The Report clearly identified those who were responsible
(Page 3 - 2012 Prize Payout Account Review Report)

(BofA = Bank of America)

Texas Lottery Key Personnel Directory Shows
Mr. Grief is THE man responsible for ALL!
The "Executive Director" ...

Excerpt from Oct 29, 2012 Interoffice Memo -
From Kathy Pyka to Catherine Melvin
Confirmation - #1 ... Ms. Pyka is THE Controller - The Big Chief!
(BTW - You will be seeing quite a bit from this particular
document as we move through this story)

- Excerpt from 2005 Organization Chart -
(Note - the 2006, 2007, 2008, 2009, 2010,
2011 organization charts show the same)
- Mr. Navarro was the Manager of the Department
in charge of reconciling the Prize Payment Account
2nd in Command - Worked directly for Kathy Pyka

Confirmed As Alleged ...
The Texas Lottery really did lose/write off a minimum of $622,000
(Page 4 - 2012 Prize Payout Account Review Report)

Wow, this says the Texas Lottery has not agreed with the bank's balance
since "at least" 2007. If you will remember, in Part 1, I showed you
that they were off by $187K in 2005. See ....

How on EARTH could any entity allow this? It is
completely beyond comprehension.

(Wait until you see how many times they ignored
warnings regarding the importance of reconciling
the account which will come later in the story.)

"Can't determine the reason for variance?" Just how
many reasons can there be? Shoot, let's count them ...
1) embezzlement ; 2) fraud; 3) theft;
4) incompetent management and 5) lack of supervising
staff's work which would be the same as incompetent mgt.

While you read the "discrepancy" (also been called "variance") has remained
at $622,103, it isn't really clear in her report that this means the banks says the
Texas Lottery has $622K LESS than what they thought they had.
So, never fear ... here's proof - "variance" and "discrepancy" means shortage.

Above is the actual write-off dated 8/31/12.
Signed by Kathy Pyka.

(If you would like to see the entire document submitted
to me from an open records request, click here. (pdf))

Then ....
two months after writing the $623K off, Ms Pyka finds
or thinks she made a mistake in the way they reported
the fraudulent activity in their financial reports.
This is unbelievable ... mistake after mistake after mistake ...

Now, with regard to that mistake ....

- Excerpt from Oct 29, 2012 Interoffice Memo -
From Kathy Pyka to Catherine Melvin
Ms. Pyka writes that she is directly responsible ... #8 & #9

I wonder, did the Commissioners have any advance knowledge
that this money was written off? I'm certain they did not realize
State funds were actually lost based on their questions and
comments during the Nov 2012 meeting.

(I will cover the Nov 8, 2012 testimony in
detail later so you will see what I mean)

- Confirmed -
Management failing to protect State assets
(Page 4 - 2012 Prize Payout Account Review Report)

The specific findings stated in this excerpt from the Report ...
"Adequate and effective control systems were not always
in place to ensure accuracy" - is a very nice and polite
way of saying they were NOT protecting State assets

Controls COULD be enhanced - in other words, the
report is being completed in Nov 2012 yet things
STILL are NOT - were NOT - fixed.

Ms. Kathy Pyka admits ...
- Excerpt from Oct 29, 2012 Interoffice Memo -
From Kathy Pyka to Catherine Melvin - Read #3 & #4

"Adequate and effective control systems were NOT
always in place to ensure accuracy" .... Well, as you can see,
Ms. Pyka writes and signs that she was responsible for this too.

Remember the Complaint that you read - it alleged ....

"This worries me in that the people in charge of money
for the school fund are not being very fiscal responsible
and may be embezzling money asks how do you lose $600,000?"

I would have to agree the lottery is "not being very fiscal responsible"
and they certainly did write off $600,000 and no one can explain it.

Important:
You just read where there was an
"absence of historical information" - well,
this topic will be covered extensively later.

FYI - You should know, the first sentence in this excerpt is inserted
repeatedly in the report. It is the conclusion of the overall
findings. I hope you all realize the sentence is saying the
balance may or may not be right, it may or may not be
fairly presented and the reason for the "variance"
may or may not be fraud, embezzlement, theft
or management incompetence.

Like I've asked, "Was This The Perfect Crime?"

- As Revealed In the Complaint & Confirmed -
Lack of Supervisory Review ...
State Lost Money Due To Fraudulent Activity ...
(though they prefer to call it "unauthorized activity")
(Page 4 & 5 - 2012 Prize Payout Account Review Report)

One statement lacks vital data
and a couple of comments ...

Lacking Pertinent Data Creates A Delusion

"not performed on a regular basis and were not current"
The findings should have stated the exact time frame that they
found the account had not been reconciled. I just showed you
where Ms. Pyka claims she had "dedicated resources"
(later called teams) working to reconcile the account
beginning in 2006. But based on the FACT that
fraudulent activity occurred between 2007 - 2009, this
doesn't add up. It is just plane ole' common sense that IF
the account was being reconciled, then the fraudulent activity
would have been caught in time to report it to the bank.
Instead, the State had to cover their own losses - est at $50K.

On the Other Hand ...

This section of the report is actually very critical regarding
management's various and COSTLY failures. I'm impressed that
Ms. Melvin actually reported these findings. Among other things,
it's being revealed that there was definitely an absence of proper
supervisory review which resulted in the inability to receive credit
from the bank for the FRAUDULENT transactions that occurred
while the account was obviously and apparently being ignored.
At one point, I heard and/or read that Ms. Pyka admitted the
reconciliation had to take a back seat to everything else as
she was short staffed. In this case, I can only conclude that
extremely poor judgment in prioritizing was exhibited.

Ms Melvin's Report revealed - though carefully worded ...

1) "inconsistent performance of reconciliation"

2) "were not performed on a regular basis" ...
(Since some fraud was caught a year after the fact - I don't
really think the description "regular basis" is appropriate - do you?)

3) "inability to receive credit"
(A very nice way of saying the State lost money because
the bank refused to reimburse them due to the fact the fraud
wasn't reported timely - in fact- they were a year late)

4) "... performed by the same individual each month, while other
staff members are knowledgeable of the basic preparation,
no others are experienced in performing reconciliation ..."

Why on earth would management put all their eggs in ONE basket?
You have no idea how bad it is for a $3 billion per year business to
have only ONE person who can reconcile their checking account.

You should have seen my bankers face and one of the Texas Lottery's
indirect bankers faces when they read this tidbit. For me, it was a
priceless interview. But the bottom line advice was, FIRE all who
were responsible for this inexcusable ignorance, neglect and failure
to protect State assets.

Guess it's a good thing Gary Grief, Ben Navarro
and Kathy Pyka don't work for these bankers!

I feel the very last sentence is quite telling too.

- Complaint Confirmation - More Errors Detected ....
Obviously management lacks proficiency!
(Page 7 - 2012 Prize Payout Account Review Report)

"erroneously sent to CPA ... "[Comptroller of Public Accounts] ???????

I am having difficulties with my patience. These people
are overseeing $3 billion per year in gambling revenue
and it is quite clear that are lacking in efficiency
and common sense. More errors found ...

How can the Commissioners read
this "toned down - carefully worded"
report and not CLEAN house?

- It Is My Harsh & Critical Opinion -
Mr. Grief's stubborn decisions - since at least 2004 -
have resulted in literally killing Lotto Texas. He's thrown
money away as if he was minting it himself - he overpaid
Lotto Texas winners by $74.3 million since July 2010
and overpaid Texas 2 Step winners by $3 million.

Last year, Mr. Grief started a new online game that put the
State in an extremely high risk liability situation. Both Mr. Grief
and Ms. Pyka FAILED to recognize that a liability existed
with the new game. This is why they ceased playing it -
so they could fix the MAJOR unrecognized screw up.
(For the record ... I recognized the liability immediately. I
actually told them there was a "problem" with the rule -
I just didn't tell them exactly what was wrong -
I was purposely vague. They should have seen it.)

Anyway, Mr. Grief was so busy bragging about inventing
All or Nothing (despite the fact that the EXACT same
game debuted in Ireland in 2009), going so far
as to say, "All or Nothing, quite frankly, is the
best draw game innovation in the last several
years in the lottery industry, " that it appears... he
failed to read how Ireland protected itself against the
huge liability that actually existed in the game.

Gee, if lawmakers had fully understood the
impact that could have resulted to Texas' budget
had a certain set of numbers been drawn, I believe they
would be hollering at the top of their lungs. By the way,
this game is coming back so it will compete for dollars
with Texas' other games and will still be a risk to the state.
- in my humble opinion - but - only time will tell. Anyway ....

Now we find Mr. Grief, the EXECUTIVE DIRECTOR,
has allowed a checking account to remain open that
wasn't reconciled and I know for sure he knew it
wasn't reconciled in late 2007. State monies were
lost to fraudulent activity because the account
WAS foolishly left open and not reconciled. Plus,
after the Texas Lottery opened the new account
in 2010, Mr. Grief & Ms Pyka allowed the old
account to remain open for another 2 years
at the cost of $25K per year in bank fees.
WOW - what a waste of STATE money.

(I will cover these new allegations
extensively later in the story)

I think one could conclude that Mr. Grief
did a poor job of supervising Ms. Pyka
and in protecting state assets.

And, if ALL this isn't bad enough, Mr. Grief is getting
ready to kill two more games - Pick 3 and Daily 4.
(Taking them to 4 draws per day)

----------------------

How can the Commissioners and the Legislature
ignore Mr. Grief's track record and his apparent lack
of accounting knowledge? How can they not recognize
that Gary Grief will not admit it when he's made a
mistake? In my opinion - this is a very bad quality
for any Executive to have. We ALL make mistakes
but most of us admit it.

Confirmed As Alleged ...
Another Area of Management Inept
(Page 6 - 2012 Prize Payout Account Review Report)

"outstanding checks submitted earlier
and /or later" than required

Tell me, just how much more are we supposed to
take in hearing how badly management has performed
and all the errors? This is nothing short of sloppy work.

Does anyone of authority not understand what
things like this are doing to employee morale?
Employees KNOW their bosses are bad bosses
- so to speak - and are failing or incapable of
doing the jobs they were hired to do. Some see
their bosses are too busy fooling around rather than
taking the time to supervise, train and teach their staff.

I've been hearing about "bad bosses" for at least
10 years and there's only been one common
denominator in all this time - Mr. Gary Grief.

Personally, I hold Mr. Grief accountable for the actions
of Ms. Pyka and Mr. Navarro. Just the same as Mr. Greer
was held accountable for the actions of staff who permitted
an unsupported jackpot to be inflated knowing full well
that if won, the jackpot could NOT have been paid legally.

(Of course, let us not forget that they originally denied there
was any validity in the allegation that the jackpot was inflated.)

Folks in Part 1, I showed you how "abandoned" money was
supposed to be turned over to the Comptroller of Public Accounts
every year. By failing to turn over all funds and names related to
the abandoned money could be a sign that maybe someone is
wanting to pretend the checks were never written so they
could be written off or erased - a sure fire way to reduce
that "variance" or increase the unclaimed prize fund.

There will be much more to
come regarding the abandoned money.