An Audit Report on the Texas Racing Commission
May 2006
Report Number 06-039
Overall Conclusion
The Texas Racing Commission (Commission) is charged with enforcing the Texas Racing Act, which includes monitoring the eight horse and greyhound racetracks across the state to help ensure accountability in the racing industry.
According to the Commission, wagers at Texas racetracks totaled approximately $515 million in 2005. The State received $4.4 million (less than 1 percent) of that amount. All of the $4.4 million came from simulcast races; the State did not receive any portion of the wagers from live races because the total wagers on live races did not reach the minimum amount required for the State to receive a portion.
- See Table 1 ("State Revenue, Purses Paid, and Wagers...") on page 2 of this report for additional details on state revenue from racing.
- See Table 4 ("Comparison of Horse Racing in Texas...") on page 13 and Table 5 ("Comparison of Greyhound Racing in Texas...") on page 14 for a comparison of information for the racing industry in Texas with the racing industry in other states.
The Commission's controls ensure that amounts wagered are allocated according to required percentages, but it should improve controls to ensure the integrity of the data on which allocations are based.
To facilitate races and wagering, racetracks use "totalisator" systems that are designed and operated by third-party vendors. These systems store and process all wager data and compute pay-offs at the racetracks. The Commission is responsible for ensuring that these systems can be relied upon to maintain the integrity of wagering and to ensure that the correct amount of revenue is forwarded to the State.
The Commission reviews the totalisator systems and reports at racetracks using two tests:
- Pari-mutuel audits to verify actual calculations made by racetracks. These audits verify that wagers that are in the system are allocated according to required percentages.
- Electronic data processing (EDP) reviews of totalisator systems. These reviews ensure that totalisator system software accurately calculates payouts of amounts wagered for winners and the total takeout amount that is designated to other parties (for example, the State and the racetrack). For horse races, these reviews are done before a series of races occurs or when totalisator system software is changed. For greyhound races, these reviews are done annually or when totalisator system software is changed.
The Commission has a good process for performing pari-mutuel audits to verify that wagers are allocated according to required percentages. However, it should improve its EDP reviews of totalisator systems to ensure that all wager amounts in these systems are complete and accurate and, therefore, that the distribution amounts are accurate. The Commission has rules for hardware, software, and management of totalisator systems, but it is not performing additional tests necessary to ensure the integrity of the data in totalisator systems.
The Commission does not ensure that breed registries distribute Texas Bred Incentive Program funds in accordance with all program requirements.
The Commission does not ensure that the funds from the Texas Bred Incentive Program are distributed by breed registries in accordance with all program requirements. (According to the Texas Racing Act, horse breed registries in Texas administer accredited Texas-bred requirements for specific breeds of horses; the greyhound breed registry in Texas establishes the qualifications of accredited Texas-bred greyhounds.) The Texas Bred Incentive Program is intended to assist the racing industry in Texas by providing additional funds to qualified owners and/or breeders of horses and greyhounds that have been bred in Texas. The Commission sends Texas Bred Incentive Program funds to the various breed registries in the state to disburse to qualified program recipients, but it does not ensure that the breed registries comply with program requirements (see Chapter 2 of this report for the specific program requirements).
In 2004, the Commission distributed approximately $5 million in Texas Bred Incentive Program funds to the three largest breed registries in the state: the Texas Thoroughbred Association, the Texas Quarter Horse Association, and the Texas Greyhound Association.
The Commission's enforcement function substantially complies with the Texas Racing Act and the Commission's Rules of Racing, but specific improvements are needed.
Audit work on the Commission's enforcement function focused on the Commission's rulings against licensees and its racetrack inspection program. The Commission is consistently assessing penalties against licensees (such as jockeys and employees of racetracks) in accordance with the Texas Racing Act, its rules in the Texas Administrative Code, and its guidelines.
The Commission's racetrack inspection program is substantially compliant with the Texas Racing Act and the Commission's rules, but improvements are needed to ensure that Commission staff consistently follow policy and procedures and have sufficient information to perform inspections.
The Commission performs substantially all human and animal drug testing required by the Texas Racing Act and Commission rules.
The Texas Racing Act requires the Commission to conduct post-race testing. The Commission's rules require only that the first place horse in each race be tested, and its rules do not contain specific requirements for greyhound testing. The Commission tested 100 percent of first place horses in fiscal year 2004 and 99.9 percent of first place horses in fiscal year 2005. Although the Commission has not established documented rules and/or policies and procedures for the post-race testing requirement for greyhound racing to comply with the Texas Racing Act, it tested 72 percent of greyhound races in fiscal year 2005.
The Commission selects humans for drug testing based on reasonable suspicion and at the discretion of the racetrack officials. This practice is consistent with other states' procedures. According to the Commission, it performed 110 human drug tests in 2004; 65 of those drug tests had positive results and were referred to race stewards or judges.
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