Lottery guards against retailer fraud

DES MOINES — More than 170 Iowa Lottery retailers won $1,000 or more between July 2013 and mid-November, for a combined $1.57 million.

At least nine retailers who won $10,000 or more bought tickets or played in the stores where they work — some even validated their own wins.

Tracy Cole of Cedar Rapids, for example, bought two scratch tickets April 12 during a break from her job as a cashier at Fareway, 4220 16th Ave. SW. The first ticket was a $3 winner. The second was worth $30,000.

Cole verified her ticket on the store's lottery terminal, she told the Iowa Lottery in March.

'We didn't buy anything, per se,' Cole told The Gazette about how she spent her winnings. 'I did take the kids fishing up to Minnesota for the week.'

The Iowa Lottery started investigating retailer wins in 2011 after Canadian reviews of retailer frauds that included a store clerk stealing an elderly Ontario man's $250,000-winning ticket. Recent media reports in Massachusetts, New Jersey and Florida have called attention to unusually frequent wins by lottery retailers.

But as lottery retailer fraud gains national attention, Iowa Lottery officials say security precautions here ensure dozens of retail employees collecting jackpots each year aren't breaking the rules.

'It's not that they (security personnel) aren't checking,' Iowa Lottery Spokeswoman Mary Neubauer said. 'I think it's just Iowa. In many small communities, the retailer knows the employees and the customers.

Database: Iowa Lottery retailers with jackpot wins

Click to see the lottery retailers won $1,000 or more between July 2013 and mid-November.

'We have a lot of checks and balances in place.'

The Iowa Attorney General's Office last week charged a Norwalk man of attempting to defraud the Iowa Lottery of a $7.5 million Hot Lotto jackpot. Eddie R. Tipton, 51, worked as the security director for the Multi-State Lottery, which runs Hot Lotto.

As an employee, he was prohibited from playing lottery games.

Tipton is accused of buying the ticket in December 2010 and working with several other people to attempt to redeem it in November 2011. Lottery officials refused to pay out because they weren't certain the ticket was valid.

Just as lottery employees are banned from playing the games because of inside knowledge or the perception of unfairness, some retailers aren't allowed to play.

British Columbia banned lottery retailers and their employees from purchasing, playing or validating their personal lottery tickets at their stores after a 2007 report from the province's Ombudsman's Office about retailer fraud.

The Iowa Lottery has no restrictions for retailers who play, but some stores do have rules.

'Kum & Go associates may not purchase Lottery or Lotto tickets in a store in which they work,' said Traci Rodemeyer, spokeswoman for the convenience store chain.

Hy-Vee allows employees to buy lottery tickets on break or off the clock, but they can't sell to themselves or buy from a relative. Casey's employees may play at their own stores but only when off duty.

Retailers made up 4.5 percent of $1,000-or-more winners from July 1, 2013, through mid-November, according to Iowa Lottery data.

The Iowa Lottery awarded $37.4 million in major jackpots during that time. Retailers claimed six $100,000 prizes, six $50,000 prizes and nine $30,000 prizes.

Ten-percenters

There's no evidence to suggest these Iowa wins aren't legitimate. But examples of fraud from other states keep mounting.

A July 20 story in The Boston Globe described a lottery scam in which a person, sometimes a retailer, will redeem a winning ticket for someone else who owes back taxes or child support — debts ordinarily deducted from lottery winnings. In this scheme, often called ten-percenting or ticket discounting, the redeemer keeps a cut of the winnings.

The Globe highlighted one family that claimed 340 $1,000-plus jackpots worth a total $440,000 — a feat that would require spending $1 million or more on tickets, according to a statistician.

Half of the 20 most frequent New Jersey Lottery winners since 2009 are licensed lottery retailers or family members of store operators, the Asbury Park Press reported Dec. 8. As a group, these 10 people collected 840 prizes totaling nearly $1.8 million.

The New Jersey Lottery is investigating some of the winners for the possibility they are cashing tickets for other people.

Checks and balances

The Iowa Lottery has made changes in recent years to make it tougher for retailers to game the system or cheat customers.

Most of Iowa's 2,400 lottery retail locations now have self-check machines that allow customers to validate their own tickets and terminal screens that face the customer. Lottery terminals recognize winning tickets with an audible 'You're a winner!' message, followed by 'Woo hoo!'

The Iowa Lottery encourages winners to sign their tickets immediately. Unsigned tickets, if lost or stolen, may be redeemed by someone else.

'Depending on the level of prize, there are other things we check,' explained Steve Bogle, vice president for security.

The Iowa Lottery compares the signature of the person redeeming the prize to the signature on the ticket, if there is one. If the store that sold the ticket has video surveillance, officials can see whether the person buying the ticket is the one redeeming the prize.

The agency started asking winners to disclose whether they own or work for a lottery retailer in 2010. That information has been included in the lottery database since July 1, 2013.

Bogle assigns an investigator to each retailer win to make sure there is nothing fishy.

For each win over $600, lottery officials match the winner's Social Security number with an Iowa Department of Revenue list of people who owe money.

'If you owe back taxes, child support or fines of any kind, those are withheld,' Bogle said. 'Sometimes they (winners) aren't very happy about it.'

The Iowa Lottery isn't a law enforcement agency, so Bogle and his team can't make arrests. But they are aware of at least 109 people charged with lottery-related crimes in Iowa since July 1, 2010. Many of those are retail employees accused of stealing tickets from their employer.

The lottery isn't eager to restrict who can buy lottery tickets. Of $314 million in sales in fiscal 2014, nearly $74 million went to state coffers. Retailers received $20 million in commissions.

The Iowa Lottery awarded $187 million in prizes in that time.