This letter report presents the results of our audit of government revenues from the Commonwealth of the Northern Mariana Islands (CNMI) lottery operations for the third quarter of fiscal year 1999, ended June 30, 1999. The objective of the audit was to determine whether government revenues from the CNMI lottery operations were accurately computed in accordance with the individual Memorandum of Understanding (MOU) and terms of agreement between the CNMI Government, as represented by the Department of Finance (DOF), and the three CNMI lottery operators, referred as Operators A, B, and C in the report.

Our audit showed that government revenues from the CNMI lottery operations for the third quarter of fiscal year 1999, ended June 30, 1999, were understated by $37,729 due to a computation error on the part of one lottery operator and late remittance of quarterly license fees by another operator. As a result, government revenues should be increased from $123,603, as previously recorded, to $161,332. No recommendation on these matters needs to be proposed for this quarter because the lottery operators subsequently took corrective action to address the matters.

Our audit also showed that the two Number Game (Jueteng) operators sold tickets with different number series as well as different colors and formats, making it impossible to account for the actual number of tickets sold. Accordingly, there was no assurance that government revenues received from the two operators were complete.

We recommend that the Secretary of Finance (1) request that Operator A correct its records and transmit to DOF the unremitted revenues of $7,584; (2) address our pending recommendation on initiating action to implement the adopted amendments relating to control procedures established to ensure completeness of government revenues received from the Number Game (Jueteng) operators; (3) provide the basis for concluding that Agency A was an agent of Operator A, and therefore should not be issued a lottery license; the conflict between the Lottery Act (1CMC §9313(d) which specifically prohibits assignment of a license) and the Lottery Regulations (which allow transfer upon DOF's prior written consent) should be resolved by a legal opinion of the Attorney General's Office (AGO); and, (4) recover the commissions which DOF acknowledges are due from Operator C for its agent's failure to declare revenues from operations.

In her letter response dated December 27, 2000 and in a subsequent meeting held at DOF office, the Secretary of Finance responded to all the recommendations. Based on the response we received from the Secretary, we consider all recommendations closed. DOF and the lottery operators had taken corrective action to address the recommendations, i.e., initiation of action to implement the adopted amendments. OPA was also provided copies of the bank statements reflecting deposit and opinion letters to address the recommendations.

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