Spending at lottery scrutinized.

Byline: DAVID STEVES The Register-Guard

SALEM - The Oregon State Lottery Commission squandered at least $750,000 on employees for first-class airfare, classes on acting, rock music and interior design, restaurant tabs for celebrations and other questionable expenses, according to a state audit released Tuesday.

"No other state agency rewards its employees so lavishly," said Secretary of State Bill Bradbury, who oversees the Audits Division. "I would challenge you to find any business in Oregon that is run the way the Oregon State Lottery is run."

Although the spending was within its legal authority, the lottery didn't operate with the same frugality as other state agencies or profitable private businesses, Bradbury said.

The result means $472,000 less lottery revenue for schools, $157,000 less for economic development, $112,000 less for parks and salmon habitat improvements and $7,500 less to treat gambling addicts, he said.

Lottery officials submitted a 10-page response that rebutted many of the auditors' conclusions. In all but a few instances, officials with the state-run gambling agency said the expenditures were appropriate and consistent with the lottery's mission to make money for state programs through video poker and ticket sales.

"We spend money to make money and I think in almost every example, we can show a return on investment," lottery spokesman David Hooper said.

The lottery generated $351 million for state programs in fiscal 2002, Hooper said. In terms of per-employee profits, that equates to $814,000, he said. Compared with Oregon's publicly traded companies, the lottery would rank 17th in sales and second in profits, he said.

"Only Nike makes more money than we do," Hooper said.

Among other things, the audit questioned the lottery for spending:

$92,500 for meeting-related expenses. Of the meetings analyzed by auditors, nearly two-thirds included expenses for meals or refreshments. Among the examples cited was a $171 lunch for nine people, labeled a "network backbone celebration" for the information and technology department. Hooper said most of the food and refreshment costs were justifiable because employees were asked to work through mealtime to attend.

$38,000 for an annual staff meeting that included $20,000 for the keynote speaker's fee and $3,494 for the speaker's travel and accommodations, $6,600 for a second speaker's fee and travel costs and about $1,000 for candy prizes and decorations, including fuzzy dice and dashboard hula girls, for the 1950s-themed event.

Hooper said the staff meeting's overall cost was about $20,000 more than usual because of the keynote speaker. He called this an anomaly.

$10,372 in employee recognition gifts. Examples included a $210 Waterford crystal vase, a $131 Devlin anniversary clock and a $236 lady's bracelet watch, as well as $3,500 worth of Cross pens.

Bradbury said such expenses are typical in state offices, including his own. "The difference is that our employees voluntarily contribute to office funds ... and the lottery uses public funds," he said.

$402,000 in employee training costs that auditors said could have been saved. The report arrived at that figure by comparing the lottery's average annual training expense of $1,550 per employee with the average at nine other state agencies of $602 per employee.

Auditors questioned some of the specific training expenses, including a "Fundamentals of Acting" class and an "Introduction to Rock Music" course. The report also highlighted a $3,600 expenditure to send an employee to interior design school.

Hooper said the acting and rock music courses were electives that employees took to meet degree requirements, which were being paid on employees' behalf through the lottery's Educational Assistance Program. The degrees were related to the employees' jobs.

$27,904 in first-class airfare for two employees who use wheelchairs. Auditors said this was $18,868 more than what the lottery would have spent had the two employees traveled in coach class. Bradbury said the Americans with Disabilities Act and Air Carrier Act require airlines to accommodate disabled people in coach without charging more.

Hooper said that in the "real world" the employees wouldn't have gotten adequate care in coach and that it was reasonable to upgrade them to first class given their work to help make money through the lottery.

$4,387 for four employees to spend six nights in Boca Raton, Fla. The reimbursements for lodging and meals averaged $222 - adding $1,695 to the state's expenses above the cost if the workers had been required to stick to the federal government's $151 per diem standards.

$21,080 in cellular phone bills that could have been saved had the lottery reviewed its bill plans more frequently.

Bradbury said he hoped the lottery would rein in expenditures in response to the audit, and that he was disappointed in what he called an unreceptive tone in its response.

Because the lottery was created by a 1984 constitutional amendment approved by voters, the only way to impose more stringent rules on such expenditures would be through the appointed commission that oversees the agency or through citizen initiative.

Hooper dismissed Bradbury's criticism of the lottery's tone.

"We are going to defend ourselves and they don't like it when we do," he said. "We always have an answer for their criticism, and they don't like it. But we're not going to roll over."

Gov. John Kitzhaber issued a prepared statement, calling on the commission to prepare a report on how it can incorporate the audit's recommendations into future operations.

"In light of reductions that are occurring throughout state government, it is important that the Oregon Lottery take a hard look at its own administrative expenses with the goal of making more funds available for other public purposes," the governor said. "In other words, the lottery is not exempt from the belt tightening that has been occurring in all other state agencies."

ON THE WEB

View the full audit at www.sos.state.or.us/audits/audreports/2002_year.html.