The State loses CZK 500 million in lotteries per a year as the state supervision is weak

PRESS RELEASE on Audit No. 13/35 – September 1, 2014

The Supreme Audit Office performed an audit of payments from lotteries and other similar games and scrutinized how the Ministry of Finance had managed the lotteries’ sphere and how the financial authorities had assessed and managed the payments. Auditors revealed errors, which cut down revenues of public budgets.

During the period 2010–2013, annual revenues from lotteries ranged from CZK 5,400 million to CZK 8,300 million. Since the new act on lotteries became effective in the beginning of 2012, payments have increased to 22 % (i. e. by some 5 %), but the keepers of lotteries in the Czech Republic still do not have to pay as much as in other European countries – for example in Slovakia, the payment burden is even 7 % higher.

The SAO concluded that the administration system of payments from lotteries is ineffective as well as inefficient, and is far too complicated.

Unsatisfactory legal regulations and technical standards poorly stipulated by the Ministry of Finance for Internet lotteries are among the main reasons for the said decreased revenues of public budgets. Internet betting is illegally operated by various companies, which do not declare their incomes. The SAO estimated that public budgets lost around CZK 600 million per a year. The Ministry as well as financial authorities failed to perform legal actions against these businesses.

Financial authorities do not possess enough evidence to verify data contained in the payment declarations, which are submitted by gaming machine keepers. The number of gaming machines operated in the given place and time is not known as the Ministry of Finance and the municipalities pass on incomplete and inaccurate data. As a result, the payments may not correspond with the reality. The administration system’s high error rate was proven on a small sample of 74 audited payment declarations, in which errors amounted to CZK 68 million in total. These errors were caused by non-corresponding data about the permitted and operating gaming machines.

The SAO also revealed imperfections at the state supervision of lotteries, which is weak and inefficient. The Ministry can invalidate the permits in case the gaming machine’s keeper violates rules. But such proceedings were not applied by the Ministry in spite some keepers violated the rules fifty times and three of them even more than hundred times. The Ministry lacks information about the state supervision, which is carried out by municipalities.

On the basis of the revealed facts, the SAO filed criminal complaints against uneconomic expenses of consulting and legal services at the Ministry of Finance. The SAO also notified financial authorities about the reasonable suspicion of a violation of budgetary regulations in the amount of CZK 33 million. The notice was related to expenses for the Ministry’s informational system, which should have provided a complex assistance to the state supervision of lotteries. The informational system itself cost CZK 2.7 million, but the related contracts, which were awarded in the negotiated procedure without publication, (i. e. without open procedures), gradually increased the amount to ten times higher. The SAO concluded that such a system could not be efficiently used in the administration of payments and would not provide a complete assistance to the state supervision. The Ministry did not even use all its functions in spite it had to pay for them.

Communication Department
Supreme Audit Office

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