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An Audit Report on the LatinWorks Marketing Contract at the Texas Lottery Commission

June 2014

Report Number 14-036

Overall Conclusion

The Texas Lottery Commission (Commission) adequately planned, procured, and formed its advertising contract with LatinWorks Marketing. The Commission also managed that contract in accordance with statutes, rules, Office of the Comptroller of Public Accounts (Comptroller's Office) requirements, and Commission policies and procedures to help ensure that the State's interests were protected.

The Commission awarded the advertising contract to LatinWorks Marketing in May 2012 for $104,019,222. The contract is valid through the end of fiscal year 2016. The General Appropriations Act allocates $32 million each fiscal year to the Commission for advertising services.

The Commission generally managed and monitored the advertising contract to verify that LatinWorks Marketing performed according to the terms of the contract. However, the Commission should improve its review of the contractor's year-end report, evaluate the contractor's performance against goals, and verify the services provided. For example, the contractor inappropriately excluded four advertising campaign projects from the year-end media review report provided to the Commission. Additionally, the Commission did not evaluate the contractor's performance against the goals and planned budget it established at the beginning of the year.

The Commission adequately reviewed contractor billings to ensure that it paid only valid invoices that included required supporting documentation in accordance with applicable statutes, rules, Comptroller's Office requirements, and Commission policies and procedures. However, the Commission should strengthen its processes to ensure that it does not inappropriately pay state sales tax. Auditors identified two sampled invoices that combined included more than $100,000 paid by the Commission in state sales tax, even though the Commission is exempt from paying state sales tax. According to the Commission, it has paid a total of $245,557 in state sales tax to the contractor since the beginning of the contract. The Commission should consult with the Comptroller's Office to recoup the state sales tax paid and to determine when, if ever, it should pay state sales tax in the future.

Auditors communicated less significant issues related to the contract's function and oversight areas to the Commission separately in writing.

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