Summary of Report 06-062

August 2006

Report Number 06-062

The Texas Lottery Commission (Agency) has contracting policies and procedures that address all five contracting phases in the Texas Building and Procurement Commission's State of Texas Contract Management Guide. These policies and procedures establish a sound baseline for the Agency's contracting and procurement processes. As a result, the Agency effectively evaluates and selects its contractors, and its contracts include provisions required by statutes.

However, the Agency should make improvements in certain areas. The Agency:

- Did not deduct $148,000 in sanctions and liquidated damages from its payments to the primary lottery operator. This amount was relatively small and represented less than one percent of the contract's total amount.

- Made $287,000 in potential overpayments to an advertising contractor. Those were potential overpayments because they were not made in accordance with the terms of the contract. This amount represents less than 1 percent of the contract's total amount and 14 percent of the contractor's total commissions.

- Does not consistently document its needs and perform risk assessments when planning its contracts. The Agency did not assess its needs and risks for five of seven contracts that auditors tested for contract planning.

- Does not have a standard contract negotiation process and did not conduct or document negotiations for two of six contracts that auditors tested for negotiations.

- Has weaknesses in its administration of contracts in areas such as contract monitoring and evaluation of contract amendments.

These issues increase the risk that the Agency's contracts may not completely address its needs and that the Agency may not be paying the most favorable rates for its contracts.

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