- Required Reporting - Process not in place???
What happened to it - it WAS there - they used it previously ...
(Page 11 - 2012 Prize Payout Account Review Report)

Oh my - do I ever take issue with the claim that "agency management
did not have an adequate process in place during the audit
period to ensure reporting .... " Let me show you WHY ...

Now here's absolute, undeniable proof that in 2003 ...
the Texas Lottery obviously had an "adequate process" in place to
report violations of suspected fraud as required by Code 321.022.
(You do need to know that the Texas Lottery did not provide
the following document to me though I did request it.
Instead they sent me a bill which you'll see in a minute)
Anyway .... read on ...

Excerpt from July 14, 2005 letter CONFIRMS ...
the Texas Lottery did comply to Section 321.022 in 2003 -
(The letter is signed by John Keel, State Auditor)

- Excerpt from Keel 2005 letter -
Explains requirement to 321.022 ...

Read Mr. Keel's letter in its entirety

By reading Mr. Keel's letter in its entirety, you will see that a
copy was sent to Acting Director Gary Grief in July 2005. It can
only be assumed that Mr. Greer would have made the original
report to the State Auditor back in Sept. of 2003 as he
was the Director at that time. However, it would also be
wise to assume that either Mr. Grief or Ms. Kiplin or
someone would have assisted Mr. Greer in his report to
the SAO as Mr. Greer was relatively new to state work.
(I must use the word "assume" as the
Texas Lottery wanted $864 to research
and provide these documents to me)

At any rate, this letter is a clear indication that Mr. Grief
- in 2005 - knew about the statutory requirement.
Surely he read the letter from Mr. Keel.

So, in March of 2007, when Mr. Grief received the
email shown above, he should have known that it
was his responsibility to advise Director Sadberry
that they [Texas Lottery] were required to report it
to the State Auditor. Did Mr. Grief do this?

Mr. Grief was the Executive Director in Oct 2008
and 2009 but he failed to comply with 321.022 by
reporting the fraudulent activity. And according to
the final report, most of it [fraudulent activity] was
caught in late 2008 & 2009 when he was
- in fact - the Director. (You know, this is also
when those teams were working on the
account. <huge grin and sarcastic remark>)

------

Now let's put a cherry on the cake with
regards to failing to comply with 321.022 ...

Now hang with me, I'm leading you to a point here ...

Below is a directory found on the Texas Lottery website.
It is a page that should link you to all Internal Audit's
reports though I can assure you it is not complete
and on occasion they fail to post reports ....

Anyway ....
what I want you to see specifically is that the top 4
links indicates that "Annual Internal Audit Reports" were
"released in July 2013." This is not true as those reports
were actually sent out in Oct of the year indicated. Putting
this tidbit aside ....

Notice that you do not see the Annual Reports
for 2008, 2007, 2006, 2005. On August 5, 2013,
I asked about them and I requested that
they be posted with the others ....

Remember I'm making a point so stay with me ....

I received this response from Kelly Cripe the same day ...

Isn't this interesting - July 2013 is when Gary Grief instructed
staff to post these mandated reports - AFTER - Ms. Melvin resigned ...

Needless to say, I made an Open Records request to obtain the
2005, 2006, 2007, 2008 reports that should have been
posted on the TLC website.

- FYI -
As I write this, the Texas Lottery has refused to post the
earlier reports and they have failed to provide
documents responsive to my request.

Now for my point ...
these annual mandated reports specifically acknowledges
that the Texas Lottery was in compliance to 321.022.
See excerpts below for the years I was able to obtain ....

As seen in Internal Audit Annual Report for FY 2009, page 12
Remember, fraudulent activity did occur in 2009 but the final report
leads us to believe it was not reported as required by 321.022.
Yet the Texas Lottery's - in its 2009 annual report - acknowledges compliance

As seen in Internal Audit Annual Report for FY 2010, page 14

As seen in Internal Audit Annual Report for Fiscal Year 2011, page 12

As seen in the Internal Audit Annual Report for Fiscal Year 2012, page 6

Whoa - wait a minute ... look, in 2012 they
made a sudden language change ...
I think it is being insinuated that the responsibility was the
Internal Auditors to begin with? Gee this can't be because
Mr. Greer complied in 2003 and I know Ms. Melvin
was the Internal Auditor then. Her name is NOT
included in Mr. Keel's 2005 letter.

Ironically, according to the "Contentious" report, reporting
FRAUD to the SAO was the SOLE responsibility of the
Executive Director - it was not the Internal Auditors job
as implied in the 2012 excerpt shown above.

- FYI -
Below is the official description of the "Annual Internal
Audit Report" containing the above acknowledgment
to 321.022. Pay special attention to the remark ...
"the State Auditor's Office prescribes the content."
Also noteworthy, this same paragraph is applicable
to all years - not just 2012.

You probably guessed right about my motive ...
The reason I was asking for 2005, 2006,
2007, 2008 annual audit reports was because
I wanted to see if there was acknowledgment
to 321.022 in them. The Texas Lottery account
was hit by organized crime and fraudulent activity
in 2007, 2008, 2009. And as you saw, the 2009
Annual Audit Report claimed the Texas Lottery
was in compliance with 321.022. Yet it appears
they didn't report it in 2009 as required - claiming
"there was not an adequate process in place."
Baloney .... What a crummy excuse ...

What I've shown you is conflicting information.
What I want to know is WHY did the Texas Lottery
not report the fraudulent activity to the State Auditors
Office in 2008 and 2009. The Bank letters -
shown in Part 4 - was evidence that they
absolutely knew about the fraud.

So, bottom line ...
I do not believe there was "no adequate process" in
place to comply with 321.022. What do you believe?

Equally Important - Mr. Grief's Timeline
Feb 2003 - Mr. Greer was the Executive Director -
Gary Grief was Deputy Director
July 11, 2005 - Mr. Gary Grief was the Acting Director
Jan 2006 - Anthony Sadberry was the Executive Director
Gary Grief was Deputy Director
Oct 28, 2008 - Mr. Sadberry died -
Oct 2008 - Gary Grief named Acting Director
been there ever since!

I'll ask again ... Was this the Perfect Crime?

---------

... An Open Records story - RE: Compliance 321.022 ...

To show you how badly the TLC tries to keep
documents from surfacing, let me walk you through
a series of Open Records communications in my attempt
to obtain the letter from Mr. Keel that you just read.

Well needless to say I did not pay the $864! This, to me, was
an attempt to keep the information out of the public eye. You think????

Guess I'm surprising them - they didn't know I already had PROOF
that they really had a process in place as it had been done previously.

- Excerpt -
(Page 1 - 2012 Prize Payout Account Review Report)

As you can see, the report says, "The Office of Controller has asserted
information necessary to research the variance prior to fiscal
year 2007 was destroyed in accordance with the agency's
record retention schedule ...."

Noticed too it says, "the history of the discrepancy cannot be determined" ...

Now let me show you some of what has been said about the records being destroyed ...

Excerpt from Oct 29, 2012 Interoffice Memo -
From Kathy Pyka to Catherine Melvin
In Oct 2012, Ms Pyka wrote ...
"absence of historical information" ...

I'm having a hard time coming to terms with
the claim that the records were destroyed ...
Let me show you WHY I say what I do ...

But a little background knowledge is required here ...
Texas state agencies are required to hold records
for certain lengths of time. There is what's called a
"records retention schedule" that they must follow.
To destroy any records, the agency must complete a
"Records Disposal Form" and the form must be signed
off and approved by supervisors and Open Records. The
final Approval MUST be signed by the Executive Director.

So let's start by reviewing the retention schedule (law) first ... OK?
TAC, Title 13, Chapter 6, Section 6.10



Prior to revising the code in July 2012, it previously stated ...
(shown in strike through text below)

The government code is quite clear ... I don't think there's any room to misunderstand
the meaning or intent ... "a state record whose retention period has expired
may not be destroyed IF any litigation, claim, negotiation, audit ..."

----

It has been clearly established that Ms. Pyka knew in
Nov 2005 that the account had not been reconciled and it
has been clearly "claimed" that "teams" and "resources"
began the reconciliation process in Feb 2006 ....
Further, it's been established that Mr. Navarro knew
in Sept 2005 that they account had a "variance" of $187K
Let me refresh your memory just in case you need it ...

Page 13 - 2012 Prize Payout Account Review Report
(Management response)

By reason of deduction ...
in 2005 they knew the account had NOT been
reconciled therefore all records would be needed.
By law, the records could not be destroyed.

This means that in 2005 as mandated by law,
they should have had records dating back to
at least 2002. These records should include the
"variance" figures IF there was a "variance."
(In a minute you will see confirmation
that records from 1995 through 2001
were destroyed in March 2004)

Contrary to these cold hard facts, the report
claims, "The Office of Controller has asserted
information necessary to research the variance
prior to fiscal year 2007 was destroyed in
accordance with the agency's record
retention schedule ...."

If records were destroyed where they could
not determine a variance prior to 2007, would it be
safe to assume that maybe someone broke the law?

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

Now look at this ... a bomb has been dropped ...
Based on the testimony and the final report, I made an open records
request for a copy of the "Disposal Forms" needed to destroy
the records in question. Here is what Open Records told me and
I did receive copies of the disposal forms as well ...

Whoa ... this says, "the records for FY 2005
and 2006 pertaining to reconciling the prize
payment account were NOT disposed of ..."
but we just saw where they couldn't determine
the variance prior to 2007 because the
records had been destroyed.

Gawd .... I'm really confused ....

I did receive the disposal forms but I cannot
determine what's what in them. They redacted
information and sent blank pages. I do know
that "4.4.001" is bank records. If you would
like to see what I received, here's one.
Disposal 1.pdf

What I did find of interest in the Disposal Forms
was the dates shown that records were destroyed.
By this I mean, their testimony and the final report
made it sound like they were very punctual
in destroying their records. Let me show
you a few examples of what I mean. In
early 2011, they destroyed 2005, 2006
then 2003 - 2007 records. Interesting - huh?

I also received a disposal form - dated
March 2004 - I think I'm safe in saying
that it appears bank reconciliation records
from 1995 - 2001 were destroyed.

----

Page 1 - 2012 Prize Payout Account Review Report said,

"the history of the discrepancy cannot be determined" ...

They have a procedure called "Cash In Bank Reconciliation"
that shows the "variance." Here are the records showing the
"variance" dating back to 2005 and they should have records
dating back to 2002. The variance figure is in the lower
right hand corner of each page.

So tell me again ... why can't they determine a beginning balance?

It is time for a REAL investigation by the US Attorney
or someone at that level. There are too many conflicting
issues and claims that do not seem to hold water.

The biggest mistake I see was the failure to close the
account in 2006 and start fresh. WHY was this not done?

I'll ask again ... Was this the Perfect Crime?

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

... An Open Records Violation ...
TLC is refusing to provide Cash in Bank documents to me
At this point, I must tell you that I requested all months
for all years of the Cash In Bank reconciliation's
- dating back to 2005 - but the TLC has not responded
or acknowledged my request nor have they provided
documents responsive to my request.

On Thursday, Aug 15, 2013, I filed a complaint with
the Attorney General and I sent a revised complaint
to the AG on Sunday, Aug 18th. (I goofed on
a date and needed to correct it)

These documents are a critical part of this story.
If the Texas Lottery cannot produce them,
then one can only assume they did not have teams
and resources attempting to reconcile the account
on a regular basis like they've claimed repeatedly.

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

Questions?
Were these records destroyed? Open Records says they
were not destroyed but testimony and the final reports
says the records were destroyed preventing
them from making determinations prior to 2007.

If so, WHEN were these document destroyed?

Why would they destroy relevant documents IF diligent efforts
were being made to reconcile the account and would this be
a violation of TAC, Title 13, Chapter 6, Section 6.10?

In light of all my findings, I really wonder if Ms. Melvin ever
confirmed that the records had actually been destroyed?
This tidbit was never stated in her report.

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