The State Worker

California Lottery spent thousands on pens that look like baseball bats. Did it need them?

The California Lottery spent big money on swag for its sales training conferences last year, according to an internal audit that urged the department to get a better handle on its expenses.

Some of the questionable purchases cited by the lottery audit included almost $17,000 for pens shaped like baseball bats and $14,000 for baseball caps.

The audit did not say the purchases were inappropriate. Rather, it said the lottery did not follow procedures that should have prompted questions about whether the purchases were justifiable.

“This requirement appears to have been overlooked,” the audit says.

The report now is part of a broader investigation into lottery practices that Gov. Jerry Brown’s administration launched after an anonymous whistleblower circulated what were alleged to be bawdy photos of senior lottery leaders at a bar following a 2016 sales conference.

Lottery Director Hugo Lopez told the Lottery Commission last month that the department handed the audit to the State Controller’s Office, which is reviewing the past four years of lottery expenditures.

“To the best of our knowledge, the most egregious findings will be the ones we’ve already highlighted,” Lopez told the commission last month.

The audit from the controller’s office is still developing, a spokeswoman for the agency said. It was under way before the whistleblower released the bar photos. Its mandate expanded after news outlets published the photos in August.

Separately, the state Department of Justice is investigating claims raised in the anonymous letter, and agents have interviewed lottery employees.

The lottery in September postponed a sales conference it had planned in Sacramento. It has not rescheduled the event.

The Sacramento Bee obtained the spending audit through the California Public Records Act.

It centered on training events, conferences and seminars that the lottery held in 2017 for its sales staff and retailers.

Lottery spokesman Russ Lopez said the director requested it after reviewing a purchase order last year that raised questions in the lottery’s sales division.

The audit found that the lottery used an informal practice to plan and manage its sales conferences. It kept some records from past conferences in a binder, and used those notes to shape future events.

“There are no written procedures that would guide sales staff in planning and executing these events,” the audit said.

Auditors also found contradictory receipts, suggesting the lottery had weak procurement practices. One $13,500 purchase for educational materials, for instance, had conflicting notes regarding whether the department sought competitive bids for the items.

One of the lottery’s primary vendors is IGT, an international gaming consultant. that sells equipment to the state lottery. The company’s contract requires it provide $200,000 to the lottery for training events, but allows IGT to deduct expenses from that sum.

Expenses it deducted in 2017 included $14,065 for baseball caps, $15,740 for duffel bags and $16,940 for baseball bat-shaped pens.

Those items were not necessarily for state employees. Lottery sales representatives often receive lottery-branded materials that they can give to retailers.

“In order to boost sales and increase brand awareness, lottery staff members often wear and use lottery-branded items such as shirts and portfolios,” Russ Lopez said. “These items are given to customers to help increase sales.”

Lottery policies require its vendors to follow state procedures when they procure goods for state-related work. In this case, the lottery auditors wrote that IGT should have sought bids before buying the caps, bags and pens.

The lottery’s procurement policies require formal competitive bids for purchases of $100,000 or more. The policy recommends that state employees use “informal” bidding practices for less expensive contracts, which could entail directly contacting vendors and asking for estimates.

Auditors also wrote that the lottery also should have asked IGT to justify certain expenses before approving the reimbursement, such as travel costs for IGT employees, a Polaroid camera, the baseball bat pens and some of the training materials.

“The absence of a thorough understanding of the contract and each lottery personnel’s responsibility, made it difficult to evaluate the appropriateness of expenses claimed by IGT. This, however, should not have prevented lottery personnel from requesting justification for expenses that might be considered at face value unusual or unnecessary,” the auditors wrote.

Cathy Powell, the lottery’s chief of sales administration, wrote in a September 2018 letter that the department agreed with the audit’s findings and would work to improve its oversight of training events.

“I and lottery management take all allegations very seriously, and we’ve been proactive, cooperative and transparent with any requests by these external entities. We don’t view our current situation as a crisis, rather as an opportunity to improve our lottery operations,” Hugo Lopez told the Lottery Commission in November.

Adam Ashton is The Bee’s Capitol Bureau Chief. He leads a team of reporters covering California politics and government. His assignments for The Bee and its sister papers have taken him from Merced to Baghdad since joining McClatchy in 2004.