Lottery's Wang Wang Blues
Oct. 26, 2008
By Jerry Kopel
Call it the "Wang Wang Blues".
The computer system the Lottery began with in 1982 is still being used.
Perhaps the lottery staff also have manual typewriters, quill pens, and
bottles of ink.
The state auditor in the recent five-year lottery performance audit
found lots of problems in the "back office" of the state lottery, many
of them tied directly to the Wang computer system.
Who is to blame? The auditor assigned most of the responsibility to the
Revenue Department under the previous governor and the Lottery Division,
with lesser fault on Scientific Games (hereafter called Sci Games.)
Conclusion by the State Auditor: "The Revenue Dept. and Lottery's
failure to effectively manage the Sci Game contract has cost the state
money and severely impacted the implementation of the contract".
Obviously this column can't condense everything set out in 20 pages of
the 78-page report. But here's some things to chew over:
Most of what the Lottery does is contracted with outside vendors, from
computer-system gaming terminals, oversight of lottery purchase traffic,
to producing tickets for scratch games, to multimedia advertising.
The present largest contract is with Sci Games, a nine year $58.1
million contract that was added to in 2004 and 2005. The contract
expires in 2012. There are two other Sci Games contracts totaling $13.8
Both additional contracts develop and improve scratch games. The auditor
reported that "One Match Play" a jackpot game would have brought in
$19.4 million the first year according to Lottery Division. projections.
The Lottery had to scratch the game because neither Wang nor Sci Games
could handle it.
Zooming in on the Lottery Division, the auditor stated "The Lottery's
continued use of the Wang computer system (going all the way back to
1982) puts the state at risk of suffering substantial disruption in the
lottery's ability to perform basic functions, such as billing retailers
in a timely manner for millions of dollars in revenue from ticket
Back office functions for billing, inventory, cash reconciliation, sales
and marketing events are done through Wang.
"Twelve years after first indicating its intention to implement a new
back office system, the lottery is still using the Wang," wrote the
auditor. The result is neither retailer billing nor scratch ticket
inventory has been fully migrated into Sci Games systems and Sci Games
and the Lottery are unable to agree on what to do."
The auditor reflects the Lottery continues to claim it will get off the
Wang system. They never do, despite the possibility of not finding
adequate replacement parts except in (my opinion) third world countries.
The state auditor's response: A top priority. Get off Wang. Get a new
back office system, if you want to generate more money for Colorado.
As to Sci Games: "Neither the Revenue Dept. nor the Lottery has held Sci
Games accountable for complying with contract terms. The contracts has
not been fully implemented three years after the (present) gaming system
first became operational in May, 2005. It is questionable whether the
state has received full value for the $22 million spent on the contract
as of June 30,2008".
Up until now there has not been a good monitoring procedure. The Lottery
response: We have made the changes needed to provide direction,
oversight and coordination with Sci Games and a new back office system.
(Well, proof is in the pudding. The state auditor should really check in
2009. The statute allows him or her to do so.)
Who is in charge?
The auditor found no one was in charge on the contract. Lots of staff,
like a colony of ants, had tiny parts of the performances to look at,
and no power to do anything about it, from 2003 to 2008. The Lottery
response: The lottery director has limited involvement. Most decisions
were made by Gov. Bill Owens' Revenue Director.
In February, 2008, the present Revenue Director gave authority to a
lottery chief operating officer.
The auditor found the 2003 contract, and subsequent modifications vague
in describing what the lottery expected of Sci Games as to retailer
billing and scratch ticket inventory systems. The lottery told Sci Games
to prepare for Wang being replaced and Sci Games went ahead to provide
their changes, but then Wang wasn't removed.
"From December 2007 to May 2008, the Department paid Sci Games ..
$628,000 for functions the Lottery has determined have not been
provided, such as immediate reports, retailer transaction reports, and
tax reporting software."
There have been liquidated damages assessed against Sci Games from May
2005 through January 2008. Liquidated damages totaled $2.4 million.
Inappropriate damage waivers have been removed as of August 2008. More
damage claims may be available.
In my opinion, based on the enormous amount of lottery cash flow, some
legislators must become specialists on the lottery and push hard to make
the state auditor's recommendations turn into reality.
(Jerry Kopel served 22 years in the Colorado House.)