The state should increase oversight of the $489 million charitable gaming industry by doing more audits and tracking volunteers, according to a report released Wednesday by State Auditor Crit Luallen.
Charitable gaming is big business in Kentucky. More money is generated through bingo nights at churches and raffles in Kentucky than is wagered at Kentucky racetracks, the report noted.
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Kentucky is one of the top charitable gaming states in the country. Only Minnesota, Washington and Texas report more money generated each year in charitable gaming.
Despite its size, the state's charitable gaming industry receives little scrutiny.
In 2007, more than 750 churches, high school booster groups, veterans and fire and rescue groups operated such activities.
But too few of those groups are audited by the Kentucky Department of Charitable Gaming, the report found. Last year, the department assigned 16 audits.
"Without an audit, the financial data provided to the department is self-reported but not verified," a news release from Luallen's office noted. By law, the department is not required to audit financial reports from charities. But the department has failed to adopt a policy to ensure that charities are audited on a regular basis, the report concluded.
"We think they should have an established policy of doing an ongoing review of these entities," Luallen said Wednesday. "This is a tremendous amount of money that is flowing through these organizations."
Henry Lackey, commissioner of the Department of Charitable Gaming, said the office has too few staff members to perform audits on a regular basis. The department, which has an annual budget of $3 million, is funded entirely through gaming receipts.
Roughly a half cent of every charitable dollar receipt goes to the department. But because of a drop in funding, the department has had cutbacks in its staff, from 44 in 2006 to 41 this week.
"They are working as fast as they can and do as many audits as they can," Lackey said.
For the most part, charities get into gaming for the right reasons, he said. It's when outside individuals try to run those charitable operations for the organization that there are problems, he said. "It's a great way to make a substantial amount of money. But it's hard work and it must all be volunteer. No one can be paid, with just a few exceptions."
There have been several recent cases of alleged theft.
Recently, a former Paul Dunbar High School baseball coach was charged for allegedly taking money raised by the baseball team's booster club that was supposed to pay for a scoreboard and other team-related expenses. The coach has denied the allegations, saying there was a misunderstanding between him and booster leaders.
A Kenton County grand jury in May returned indictments against four people who allegedly took money from bingo proceeds for a VFW post.
The report notes that the department should do more to monitor volunteers. But Kentucky law does not require a registry of gaming volunteers to track and monitor volunteer activities or even require groups to provide volunteer information to the Department of Charitable Gaming.
"With a large number of charities in Kentucky relying on gaming proceeds, it's important that the department strengthen its controls and oversight of the charities gaming industry to ensure that every possible dollar goes toward these charitable causes and is not lost to dishonest schemes," Luallen said in a news release.
Kentucky may also need to look at how it uses receipts from charitable gaming.
Of the top 10 states in charitable gaming gross receipts, Kentucky is the only one that designates charitable gaming receipts solely for the Department of Charitable Gaming. Minnesota, for example, uses $51 million from charitable gaming to pay for schools, roads and other projects.
Last year, about $700,000 from charitable gaming receipts intended for the department was moved to the General Fund because of money shortfalls. But a group of charities filed a lawsuit earlier this year in Franklin Circuit Court, alleging that it was illegal for the state to take money that was intended solely for the Department of Charitable Gaming.
Oliver Barber Jr., a Louis ville lawyer who represents the charities, said the state has agreed not to spend the $700,000 until the case is resolved.
A spokeswoman for Gov. Steve Beshear, who has pushed for expansion of legalized gambling as a way to fix the state's anemic budget, said Beshear has not taken a position on whether more money from charitable gaming should be devoted to other state projects.
"He will be reviewing the audit that was released today and will be studying those findings," said Jill Midkiff.