as well as along the border. 11 Additionally, competition from gray machine devices, 12 eight liners, if you will, having a bigger impact on 13 the decline for both locations and organizations. I 14 think the first factor would be the decline in the 15 number of organizations conducting, which is resulting 16 in the decrease of the number of locations where it's 17 conducted. 18 CHAIRMAN CLOWE: Would you agree with 19 that, Phil? 20 MR. SANDERSON: I agree on the -- the 21 survey did show that people said they did not renew 22 their license primarily because of lower attendance, 23 and, additionally, it resulted in a low gross 24 receipts, which affects the net receipts. 25 And also, the -- the additional gaming 0020 1 avenues, if you noticed in -- or remember the slide, 2 the organizations where there were one or two -- 3 locations where there were one or two organizations 4 declined almost 50 percent over this 10 year period. 5 And those are going to be the ones that were probably 6 out in the suburb, in the rural areas that they just 7 could not continue to make money playing bingo or 8 offering bingo. 9 The -- the analysis itself was not 10 necessarily based on how much money an organization 11 made. It was more based on if they stayed in 12 operation. Which most of them, if they're staying in 13 operation, they're making some money, making a 14 profit. It may not be, you know, $1,000, it may be 15 $50. But the standing business is making a profit. 16 CHAIRMAN CLOWE: I think over my tenure 17 of watching what's happened in bingo, you've made some 18 efforts to try to help the industry comply with the 19 Bingo Enabling Act such as the operator training 20 program, which has, in my opinion, produced positive 21 results insofar as telling operators what the law is 22 and helping them comply so they don't run afoul of 23 noncompliance problems when they're audited. And my 24 sense is, the number of violations over the years 25 since you instituted that program has been reduced so 0021 1 there's been a beneficial result. Am I correct in 2 that or not? 3 MR. ATKINS: You are correct, 4 Mr. Chairman. We have seen a decrease in the number 5 of violations that are detected through the audits 6 conducted. But in addition to the operator training 7 program, we have a regular news letter that we send to 8 licensees, and that includes information on staying in 9 compliance with the act and rules. We also have a 10 wide variety of information that's available on our 11 website. 12 CHAIRMAN CLOWE: Which has been 13 expanded fairly recently and is much more complete now 14 than it was initially. 15 MR. ATKINS: Yes, sir. 16 And finally I was going to say there 17 has been an evolution of, I think, the agency's 18 enforcement practice. As you know, we now, in -- in 19 appropriate cases, attempt to negotiate agreed orders 20 with organizations that have been cited for 21 violations. That allows them to stay -- to keep their 22 license, and to stay in the business while enforcing 23 the act and the rules. 24 So whereas in the past the practice 25 would have been to take all of those cases to the 0022 1 State Office of Administrative Hearings, seeking 2 either revocation or denial, many of those cases are 3 now settled through agreed orders. So justice is 4 still exacted, but the organizations are able to keep 5 their license and stay in business. 6 CHAIRMAN CLOWE: And you see that as a 7 beneficial result insofar as the cost and the effort 8 that goes into retaining their license as a result of 9 the division's efforts. 10 MR. ATKINS: Yes, sir. I believe it 11 has allowed more organizations to stay in business on 12 who otherwise would have had their license denied or 13 revoked. 14 CHAIRMAN CLOWE: Steve, you've 15 attended, if not all, most of the BAC meetings where 16 we've talked about the declining market and the issues 17 of an aging playing population and the impact, for 18 example, of the nonsmoking rules that certain cities 19 or municipalities or governmental entities have 20 adopted which has impacted, in the operator's view, 21 some negative impact on the players and some of the 22 factors that Billy has mentioned such as the internet 23 gaming, the casinos that are adjacent to border urban 24 areas, the competition for other forms of gaming, 25 either within the state or without the state, and the 0023 1 problems that are dealt with by the industry, relative 2 to the Bingo Enabling Act, insofar as refreshing the 3 appeal of gaming in bingo operations. And the lottery 4 is dealing with those on that side of the issue. But 5 my question goes to the role of the Charitable Bingo 6 Division and its impact on what we're seeing here. 7 My -- my hope is that this division is 8 doing a good job of its enforcement commitment and 9 obligation, but it is turning a generally supportive 10 face to the industry, and trying to be a helpful 11 resource and stopping there, not having a negative 12 impact on the operation of bingo industry activities 13 and the resulting contribution to charities. That's 14 how I see the role of the division. I think you may 15 take issue with some things, like the administrative 16 penalties rules, which you have -- 17 MR. FENOGLIO: Sure. 18 CHAIRMAN CLOWE: -- been very helpful 19 in generating and -- and the adoption, I think, in our 20 last meeting. But you recognize, probably better than 21 most, the enforcement commitment that the agency has. 22 And the commission saw that as a part of that role. 23 If I ask you the same question with all 24 of this preamble that we've covered, that I asked 25 Billy and Phil, what would your response be? Has the 0024 1 division been neutral? Has it been negative or 2 positive? What -- what would your reaction be on 3 behalf of the operators and the entities that you 4 represent? 5 MR. FENOGLIO: I don't want to reargue 6 the merits of the administrative penalty rule, but I 7 think the way it's been in -- informally enforced and 8 the way it's now going to be enforced will adversely 9 affect charitable bingo. 10 CHAIRMAN CLOWE: So let's -- 11 MR. FENOGLIO: And -- and -- 12 CHAIRMAN CLOWE: Let's take that as a 13 given -- 14 MR. FENOGLIO: Sure. 15 CHAIRMAN CLOWE: -- and set it aside 16 and look at the bigger picture, if you will. 17 MR. FENOGLIO: My sense is, going back 18 to, Mr. Chairman, when the industry was pushing hard 19 for new innovative pull-tabs that had been sold 20 throughout the country. And we were getting no where 21 with staff until you attended that BAC meeting and 22 listened for several hours and said, gee, I really 23 wish that we could do something. The industry had 24 been work -- fighting for about a year and a half, 25 from the charity level to the maneuver manufacturer, 0025 1 to try to get rules amended. And we haven't had any 2 impact. And thankfully, we've rewritten that rule. 3 And low and behold, the industry was right, because 4 all of the numbers came up dramatically. 5 We've recently come up to an issue 6 where the most -- one of the most successful pull tabs 7 have been pulled from the market. So I don't agree 8 that the staff have been supportive. I think on -- on 9 a case-by-case basis, in some of the regulatory 10 licensing matters, it takes too long. And sometimes 11 that's the fault of the charities. But many times 12 they are asked to document, over and over, the same 13 matter, paperwork gets misplaced or lost. 14 And, you know, after a while, as a -- 15 as a volunteer on an organization, having to respond 16 repeatedly to the same request, you might decide it's 17 not worth it. I'm not saying that in a true negative 18 fashion because I think Phil's staff and Billy's staff 19 have to document certain items. There was a very 20 harsh audit by the state auditor's office, if memory 21 serves me correctly, Billy, was about eight years ago 22 or maybe six, where they randomly audited licensing 23 files and determined that there were not the type of 24 documentation that was required under the statute of 25 the commission's own rules. 0026 1 And so the staff reacted to that and 2 had licensees cross their T's and dot their I's, where 3 before, they didn't have quite that documentation. 4 And according to the audit, it was remarkably empty 5 documentation. 6 In my view, they've -- they've gone a 7 little overboard in that. In one charitable 8 organization they submitted over a thousand pages of 9 documents to get licensed. I think all of that is a 10 cost involved to regulate charitable bingo, 11 recognizing that this is not central freight with a 12 very large support staff, that these organizations, at 13 their core, are run by volunteers. The hall may -- 14 may have paid employees. But most of the 15 organizations do not have paid, or highly paid 16 employees. And sometimes you're asking them to 17 produce documents that either they didn't keep or 18 they're just not there. 19 I still see card-minder machines that 20 are in operation in other states, that aren't here in 21 Texas. And I here, anecdotally, that the cost and the 22 length of time to get approved in the Lottery 23 Commission is too long and manufacturers won't bring 24 their product to Texas. 25 Several years ago, in the '01, '99 time 0027 1 frame, we actually documented where the manufacturer 2 had made repeated adjustments based on staff's 3 recommendations. And then once they finally adjusted 4 the product, staff rejected it because of some of 5 those adjustments. And I had a lengthy discussion 6 with Ms. Kiplin at the time. And once she understood 7 what was going on, the situation got solved where it 8 was unfair for the manufacturer to be, well, we want 9 you to do it this way, they do it this way, and then 10 ultimately the staff rejects it because of the 11 adjustments the manufacturer made based on what the 12 staff was recommending. 13 And that -- that -- some of those 14 people are still in -- some of those people in that 15 company in a -- they're now in a different company, 16 that they remember those discussions, and it was not a 17 pleasant discussion to have to hire me and to go back 18 to the regulator and take a club, if you will, 19 politely. And so that -- you know, you get the 20 message that maybe Texas isn't the most receptive 21 market for charitable bingo. There may be other 22 opportunities in other states that are a lot easier. 23 I don't have any recent evidence on 24 that. I hear that anecdotally. And if you want me 25 to, I'll see if I do have contacts with those 0028 1 different manufacturers to get that type of 2 documentation. But my sense is, there is a lot more 3 regulatory requirement here than in other states. 4 I do agree on what Billy and Phil have 5 talked about and what y'all have talked about, that 6 Indian gaming in Oklahoma heavily affects the Texas 7 border and Louisiana to a lesser extent. New Mexico 8 also. I mean, Lubbock, there's a new casino 100 miles 9 west of Lubbock. And I'm told some of those halls, on 10 the weekends, are just devastated, when weekends used 11 to be a good place because of this new casino. So I 12 think some of the indian gaming does adversely 13 affect -- I'm still not convinced by the way internet 14 gaming affects bingo halls, because most players who 15 come to a bingo hall do that for a different reason. 16 It's -- it's more a social aspect to it. 17 As far as the aging, you know, 18 Commissioner, I've heard that a lot. I'm not sure 19 that's true if you have a product that younger people 20 want to play. If it's the same product over and over, 21 then I agree with you. What I -- and part of this is 22 the problem with the Bingo Enabling Act. And that's 23 beyond y'all. We understand that. But when I see all 24 the lottery innovative products coming out all the 25 time and bingo is left with similar -- the same 0029 1 similar product, and in other states they are not, you 2 know, that's a -- that is a challenge. 3 Part of that's the organic statute that 4 needs to be changed. And we've had some success but 5 haven't gotten it over the goal line, and in -- but 6 part of it, I think, is within the -- within this 7 organization, there is a -- we're going to be very 8 cautious and other states aren't as cautious, and 9 manufacturers decide to go with their feeling. 10 I hope I've answered your question, and 11 I will solicit other examples of that so it's just not 12 anecdotally. 13 CHAIRMAN CLOWE: Yeah. I -- I hear 14 that as sort of a qualified maybe. And you roamed a 15 little bit on me. 16 When was the audit that he referred to, 17 Billy? Was it -- 18 MR. ATKINS: It was 1998. 19 CHAIRMAN CLOWE: It was eight years 20 ago. 21 MR. FENOGLIO: Yes. 22 CHAIRMAN CLOWE: And I think -- that's 23 during my tenure here. I think the bingo division has 24 improved over that period of time, not to say that it 25 can't do better in its regulatory efforts. And we are 0030 1 currently undergoing an internal audit in the auditing 2 of the bingo in the Charitable Bingo Division. And I 3 am hopeful, as I'm sure Commissioner Cox is, that 4 something good will come out of that in the sense of 5 improved auditing practices. 6 But when you mention items like other 7 states are not as restrictive as Texas, that's where I 8 say you roam on me a little bit, because I think it 9 goes back to the Bingo Enabling Act. And we have to 10 adhere to that and that law. And if you get beyond 11 that, then you're out of bounds. And what I'm 12 striving for in my hope is that the bingo division, 13 Charitable Bingo Division, is enforcing the Bingo 14 Enabling Act properly and to the best of its ability, 15 not having a negative impact on the operation of bingo 16 in this state but having a, if anything, positive 17 impact as a helpful resource on the industry, not 18 promoting bingo but being a helpful resource. 19 And I would invite your comments or any 20 other industry members' comments, either in commission 21 meetings or through the BAC, which is a valuable tool, 22 I hope, to this end as an advisory group to the 23 commission, on how these goals can be reached. 24 MR. FENOGLIO: Well, and I have 25 actually examined some of the states, and they have 0031 1 remarkably similar card-minding statutory regulatory 2 regimes. But arguably others don't. I'm not sure, 3 though, Mr. Chairman, I can accept that we're going to 4 be an aggressive regulator and your best friend in the 5 same comment. I -- in some respects, those are two 6 polar thoughts by -- opposite ends thoughts. And -- 7 and I hear what you're saying about you want to be 8 a -- a strong regulator. But at the same time I 9 think, you know, then don't be surprised if the 10 industry's perception is this is -- you're not our 11 best friend and you're not a fair promoter or -- and 12 I -- you and I had this discussion. I understand, 13 unlike, I think, some people still in the industry 14 don't understand, why the commission cannot promote 15 bingo like you promote the lottery. I understand 16 that. I'm not trying to make that argument. 17 CHAIRMAN CLOWE: Let -- let me just 18 interrupt you to say, on your verbiage, maybe I used 19 the word strong and I -- if I did, I misspoke. I 20 would rather have said a fair regulator. I think it's 21 a difficult job to regulate an industry and be viewed 22 positively. I agree with you on that. It's bipolar. 23 But my hope is that the commission, through its bingo 24 division -- Charitable Bingo Division, would be 25 viewed, as much as possible, as a fair regulator. And 0032 1 that's where I think we will never be satisfied with 2 the job that we're doing. We'll always try to do a 3 better job. And as you know, I've been a regulatee 4 more than a regulator. And that's -- that's a high 5 goal to strive for. 6 MR. FENOGLIO: And it is. And as I've 7 sat across the table from both Bill and Phil, I've 8 always made the comment, from my side of the table is 9 different from their side of the table. And that's 10 true. So I will be happy to obtain additional 11 information and respond back at the next meeting. I 12 would like to do it in writing. 13 And by the way, Mr. Bresden, who I'm 14 sure would have engaged this conversation, is at the 15 capital now. One of the things he and I spoke, after 16 the last meeting, is we would like to meet with your 17 internal auditor. And I mentioned that briefly at the 18 last meeting. Unfortunately his schedule has been 19 with the special session, that his time has been at 20 the pink dome, or what I call the zoo, more so that he 21 would like. 22 COMMISSIONER COX: We hope that you 23 will. 24 MR. FENOGLIO: Yes, sir. Thank you. 25 CHAIRMAN CLOWE: Well, let me just 0033 1 conclude my comment by saying I think Phil's report 2 brought to my mind the issue of what role, if any, has 3 the Charitable Bingo Division played in this decline. 4 And my hope would be, none. But at the same time it's 5 not the charitable bingo's division to jump in and try 6 to turn it around. It's the industry's role, in my 7 mind, working with the Bingo Enabling Act to do what 8 they can. And we will be a positive resource when 9 called upon. 10 MR. FENOGLIO: Sometimes we agree to 11 disagree. 12 CHAIRMAN CLOWE: And I'm respectful of 13 your position. 14 Commissioner Cox, do you have a 15 comment? 16 COMMISSIONER COX: I have a couple of 17 questions, Stephen. You mentioned that one very 18 popular pull-tab was taken off the market. 19 MR. FENOGLIO: Yes. 20 COMMISSIONER COX: Can you tell me a 21 little bit more about that. 22 MR. FENOGLIO: I'm having a senior 23 moment and I'm not quite so senior. 24 It was an event tab, and we had a 25 meeting with the staff about three weeks ago. We've 0034 1 had nothing in writing, but I think we understand the 2 challenge and we are working on that to -- to change 3 that. One of the issues arose -- and this tab had 4 been, I believe, in existence for about two years -- 5 has to do with the location of the winning tab or 6 winning ticket. And there was about 100,000 dollars' 7 worth of inventory that's unsold that will likely be 8 unsold unless we can persuade the staff to allow at 9 least the existing inventory to be exhausted. 10 I'm drawing a blank on -- there were 11 two arguments I think staff had. And this wasn't the 12 most popular and most profitable pull-tab. It's the 13 second one, the second most popular. And I don't -- I 14 have the file at the office. I -- I would -- 15 COMMISSIONER COX: Billy, do you 16 remember anything about this? 17 MR. ATKINS: I do, Commissioner Cox. 18 First of all, Mr. Fenoglio said they hadn't received 19 anything in writing. We did send a letter to the 20 manufacturer that outlined the specific violations of 21 the rule. And again, I would ask Mr. Sanderson to 22 make sure I remember correctly. 23 The -- it came to our attention in that 24 organizations were not playing the game the way the 25 manufacturer had represented to us that the game would 0035 1 be played. An event ticket is -- a multi-part ticket 2 is one where there are essentially two tickets 3 connected together by a perforation. They represent 4 different games. And what had occurred is that the 5 winning faces under the different tabs were the same. 6 And consequently, some of those tabs could have been 7 for prizes of $500 and organizations were awarding one 8 prize of $1,000. 9 COMMISSIONER COX: Okay. And obviously 10 more complex than we have time to talk about here. 11 MR. ATKINS: And also, Commissioner 12 Cox -- 13 COMMISSIONER COX: And you can -- I can 14 see the differences of opinion on that. 15 MR. ATKINS: Well, also, when we did, 16 the manufacturer asked for a meeting to discuss the 17 matter. And we did meet with them. And it was our 18 intent at that meeting to, if possible, come up with 19 any suggestion we could think of that would make the 20 ticket eligible for Texas. 21 Now, keeping in mind, you know, we're 22 not printers. And so we offered our suggestion to the 23 manufacturer. And it turned out that -- that that 24 wasn't feasible. But we did go to the meeting with 25 that mind set, not just of saying, you know, stop it. 0036 1 But, you know, we studied it as best we could and 2 offered what suggestion we could come up with. 3 COMMISSIONER COX: Well, it seems that 4 you have -- is it possible to look at this as though 5 you have outlawed the sale of guns because they could 6 be used legally or illegally? 7 MR. ATKINS: I'm -- I'm sorry. I 8 didn't hear the first part of your question. 9 COMMISSIONER COX: Is it possible that 10 this is analogous to outlawing the sale of guns 11 because they could be used legally or illegally? 12 MR. ATKINS: You know, Commissioner 13 Cox, I think we looked at the plain language of the 14 rule in connection, you know, with the legal division 15 to see if -- if the game met the requirements of 16 the -- 17 COMMISSIONER COX: So it wasn't -- 18 it -- the game -- it wasn't a matter of they were 19 using it improperly, it was a matter of the game, on 20 its face, did not comply with the rule? 21 MR. ATKINS: That's correct. 22 MR. FENOGLIO: And I think we have a 23 difference of opinion in that. I think his prefer -- 24 preparatory remark was the way the manufacturer showed 25 it and said it would played when the charities 0037 1 actually played it in a different manner. And if they 2 did do the separation on the perforation, the primary 3 arguments that it had, I think, went out the window. 4 And -- and I'm cognizant of your time, 5 Commissioner Cox. This -- this isn't -- I've been 6 instructed to try to get another meeting with the 7 staff on that. But when you ask the question about 8 that, that comes to mind. 9 COMMISSIONER COX: And the other thing, 10 Stephen, you talked about card-minders. 11 MR. FENOGLIO: Yes, sir. 12 COMMISSIONER COX: There are some 13 gaming devices that get approval from someplace like 14 Good Housekeeping, if you recall. What's the name of 15 that organization? 16 MS. KIPLIN: The Independent Gaming 17 Laboratory? 18 COMMISSIONER COX: Yes. Is there such 19 an organ -- do these card-minder manufacturers ever 20 take their -- 21 MR. FENOGLIO: Yes. 22 COMMISSIONER COX: -- games to those 23 organizations? 24 MR. FENOGLIO: Yes. 25 COMMISSIONER COX: And do they get 0038 1 approval and then we say it's not good enough for us? 2 MR. FENOGLIO: Well, the staff -- the 3 staff's position is, that doesn't matter what the 4 independent gaming labs -- and there are three in the 5 state, in the nation -- say. It -- it's helpful, but 6 then they have to go through their own testing 7 procedures. 8 And, by the way, Billy and I, and Phil 9 had a lengthy set of discussions in the last session 10 about making that change so that the staff statutorily 11 would be not necessarily bound, but that would be if, 12 you know, you're on the one yard line as opposed to 13 the 99 yard line, once you got the certification. 14 But, no, my understanding, from the 15 staff's position, you know, if you've got a 16 certification, they'll review it. But they're still 17 going to go through their full testing suite. 18 COMMISSIONER COX: So -- 19 MR. ATKINS: Commissioner Cox. 20 COMMISSIONER COX: Yes. 21 MR. ATKINS: As I understand those 22 laboratories test specific to a jurisdiction. And so, 23 you know, they don't test specific to the Texas 24 Lottery Commission and the requirements that we have 25 in statute and rule. 0039 1 COMMISSIONER COX: Okay. 2 MR. ATKINS: So that's what 3 Mr. Fenoglio means, that it may be helpful but it's 4 not going to hit all the elements or statutory and 5 regulatory requirements. Now, the -- 6 COMMISSIONER COX: So they are making 7 some kind of a general statement about what that 8 device will do. They are not certifying as compliant 9 with any particular set of statutes or regulations? 10 MR. ATKINS: Well, they -- they may be, 11 because they contract with certain jurisdictions -- 12 COMMISSIONER COX: Okay. 13 MR. ATKINS: -- to do that. 14 COMMISSIONER COX: Okay. 15 MR. ATKINS: And so they will test 16 specific to those jurisdiction's specifications. The 17 staff has been exploring the possibility of 18 outsourcing that testing to some of these gaming 19 laboratories for some time. We've done our analysis, 20 we've sent that to the controller's office for a cost 21 benefit analysis. I understand they referred it to 22 the legal division for a legal decision. But, you 23 know, this has been under consideration, at least by 24 the bingo commission, for some period of time, the 25 possibility of outsourcing that. 0040 1 COMMISSIONER COX: Okay. Then, 2 Stephen, one final question. This -- this provision 3 of the Bingo Enabling Act was called to my attention 4 the other day, and I would like to get your thoughts 5 on what it means. 6 MR. FENOGLIO: Sure. 7 COMMISSIONER COX: This is section... 8 MR. FENOGLIO: Go ahead. 9 COMMISSIONER COX: I'll wait until you 10 get yours in front of you there. 11 MR. FENOGLIO: Yeah. I'm ashamed to 12 say I walked out without it. 13 MS. KIPLIN: Here. 14 MR. FENOGLIO: Yes, sir. 15 COMMISSIONER COX: Now, I understand 16 that there were some amendments to this in 2003. And 17 I -- that slipped my notice, and I wondered if you 18 knew what -- what those amendments might have been and 19 what their intent was. This says, a person -- this is 20 section 2001.415, advertisements. A person other than 21 a licensed authorized organization, licensed 22 commercial lessor, or the commission may not advertise 23 bingo. And then it says, a licensed organization, 24 licensed commercial lessor, or the commission may 25 include in an advertisement or promotion the amount of 0041 1 prize or series of prizes offered at a bingo occasion. 2 I'm confused by the words "the 3 commission" in that. I thought we were prohibited 4 from advertising or promoting bingo. 5 MR. FENOGLIO: You -- we were, and so 6 we changed the law. 7 COMMISSIONER COX: Okay. 8 MR. FENOGLIO: And, you know, 9 Commissioner Cox -- 10 Billy, help me out. Y'all had some 11 money left over one year, and you used that to prepare 12 some generic ads and ran some generic ads, and I think 13 that was in the '99 time frame. Is that about right? 14 MR. ATKINS: '97. 15 MR. FENOGLIO: '97. And, Commissioner 16 Cox, I'm not going to try to guess how it changed, but 17 I can report to you in a letter, in a very short 18 period of time, how this changed and, from my 19 perspective, why. But my recollection is -- but I 20 think that was in '99 when we changed it to allow the 21 lessor to advertise. I think it was -- and I think 22 part of this also had to do with there were some 23 concerns staff had at one point that they couldn't 24 advertise the -- they could advertise bingo but not 25 the actual prize amount. And so we addressed that. 0042 1 And I -- and I'm sorry. But '03 or '99, my memory 2 escapes me as to the nuances of why it changed. But 3 I'll give you -- both of you a letter back. 4 COMMISSIONER COX: Well, Billy, if you 5 would just work with Stephen and help me understand 6 what changed there and what impact, if any, it has 7 ongoing. 8 MR. ATKINS: We will. It -- it sounds 9 like what you're looking for is a legislative history. 10 COMMISSIONER COX: Well, and it -- what 11 I'm trying to understand is that when I came on this 12 board in 2002, I -- I am certain that I was told that 13 we could not ad -- we, the commission, could not 14 advertise or promote bingo. 15 MR. ATKINS: Well, I think the sticky 16 point, Commissioner, is there's language in the act 17 that says we can, but there's no appropriation to do 18 so. 19 COMMISSIONER COX: I recognize that 20 distinction, but I'm confused as to why there is one 21 and not the other. And maybe that happens all the 22 time. 23 MR. ATKINS: I -- we will -- we will do 24 our best. I -- I want to say, going in, that we're -- 25 COMMISSIONER COX: I would like to know 0043 1 what the folks over there were intending to do when 2 they changed the act. 3 MR. FENOGLIO: To the extent that we 4 can, we'll work with you, and hopefully we can give 5 you one sheet of paper instead of two. 6 COMMISSIONER COX: That would be great, 7 if you could. That would be helpful. 8 Thank you, Mr. Chairman. 9 CHAIRMAN CLOWE: Thank you, 10 Commissioner Cox. 11 And I just have to throw in a 12 cautionary comment about something that I think you're 13 aware of, Steve, and -- and certainly this commission 14 is aware of it, and that is that when you begin to 15 advertise and promote the gaming activity, there is a 16 large segment of this state's population that is 17 adversely reacting to that. And it has to be done 18 with respect and with evenhandedness so that those who 19 have an opinion about that are not given cause to be 20 concerned and to take offense at that activity. That 21 is a realistic respect that needs to be given to that 22 element. 23 MR. FENOGLIO: I agree. 24 CHAIRMAN CLOWE: It's just -- you know, 25 Texas is different. 0044 1 MR. FENOGLIO: Well, I'm not so sure 2 it's that different, but, you know, I think there's 3 probably a third to 40 percent of the highest number 4 I've seen that's -- of the population that's opposed 5 to the active promotion of gaming. But, you know, you 6 do it in the lottery and, you know, you have the 7 authority in -- in other forms to do so. But I agree 8 with you, it's a -- it's a difficult trail you walk. 9 CHAIRMAN CLOWE: And I think you -- you 10 named the right percentage. And now I want to say 11 again, the difference in bingo and lottery. You know, 12 we own the lottery. It's our business. 13 MR. FENOGLIO: Sure. 14 CHAIRMAN CLOWE: We regulate the bingo, 15 charitable bingo, in this state. It is not our 16 business. And that is a big difference. 17 But, Stephen, I -- I think 18 Commissioner Cox's questions has brought this item to 19 the agenda. And Phil's report, all this information, 20 and this good discussion is exemplary of the 21 commission's interest and concern about the declining 22 activity of bingo. And my questions go to not wanting 23 to hear -- and if it is being heard, corrected -- that 24 the division is having some kind of impact on 25 operation of bingo in this state. 0045 1 My -- my hope is we will be operations 2 neutral on our regulatory activities but do the best 3 job we can of executing the regulatory 4 responsibilities we have vis-a-vis the Bingo Enabling 5 Act. And I invite your comments and others who might 6 help us in that achievement through either commission 7 meeting appearances or the BAC, which, by the way, 8 will meet next week. And Commissioner Cox and I both 9 will be there alternatively. You know, we are very 10 open to whatever help you can give Billy and his staff 11 and us through any proper avenue towards these goals. 12 MR. FENOGLIO: Sure. 13 CHAIRMAN CLOWE: Now, stay seated 14 because we're going to take the next item, which 15 you're interested in, and I think it dovetails -- 16 COMMISSIONER COX: Mr. Chairman, I have 17 a couple of more -- 18 CHAIRMAN CLOWE: Oh, sure. 19 COMMISSIONER COX: Phil, I think you 20 had a number in there that 144 counties had been bingo 21 operations conducted. 22 MR. SANDERSON: 134 counties -- 23 COMMISSIONER COX: 134 counties -- 24 MR. SANDERSON: -- that currently -- 25 COMMISSIONER COX: That's just a little 0046 1 over half. 2 MR. SANDERSON: Exactly. 3 COMMISSIONER COX: Could you have 4 somebody color code a map for me, and show it to us 5 next time, on which counties do and which counties 6 don't? 7 MR. SANDERSON: Yes, sir. And there's 8 also -- there's 146 counties where bingo is legal. So 9 there's 12 counties right now where bingo is legal 10 that it's not being conducted at. 11 COMMISSIONER COX: Okay. So maybe 12 three -- three different colors. 13 MR. SANDERSON: Okay. 14 COMMISSIONER COX: I would like to see 15 also the profile of a successful charity. I would 16 like for you to take the top ten, let's say, as far as 17 distributions and charity, and help us understand 18 where they operate. Are they in a big town, little 19 town? Are they operating in their own facility or in 20 a commercial hall? And anything -- any observations 21 you might have about what they do that other people 22 don't do. 23 MR. SANDERSON: Okay. 24 COMMISSIONER COX: And I don't mean go 25 out and do primary research. But whatever you know 0047 1 about them. If it's nothing, we don't know what 2 they're doing different, we can just give you the 3 statistics, that's fine. But let's -- I would like to 4 have an understanding of is it -- are there any new 5 ones on there? Have they all been there from the 6 beginning? When did they come in? Did they grow 7 rapidly? Are they tailing off? Just whatever you can 8 observe about the top five or ten. 9 MR. SANDERSON: Okay. Based on their 10 distributions or -- 11 COMMISSIONER COX: Yes. And then the 12 other side I'd like for you to take -- 13 MR. ATKINS: Commissioner Cox. 14 COMMISSIONER COX: Yeah. 15 MR. SANDERSON: Before you can move on, 16 can I get a little further definition of -- when you 17 say most successful, I hear you saying most successful 18 in terms of distributions. 19 COMMISSIONER COX: Uh-huh. 20 MR. ATKINS: Are you talking about a 21 straight dollar amount or are you talking about a -- 22 say, a percentage of net? Because there's going to be 23 a difference. 24 COMMISSIONER COX: Well, it -- that's a 25 good question, Billy. And it might be interesting to 0048 1 do a little bit of each. 2 MR. ATKINS: Okay. 3 COMMISSIONER COX: Maybe take the top 4 five of each, if you could do that. Good point. 5 And then the -- the next thing I would 6 like to see, is I would like to see the bottom ten. 7 And decide it however you want to, and help me 8 understand why they're still in business. 9 MR. SANDERSON: Okay. 10 COMMISSIONER COX: If it's not 11 obvious. You know, maybe they're the bottom ten 12 because they've had one unsuccessful quarter and all 13 others are successful. Maybe they're the bottom ten 14 because they've never made any money, and why in the 15 world are they in business? 16 MR. SANDERSON: You want to look like 17 at a three- to five-year period of time? 18 COMMISSIONER COX: Whatever y'all think 19 is appropriate to -- to -- I think you sense what I'm 20 looking for here. And I think one year wouldn't be 21 enough, for sure. Three to five is probably -- would 22 be appropriate to look at. Thank you. 23 CHAIRMAN CLOWE: Thank you, 24 Commissioner Cox. 25 Next, we'll go to Item Number III -- 0049 1 MR. ATKINS: Mr. Chairman. 2 CHAIRMAN CLOWE: -- on the agenda -- 3 MR. ATKINS: Mr. Chairman. 4 CHAIRMAN CLOWE: Yes. 5 MR. ATKINS: Sorry. Before you move 6 on, may I follow up on a couple of things? 7 CHAIRMAN CLOWE: Sure. 8 MR. ATKINS: I appreciate the 9 conversation. I'm not sure if I'm still clear in my 10 mind, you know, of the role of the division in terms 11 of either a strong regulator or a fair regulator 12 versus a helpful resource. But there are two issues 13 that came up that -- or three issues that I -- I would 14 like to address. In the terms of the regulation I'd 15 like to ask Mr. Fenoglio if he could also supply me 16 with those organizations he mentioned that were having 17 to submit the same information over and over again. 18 CHAIRMAN CLOWE: Sure. That's fair. 19 MR. ATKINS: Because if he can get us 20 those specific organizations, we would be very 21 interested in looking at that. If there's something 22 we need to do -- 23 CHAIRMAN CLOWE: To do a better -- 24 MR. ATKINS: -- or processes or 25 procedure, we're happy to do that. 0050 1 CHAIRMAN CLOWE: That's good. 2 MR. ATKINS: Also, and Mr. Fenoglio has 3 mentioned this a couple of times before. The 4 organization that submitted over a thousand pages 5 worth of documents, we think is the Collin County 6 Historical Society. And here's the file. And in 7 talking with the licensing manager, yes, they 8 submitted it, although we're not really sure why. It 9 wasn't requested. What was requested was three to 10 four examples of charitable activities that had been 11 performed for each of the years. The organization, 12 maybe in an overabundance of caution, decided to send 13 their entire check register. 14 And then finally kind of -- and, you 15 know, this may fall under the role of the -- of the 16 helpful resource. And I'm hoping that, again, 17 Mr. Fenoglio can help with this. He mentioned the 18 pull-tab rule that was amended. 19 Mr. Fenoglio is also part of a work 20 group that has been formed for several years now 21 dealing with other types of bingo games that may be 22 authorized under the current statute that we thought 23 would be beneficial for the organizations conducting 24 bingo of all sizes, from the smallest on up. And, you 25 know, we think it would be beneficial if we got a lot 0051 1 more input to that group. And so the work group is 2 there. It's formed. It's on our website. And we 3 would be happy to receive any information. 4 CHAIRMAN CLOWE: Steve, do you want to 5 answer Billy's comments. 6 MR. FENOGLIO: On the first two, I will 7 be happy to provide that information. I think there 8 were actually two organizations that submitted over a 9 thousand pages. And my understanding is there were a 10 number of phone conversations back and forth that 11 aren't documented, because I asked as to what was 12 prompting this voluminous response. 13 As far as the alternative gaming, I 14 don't think I'm still listed on that group. I've 15 written a couple of times asking to be included. And 16 we did -- we have presented some stuff to them. And I 17 guess we're still waiting for feedback from the staff 18 on an alternative product. But we certainly have 19 worked with that work group and will continue to work 20 with that work group. 21 CHAIRMAN CLOWE: Well, and Billy, I 22 don't want to sidestep your question for clearer 23 definition. It's -- it's a difficult thing to give a 24 precise definition. But I'm trying to describe, to 25 the best of my ability, how I would like us to be seen 0052 1 in our role as a regulator. And I guess you have to 2 work through it almost day-by-day and 3 example-by-example. 4 And I think the next item on the agenda 5 is probably a pretty good example. It's one that we 6 worked with over the year, or years, with the 7 industry. There was a disagreement. We tried to work 8 it out, as best we could, to resolve the disagreements 9 and the different opinions. And finally, when it came 10 down to it, the staff presented the issue and the 11 commissioners voted on it. And we have determined we 12 want to follow on it and observe the results. That, 13 in my mind, is the best way to achieve what I see as 14 our goal. I don't think you're ever going to have an 15 industry that gives you the best regulator award. I 16 don't think you want that. 17 On the other hand, you don't want to be 18 seen as truly and honestly oppressing and detrimental, 19 and having a real negative impact, and driving the 20 industry that you're regulating away beyond the 21 statutory requirements. 22 MR. ATKINS: And I didn't -- I didn't 23 mean, Mr. Chairman, that I was trying to put y'all on 24 the spot to define it right then. I was just, again, 25 trying to, to the best of my ability, address both of 0053 1 those elements that you had laid down. 2 CHAIRMAN CLOWE: And it's -- 3 MR. ATKINS: If it's -- if it's right 4 or wrong, like you say, it's a work in progress. 5 CHAIRMAN CLOWE: And it's a fair 6 question or a fair comment. I think bingo is getting 7 more attention from the commission currently than it's 8 ever gotten before. I think you have a genuine 9 interest on the part of the commissioners about what 10 kind of a job we're doing, how we can do a better job, 11 what are the problems in the industry, how can we 12 understand them and deal with them. 13 And -- and, Mr. Fenoglio, you know, we 14 continually invite yours and Mr. Bresden's and 15 everyone's in the industry's input. There are some 16 things this commission I think can definitely do 17 better. There are other things the commission hasn't 18 any involvement with whatsoever and can wish you well 19 in your efforts in some other way. But the interest 20 is there. And that's -- in my mind, you want to say, 21 well, why have you devoted an hour and five minutes to 22 this subject. It's because this commission cares 23 about what's going on in bingo in this state. That's 24 our job, as I see it. 25 MR. FENOGLIO: And I don't think 0054 1 there's any question, Mr. Chairman and Commissioner 2 Cox, that y'all have taken far more interest in 3 charitable bingo over the last two or three years than 4 the commissioners -- and I mean no disrespect to the 5 prior commissioners. But it was not on their agenda 6 for charitable bingo. It was an afterthought. And 7 the industry does appreciate very much y'all's active 8 involvement and asking the type of penetrating 9 questions that you do. 10 COMMISSIONER COX: Mr. Chairman. 11 Billy, as to your question, it is a 12 work in progress, but I have a suggestion. I don't 13 think it's strict or lax or any of those things that 14 we look for. I think we look for fair and competent 15 regulation. And that's -- two weeks from now I may 16 something a little different. That's what strikes me 17 right now as where I would like to see us to be. And 18 if our regulatees could say about us, and would say 19 about us, that we are fair and we are competent, and 20 that our other interest groups, the legislators, state 21 auditors, et cetera, were to say, yes, in fact, they 22 are fair and competent, then I think we would work it 23 there very well. 24 CHAIRMAN CLOWE: Thank you, 25 Commissioner Cox. 0055 1 Anything further on this item? 2 Then we will move to Item Number III, 3 report, possible discussion and/or action on 4 implementation of new administrative penalty guideline 5 rules. 6 Mr. Atkins. 7 MR. ATKINS: Thank you, commissioners. 8 We wanted to, this morning, give you an update on the 9 implementation of the two new administrative penalty 10 rules that you adopted at your April 5th meeting. 11 Those rules were filed with the Texas Register on 12 April 5th, 2006. They were published in the April 13 21st issue of the register, and are effective as of 14 April 5th. 15 The bingo division staff has held their 16 initial meeting regarding the implementation of these 17 rules on April 10th. At that meeting the following 18 actions were identified, and plans made to followed 19 through on, one, the identification of existing 20 procedures that need updating and new procedures that 21 need to be written; two, the identification of 22 internal forms that need to be updated or developed; 23 Three, enhancements that need to be made to the 24 automated charitable bingo system and other operating 25 systems that the division uses; four, the methods of 0056 1 notification to the bingo industry regarding these new 2 rules, including announcements on the Bingo Bulletin 3 and on the division website, a letter to all 4 licensees, special inserts and regular division 5 mailings and the addition of information to the 6 operator training program; five, notification and 7 education of agency staff on these rules and their 8 implementation; and six, the coordination of meetings 9 with staff from legal and enforcement, as well as 10 internal audit, relating to implementation. 11 The bingo division staff met with legal 12 enforcement on April 13th, and was staffed for an 13 internal audit on April 25th. As a result of those 14 meetings additional items have been identified that 15 are being addressed by staff. At their initial 16 meeting in early April, bingo staff set a target 17 implementation date of July 1st. This date will be 18 monitored and based on the results of staff's meetings 19 with other divisions, as well as their progress on 20 division preparations adjusted if necessary. 21 And I would be heavy to answer any 22 questions that you may have. 23 CHAIRMAN CLOWE: Mr. Fenoglio. 24 MR. FENOGLIO: Yes. I met with -- 25 called Billy yesterday. He and I played telephone 0057 1 tag. And I met with him briefly and -- this morning. 2 And I found out we're going to meet later to discuss 3 some of the issues that I've seen. And I think 4 they're premature to talk with y'all about. I'd be 5 happy to question answer any questions, Mr. Chairman. 6 That came off as a little harsh. But I think at this 7 point it's better to have a discussion with staff. 8 CHAIRMAN CLOWE: Sure. And I'm glad 9 you-all are working together. And I think we'll end 10 up with a better result because of it. 11 MR. FENOGLIO: I certainly hope so. 12 CHAIRMAN CLOWE: Great. 13 Thank y'all very much. 14 COMMISSIONER COX: Can we have a break, 15 Commissioner? 16 CHAIRMAN CLOWE: Yes, sir. 17 And -- and when we return from a short 18 break, I'm going to call on the internal auditor for 19 Item Number VII out of order. So if you will be 20 prepared. 21 We will take a short 10-minute recess. 22 (Recess.) 23 CHAIRMAN CLOWE: Now, we will come back 24 to order, and we'll go to Item Number VII, 25 consideration of, possible discussion and/or action on 0058 1 external and internal audits and/or reviews relating 2 to the Texas Lottery Commission and/or the internal 3 audit department's activity. 4 Ms. Melvin. 5 MS. MELVIN: Good morning, 6 commissioners. For the record, my name is Catherine 7 Melvin, director of the internal audit division. I 8 have no new items to report this morning. But I'm 9 happy to do a status of the existing state auditor's 10 office audits that are ongoing of the agency. No 11 changes in their status, as reported last time. But I 12 can run through an update, if you would like. 13 COMMISSIONER COX: Roger that. 14 CHAIRMAN CLOWE: Yes, please. 15 MS. MELVIN: There's several ongoing. 16 But it just kind of helps to remember what we have in 17 play. First audit is a security audit. The final 18 report is anticipated to be released Friday, May 5th. 19 The state auditor's office auditors working on that 20 project are planning to attend the next commission 21 meeting, that meeting on the 17th, to discuss that 22 report. The next audit is the human resources. 23 COMMISSIONER COX: Let me stop you on 24 that one, Catherine. I got something in an e-mail 25 from you this morning. 0059 1 MS. MELVIN: Yes. 2 COMMISSIONER COX: Was that the 3 security audit? 4 MS. MELVIN: No, sir. Not -- 5 COMMISSIONER COX: It was addressed to 6 Mr. Keel. Gary seems to know what it was. 7 MR. GRIEF: I can tell you what that 8 is. 9 COMMISSIONER COX: Commission Cox, I 10 think it was an e-mail from Mr. Keel, indicating to 11 you and Mr. Sadberry and myself that the security 12 audit had been released -- 13 MR. GRIEF: To the OIC. 14 MS. MELVIN: Right. Yeah. What the -- 15 the practice of the state auditor's office is to 16 release their reports to the legislative audit 17 committee two days before public release. 18 COMMISSIONER COX: I see. Okay. 19 CHAIRMAN CLOWE: So that's what's 20 occurred. 21 COMMISSIONER COX: So we got it when 22 the legislative audit committee got it -- 23 MS. MELVIN: Yes. 24 COMMISSIONER COX: -- and the public 25 will get it on Friday. 0060 1 MS. MELVIN: Yes. 2 COMMISSIONER COX: That's what you 3 were -- 4 MS. MELVIN: It's a courtesy that 5 they -- as you know, they report directly to that 6 audit committee. And that's been the practice for 7 many years. 8 Any other questions about the security 9 audit? 10 COMMISSIONER COX: No. 11 MS. MELVIN: Okay. The human resources 12 audit has been completed. That report is anticipated 13 to be released in June. The Lotto Texas audit, same 14 time line for that audit. A report is anticipated in 15 June, also. The procurement audit is the most recent 16 audit that started. They are still in planning 17 stages. And at our last meeting they anticipated a 18 report for that in August, September, 2006. 19 And just lastly, I don't know if I 20 mentioned this in previous commission meetings, but 21 the fifth piece of the five phase audit of the Texas 22 Lottery Commission at the state auditor's office is 23 conducting is the financial audit. No movement on 24 that yet. So I don't really have much to report, 25 other than just informally go over discussions with 0061 1 that office seem to indicate that it will be a 2 straightforward financial audit. They anticipated 3 contracting with a vendor much like they did last 4 year. The state auditor's office, I believe, is 5 planning to issue that opinion but oversee the vendor 6 who will do the work. 7 COMMISSIONER COX: Now, are -- is the 8 state auditor also going to oversee the drawings 9 audits? 10 MS. MELVIN: No, sir. They did reply 11 to us. They asked us to move forward on that. They 12 will not oversee that work. 13 COMMISSIONER COX: Now, what about the 14 SAS 70 work at GTECH? 15 MS. MELVIN: The SAS 70 audit is not 16 something that we procure. We would not seek their 17 approval for that audit. We do keep them informed, 18 and we share the results of that one. 19 COMMISSIONER COX: Okay. 20 CHAIRMAN CLOWE: Thank you, Ms. Melvin. 21 MS. MELVIN: Thank you. 22 CHAIRMAN CLOWE: Next, we'll return to 23 Item Number V, consideration of, possible discussion 24 and/or any -- or action on nominations and/or 25 appointments to the bingo advisory committee. 0062 1 Mr. Atkins. 2 MR. ATKINS: Commissioner Cox, I 3 believe you skipped Item IV, the 2005 charitable bingo 4 annual report. 5 CHAIRMAN CLOWE: I did indeed. I 6 apologize. Let's go back to that. 7 Report, possible discussion and/or 8 action on the 2005 charitable bingo annual report. 9 Mr. Atkins. 10 MR. ATKINS: Thank you, Mr. Chairman, 11 Commissioner Cox. As you -- as has been reported to 12 in the past, one of the action items from the agency's 13 2005, 2007 comprehensive business plan was the 14 publication of an annual report on charitable bingo 15 activities. The staff is in the process of finalizing 16 the 2005 charitable bingo annual report. This report 17 will be an additional element of the division's 18 educational efforts for licensees in the general 19 public. 20 The report contains useful information 21 necessary to remain in compliance with the Bingo 22 Enabling Act and charitable bingo administrative 23 rules, as well as historical and current conductor 24 information. Additionally, the report contains 25 information of many recent initiatives implemented by 0063 1 the division. 2 You have in your notebook a copy of the 3 table of contents for the report. And our purpose in 4 bringing this matter to you today to see if there is 5 any additional information that you would like to see 6 in the report. Our plan is to present this same item 7 to the BAC at their meeting next week. And if they 8 don't have any suggested changes, then we will move 9 forward with publication. 10 Our intent is to publish this document 11 electronically on the website. And, of course, we'll 12 also be able to produce hard copies for those who may 13 request it. I would be glad to answer any questions 14 you may have. 15 COMMISSIONER COX: Billy, I notice the 16 first three core values division and commission 17 statement. Are those synonymous with those of the 18 Texas Lottery Commission? 19 MR. ATKINS: Yes, sir, they are. And I 20 apologize. This is actually an old copy. That will 21 be agency core values, agency division, and then the 22 charitable bingo commission statement. 23 COMMISSIONER COX: Thank you, 24 Commissioner. 25 CHAIRMAN CLOWE: Thank you. 0064 1 Thank you, Mr. Atkins. 2 And now we will take up Item Number V, 3 the possible discussion and/or action on nominations 4 or appointments to the BAC. 5 Mr. Atkins. 6 MR. ATKINS: Commissioners, this item 7 was placed on the agenda in the event you had the 8 opportunity to individually interview the nominees 9 that had been put forward by the BAC, and if you were 10 prepared to take action today. As you know, due to 11 scheduling issues, those interviews have not occurred, 12 so we will continue to work to schedule those 13 interviews for you and bring this item back for your 14 consideration at a future meeting. 15 CHAIRMAN CLOWE: Very good. Thank you. 16 Next, Item Number VI, report, possible 17 discussion and/or action on the agency's strategic 18 plan for 2007-2011. 19 Mr. Elrod. 20 MR. ELROD: Good morning, 21 commissioners. 22 COMMISSIONER COX: Good morning. 23 MR. ELROD: I'm Robert Elrod from the 24 media relations division. I'm here today to give a 25 report on the agency's strategic plan for 2007 through 0065 1 2011. A second draft of the strategic plan is 2 currently being reviewed by Anthony and the division 3 directors. And a third draft will be made available 4 to the commission for review in a couple of weeks. 5 After we've incorporated your comments, we will 6 request your final sign-off on the strategic plan as 7 an action item at either the first or the second 8 commission meeting in June. 9 Is this not on? Apparently not. 10 That's all I have today unless you have any 11 questions. 12 CHAIRMAN CLOWE: Were you able to get 13 his -- 14 THE REPORTER: Not some of it. 15 CHAIRMAN CLOWE: Would -- would you 16 start over? Just repeat it. 17 MR. ELROD: I always do better the 18 second time. 19 Good morning, commissioners. I'm 20 Robert Elrod from the media relations division. I'm 21 here today to give a report on the agency's strategic 22 plan for 2007 through 2011. The second draft of the 23 strategic plan is currently being reviewed by Anthony 24 and the division directors, and the third draft will 25 be made available to the commission in a couple of 0066 1 weeks. After we have incorporated your comments, we 2 will request your final sign-off of the strategic plan 3 as action item in either the first or the second June 4 commission meeting. That's all I have today unless 5 you have any questions. 6 COMMISSIONER COX: No, sir. 7 CHAIRMAN CLOWE: You did that 8 perfectly. Thank you. 9 Commissioner Cox, my understanding is, 10 regarding items eight and nine, that there's no action 11 to be taken. Acting executive director, Sadberry, is 12 out of town on business today. So with your 13 permission, we'll pass those items. 14 COMMISSIONER COX: Yes, sir. 15 CHAIRMAN CLOWE: We'll go, then, to 16 Item X, report, possible discussion and/or action on 17 the agency's contracts. 18 Mr. Jackson. 19 MR. JACKSON: Good morning, 20 commissioners. For the record, my name is Tom 21 Jackson, purchasing and contracts manager for the 22 Texas Lottery Commission. 23 In your notebooks under agenda Item 24 Number X is a report on the prime contracts that has 25 been updated for your review. It is the same one that 0067 1 was presented to that commission meeting. There are 2 no changes. And I would be happy to answer any 3 questions. 4 COMMISSIONER COX: No questions. 5 CHAIRMAN CLOWE: Thank you, 6 Mr. Jackson. 7 Commissioner Cox, next item, Number XI, 8 consideration of, possible discussion and/or action on 9 the appointment and employment of an executive 10 director. 11 I have nothing on that item. Do you 12 have anything? 13 COMMISSIONER COX: No, sir. 14 CHAIRMAN CLOWE: Then next we'll move 15 on to Item Number XIV, consideration of the status and 16 possible entry of orders in the docket solicited in 17 the agenda represented by the letters A through J. 18 Ms. Mitchell. 19 MS. KIPLIN: Mr. Chairman, if I might 20 intervene, we've got an issue that we would like to 21 revisit in the research on tab E, the contested case 22 proceeding on tab E. And with your permission, we 23 would like pass on that. 24 CHAIRMAN CLOWE: So that will be item 25 number E, docket number 362-06-1241, Quick Food Mart 0068 1 #1. 2 MS. KIPLIN: Yes, sir. 3 CHAIRMAN CLOWE: That item will be 4 removed from the agenda and passed. 5 MS. KIPLIN: Thank you. 6 CHAIRMAN CLOWE: So we will now take up 7 those dockets represented by the letters A through D, 8 and F through I. 9 Ms. Mitchell. 10 MS. MITCHELL: Thank you, 11 commissioners. For the record, my name is Kristen 12 Mitchell. I'm the enforcement attorney for the 13 commission. Under tab 14 you have ten proposed orders 14 before you. Eight are proposals for decisions. And 15 one is an agreed order and, of course, the item that 16 we've requested to be pulled this morning. 17 Under sub tabs A through D, these are 18 four proposals for decisions you have before you today 19 for lottery cases for failing to maintain adequate 20 funds in their accounts to pay for lottery tickets 21 sold. In each of these four cases -- and they're 22 sub tabbed A through D -- the administrative law judge 23 recommended revocation of their licenses, and the 24 staff recommends that commission adopt these proposals 25 for decisions. 0069 1 Under sub tab F, there is a proposal 2 for decision involving a lottery sales agent Seven 3 Heaven, Inc., d/b/a Shop N Carry. And their license 4 was revoked because of an officer or owner of ten 5 percent or more of the stock had a disqualifying 6 conviction. And the administrative law judge 7 recommended revocation of their license based upon the 8 disqualifying conviction. And the staff recommends 9 that the commission adopt his proposal for decision. 10 Under sub tab G there's a proposal for 11 a decision involving a mass bingo worker hearing 12 involving an individual, Tony Aguilar, who applied to 13 be on the registry of bingo workers. The 14 administrative law judge recommended that his 15 application be denied based upon a disqualifying 16 conviction. And the staff recommends adopting this 17 proposal for decision. 18 Under sub tab H is another proposal for 19 decision involving a bingo worker, Javier Villarreal, 20 who is already on the worker registry. In that case 21 the administrative law judge recommended that he be 22 removed from the worker registry based upon his 23 criminal conviction. And the staff recommends that 24 you adopt that proposal for decision in that case. 25 Under sub tab I is a proposal for 0070 1 decision for a bingo case in -- for C-5 Red Lick/Leary 2 Volunteer Fire Department, a bingo conductor 3 organization that failed to timely remit prize fees 4 and penalties and failed to submit an additional bond 5 as required. The PFD recommended revocation of their 6 license. And the staff recommends adopting the 7 proposal for decision. 8 Sub tab J is the agreed order involving 9 Quick Shop, Inc. d/b/a King Tobacco. In this case an 10 employee accepted pay for a lottery ticket by credit 11 card. And the agreed order calls for a ten day 12 suspension. And the staff recommends that you adopt 13 the agreed order in this case. 14 CHAIRMAN CLOWE: Any questions? 15 COMMISSIONER COX: Yes, sir. 16 Mr. Anger, I have a question on one of 17 these cases that actually applies to two of them, and 18 I think probably you're the right person to ask. 19 Look under tab A, if you will. 20 MR. ANGER: I have that, sir. 21 COMMISSIONER COX: On page two of the 22 proposal for decision. 23 MR. ANGER: Yes, sir. 24 COMMISSIONER COX: I'm accustomed to 25 seeing either three or four attempts to draw before 0071 1 there is a revocation. And here there happen to be 2 five. I notice that two of them are on November 9 and 3 two of them are on November 16. 4 Help me understand why there might be 5 multiple draws on a -- on a single day. 6 MR. ANGER: And -- and I don't have the 7 specific detail regarding this particular account. 8 And -- and it is unusual to see two sweeps on -- on 9 the same day. Now, what is common is that a retailer 10 will have NSF sweeps that exceed our three strikes 11 rule because of the timing of the notification. We'll 12 do a sweep, we get notification a few days later that 13 it didn't pass and it's already time for the next 14 sweep on that account. And so that -- that sweep 15 attempt goes through. 16 I can go back and do a little research 17 on this and try to determine when the secondary sweeps 18 were for the smaller amounts on -- on those same 19 dates. 20 COMMISSIONER COX: Well, it seems that 21 the first sweep was, in this cases, $101.88. 22 MR. ANGER: Yes, sir. 23 COMMISSIONER COX: And if that didn't 24 work, 1,084.27 probably isn't going to work either. 25 So I -- and I'm wondering why we would be sweeping for 0072 1 so much larger an amount on the same day. Were sales 2 that great? Is that how it works? Or just what was 3 going on there? 4 MR. ANGER: I'll look into that. 5 COMMISSIONER COX: And then you see the 6 same thing on November 16th. 7 MR. ANGER: Yes. 8 CHAIRMAN CLOWE: The first sweep was 9 $69.69. If that didn't work, 785.30 probably isn't 10 going to either. 11 MR. ANGER: Absolutely. 12 COMMISSIONER COX: And so it just 13 looked a little unusual. And I'm just really trying 14 to understand -- not this case, because I'm sure 15 everything is fine here -- but how we work. 16 MR. ANGER: I'll investigate that and 17 get back to you and provide you with information on 18 that. 19 COMMISSIONER COX: Good. Thank you. 20 And, Mr. Chairman, I have one further 21 question. And this is on tab F, page three of the 22 proposal for decision. 23 Michael, this one isn't yours. 24 It says here, in findings of fact, item 25 three, on November 25, 2002, this person was convicted 0073 1 of possession of a gambling device, a Class A 2 misdemeanor. And then on April 3rd, 2006, some three 3 and a half years later, a hearing was held to consider 4 disciplinary action. 5 Can you help me understand the three 6 and a half years. 7 MS. MITCHELL: I can pull that file and 8 get back to you on that. I don't have that file in 9 front of me right now to -- but what I understand the 10 process to be is an investigation is completed. And 11 at this point what the -- the way the process works, 12 the investigation is completed and an attorney with 13 the enforcement division issues a memo to lottery ops 14 notifying them of the conviction and possibly -- 15 possible need of disciplinary action. And then it's 16 then referred back to enforcement for disciplinary 17 action. 18 And I know that at some point in 19 this -- between 2003 and 2006, during the reorder, 20 there was a backlog of cases. But I understand 21 this -- there shouldn't be this long of a lag period 22 anymore based on the way the process is to date. But 23 I can find out and get back to you about what happened 24 in this particular case and why it took so long. 25 COMMISSIONER COX: And I'm really not 0074 1 concerned about the specific. You were correct to go 2 to the general. That is my concern. Let's say that 3 this person -- let's just take this case on November 4 25, 2002, this person was convicted of possession of a 5 gambling device. In other words, they're running 6 eight-liners right alongside selling Texas Lottery 7 tickets is my guess, the most egregious thing I can 8 think of anybody doing. And when do we find out about 9 that? How do we find out about that and when? 10 MS. MITCHELL: It's my understanding 11 that a report is run on these retailers, the 12 individuals who have ownership and the licensees. And 13 I'm -- I'm not -- I'll have to get back to you on how 14 often these reports are run. But the background 15 specialists, I believe, are the ones now that -- 16 that security and enforcement has been combined, that 17 run the background checks on these retailers. And I'm 18 not sure how often that takes place. But I can get 19 back to you on that. 20 COMMISSIONER COX: And what I'm 21 wondering is, is there a way that we find out about it 22 relatively on a realtime basis or do we only find out 23 when they -- their application comes up or their 24 license comes up for renewal and then we check into 25 them and find, well, golly, two years ago, or however 0075 1 long it might have been, somebody came out of 2 compliance. Do we have any kind of requirement that 3 licensees report that, hey, I'm now out of 4 compliance? And is there any kind of sanction, if 5 they don't report that? 6 MS. MITCHELL: Yes, there is. On their 7 application, they're notified that they have the duty 8 to report any change in the application within ten 9 days. And we do seek enforcement action against them 10 not only for a disqualifying conviction but usually 11 that goes hand in hand with the fact they didn't 12 report to the commission within ten days of that 13 conviction. 14 COMMISSIONER COX: So in this case, I'm 15 going to guess that this person didn't report that, 16 since it took three and a half years. And so you've 17 got them probably not only for the violation but for 18 not reporting the violation -- or the conviction and 19 not reporting the conviction. 20 MS. MITCHELL: Yes. I'm not sure in 21 this case. The only reason we -- we don't do that is 22 if there are times where there's been a conviction 23 after the application period -- well, actually, in 24 most cases they haven't timely reported to us. And 25 we -- whenever we are drafting the notice of hearing, 0076 1 we include both -- 2 COMMISSIONER COX: Okay. 3 MS. MITCHELL: -- allegations. 4 COMMISSIONER COX: So we -- this is not 5 a process by which we automatically receive an e-mail 6 when one of our licensees is convicted of something. 7 MS. MITCHELL: That's correct. 8 COMMISSIONER COX: And short of that, 9 we just -- we're going to have this kind of thing, but 10 we try to minimize it. 11 MS. MITCHELL: That's correct. 12 COMMISSIONER COX: Thank you, 13 Mr. Chairman. 14 CHAIRMAN CLOWE: Any further questions? 15 Would you care to make a motion on this? 16 Mr. Anger, do you have a comment? 17 MR. ANGER: I do have a response for 18 you, Commissioner -- 19 COMMISSIONER COX: Oh, okay. 20 MR. ANGER: -- and the information you 21 requested. 22 COMMISSIONER COX: Sure. 23 MR. ANGER: The separate transactions 24 on those dates are the penalties and fees from the NSF 25 sweeps from the weeks prior. And what happens is that 0077 1 the system calculates those separately and maintains 2 those separately. And so it conducts two sweeps. It 3 conducts a sweep of the sales from the prior week. 4 And then it conducts the sweep for the penalties and 5 fees. And in this case, there was an NSF that was 6 still outstanding. And so it is unusual from what you 7 normally see, because there's usually a period of time 8 that exists between NSFs. In this case, as you will 9 see, these are in consecutive weeks. 10 COMMISSIONER COX: Okay. 11 MR. ANGER: So in three consecutive 12 weeks we had extra sweeps. 13 COMMISSIONER COX: Okay. So now, let's 14 look at them again and let's see if we can understand 15 what sunk this ship. That was tab A, wasn't it? 16 MR. ANGER: Yes, sir. 17 COMMISSIONER COX: Okay. So the first 18 one is November 2nd, 2005, in the amount of $893.90. 19 Was that your guess -- or maybe you know. Would that 20 be for ticket sales? 21 MR. ANGER: Yes, sir. 22 COMMISSIONER COX: Okay. Then the next 23 one is for 101.88. Would that be for penalties? 24 MR. ANGER: That's for penalties and 25 fees for that prior amount, goes to -- 0078 1 COMMISSIONER COX: Okay. 2 MR. ANGER: -- that sweep that failed 3 to pass the prior week. 4 COMMISSIONER COX: Then 101.84, again, 5 is ticket sells. 6 MR. ANGER: Yes, sir. 7 COMMISSIONER COX: $69 is penalties. 8 MR. ANGER: That's right. 9 COMMISSIONER COX: And 785.30 is ticket 10 sales. 11 MR. ANGER: Yes, sir. 12 COMMISSIONER COX: So it wasn't the 13 penalties that sunk this ship. It was they didn't 14 have the money for the sales. 15 MR. ANGER: That's correct. 16 COMMISSIONER COX: Okay. Thank you, 17 Michael. 18 MR. ANGER: You're welcome. 19 COMMISSIONER COX: Mr. Chairman, what 20 would be the appropriate motion? My questions did not 21 in anyway indicate that I disapprove of entering these 22 orders. 23 CHAIRMAN CLOWE: Then I would suggest 24 the motion be that the commission adopt the staff 25 recommendation on dockets represented by the letters A 0079 1 through D, and F through I. 2 COMMISSIONER COX: So moved. 3 CHAIRMAN CLOWE: Second. 4 All in favor, please, say aye. 5 THE COMMISSIONERS: Aye. 6 CHAIRMAN CLOWE: Opposed. No. 7 The vote is two-zero in favor. 8 We will take a minute to sign these 9 orders. And then we will go past Item XV, report by 10 the acting executive director since he is absent, as I 11 have previously announced. And we'll go to Item 12 Number XVI, report by the charitable bingo operations 13 director and possible discussion and/or action on the 14 charitable bingo operations division's activities. 15 Billy, if you'll just give us a minute, 16 we'll go to your item. 17 Mr. Atkins. 18 MR. ATKINS: Thank you, commissioners. 19 There's a couple of items I'd like to 20 outline on my report. As you know, the BAC meeting 21 that's scheduled for next week, I believe those 22 notebooks have been finalized. The agenda was filed 23 yesterday. And the notebooks have been sent to the 24 members as well as yourself, I believe, last evening. 25 Quarterly reports for the first quarter of 2006 were 0080 1 due on April 25th. As you know, this was the first 2 quarter that organizations could file their report 3 electronically. 4 We had a total of 46 organizations take 5 advantage of that. This first time, 44 conductors and 6 two lessors, and the staff has indicated to me that 7 that process moved very smoothly. We appreciated all 8 the help we received from the IT division in 9 implementing this. Our plan is, once accounting 10 services gets past this peak period, we're going to 11 follow up and do a further analysis of it, including 12 following up with some of the organizations and 13 getting their comments on it. 14 And then the last thing I had is, I did 15 include in your notebook a copy of the conference 16 brochure for the upcoming NAGRA conference that's 17 scheduled in June. Again, Phil Sanderson and I will 18 be attending. I talked with Ms. Kiplin, and she 19 indicated she may be interested in sending some 20 attorneys or enforcement staff. 21 CHAIRMAN CLOWE: And where will that 22 be? 23 MR. ATKINS: It's in Scottsdale. 24 COMMISSIONER COX: It's hot in 25 Scottsdale. 0081 1 CHAIRMAN CLOWE: But it's dry. 2 COMMISSIONER COX: It is dry. 3 CHAIRMAN CLOWE: Any questions? 4 Thank you, Billy. 5 Is there anyone wishing to make public 6 comments to the commission at this time? 7 Commissioner Cox, with your approval, I 8 would like to move that we go into executive session. 9 At this time, I move that the Texas 10 Lottery Commission go into executive session to 11 deliberate the appointment and employment evaluation 12 and/or duties of the executive director, acting 13 executive director, and/or deputy executive director, 14 to deliberate the duties evaluation of the charitable 15 bingo operations director and internal audit director, 16 and to deliberate the duties of the general 17 counsel pursuant to section 551.074 of the Texas 18 Government code. 19 To receive legal advise regarding 20 pending or contemplated litigation and/or to receive 21 legal pursuant to section 551.071, paren, one, closed 22 paren, paren, A, closed paren, or B, closed paren, of 23 the Texas Government code and/or to receive legal 24 advice pursuant to section 551.071, paren, two, closed 25 paren, of the Texas Government code, including but not 0082 1 limited to Gametech International, et al, versus Greg 2 Abbot, et al; Cynthia Suarez versus the Texas Lottery 3 Commission; Shelton Charles versus Texas Lottery 4 Commission and Gary Grief; Stephen Martin versus Texas 5 Lottery Commission. Employment law, personnel law, 6 procurement and contract law, evidentiary and 7 procedural law, and general government law. 8 Is there a second? 9 COMMISSIONER COX: Second. 10 CHAIRMAN CLOWE: All in favor, please, 11 say aye. 12 THE COMMISSIONERS: Aye. 13 CHAIRMAN CLOWE: The vote is two-zero. 14 The Texas Lottery Commission will go 15 into executive session. The time is 10:45 a.m. Today 16 is May 3rd, 2006. 17 I think the only individuals the 18 commission would like to stand ready to come into 19 executive session is Ms. Kiplin, Mr. Atkins, and 20 Mr. Grief. All others on the staff, please go about 21 your business. I intend -- they were going to have a 22 very short executive session. It will not be 23 lengthy. And pending anything that occurs in 24 executive session that the commission might need to 25 deliberate in the public session, we will probably 0083 1 convene and adjourn shortly. 2 Anything further, Commissioner Cox? 3 COMMISSIONER COX: No, sir. 4 CHAIRMAN CLOWE: Thank you. 5 (Executive Session.) 6 CHAIRMAN CLOWE: The Texas Lottery 7 Commission is out of executive session. The time is 8 12:35 p.m. Is there any action to be taken as a 9 result of the executive session? 10 If not, we will move back to the public 11 agenda. We have covered all those items. Is there 12 any other business to come before this commission at 13 this time? If not, thank you-all very much. We are 14 adjourned. 15 (Concluded at 12:35 p.m.) 16 17 18 19 20 21 22 23 24 25 0084 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, SHELLEY N. JONES, Certified 7 Shorthand Reporter in and for the State of Texas, do 8 hereby certify that the above-captioned matter came on 9 for hearing before the TEXAS LOTTERY COMMISSION as 10 hereinafter set out, that I did, in shorthand, report 11 said proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 16 Witness my hand on this 12th day of 17 May, 2006. 18 19 20 ________________________________ Shelley N. Jones, RPR, CSR #8058 21 Expiration Date: 12/31/06 Firm Registration #225 22 1801 North Lamar Boulevard Mezzanine Level 23 Austin, Texas 78701 (512) 474-4363 24 25 JOB NO. 060329SNJ