Overview
In accordance with Section 12 of Chapter 11 of the Massachusetts General Laws, the Office of the State Auditor has conducted a performance audit of certain activities of the Lottery for the period July 1, 2022 through June 30, 2024.
We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.
Below is a list of our audit objectives, indicating each question we intended our audit to answer; the conclusion we reached regarding each objective; and, if applicable, where each objective is discussed in the audit findings.
| Objective | Conclusion |
|---|---|
| No; see Finding 1 |
| No; see Finding 2 |
| No; see Finding 3 |
| No; see Finding 4 |
| No; see Finding 5 |
To accomplish our audit objectives, we gained an understanding of the Lottery’s internal control environment relevant to our objectives by reviewing applicable agency policies and procedures and by interviewing Lottery staff members and management. We evaluated the design of controls over policies and procedures regarding the review and approval of sales agents’ applications. Additionally, we tested to ensure that the application controls were working as intended (1) for the approval of the sales agents’ licenses when there were no changes to ownership information and (2) for the automatic sales agent data transfer.
Furthermore, to obtain sufficient, appropriate evidence to address our audit objectives, we performed the procedures described below.
Conducting Reviews of Sales Agents’ Applications
To determine whether the Lottery conducted financial reviews, criminal background checks, and site assessments, where applicable, prior to approving, denying, or renewing sales agents’ applications as required by Sections 3.2–3.4 and 4.2.2–4.2.3 of its “Licensing Department Procedures,” we selected a statistical7 sample of 60 applications from a population of 1,856 sales agent applications during the audit period, with a 95% confidence level,8 a 5% tolerable error rate,9 and a 0% expected error rate.10
Sample of Sales Agents’ Applications
| Category Description | Number of Applications | Sample |
|---|---|---|
| New Applications that Were Approved | 1,016 | 32 |
| New Applications that Were Denied | 85 | 3 |
| Renewal Applications that Were Approved | 743 | 24 |
| Renewal Applications that Were Denied | 12 | 1 |
| Total | 1,856 | 60 |
Financial Reviews
For our sample of 60 applications, we verified the dates of the credit checks by reviewing the results of the credit checks from the credit reporting company. We compared the dates of each credit check to the approval or denial dates of the applications to ensure that the Lottery conducted the credit checks before making any decisions on the applications. For the 35 new applications in our sample that required the Intercept debt check, such as outstanding state taxes, school loans, and child support, and license debt checks, we were informed by the Lottery that it did not maintain evidence that these debt checks were performed.
Criminal Background Checks
For each of the 60 applications in our sample, we verified the date the criminal background check was performed by inspecting the background check records from the third-party provider. We compared the dates of each background check to the dates the applications were approved or denied to ensure that the Lottery performed the criminal background checks before applications were approved or denied. We followed up with the Lottery regarding any inconsistencies when it appeared that it did not conduct a complete criminal background check before approving or denying an application.
Site Assessments
For each of the 35 new applications in our sample, we verified the dates on which the site assessment was performed by inspecting the Lottery’s site assessment form related to each application. We compared the dates of each site assessment with the dates the applications were approved or denied to ensure that the Lottery performed the site assessments before the applications were approved or denied. We followed up with the Lottery regarding any inconsistencies when it appeared that it did not conduct a site assessment before approving or denying an application.
We did not identify any exceptions in our testing of site assessments. However, we determined that, during the audit period, the Lottery did not consistently conduct financial reviews and criminal background checks for all of its sales agents before approving, denying, or renewing sales agents’ applications, as required by Sections 3.2–3.4 and 4.2.2–4.2.3 of its “Licensing Department Procedures.” See Finding 1 for more information.
Missed Bank Sweeps
We sought to determine whether the Lottery monitored its sales agents’ deposits of proceeds from lottery sales and subsequently deactivated sales agents’ lottery terminals until a finance hearing was held for sales agents who were delinquent in the payment of proceeds in accordance with the Lottery’s “Credit and Collections Department Policies and Procedures.” To do this, we divided our testing in two groups: (1) second consecutively missed weekly bank sweeps and (2) three missed bank sweeps within a 12-month period.
For the second consecutively missed weekly bank sweeps, we selected a judgmental,11 nonstatistical12 sample of 37 out of a population of 233 missed bank sweeps. We inspected the sales agents’ history documented in the Lottery’s central gaming system, suspension implementation letters, and the list of missed bank sweeps that detailed extenuating circumstances. We then compared (1) the dates the sales agents’ lottery terminals were deactivated, (2) the dates of the missed bank sweep payments, and (3) the dates of the finance hearings to ensure that the Lottery deactivated the sales agents’ terminals after they missed a second consecutive weekly bank sweep until a hearing was held.
For the three missed bank sweeps within a 12-month period, we selected a judgmental, nonstatistical sample of 45 out of a population of 335 missed bank sweeps. We inspected the sales agents’ history documented in the Lottery’s central gaming system, suspension implementation letters, and the list of missed bank sweeps that detailed extenuating circumstances. We then compared (1) the dates the sales agents’ lottery terminals were deactivated, (2) the dates of the missed bank sweep payments, and (3) the dates of the finance hearings to ensure that the Lottery deactivated the sales agents’ terminals after they missed a third bank sweep within a 12-month period until a hearing was held.
We followed up with the Lottery to clarify any inconsistencies when it appeared that it did not deactivate a sales agent’s terminals after they missed a bank sweep.
Based on the results of our testing, we determined that, during the audit period, the Lottery did not deactivate sales agents’ terminals until a finance hearing was held for sales agents who were delinquent in the payment of proceeds in accordance with the Lottery’s “Credit and Collections Department Policies and Procedures.” See Finding 2 for more information.
Cigar-, Electronic Nicotine Delivery System–, or Tobacco-Related Violations
To determine whether the Lottery enforced cigar-, electronic nicotine delivery system–, or tobacco-related suspensions as required in Section 2 of the Lottery’s “[General Laws Chapter 10, Section 30B]—Lottery Sales Agent Suspension Guidelines” policy, we selected a judgmental, nonstatistical sample of 40 out of a population of 287 cigar-, electronic nicotine delivery system–, and tobacco-related violations from the audit period.
For each of the violations in our sample, we inspected the Department of Revenue’s (DOR’s) violation and appeal letters, the Lottery’s intent to suspend and suspension implementation letters, and screenshots of the sales agent’s history. These were documented in the Lottery’s central gaming system. We calculated the number of days a sales agent should have been suspended, based on DOR’s suspension period. We then compared the actual suspension outcome by the Lottery to both the number of days and the dates of the suspension period that were communicated to the sales agent. We followed up with the Lottery to clarify any inconsistencies when it appeared that it did not suspend a sales agent for the correct number of days or that it suspended sales agents for a different range of dates than what was outlined in the suspension implementation letter.
Based on the results of our testing, we determined that, during the audit period, the Lottery did not always implement suspensions for cigar-, electronic nicotine delivery system–, or tobacco-related violations for the correct number of days or at all as required in Section 2 of the Lottery’s “[General Laws Chapter 10, Section 30B]—Lottery Sales Agent Suspension Guidelines” policy. See Finding 3 for more information.
Monitoring of Sale of Lottery Products to Minors
To determine whether the Lottery monitored its sales agents to ensure that they were not selling lottery products to minors as required by Part A of Section V of the Lottery’s “Monitoring & Testing—Sale to Minors” policy, we interviewed Lottery officials to discuss the Lottery’s process for ensuring that its sales agents are not selling lottery products to minors. During the interview, Lottery officials explained that there was no monitoring of sales agents during the audit period. Furthermore, the Lottery has not updated its policy since 2013.
Based on our discussions with the Lottery, we determined that, during the audit period, the Lottery did not monitor and test its sales agents’ compliance with the statutory prohibition against the sale of lottery products to minors. See Finding 4 for more information.
Record of Suspension History of Sales Agents
To determine whether the Lottery maintained a record of suspension history when deactivating and reactivating a sales agent’s lottery license in accordance with Section 5.3 of the Lottery’s “Licensing Department Procedures,” we selected a random, nonstatistical sample of 20 out of 61 suspensions that occurred during the audit period.
For each suspension in our sample, we inspected screenshots of each sales agent’s history, which was documented in the central gaming system. We determined whether the appropriate reason code and any comments were recorded in the sales agent’s profile. We also inspected the suspension implementation letter to ensure that the sales agent was suspended for the correct amount of time.
We followed up with the Lottery to clarify any inconsistencies when it appeared that it did not use the appropriate reason code, did not suspend the sales agent for the suspension period communicated, or did not record any comments in the sales agent’s profile.
Based on the results of our testing, we determined that, during the audit period, the Lottery did not maintain an accurate record of the suspension history of its sales agents. See Finding 5 for more information.
We used a combination of statistical and nonstatistical sampling methods for testing, and we did not project the results of our testing to the corresponding populations.
Data Reliability Assessment
Application Management System
To determine the reliability of the data that we obtained for the audit period from the Lottery’s application management system, we interviewed Lottery officials who were knowledgeable about the data. We also reviewed select system controls related to access controls, configuration management, contingency planning, segregation of duties, and security management. Additionally, we confirmed that the application control worked as intended for the automatic approval of sales agents with no changes to ownership information.
From the Lottery’s application management system, we obtained a list of all approved and denied applications for sales agent applicants and renewing sales agent applicants who reported changes to ownership during the audit period. We checked the list for blank fields and duplicate application numbers. We also compared the number of approved and denied applications we received to the number that we observed during the data extraction process to confirm completeness.
Central Gaming System
To determine the reliability of the data that we obtained for the audit period from the Lottery’s central gaming system, we interviewed Lottery officials who were knowledgeable about the data. We also reviewed select system controls related to access controls, configuration management, contingency planning, segregation of duties, and security management. Additionally, we confirmed that the application control worked as intended for the automatic sales agent data transfer between the application management system and the central gaming system.
We obtained a list of all bank sweeps that were missed during the audit period from the Lottery’s central gaming system. We checked the list for duplicate identifiers, checked for data gaps in continuous data, and compared the sales agents’ names and sales agent identification numbers included in the list of missed bank sweeps to the sales agents’ names and identification numbers of all sales agents from the central gaming system. We followed up with the Lottery and reconciled any discrepancies (such as duplicate identifiers and data gaps).
To confirm the accuracy of the list of missed bank sweeps from the central gaming system, we judgmentally selected a sample of 21 missed bank sweeps from the list and compared the sales agents’ names, the dollar amounts of the missed bank sweeps, and the descriptions of the missed bank sweeps to the transactions listed on the bank report. We judgmentally selected a sample of three bank reports, and we then traced the transaction dates and amounts from these bank reports to determine the completeness of the list of missed bank sweeps.
Cigar-, Electronic Nicotine Delivery System–, and Tobacco-Related Violations Log
The Lottery documents cigar-, electronic nicotine delivery system–, and tobacco-related violations in a cigar-, electronic nicotine delivery system–, and tobacco-related violations log. We conducted interviews with the Lottery employees responsible for oversight of the log. We checked the log for illogical dates (such as requests for appeal dates made before the date the suspension was communicated to the sales agent) and duplicate records. We followed up with the Lottery and reconciled any discrepancies (such as illogical dates and duplicate records).
Upon further analysis of the violation log that we received from the Lottery, we noted that there were no violations recorded for the last four months of the audit period. We inquired with the Lottery on the missing data and were informed that its data may not be complete for various reasons, one of which was caused by a backlog in data entry for violations that occurred in February 2024.
We requested that DOR send us all the emails it sent to the Lottery containing violations related to cigars, electronic nicotine delivery systems, and tobacco during the audit period. We analyzed all violations sent by DOR to the Lottery and compared the record count of these violations sent by DOR to the number of violations recorded in the Lottery’s log. We found that 126 violations sent by DOR to the Lottery that would trigger a lottery license suspension were not included in the Lottery’s log. Accordingly, we increased the population size to include the 126 cigar-, electronic nicotine delivery system–, and tobacco-related violations received from DOR.
In addition, we selected a sample of 20 cigar-, electronic nicotine delivery system–, or tobacco-related suspensions from the log and compared the dates of the DOR violation, the sales agents’ names, the sales agents’ addresses, violations, and the suspension periods from the log to the original documents from DOR.
See Finding 6 for more information regarding the results of the incomplete records.
Suspension Log
The Lottery documents all sales agents’ suspensions in a suspension log. We conducted interviews with the Lottery employees responsible for oversight of the suspension log. We checked the suspension log for illogical dates (such as a starting date of a suspension that was documented as occurring after the reactivation date of the sales agent’s lottery license) and blank cells. We followed up with the Lottery and reconciled any discrepancies (such as blank cells).
To confirm the accuracy of the suspension log, we randomly selected a sample of 10 suspensions and compared the data recorded on the suspension log (such as the number of days suspended and the dates of the suspension) to the Lottery’s suspension implementation letters to the sales agents. To determine the completeness of the suspension log, we randomly selected 10 suspension implementation or revocation letters within the Legal Department’s files and traced these letters to the suspension log (such as the sales agent’s ID number, number of days suspended, and the start date of the suspension). We followed up with the Lottery and reconciled any discrepancies.
Based on the results of the data reliability assessment procedures described above, we determined the data was sufficiently reliable for the purposes of our audit.
| Date published: | November 26, 2025 |
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