Report claims lottery not investigating fraud complaints

DES MOINES, Ia. — The state ombudsman issued a report Tuesday alleging Iowa Lottery officials have failed to adequately protect the enterprise's customers from fraud and theft by retailers.

Iowa Citizens' Aide/Ombudsman Bill Angrick said his review of three years' worth of lottery investigations found numerous customer complaints where leads went unexplored and potential crimes were not pursued.

And, Angrick said in a 210-page report, even when the lottery substantiated complaints against retailers for fraud or theft, in many instances those retailers were not held accountable.

In general, the ombudsman found that the Iowa Lottery has maintained a weak, reactive enforcement system that fails to detect retailer dishonesty independently of customer complaints. This means that there likely have been instances of fraud — possibly large-scale fraud — that have gone undetected, he added.

"What our investigation revealed is a pattern of indifference and incuriosity in an area where customers depend on the government to protect their interests," Angrick said in a news release.

"Unfortunately, when we sought to learn what was being done to prevent and police theft by lottery retailers, the answer we arrived at was, 'Not much,' " he added.

The ombudsman said he found problems with the lottery's response to eight customers who reported they were sold tickets that appeared to have been tampered with - alleging lottery officials declined to investigate or discontinued their probes after gathering evidence which appeared to support the customers' claims.

Angrick also contended the owner of a retail store reported the systematic theft of some $86,000 in lottery tickets by four employees, but the lottery investigator backed out of the probe without conducting interviews of key witnesses.

The ombudsman said he discovered at least nine Iowa retailers and store employees who have collected five or more major wins, otherwise known as "high-tier" prizes. The odds of winning a high-tier prize, on average, are about one in 67,450, Angrick noted.

The ombudsman said his investigation was triggered by developments in Canada, where independent investigators found that lottery retailers were winning a disproportionately large number of prizes, sometimes by defrauding customers.

Angrick said he found that customer safeguards in Iowa fell well short of those in place in Canada, despite the Iowa Lottery's public claims to the contrary.

"This is an extremely serious issue, one we believe must immediately be brought to Iowans' attention so we all can have an open, frank and timely discussion about consumer protection issues in our state," Iowa Lottery chief executive officer Terry Rich said.

The lottery leader said the ombudsman's lengthy probe "did not uncover a case of large-scale fraud" involving Iowa's lottery, which he said supported Angrick's assessment that "the vast majority of Iowa retailers and clerks are honest, reputable and do not engage in fraud or theft."

Rich said the lottery agrees with or has already implemented many of the concepts in principle and 60 recommendations outlined in the report. But, he said he disagrees with some of the findings due to concerns regarding player security, game security and what he called undue governmental intrusion, red tape and impractical business application in the retail environment.

Rich said the lottery's security department handled 182 inquiries last year, compared with more than 148.1 million transactions that year for the sale and cashing of lottery tickets at about 2,500 licensed retailers in Iowa. In other words, he said, 99.999 percent of those transactions had no security-related inquiry associated with them.

"Another way of putting it is to say that the odds of anyone having a security-related concern about the sale and cashing of lottery tickets in Iowa is about 1 in 813,936," Rich said. "You have a better chance of being struck by lightning (1 in 700,000) or freezing to death (1 in 423,582) than you do of having a security-related concern about a lottery ticket in Iowa."