The impact of the Ontario Ombudsman’s

lottery investigation:

“A Game of Trust”

The scandal breaks: Oct. 25/06CBC News reports on fifth estate

documentary showing evidence of disproportionate “insider” wins in Ontario lottery system

Bob Edmonds, 71, cheated out of $250,000 jackpot by retailer who checked his ticket, is profiled

Statistician tells CBC odds of so many retailer wins occurring naturally are “one in a trillion, trillion, trillion.”

The falloutAll parties in the Legislature question the

security and credibility of the lottery systemCalls for a public inquiryCredibility of government-run lottery at stake Public projects funded by lottery revenues –

charities, hospitals, etc. – could be threatened

“Own motion”Ombudsman can launch investigation on

“own motion” into matters of urgent public interest

After investigation announced, received more than 400 complaints from the public

Pledged to complete investigation within 90 days

The investigationComplaints received: 456In-depth complainant interviews: 26OLG staff interviews: 35Others: Former OLG staff, retailers, Ont.

Convenience Store Association, other provinces and countries

Retained statistician from University of Western Ontario

Reviewed 53 bankers’ boxes full of documents

About OLGEstablished 1975, merged with Ont.

Casino Corp. in 2000 to become Ontario Lottery and Gaming Corporation (“C” dropped in recent rebranding exercise)

Crown agency with part-time board of 5Reports to Minister of Public

Infrastructure and RenewalResponsible for lotteries, casinos (charity,

aboriginal and commercial) and racetrack slot machines

Lotteries = Big businessRevenue from lotteries:2004/05 - $2.3 billion2005/06 - $2.4 billionGames:10 online lotteries, 20 instant “scratch” games6/49 and Super 7: by Interprovincial Lottery Corp

– revenues returned to provincesEmployees:8,000 staff; 12,000 indirectly employed through

casinos, about 11,000 independent lottery retailers

“Insider” rules – pre 10/25

Prize claimants must be “lawful bearers” of tickets

Prizes up to $990 may be redeemed at retailer; up to $50,000 by mail; over $50,000 must be claimed in person

“Insider” wins trigger an investigation only if they are more than $50,000

Asked “are you affiliated with the OLG?”

Retailers: Front-line sales forceEarn commissions and bonuses on sales and

validations of lottery ticketsTotal commissions in 2005/06: $165 millionVisited weekly by OLG’s 80-person sales team

Pre “10/25”:No background checks, no credit or criminal

record checks; contracted on “good faith”No clear stats on exact number of retailers

Ombudsman’s findingsBob Edmonds was not aloneRutherford case: 1993Man sued over ticket shared with retailer

who claimed $400,000 jackpotCourt found OLG was negligent in protecting

Mr. Rutherford from retailer theft and fraudOLG ignored ruling that it had “duty of care”

to public

OLG lost sight of the fact it is a public servant

Mr. Edmonds’ storyBought ticket July 2001, using his usual

numbersStore clerk told him he wasn’t a winner;

claimed $250,000 prize herselfClerk couldn’t tell OLG investigators where

she bought ticket or what numbers she played; OLG gave her extra time to think

Clerk asked Mr. Edmonds to bring old tickets to the store; next day, produced them for investigators as proof of “her” numbers

The Edmonds saga, cont’d

OLG decision: “We cannot prove with certainty that [she] is not the legitimate owner of the ticket”

Clerk appeared in paper with prizeEdmonds called OLG, got nowhereWent to court 2002; settled in 2005

for $200,000 plus $150,000 from retailer

Retailer’s charges stayedOLG’s court costs to fight Mr.

Edmonds: $429,000

Other suspicious cases

Evidence of five suspicious cases 2003-2004 totalling $14 million; only one not paid

Most shocking: Burlington $12.5-million winnerSister of retailerDenied her family in retail businessOLG had record of concerns about

retailer, but paid out prize anyway

OLG’s internal debate

Some wanted to get tougher on retailers, intensify investigations

Management considered a more relaxed “bearer holder” policy – no questions asked

Email from one manager to CEO about the $12.5-million case:

“It still rots my socks”

CEO’s response

“I used to have to issue gaming licenses to companies or individuals that I just

knew with absolute certainty were dirty. I just couldn’t prove it…

“Sometimes you hold your nose…”

Other Ombudsman findingsOLG and retailers had a

fundamental conflict of interestNo reliable record of retailers or

stats on how often they were winning (even our statistician couldn’t determine this)

Complaints were brushed off – “That’s between you and the retailer”

Investigations were lax and leading

Report release, March 26/07

OLG’s initial response

Hired KPMG consultants 4 days after 10/25 (total cost: $644,000)

Apologized to consumers and Mr. EdmondsDownplayed and disputed CBC statistics,

saying retailers win more because they play more – but couldn’t verify number of retailers

Issued “Seven-Point Plan” for reform

The Seven-Point Plan1. Ticket-checking machines (cost: $10

million)2. Retailers to check tickets only if signed3. Customer-facing video screens on

terminals4. Public education campaign5. Toll-free line for customer complaints6. Enlist professional investigators to

probe all insider wins over $10,000 (down from $50,000)

7. Enhance complaints process

Ombudsman recommendationsOLG needs fundamental culture changeIndependent oversight: Give regulatory

function to third party, e.g. Alcohol and Gaming Commission (regulates casinos)

Retailer registration, background checksRegular integrity tests by “secret shoppers”Advertise “insider wins” and establish

adjudicative process for disputed claimsImprove statistical recordsImprove customer complaints process

Excuses from OLG: Before reportCEO’s objections:Lotteries not like casinos, don’t need same

kind of regulationCriminal and background checks “no

guarantee” of honesty; too hard to do because of staff turnover

Resistant to regulations already in place in Manitoba, Alberta and B.C.

After report: Sweeping changeOLG CEO fired (Friday before report

released)Government and OLG immediately accepted

all recommendationsReport discussed in Legislature for 30

straight daysMedia coverage across Canada and

worldwide: Aggregate audience reach of 23 million in first week

One year laterAll recommendations have been addressedOLG and government committed to Ombudsman’s

changes and even beyondLottery regulation now under Alcohol and Gaming

Commission; registration completedAll lottery tickets must be signedTicket-checkers in every outlet in the province“Secret shoppers” started in JanuaryPublic campaigns: “Sign your ticket” and “It’s not just a

game to us”Continuing to work with OPP on “older lottery prize

claims of interest” (retailer charged in December in $15-million case)

Other changes

Customer complaints now being trackedTickets bought by retailers clearly

marked “retailer”Info on “insider win” claims released

through Canada NewsWire and claimant’s name, etc., is posted on website for 30 days, in case others come forward (no issues so far)

Winners advised process now takes longer

Perceptions of OLGOLG’s own polling numbers:63% of Ontarians believe OLG “can be trusted

to be honest” (unchanged since June ’07)65% believe OLG lotteries are run “openly and

honestly” (up from 57% in June ’07)75% believe OLG is “adequately addressing”

the situation72% believe OLG is doing “everything possible”

to make lottery system safe and secure

Reporting back to OmbudsmanQuarterly reports since March 2007Met with new OLG CEO and Board of

Directors in January; also met with MinisterOmbudsman asked for list of of “lessons

learned” in final reportFocus on changed culture and duty as a

public servant – OLG now asks:“Is this in the public interest?“Can we demonstrate the highest possible levels of

honesty and integrity in and through our actions?”

More “lessons learned”OLG final report to Ombudsman:“In hindsight, the ‘shock’ of the Ombudsman’s

report brought about deep and systemic change within the Corporation in very short order. It is unlikely that this could have been achieved through more conventional or traditional means of organizational reform…

“The report swept aside any potential inertia or opposition to needed change”

“Lessons,” cont’d“The most noteworthy change is a

shift in culture; a shift that has moved OLG away from an organization driven by profits only…”

“The lottery program has been strengthened through awareness that many of our policies, procedures [etc.] are subject to AGCO approval and ongoing periodic review”

Last words?“The Ombudsman has reinforced for us

that our obligation to the citizens of Ontario to preserve and protect the public interest at all times is the foundation of everything that we do” – OLG final report to Ombudsman, March 28, 2008