Internal Audits Presentation to California State Lottery Commission April 26, 2012 Director’s Report 6e

Overview Mission and Purpose Role and Objectivity Organization and Independence Sample Audits/Reviews Audit Committee Mandated External Audits Other Activities

Mission and Purpose Internal Audits is an independent, objective assurance and consulting activity designed to add value and improve Lottery operations ensuring games are fair, honest and secure. Internal audit activities are in accordance with the International Standards for the Professional Practice of Internal Auditing. Lottery management, Audit Committee, Lottery Commission, other regulatory agencies and the public rely on activities performed by Internal Audits.

Role and Objectivity Internal Audits does not exercise authority over the organization or develop and implement policies and procedures. Internal Audits is free to review and appraise policies, plans, procedures, and other internal controls in any area of the Lottery, and to report audit findings and recommendations. However, Internal Audits does not relieve management of its assigned responsibilities.

Organization and Independence The chief of Internal Audits reports to the Director, Audit Committee and the California Lottery Commission; ensuring independence essential to the effectiveness of internal auditing. Internal Audits is composed of seven positions; –Audit Chief –Audit Manager –Four Auditors –One Office technician –Several contract auditors/consultants

Sample Audits/Reviews Camelot Contract Asset Management Confidential Funds Scratcher Ticket Activation FISMA 2011 Travel Program Gamo Petty Cash Fund Website Incident Special Event Retailers – Control Considerations Retailers Reimbursements

Audit Committee Audit Committee was established in January Composed of three members appointed by the Lottery Commission. The goal of the Audit Committee is to ensure audits are conducted in an ethical, professional, and efficient manner to protect the people of the State of California. Audit Committee reviews all internal and external audit reports and approves the annual Internal Audit Plan.

Mandated External Audits The State Controller’s Office (SCO). They perform audits of the Lottery on a continuous basis. Annual Financial Statement Audit. This audit is due in October of each year and is performed by a CPA firm hired by the Lottery. Daily Draw Observations. The Lottery Act requires that all Lottery drawings (except Hotspot) be witnessed by an independent contractor hired by the Lottery. Security Review of Lottery Operations. On a biennial basis, the Lottery’s operations are reviewed by and independent contractor hired by the Lottery.

Other Activities Statistical Analysis of Lottery Games Ball Weighing Certifications Draw Equipment Certifications Validation Audits of Scratchers Games Security Audits of Scratcher Printer Vendors Public Website Review External Audit Coordination and Response Mega Millions Agreed Upon Procedures Governance Committees

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