Best Practices Review of the DC Lottery Requested by Your Office

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Best Practices Review of the DC Lottery Requested by Your Office February 26, 2016 Jeffrey S. DeWitt Chief Financial Officer of the District of Columbia 1350 Pennsylvania Avenue, NW Washington, DC 20004 Dear Mr. DeWitt: Attached is the result of the independent best practices review of the DC Lottery requested by your office. The objective of this engagement was to review best practices in the U.S. lottery industry and then develop and tailor recommendations based on those best practices that the DC Lottery could implement within the statutory and legal structure in which the DC Lottery operates. The DC Lottery is one of the most successful lotteries in the U.S., ranking seventh in the most important financial measure of a traditional lottery’s success—operating income per capita. The DC Lottery’s ranking as one of the top ten lotteries in the U.S. was reflected in the results of our findings. Delehanty Consulting evaluated more than Top 10 U.S. Lotteries - FY 2014 fifty processes, practices, and systems. Operating Income Per Capita Only three current issues were identified Rank Operating Income Lottery as needing to be resolved. Three (x of 45) Per Capita recommendations were provided for 1 Massachusetts $144.49 implementing best practices and twelve 2 New Jersey $107.03 additional recommendations were 3 New York $98.14 provided for enhancing current operations. 4 Georgia $92.76 5 Connecticut $92.33 We found the DC Lottery to be an 6 Pennsylvania $84.43 7 District of Columbia $83.61 organization focused on continuous 8 Maryland $81.90 improvement. Given the DC Lottery was 9 Michigan $75.41 implementing a number of changes during 10 Florida $75.07 the review, nine recommendations associated with these efforts were also provided. In comparing DC Lottery practices to those in other lotteries, Delehanty Consulting identified ten DC Lottery processes or systems that we believe are industry best practices. Thirty-one additional processes or systems were highlighted as being exemplary. Our assessment of the DC Lottery’s retailer integrity program determined the DC Lottery’s rules, policies, and processes for protecting players’ winning tickets are consistent with industry best practices. Once a player signs the back of the ticket, the Lottery will not allow anyone else to collect the prize without sufficient evidence of an agreement from the original signer. Additionally, the DC Lottery has equipped every lottery agent who had available space with a ticket-checker that players can use to determine the winning status of their ticket. Page 2 – Best Practices Review Transmittal Letter The cost controls and performance efficiency of the DC Lottery are adequate. The DC Lottery is a small lottery operating in a very large and expensive market. Overall, we found the DC Lottery to be an extremely well run lottery that meets the unique challenges presented by operating in an extremely expensive and competitive market. Delehanty Consulting LLC has been providing auditing and consulting services to the lottery industry since 2005. Our consultants have evaluated and consulted with more than forty government- sponsored lotteries on four continents since 1985. Sincerely, Herb Delehanty Principal Best Practices Review of the DC Lottery Final Report February 26, 2016 Best Practices Review of DC Lottery February 2016 PAGE INTENTIONALLY BLANK 2 Delehanty Consulting LLC February 2016 Best Practices Review of DC Lottery EXECUTIVE SUMMARY Delehanty Consulting LLC conducted an independent best practices review of the DC Lottery at the request of the Office of the Chief Financial Officer. The objective of this engagement was to review best practices in the U.S. lottery industry, and then develop and tailor recommendations based on those best practices that the DC Lottery could implement within the statutory and legal structure in which the DC Lottery operates. The DC Lottery is unique. It is the only city lottery in the United States and operates with federal restrictions that prevent it from selling in certain areas that have the highest day-time population. The Washington D.C. metropolitan area is the eighth most expensive media market in the U.S. This unique market includes counties in Maryland and Virginia, with media and sports teams overlapping the three jurisdictions. The revenue generated by the DC Lottery does not fund identifiable programs such as education or senior programs—this precludes the DC Lottery from having a strong constituency. The DC Lottery is one of the top ten lotteries in the U.S. This status was reflected in the results of our review. The D.C. Lottery: Ranks seventh in the most important financial measure of a traditional lottery’s success—operating income per capita Ranks first in draw game sales per capita Ranks first in daily number games sales per capita Ranks fourth in combined Powerball and Mega Millions sales per capita Has implemented almost every best practice known to protect players against retailer fraud Has implemented two best practices that significantly increase customer convenience for cashing tickets Maintains a strong commitment to retailers by providing excellent compensation programs, providing self-service solutions that reduce manpower requirements, and recognizing and addressing language challenges Offers a diverse game portfolio that is supported by a solid, multifaceted marketing program Delehanty Consulting evaluated more than fifty practices and systems. Sections 1 through 13 of this report contain the results of our evaluation and include highlights and recommendations. Recommendations are presented at the end of each section under four headings: 1. Resolution of Current Issues. These recommendations coincide with a finding that we believe represent an operational deficiency that will be corrected by adopting the recommendation. The report contains three recommendations under this category. Two are related to the DC Lottery’s tel-sell operation and one is related to assurances from the lottery’s gaming system vendor. Delehanty Consulting LLC 3 Best Practices Review of DC Lottery February 2016 2. Best Practice Enhancements to Existing Operations. These recommendations are recognized industry best practices that have not been fully adopted by the DC Lottery. These recommendations do not coincide with a deficiency in existing operations. 3. Additional Recommendations. These recommendations, although not necessarily recognized as ‘best practice1,” have the potential to improve existing operations. These recommendations do not coincide with a deficiency in existing operations. 4. Recommendations in Progress: We found the DC Lottery focused on continuous process improvement. The lottery identified a number of areas where improvements were desired and started an initiative prior to the beginning of our engagement. This category recognizes the efforts of the DC Lottery. The analysis identified ten DC Lottery processes or practices that represented industry best practices and an additional thirty processes or practices that are of an exceptional nature and worthy of being highlighted. These processes or practices are highlighted prior to the recommendations in each section. Our assessment of the DC Lottery’s retailer integrity program determined the DC Lottery’s rules, policies, and processes for protecting players’ winning tickets are consistent with industry best practices. Once a player signs the back of the ticket, the Lottery will not allow anyone else to collect the prize without sufficient evidence of an agreement from the original signer. Additionally, the DC Lottery has equipped every lottery agent who had available space with a ticket-checker that players can use to determine the winning status of their ticket. Given the DC Lottery’s status as one of the top performing lotteries in the U.S., this report focused on comparing the DC Lottery’s practices and metrics with those of the other top performing lotteries However, comparing the DC Lottery’s cost structure with those of lotteries that have sales in the billions of dollars would not have been meaningful. Hence, a group of six lotteries with annual sales between $125 million and $325 million were used for the financial review in section 9. The cost controls and performance efficiencies of the DC Lottery were found to be adequate. The DC Lottery is a small lottery operating in a very large and expensive market. Overall, we found the DC Lottery to be an extremely well run lottery that meets the unique challenges presented by operating in an extremely expensive and competitive market. 1 Lotteries operate in various geographic, socioeconomic, competitive, and legal environments. What may be a best practice for one lottery may not be successful or legal in another lottery. 4 Delehanty Consulting LLC February 2016 Best Practices Review of DC Lottery Table of Contents EXECUTIVE SUMMARY ........................................................................................................ 3 1. ORGANIZATION STRUCTURE AND STAFFING ................................................................ 9 1.1 Governance Structure ............................................................................................................ 9 1.2 Organization Structure ........................................................................................................ 13 1.3 Staffing Levels and Position Descriptions .......................................................................... 17 1.4 Highlights and Recommendations .....................................................................................
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