0001 1 2 3 4 *************************************************** 5 BINGO ADVISORY COMMITTEE 6 MEETING 7 8 AUGUST 21, 2003 9 *************************************************** 10 11 12 13 14 15 16 17 18 BE IT REMEMBERED that the BINGO ADVISORY 19 COMMITTEE meeting was held on the 21ST of AUGUST, 20 2003, from 10:00 a.m. to 12:18 p.m. and 1:05 p.m. 21 to 4:30 p.m., before Connie Jo Ramirez, RPR, CSR in 22 and for the State of Texas, reported by machine 23 shorthand, at the Offices of the Texas Lottery 24 Commission, 611 East Sixth Street, Austin, Texas, 25 whereupon the following proceedings were had: 0002 1 APPEARANCES 2 Ms. Virginia Brackett, Chair 3 Ms. Suzanne Taylor, Vice-Chair 4 Mr. Roy Gabrillo, Auditor 5 Mr. Billy Atkins, Director Ms. Terry Shankle, Manager 6 Ms. Norma Quezada, Audit Manager Mr. Philip D. Sanderson, Director 7 8 Members: 9 Mr. Daniel Moore Mr. Larry Whittington 10 Ms. Patricia Greenfield Ms. Marilyn Matthews 11 Mr. Mario Manio Mr. Pete Pavlovsky 12 Mr. John "Jack" Dougherty 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 INDEX 2 Appearances...................................... 2 3 4 AGENDA ITEMS 5 Item Number 1................................. 4 Item Number 2................................. 4 6 Item Number 3................................. 4 Item Number 4................................. 221 7 Item Number 5................................. 221 Item Number 6................................. 221 8 Item Number 7................................. 245 Item Number 8................................. 214 9 Item Number 9................................. 246 Item Number 10................................ 257 10 Item Number 11................................ 254 Item Number 12................................ 218 11 Item Number 13................................ 254 Item Number 14................................ 254 12 Item Number 15................................ 256 13 Reporter's Certificate........................ 257 14 15 16 17 18 19 20 21 22 23 24 25 0004 1 AUGUST 21, 2003 2 3 CHAIR BRACKETT: Good morning, it's 4 shortly after ten and we will call the meeting to 5 order. There's some people here, I'd like to 6 recognize, that are here. Commissioner Cox, there 7 he is. 8 COMMISSIONER COX: Yes, ma'am. 9 CHAIR BRACKETT: Thank you, 10 Commissioner. I was looking over there for you, 11 it's the last place I saw you. And also the head 12 of the Texas Lottery Commission is here, Reagan 13 Greer. And his assistant, who we've seen from time 14 to time, so we appreciate you being here. 15 Have all of you had a chance to read 16 the minutes? Are you ready to correct or approve 17 them? All right. Then the minutes are approved as 18 printed and mailed. 19 On Item number three: Report, 20 possible discussion and/or action on the 78th 21 Legislature, Regular Session on implementation of 22 legislation and new rules and/or amendments to 23 existing rules, including recommendations by 24 subcommittees on unit accounting, advisory opinion, 25 bonds or other security, bingo reports, use of gift 0005 1 certificates, distribution of proceeds for 2 charitable purposes, and registry of workers and 3 licensing issues. 4 MR. ATKINS: And I assume you're 5 calling on me? 6 CHAIR BRACKETT: Yes. Billy Atkins 7 will begin the discussion on that. 8 MR. ATKINS: Madam Chair, the 9 majority of the items under Item three, as you 10 know, represent work products from the 11 subcommittees that were appointed at the last BAC 12 meeting to address some of the different aspects of 13 House Bill 2519 which was passed during the 78th 14 Legislature. 15 There are a total of six different 16 proposals under this agenda item, and you'll notice 17 for just kind of housekeeping purposes, for your 18 benefit, you'll notice that those items are 19 separated by a gold divider while all other agenda 20 items are separated by a blue divider. 21 One item that is noted under this 22 agenda item is proposed rules on licensing issues, 23 and it's my understanding that this subcommittee 24 hasn't finalized their recommendation, so there's 25 something in the note -- there's nothing in the 0006 1 notebook under that item and it will be considered 2 at the next meeting. 3 Additionally, there are two existing 4 rules that have been proposed for amendment to 5 House Bill 2519, and one proposed new rule that 6 didn't have a subcommittee working on it but staff 7 will be available at this meeting to lay those out 8 and explain those to you. 9 And it was going to be my suggestion 10 that after kind of these introductory remarks, that 11 the Chair just go through and call on the 12 subcommittee chairs and the staff members to lay 13 out the products that they've been working on, the 14 proposals that they have before you today and 15 provide explanations and answering the questions 16 that the committee may have. 17 I do think, due to certain upcoming 18 deadlines, et cetera, that we'd recommend, in 19 general, that the advisory committee consider 20 moving forward on these items, giving them to the 21 commission so that they can be proposed for 22 publication in the Texas Register and get the 23 formal rule-making process started so that we can 24 move forward on the implementation of these 25 different provisions. 0007 1 And that, Madam Chair, is pretty much 2 the opening remarks that I had and I'd defer back 3 to you to call on the subcommittee chairs. 4 CHAIR BRACKETT: Okay. Marilyn 5 Matthews will be reporting on the unit accounting 6 rule by subcommittee. 7 MS. MATTHEWS: Well, I'd like to 8 thank everyone on the subcommittee for all their 9 work. We met five times and it's difficult to 10 start with nothing and form these, and I'd like to 11 commend Roy for all his work. 12 We would like the BAC to review this 13 rule and see if there's any changes that need to be 14 made, and, if not, we'd like to recommend that it 15 be presented to the commissioners. 16 CHAIR BRACKETT: Is there any 17 discussion from the advisory committee members at 18 this point? 19 MR. MANIO: I have some questions 20 about this rule. On page 1 of mine, line number 8, 21 and we have shown three options in here, the unit 22 manager, designated agent or trust agreement, and 23 my understanding is that the trust agreement is 24 not an option. It is mandatory under H -- House 25 Bill 2519. Unit manager or designated agent, those 0008 1 are options available to the unit. 2 MR. GABRILLO: Let me address that. 3 Roy Gabrillo, G-a-b-r-i-l-l-o, Auditor, Texas 4 Lottery Commission. 5 The trust agreement is an option. 6 The unit agreement is a requirement. There's a 7 difference between the unit agreement, the unit 8 accounting agreement, and the trust agreement. 9 The unit accounting agreement, every 10 -- every or -- every unit has to have an agreement 11 that spells out how they're going to share the 12 revenue and expenses. 13 The trust agreement is where the 14 organizations that are part of the unit decide 15 which organization is going to be the trustee and 16 is going to be responsible for the reporting, the 17 record-keeping, or access to records and inventory, 18 and things like that. So that's the distinction. 19 One is the unit accounting agreement 20 and the other one is a trustee agreement, mainly 21 one of the organizations as a trustee for the unit. 22 MR. MANIO: Okay, okay. Thanks for 23 the clarification, Roy. I have another question. 24 Page 3 of 5, line number 2: A licensed authorized 25 organization that becomes a member of a unit must 0009 1 maintain a written inventory of all bingo supplies 2 and equipment on hand on the effective date of 3 membership in the unit. 4 And then if you go down on the same 5 page, line number 14: All inventory records must 6 be maintained with both units and the licensed 7 authorized organization's records for a period of 8 four years. So there will be duplication of 9 records in here. 10 MR. GABRILLO: There will be 11 duplication if the unit never changes. If there's 12 additions, in other words, where an organization, 13 because as part of the unit leaves, the unit -- the 14 unit's going to have some kind of record as to what 15 inventory they started with, even though a 16 composition has changed, they still need to 17 maintain an inventory of what they had on hand when 18 the unit was first formed and when it was made up 19 of say A, B, C, you know, A, B, C charities, and 20 now it's made up of BCD charities. So that's why 21 they have to -- as long as we have duplication only 22 if the unit never changes. 23 But for tracking purposes or 24 reporting purposes, they're going to have to 25 maintain an inventory of what they had on hand when 0010 1 the unit was formed because of the possibility of 2 changes within the unit. 3 MR. MANIO: Well, I guess I'm failing 4 to understand because -- 5 MR. GABRILLO: And the other thing, 6 excuse me, I'm sorry. The other thing is, also, 7 the organization that happens to leave a unit and 8 is out on their own, if and when we do audit their 9 records, we'll need to see what inventory they had, 10 that they had transferred to the unit when they 11 joined the unit, and also have to have an inventory 12 of what they -- what was returned to them when they 13 left the unit. 14 MR. MANIO: Okay. So what you're 15 saying is, as long as the unit becomes -- it stays 16 intact, there's no need to keep duplicating 17 records? 18 MR. GABRILLO: Well, they're going to 19 have to keep the records anyway. 20 MR. MANIO: Well, what I'm saying 21 is, one set of records. 22 MR. GABRILLO: Well, it's going to 23 have to be two because the organization -- because 24 we don't know the possi- -- there is that 25 possibility that the new -- the organization could 0011 1 leave the unit. 2 See, we don't know, you know, in that 3 four-year period if the unit's going to stay the 4 same or is it going to change. There is a 5 possibility of the changing, of organizations 6 leaving, so that's why -- that's why if it doesn't 7 change, yeah, there is duplication of records. If 8 it does -- if it does change, it's, you know, the 9 unit will have records, the organization will have 10 records of inventory. 11 MR. MANIO: Right. Because -- 12 MR. GABRILLO: And, I mean, I see 13 what you're saying, it is duplication but it has to 14 be that way just for accuracy of reporting. And, 15 again, when it comes to an audit of the unit, an 16 audit of the organization after it leaves the unit. 17 MR. MANIO: For example, there are 18 five organizations in one unit. What you're saying 19 is -- organization in here will help maintain the 20 record aside from the one that's maintained for the 21 whole unit. 22 MR. GABRILLO: Right. In other 23 words, what they'll -- and probably the best way to 24 do that is, each organization take an inventory of 25 what they're transferring to the unit and just give 0012 1 a copy of it to the unit manager, designated agent, 2 or trustee organization, for that -- for 3 maintenance with the other records, that way if one 4 of them does leave, or two of them leave, whatever, 5 they've got their own record of the inventory of 6 what they're transferring. 7 And, again, they're going to have to 8 take an inventory of what was transferred back to 9 them after they left the unit and the unit's going 10 to have to maintain that record, too, because, you 11 know, if we audit the organization after it leaves 12 the unit and we order -- and we audit the unit 13 itself, we're going to need to know what the 14 inventory levels were at any particular point in 15 time and also if -- during the change, if there was 16 a change in the unit. 17 MR. MANIO: Yeah, I can understand 18 the rationale behind, you know, duplicate records 19 if there is a break-up in the unit, but if there is 20 no break-up, I mean, it's just a duplication of 21 record-keeping effort that's an unnecessary expense 22 because the -- one of the main benefits of the unit 23 accounting is to save -- save money for the 24 organizations. 25 MR. GABRILLO: Well, and you're 0013 1 right, and -- but, again, I think the record 2 itself, you know, it's just -- it could be a xerox 3 copy that they provide to -- that the organization 4 provides to the unit itself. I don't think it's 5 going to take any additional cost or expense just 6 to maintain that one -- that one record. 7 MR. MANIO: There's one record for, 8 let's say, five organizations, and that's a record 9 that's -- that's dynamic, when inventory comes in, 10 there's a change in the record. They use parts of 11 the inventory, there's a change in the 12 record-keeping. So it's not just one page, really. 13 What I'm saying is, in case there's a 14 break-up of the unit, then would it not be the time 15 to get duplicate records, the inventory for the 16 organization that's going away rather than oblige 17 them to keep a record, which is a duplicate of the 18 unit on the records? 19 MR. GABRILLO: Well, again, they're 20 going to have to keep an initial record of that 21 inventory, of inventory that was transferred to the 22 unit if it was transferred, because it could be too 23 that they decided -- the organization may decide, 24 look, we're going to start fresh, we're going to 25 dispose of all this inventory and let the unit 0014 1 purchase, but there has to be a record of it. 2 There has to be a record of what happened to that 3 inventory. Was it transferred or was it disposed 4 of? 5 So, again, like you said, it does 6 seem like duplication but I think it's a necessity 7 because, again, if an organization leaves the unit, 8 we need to know what they transferred and how much, 9 and also what they took back after they left the 10 unit, if they got any inventory back. 11 MR. MANIO: Right. Well, I think 12 that's what I'm proposing is, okay, just maintain 13 one record. If an organization is leaving, then 14 get duplicate records of, you know, from the 15 central file-keeping upon -- when they leave. 16 MR. GABRILLO: Okay. I mean, that's 17 fine. We can take that -- I'll take that into 18 consideration. 19 MR. MANIO: Just to save on, you 20 know, some time and some paper. 21 MR. GABRILLO: Okay. 22 MR. WHITTINGTON: Tell you what, 23 could I ask a question? If I got an organization 24 that comes into unit accounting and they got double 25 inventory compared to another organization, If I 0015 1 put my inventory in double and they put in single, 2 I think that -- that when they pull out, they 3 should get double inventory back at the time they 4 pull out. 5 MR. GABRILLO: Right. And, again, 6 that's something that's going to have to be covered 7 in the unit accounting agreement as to how the 8 disposition of the inventory and how the 9 disposition of any funds that are in the unit 10 accounting bingo account, how those funds will be 11 disbursed. 12 So, I mean, that's going to be a 13 decision that's going to be up to each individual 14 unit as to how the disposition of any inventory 15 funds when an organization decides to pull out of a 16 unit. 17 MR. WHITTINGTON: Well, that's just 18 to -- 19 MR. GABRILLO: I mean, and, again, I 20 mean, it makes sense, but, again, that's going to 21 have to be something that's going to have to be in 22 the unit accounting agreement. 23 MR. WHITTINGTON: Well, you know, 24 that's just to confirm that a record should be 25 kept -- 0016 1 MR. GABRILLO: Oh, yeah. 2 MR. WHITTINGTON: -- at the beginning 3 so -- 4 MR. GABRILLO: Yes. 5 MR. WHITTINGTON: -- we can have his 6 record available if they pull out -- 7 MR. GABRILLO: Exactly. 8 MR. WHITTINGTON: -- to get the 9 inventory back as well as if they don't have enough 10 inventory to get the inventory back they put in, 11 there should be some type of reconciliation of the 12 other charities to refund them for their -- 13 MR. GABRILLO: Right. And, again -- 14 and, yeah, that's something that's going to have to 15 be addressed in the agreement. 16 MR. MANIO: I have one more question. 17 On page 405, line number 11: A licensed authorized 18 organization that is part of a unit and is the 19 holder of a commercial lessor license shall deposit 20 all rental receipts in the unit's bingo accounts. 21 And I guess I'm trying to understand 22 why we want to make up that requirement instead of 23 putting the rental income in the organizations own 24 the bingo account instead of the unit. 25 MR. GABRILLO: Well, one of the 0017 1 things that we discussed when we first -- one of 2 the first things we discussed when the subcommittee 3 met, I brought up the fact of would the 4 organization still maintain their bingo accounts, 5 do you still want -- and the consensus of the 6 committee was that there was no point in the 7 organizations maintaining their own bingo account. 8 I countered with -- my 9 counter-question was, what if an organization 10 leaves a unit. I said, what are they going to do 11 with those funds that they receive after they leave 12 the unit. And a couple of -- a couple of the 13 members said, well, all -- you know, they'll just 14 have to open up a brand new bingo account. It 15 doesn't take anything to open up a new account. 16 So they will not have a bingo account 17 to deposit those funds because all of it's going to 18 go into the unit. It's going to be one account. 19 Okay? 20 And, also, Section 2001.454(a) of the 21 Bingo Enabling Act states that a licensed 22 authorized organization shall devote to a 23 charitable purpose its net proceeds of bingo and 24 any rental of premises. 25 So the disbursements of charitable 0018 1 purposes, the bingo funds are going to be coming 2 from the bingo account, so that's why those 3 receipts, the rental receipts have to be put into 4 the unit bingo account. 5 MR. MANIO: Right. But there is one 6 exception to that, Roy, and that is if organization 7 is a 501(c)(3) -- well, I'm sorry. I'm -- I 8 withdraw the comment for that. 9 MR. GABRILLO: Okay. So that was the 10 reasoning for those funds, the rental receipts 11 being deposited into the unit account. 12 And, also, again, the first 13 subcommittee meeting that we had, the consensus was 14 that there was no point in the organizations 15 maintaining a bingo account if it wasn't going to 16 be receiving any funds. It's all going to be put 17 into the unit account. 18 MS. GREENFIELD: Excuse me. Can we 19 make it to where they're able to do that if they 20 want to, if they have a commercial lessor license 21 and you give the charity the option of whether they 22 want to have a bingo account where they just put 23 the rental receipts, or if they want to put it in 24 unit accounting, instead of requiring it go in 25 there? 0019 1 MR. GABRILLO: I don't think that 2 2519, because, again, 2519 states that all the 3 funds, all deposits of bingo must be deposited into 4 the unit account. Rental receipts are part of 5 conducting bingo because the conductor lessor is 6 collecting rent from the organizations to conduct 7 their bingo so that's -- that's considered bingo 8 receipts. 9 MS. GREENFIELD: I'm looking at two 10 separate licenses, you've got your conductor 11 license and you've got your commercial lessor 12 license, and, to me, it didn't make sense to put 13 the rent in with the conductor license. And I 14 think they should have a choice, whether they want 15 to put it in there or whether they should have 16 their own bingo checking account. And when new 17 charities come into the unit accounting, they're 18 already going to have a bingo checking account 19 anyway. 20 MR. GABRILLO: Right. 21 MS. GREENFIELD: You know, and the 22 ones that are already in existence just keep their 23 bingo checking account and then start putting their 24 -- their daily cash report receipts in. 25 MR. GABRILLO: And then those funds 0020 1 that they receive from rental receipts, they'll do 2 what with that? 3 They'll have to disburse them for 4 charity. 5 MS. GREENFIELD: Yeah, they'll have 6 to disburse them for charity but it'll be up to 7 just that one charity's discretion on why they do 8 it rather than, you know, having five other members 9 that are part of that checking account. 10 MR. GABRILLO: Okay. Well, I can -- 11 MS. GREENFIELD: I think the option 12 -- they should have the option to be able to do 13 that. 14 MR. GABRILLO: Yeah, I guess we can 15 consider that. 16 MR. MOORE: Roy, this is Danny. I 17 think we talked about this, this was one of the 18 hotter topics when we talked. And, Marilyn, I 19 don't think we were totally sold on the one 20 account. I mean, the rest of the members, David 21 was involved, and I'm just saying that that talk, 22 we didn't really clean that up. We kind of ran out 23 of time more than anything so that's -- 24 MR. GABRILLO: I mean, and that's -- 25 I mean, sure -- 0021 1 MR. MOORE: -- reflecting -- 2 MR. GABRILLO: -- that's an option 3 that we can consider if it's, you know, make the -- 4 make the exception for conductor lessor. 5 MR. MANIO: The other point is that 6 the -- even if several organizations form a unit 7 and they're required by 2519 to open and then 8 pay in one big account, that the 2519 is silent on 9 what should be done with the old or the individual 10 bingo account, they can -- I mean, they don't have 11 to close it, they can -- 12 MR. GABRILLO: Well, and that's 13 right. And like you said, that's why I brought 14 that up initially, was what's going to happen to 15 those bingo accounts, are they going to maintain 16 them or are they going to go ahead and close them. 17 And like I said, what I heard was that the, you 18 know, that there'll be no point in keeping those 19 accounts open if they were not going to be 20 receiving any funds. 21 But, again, the conductor lessor 22 issue came up at a later date; it didn't come up 23 initially. 24 MS. TAYLOR: When the funds are being 25 disbursed from the unit account, they would be 0022 1 disbursed at the end of the quarter so that it 2 would show up on the unit's quarterly report. If 3 they're disbursed into their bingo account of the 4 organizations, does that count as disbursed because 5 in fact they're backed with bingo account and not 6 disbursed with the organization. 7 MR. GABRILLO: It's -- no, because of 8 the fact that that -- just disbursing into the 9 bingo account is not considered a charitable 10 distribution. 11 MS. TAYLOR: I mean, I -- I can see 12 the problem with having more than one bingo account 13 for that reason. 14 But I wanted to add my two cents to 15 Mario's. He's absolutely right about the 16 inventory, inventory changes on every time bingo is 17 conducted, the inventory would change. 18 MR. GABRILLO: But they would only 19 have to take it one time. They would take it 20 initially when the unit is formed. They have to 21 take an inventory, each organization would have to 22 take an inventory of what they had on hand, and 23 either, like I said, transfer it to the unit, to 24 start with, or, again, if the unit decides that, 25 well, no, we'll just start fresh, then we need to 0023 1 have a record as to what was -- if they decide to 2 dispose of it, either by sending it back to the 3 distributor for credit or having it destroyed. 4 MS. TAYLOR: Well, I -- I understand 5 that part. 6 MR. GABRILLO: See, but it's -- 7 that's what I'm saying, it's a one-time thing. 8 We're not saying that they need to take an 9 inventory -- 10 MS. TAYLOR: Continuous. 11 MR. GABRILLO: Not for -- not 12 initially. 13 MS. TAYLOR: Okay. So what you're 14 saying here is, this is an initial inventory only 15 that each organization maintains, an initial 16 inventory of what they provide -- what they gave 17 over to the unit? 18 MR. GABRILLO: Exactly. And then the 19 unit itself would have to maintain its own 20 inventory records. 21 MS. TAYLOR: Well, I'm reading it the 22 same way Mario did, which when I was reading it, it 23 was the same thing. A perpetual inventory that has 24 to be -- every single organization has to have, so 25 that's -- I'm -- I'm on the same page with what 0024 1 your understanding is. 2 MR. MANIO: Yeah, I think that's my 3 interpretation -- 4 MS. TAYLOR: That sounds fine then. 5 That's -- 6 MS. WILKOV: Just a moment. You need 7 to speak one at a time because we have a court 8 reporter here. 9 MR. MANIO: I'm sorry. 10 MS. TAYLOR: I don't -- I don't have 11 a problem with that, if that's what you're saying, 12 that you just stick an inventory of what you're 13 providing into the unit, that sounds great. 14 MR. GABRILLO: Right, because -- and 15 I don't know, it may be that (a) needs -- 5(a) 16 needs to be a little bit more clearer but it does 17 say that a written inventory of all bingo supplies 18 and equipment on hand on the effective date of 19 membership in the unit. 20 MR. MANIO: And that's true, that's 21 the beginning inventory, but if you go down to line 22 number 14, it doesn't say "beginning." It's "All 23 inventory records." So any withdrawal or new 24 deliveries. 25 MR. GABRILLO: Okay. I don't know, 0025 1 maybe I'm misunderstanding you but I thought -- 2 well, I mean, if you have some suggestive language 3 to kind of clarify that, but like I say 5(a) is 4 addressing the initial inventory. 5 MR. MANIO: Right, and that's not a 6 problem, just, you know, that's a one-time deal. 7 MS. MATTHEWS: Maybe, Roy, we need to 8 add "initial" somewhere in that paragraph five, 9 line five. 10 MR. GABRILLO: Okay. 11 MS. MATTHEWS: And then 14, I think 12 is a little unclear. It's saying all inventory 13 records must be maintained with both units and the 14 licensed authorized organization's records. 15 What does all "inventory records" 16 mean? 17 MR. GABRILLO: Okay. 18 MS. MATTHEWS: Daily inventories? 19 MR. GABRILLO: Well, as far as the 20 unit, they'll have to maintain because it's going 21 to apply the rule 554, sorry, 558, the rule that 22 talks about maintaining perpetual inventory, that 23 -- they're going to have to abide by that, too. In 24 other words, the unit's going to have to maintain 25 a perpetual inventory for the unit. Okay? 0026 1 MS. MATTHEWS: Right. 2 MR. GABRILLO: Not for each 3 individual organization. Now, what this is 4 addressing is, any inventory changes as far as to 5 the unit, regarding the unit, again, the initial 6 inventory that the -- and any changes if units 7 withdrew, any organization withdrew from the unit, 8 the inventory that was transferred to them, that 9 has to be accounted for. 10 And if you bring in a newunit -- a 11 new organization, the inventory -- if they brought 12 any inventory into the unit, that would have to be 13 maintained by the unit and also by the licensed 14 authorized organization as to what they brought 15 into the unit so -- 16 But the only other thing I can say is 17 on (e), which is on line 14: All inventory 18 records, as far as, you know, addressing the units, 19 talk about that they have to maintain, first of 20 all, perpetual inventory and then any inventory 21 changes due to -- 22 MS. MATTHEWS: Withdrawals. 23 MR. GABRILLO: -- changes in the 24 unit. 25 MS. MATTHEWS: Okay. Maybe we should 0027 1 clarify that line 14. 2 MR. SANDERSON: Phil Sanderson, 3 Assistant Director of Charitable Bingo Operations. 4 Line 14, paragraph (e), is basically 5 saying that inventory records need to be maintained 6 for four years, and I don't think it's saying that 7 duplicate records are to be maintained by both 8 organizations and the unit. It refers to A, B, C 9 and D above, that when the unit's formed or a 10 member becomes -- an organization becomes a member 11 of the organization -- of the unit, then they take 12 an inventory record, both keep a copy of that: The 13 unit and the organization. 14 If the unit loses an organization, a 15 withdrawal, if there's any inventory transferred to 16 the organization from the unit, they both keep a 17 copy of that. 18 Day-to-day perpetual inventories are 19 kept by the unit for four years. So it's not 20 duplicate records for both organizations and the 21 unit, it's just stating that inventory records are 22 to be maintained for four years and the unit keeps 23 what they're required to keep for four years, the 24 organization keeps what they're required to keep 25 for four years. 0028 1 MR. MANIO: Okay. So I guess my 2 problem is interpretation, interpreting the 3 language in the rule, because if you put it that 4 way -- 5 MS. GREENFIELD: If we're having 6 trouble understanding it, then the charities out 7 there are going to have trouble and they're going 8 to be calling wanting clarification, so if we could 9 just maybe state it in such a way that -- 10 MR. MANIO: But it's not unusual for 11 me to misunderstand because English is my second 12 language. 13 MR. ATKINS: We can, if there is 14 suggested language that anyone has, they can 15 provide that to Phil or to Roy or to the 16 subcommittee and they can, you know, Mario, if 17 there's something that you think would make it 18 clearer, or anyone else, they can provide that. 19 MR. WHITTINGTON: And Phil, could I 20 ask a question? But disbursements are made out 21 quarterly of the parties you say to the 22 organizations, in what form is it made out. Is it 23 a check going to the organization they got to put 24 somewhere, do they go to the bank and cash it? Do 25 they put into an account? That's what I'm trying 0029 1 to understand, on that part. 2 MR. SANDERSON: I believe the 3 charitable distribution rule takes care of some of 4 the -- will take care of that, how a unit disburses 5 proceeds. 6 MR. WHITTINGTON: What I'm getting 7 back to charity keeping their account, basically -- 8 MR. SANDERSON: If -- 9 MR. WHITTINGTON: -- because I would 10 want an account if I'm getting a check to put in 11 from a organization, if I'm getting a check from 12 the unit accounting conductor, or whatever, or 13 lessor or whatever I'm getting it from, I would 14 want a account to put that in. 15 And I really think they should keep a 16 checking account, that they got a checking account 17 for that purpose only so I can know exactly what I 18 did at the end of twelve months so I can have 19 everything I need for the IRS to deal with that on 20 that basis. 21 MS. TAYLOR: I think the problem is 22 they're keeping another checking account and it's 23 another bingo account that has to be reported on 24 the unit accounting also. 25 Looking at it, I don't see how a unit 0030 1 accounting can work if everybody, in addition to 2 the unit account, has another bingo checking 3 account. You see? 4 I mean, I -- I can't understand it 5 myself how the unit manager is going to handle 6 that. How the Lottery Commission is going to want 7 to handle that because that's another bingo bank 8 account, so I think -- I mean, I understand what 9 you're saying but I can foresee lots of problems if 10 the charities have their own bingo -- personal 11 bingo accounts, along with the unit bingo account 12 because that all has to show up somewhere but -- 13 MS. GREENFIELD: But you have a 14 separate -- 15 MS. TAYLOR: General account? 16 MS. GREENFIELD: Well, no, you have 17 a separate -- you have a separate quarterly for 18 rental tax, so I think that the unit -- when I 19 think of the unit, I think of conductor and running 20 the bingo games, so I think that whoever has a 21 conductor in a commercial lessor account, the 22 commercial lessor account should be able to have a 23 separate checking account. Maybe, you know, 24 everybody -- 25 MS. TAYLOR: I agree with that, yeah. 0031 1 I don't have a problem with that but every single 2 charity having another account? 3 MR. WHITTINGTON: Well, I mean, 4 unit account, and I guess is the way I looked at it 5 and I look at unit account in helping every charity 6 get the equal disbursement from each session they 7 might play, that's the main thing and make sure 8 that all the charities are taken care of, not 9 interfering what they have as far as checking 10 account already. I mean, that's the way I looked 11 at it, because they got to stand on their own 12 sooner or later. 13 I mean, each charity is going to have 14 to stand alone at the end of the year anyway. 15 There's got to be something, some kind of way, you 16 know, they can have somewhere to put this money 17 coming from the unit. 18 MR. SANDERSON: Well, and one of the 19 questions that I would have then, probably 20 whenever the unit accounting was being discussed 21 last year, and where had the subcommittees on that, 22 one of the benefits that everybody foreseen with 23 the unit accounting was a better audit process, so 24 if the organizations, five organizations in a hall, 25 we go do an audit today, there's five bingo 0032 1 accounts that we audit. And if they keep that same 2 bingo account and now there's a unit, instead of 3 going down to one financial records to audit, we're 4 auditing six. 5 So that kind of defeats what the 6 original intention was, that they would cut back on 7 our time for doing the audits. We'd go in and hit 8 one account and then be out. 9 MS. GREENFIELD: Well, you're really 10 worried about where the distributions are going, 11 right? You want an account for your distribution? 12 MR. WHITTINGTON: Yeah, I mean, it's 13 not -- the bingo account it'll be audited as one 14 account. 15 MS. GREENFIELD: Well, what if, can't 16 we just have an account that they just put all 17 their distributions in and then they -- I mean, it 18 doesn't have to be a bingo account but it could 19 just be one that they open and that's what they put 20 in, it doesn't that to be the general fund account 21 but -- 22 MR. SANDERSON: But we have to make 23 sure that the money was used for a charitable 24 purpose. 25 MS. GREENFIELD: Yeah, but if you 0033 1 have one account where you're putting all your 2 distributions and that organization is just using 3 that one account for that purpose, it seems like it 4 would be a lot easier for you to do an audit 5 because you've got -- you know exactly where the 6 money is going because it's coming straight out of 7 that one account rather than having to dig through 8 the general fund records and find where, you know, 9 where the money went. Is there anything saying 10 that we can't do that? 11 MR. SANDERSON: Well, 568, or 12 whatever the charitable distribution use of 13 proceeds rule, has got language in there that 14 allows for that -- for you to put money from the 15 unit into a special fund account so that, you know, 16 that rule may cover the question you got about how 17 to disburse the proceeds out of the unit. 18 MR. WHITTINGTON: So based on, and I 19 can deal with the unit accounting -- account and 20 keep my account now for my charity as a special 21 fund account, that's basically what you said? 22 MR. GABRILLO: In the -- in the use 23 of proceeds rule, there is -- there's certain 24 restrictions or limitations as to what that account 25 can be used for. 0034 1 In other words, if it's going to be 2 used as a -- for -- the example that's given in 3 here, if it's a scholarship -- say you have a -- 4 the organization every year gives out scholarships 5 to say high school kids for college. They can use 6 that account as a holding account with the 7 stipulation that, especially if they only make a 8 disbursement once a year, they give out those 9 scholarships once a year, during that year, they 10 can put those funds into the -- into that special 11 account. 12 But, again, they have those -- they 13 have to get, first of all, approval from us to use 14 that account. Because right now, the way it's 15 proposed now, the language that's in there, all the 16 disbursements have to come out of the bingo 17 account. All charitable disbursements have to come 18 out of the bingo account. There's no -- and just 19 moving it from the bingo account to the general 20 fund is not going to be considered a charitable 21 distribution. 22 And, again, one reason behind that is 23 to cut down on, as far as auditing the different 24 accounts where we're just auditing one account, the 25 bingo account. So if all the disbursements are 0035 1 made from the bingo account, that's only one 2 account we have to audit. So, again, that's what's 3 in the rule right now. The language that's in 4 there, that all charitable disbursements have to 5 come out of the bingo account and which that 6 applies to the unit also. 7 MR. WHITTINGTON: Okay. If you're 8 going to audit the unit -- 9 MR. GABRILLO: If we audit the unit 10 -- well it's going to apply to -- 11 MR. WHITTINGTON: Okay, one 12 organization is messed up somewhere in the unit, 13 wouldn't it be easier -- 14 MR. GABRILLO: It's all -- it's all 15 -- all the funds are going to be going in. 16 MR. WHITTINGTON: I understand that. 17 But one -- if y'all look at that one specific 18 organization or -- 19 MR. GABRILLO: When we audit -- when 20 we audit the unit, we're going to audit just the 21 unit. We're going to audit everything that's in 22 -- all the records that relate to the unit, which, 23 yeah, it belongs to the organizations. The 24 organizations are the ones conducting the bingo but 25 we're going to audit the unit, we're not going to 0036 1 audit the individual organizations. 2 And like Phil was saying, it kind of 3 defeats the purpose then if each one of these 4 organizations, for instance, five, if they're all 5 maintaining their own bingo accounts, then we're 6 going to have to audit, not just the unit account, 7 then we got to go back over and look at the 8 organizations, the individual organization's bingo 9 accounts to see how those funds are disbursed for 10 charitable purposes. 11 So this way, if it comes out that the 12 unit -- the organizations that are part of the unit 13 are going to have to direct whoever is responsible 14 for the funds where they want those funds 15 disbursed, for what charitable purpose they want it 16 disbursed. 17 MR. WHITTINGTON: I'm a little 18 confused. You've got five organizations, period, 19 unit, you got all these five -- these organizations 20 together in one unit? 21 MR. GABRILLO: But there's only one 22 account. 23 MR. WHITTINGTON: Only one account. 24 MR. GABRILLO: Right. 25 MR. WHITTINGTON: But, still, that's 0037 1 one charity -- you might look at all these 2 charities, there's still going to be one charity 3 that's probably going to have some discretion, 4 there's going to be one; might be two. But, I 5 mean, but I can see -- I mean, after this money has 6 been disbursed. Okay? 7 MR. GABRILLO: But, again, the 8 unit -- 9 MR. WHITTINGTON: Disbursed 10 where? 11 MR. GABRILLO: It's going to be 12 disbursed directly to their charitable purpose. 13 In other words, the -- I'm a charity 14 that's part of a unit. It's time -- it's getting 15 towards the end of the quarter, I have to disburse 16 so much for charity. Okay? 17 MR. WHITTINGTON: Okay. 18 MR. GABRILLO: I direct whoever the 19 unit manager, the designated agent, the trustee, 20 whoever, to disburse X amount of dollars, say 21 $1,000 to the Boy Scouts. That's how it's going to 22 have to be done because it's going to come out of 23 the unit account. 24 The unit just can't write a check to 25 my bingo account and then I disburse it from there. 0038 1 It's going to have to come directly out of the 2 unit's bingo account if this -- because that's 3 what's in the -- in the new or this revised use 4 proceeds rule. 5 MR. WHITTINGTON: I'm confused. I 6 mean, I'm asking this for a reason because I really 7 don't understand. I'm trying to understand this. 8 I mean, unit is good to make sure all the charities 9 gets the same distribution and we've got to come up 10 with a more simplified way for the distribution, 11 what happens to it once they get this, this 12 distribution is going to be in one account. I got 13 to tell, hey, I want so and so, so and so, I mean, 14 all these checks are going to be coming from this 15 one account -- 16 MR. GABRILLO: Exactly. 17 MR. WHITTINGTON: -- to all these 18 organizations here. 19 MR. GABRILLO: And as Phil mentioned 20 earlier, that was one of the things that -- one of 21 the positives we heard about the unit account, that 22 it would cut down on the number of checks that were 23 written every quarter. Instead of -- instead of 24 five -- a one -- a worker receiving five checks 25 from five charities, this is going to be one check 0039 1 written. 2 MR. WHITTINGTON: Well, I can see it 3 on -- I can see on the utilities. 4 MR. GABRILLO: -- apply to the 5 charitable distribution. 6 MR. WHITTINGTON: And this applies 7 but I can't see it on the distribution for the 8 charities, that's what got me confused. And I can 9 understand the rent, I can understand the -- the 10 bills, the electrical bill, et cetera, the 11 supplies, one check, because I'm using that along 12 with everybody else's possession, which I'm going 13 to take if I'm playing three sessions, I know what 14 I got to get -- to do to make sure I cover three 15 sessions, or playing two sessions a week. Okay? 16 I know my dis -- distribution going 17 to be a lot less than a three session because I'm 18 playing one less session. I know that, so I got to 19 make sure I cover my part of it on the supplies and 20 the distribution part of it. Before it's me, be 21 organization by myself personally, I got to take 22 care of some other stuff compared to number 23 organization two or three or four, so that's what 24 I'm saying, once I get my distribution quality, I 25 want to know where I'm putting this at and I want 0040 1 to use it for my charity. 2 MR. GABRILLO: Oh, but you will be 3 knowing -- you will know when they -- when you tell 4 the -- whoever is responsible for the disbursements 5 of the funds where you want that money directed to 6 for a charitable purpose. 7 MS. TAYLOR: So you've got, let's 8 say, to make it really small numbers here. You 9 make $100 and you've got five charities. Each of 10 the charities is going to get a $20 disbursement. 11 Wouldn't you write out five checks, one to each of 12 the charities participating in their hall, they put 13 it in their general account and then disburse it 14 out for their charitable purpose? 15 MR. GABRILLO: That's the way it 16 would work now. Okay? But with the rule that's 17 being proposed today, the language that's in there 18 is saying that you can no longer do that. You have 19 to write the check directly from bingo to your 20 directed charitable purpose. It can't go into -- 21 it's not going to go into the general fund and then 22 get disbursed from the general fund. It's going to 23 be disbursed directly from the bingo account. 24 MS. TAYLOR: Then what are you going 25 to put down on checks if Virginia's charities have 0041 1 checks cut to, you know, her -- the electric bill 2 and the building fund and to pay for the children's 3 clothes and -- 4 MR. GABRILLO: There is -- there is 5 language in 501 -- in the rule that addresses 6 501(c)(3) organizations that can do that. They can 7 disburse it from their bingo account directly to 8 their general fund. 9 MS. TAYLOR: And then pay their 10 bills? 11 MR. GABRILLO: Yes. 12 MS. TAYLOR: Okay. 13 MR. GABRILLO: It applies to 14 501(c)(3). 15 CHAIR BRACKETT: Okay. We've spent 16 like 45 minutes on this so we haven't heard from 17 the public so I'd like to hear from the public now. 18 And the first -- and I think other 19 questions that you have will be answered through 20 the response to the public speaking. 21 The first form, Witness Affirmation 22 Form I received was from Ronnie Hunter. Is -- 23 yeah, there you are. 24 RONNIE HUNTER: Good morning. My 25 name is Ronnie Hunter, I represent the American 0042 1 Legion, I'm the Bingo Chairman for the Department 2 of Texas. 3 Just a couple of things. Number one, 4 unit accounting. Why are we doing this? Makes no 5 sense. We already got a can of worms. If we get a 6 audit, it takes them two months to six months to 7 get the paperwork back to you. A unit audit. I 8 don't understand, neither does none of my people 9 there. 10 We had a meeting and nobody 11 understands why we're causing or opening a bigger 12 can of worms than what we have now. 13 Next one is on the distributorship of 14 proceeds for the veterans. It came up at our 15 department meeting -- 16 CHAIR BRACKETT: Okay. We need to 17 just talk about unit accounting right now. 18 RONNIE HUNTER: All right. You 19 didn't want -- everything was under the one thing, 20 I didn't know. 21 CHAIR BRACKETT: I know. It's 22 confusing. 23 RONNIE HUNTER: All right. I'll wait. 24 MS. MATTHEWS: Well, the unit 25 accounting is voluntary, you don't have to do it. 0043 1 I mean, you're not required to be a unit, it's only 2 for those organizations that want to form a unit. 3 If you feel it's going to make a problem, then 4 don't do it. 5 RONNIE HUNTER: To me, it looks like 6 it would make a problem for the bingo commission 7 itself, not just the people. 8 When you start distributing checks 9 from one account, you're distributing for everybody 10 else. I think Suzanne had a deal -- I think she 11 run a bingo hall at Webber bingo, and she tried to 12 do this under different circumstances, and it had 13 to be a pain. I mean, there was no way to keep 14 track of everything and keep it straight, was it? 15 MS. TAYLOR: I think that, 16 truthfully, that the unit accounting for halls that 17 have a very good working relationship could be a 18 good thing. I think disbursing checks to pay 19 everybody's bills that, for whatever use for their 20 charitable purposes out of one unit account will be 21 a disaster so -- 22 RONNIE HUNTER: It'll be a mess. 23 MS. TAYLOR: Yeah. 24 RONNIE HUNTER: In my opinion. 25 CHAIR BRACKETT: Thank you. Okay. 0044 1 David Heinlein. Heinline. 2 DAVID HEINLEIN: David Heinlein. I 3 represent 32 nonprofit charitable conductors. I 4 might make a suggestion here at the beginning, it 5 might be helpful to have comments from those 6 members of the subcommittees before we go to the 7 public, and I am a member of this subcommittee, 8 because we had input that might be helpful to 9 those, you know, before they -- 10 CHAIR BRACKETT: Okay. Thank you. 11 Appreciate that suggestion. 12 DAVID HEINLEIN: I guess I'll start 13 at the beginning. Let me start with the bank 14 account. 15 The reason that we thought it would 16 be good to close your existing bingo bank account 17 and roll everything into just a single unit is for 18 what Roy has stated here, that our goal is to 19 simplify, not make it more harder or more difficult 20 type of an audit. That's one of our goals is to 21 decrease cost, not increase cost. 22 So if we have one single bingo bank 23 account, the audit is simpler. They can come into 24 a hall and audit one bingo bank account. They 25 don't have to go to five different charity 0045 1 representatives. They go to the designated agent 2 or the unit manager and receive all the records and 3 will do a simple audit on one account and makes it 4 very simple. 5 It came up later before we really had 6 time to do much discussing on the fact, that in the 7 case of a conductor who also had a commercial 8 license to put their rental receipts into this unit 9 bingo bank account, and we did disagree on that, 10 and Roy and I, I think agree to disagree on this. 11 Is that right, Roy? 12 MR. GABRILLO: Yes, sir. 13 DAVID HEINLEIN: Because if you have 14 to do that, then, obviously, the commercial lessor 15 will not allow himself to become a part of the 16 unit, which he might. 17 I have a situation like that that we 18 had discussed even before this came up and I've 19 about decided that commercial lessor would remain 20 independent at that hall and all the other 21 charities could form a unit, but I don't know why 22 it wouldn't still work for him to be a part of the 23 unit if he could then maintain a separate bingo 24 bank account. 25 I think that ought to be an 0046 1 exception, then, in this particular rule, that all 2 of the money would go -- you would close all the 3 bingo bank accounts of those people that are not a 4 commercial lessor, but in the case of a charitable 5 conductor lessor, it will allow him to keep -- 6 maintain an account to simply put his rental 7 receipts. That would make sense because he has a 8 lot of expenses that are not related to the unit 9 that they're paying rent to him for so that he can 10 cover those expenses and he would be able to pay 11 those expenses out of that account. 12 As is listed in the next item there, 13 it says that he must also remit the taxes on the 14 rental income. 15 Well, where would he remit those 16 taxes from if he couldn't remit it from the income 17 that he received from the rental receipts so 18 there's -- and there's many other expense items 19 that come as a part of really that facility to 20 these charitable conductors. 21 It makes no sense for him to put that 22 money into the single unit bank account and he's 23 not going to do that so it's just by writing it 24 like that, it just means that we will keep that 25 charitable conductor, the commercial lessor 0047 1 separate from the unit. 2 I'm wondering if on page 2, line 15: 3 Upon notification from the commission that the 4 licensed authorized organizations are qualified to 5 become a member of a unit, the person described in 6 Section (a) (1) (D), (E) or (F), of this rule is 7 qualified and a unit accounting agreement has been 8 executed, the unit may begin operations on the date 9 proposed. 10 My question is, I understand that 11 we've requested notifi -- notified the commission 12 we intend to do this. We -- that was the first 13 thing that we decided we had to do. How did we 14 start a unit? 15 Well, we said, we ought to send a 16 notice of intent to the Commission that we're 17 intending on doing this, and we set out the 18 perimeters of that information which we ought to 19 give to them, and that's all been carefully done in 20 the first page here as to what we ought to do in 21 that notice of intent. 22 Now, what do they do with that 23 information? Well, we have to qualify as a member 24 of the unit by having -- and we said we want to be 25 sure that there were no unpaid renter's fees, or in 0048 1 the case of a commercial lessor, lessor tax. So 2 that would be reasonable and that's an identifiable 3 qualification that's required to be a member. 4 You submit all the information that's 5 required, that's listed there, and you pay your 6 taxes and you're done. 7 And so the notification process, it 8 would seem, then, would be a very simple process 9 and within a few days' time, you could expect to 10 have approval. 11 But then it says, "And a unit 12 accounting agreement has been executed." Now, we 13 did not cover that part of that in our 14 subcommittee. 15 We did suggest at one time that maybe 16 there should be some sort of sample unit agreement. 17 Well, it would seem if that's going to be one of 18 the requirements to have this unit accounting 19 agreement, then it's got to be approved in order to 20 get this notification to proceed, then we better 21 define what the unit accounting agreement is going 22 to be and would that not also include a trust 23 agreement. 24 So I do think we're a little short in 25 that area of definition of what we intend to do so 0049 1 that it's clear to both sides what is going to be 2 required of them in order to get this notification. 3 If we leave it ambiguous, then it 4 might take a year to complete the qualification and 5 notification. And I don't think that was the 6 intent at all. We were intending on doing 7 something that would make the operation move very 8 smoothly, so I think we need to smooth that out. 9 Then on page 4, we did not get to 10 discuss this area either. As I'm sure was the case 11 with other subcommittees, this was a very rushed, 12 rushed time period that we had to work with them 13 and constraints were great. 14 Prior to Monday, August the 11th, we 15 had just a page and two-thirds document and we've 16 ended up with a five-page document, but we didn't 17 actually see that until Monday, the 11th, and then 18 it had to go to press and really didn't have time 19 to, you know, make a lot of comments. So I'd like 20 to defend the subcommittee in that area, that we 21 were rushed and Roy was rushed, so I think that 22 would be why we still have some things that we did 23 not get to discuss. 24 On line 16 of page 4, we did not 25 discuss this one: Disbursments for charitable 0050 1 purposes shall be made directly from the unit's 2 bingo checking account pursuant to Administrative 3 Rule 402.568(c). Is that not supposed to be 598? 4 MS. TAYLOR: Yes. 5 DAVID HEINLEIN: Okay. Well, under 6 598, on page 4, and I'm not trying to comment on 7 that rule, but since there's a reference to it, 8 I'll have to go over to that, on page 4 of that 9 rule, it says: The only licensed authorized 10 organizations that may write a check from the bingo 11 account into their general account or other account 12 is an organization with a 501(c)(3) tax-exempt 13 status, religious society or volunteer fire 14 department, and Roy mentioned that while ago. 15 So I would have to ask the question, 16 would that not then apply to this unit? If those 17 members of the unit are 501(c)(3)'s, religious 18 societies or volunteer fire departments, would it 19 not then follow that the disbursement could be, as 20 Suzanne had recommended in the case of $100 21 disbursements; $25 can go to each of their general 22 funds if they're 501(c)(3)'s and yet -- volunteer 23 fire department or religious society, would that 24 not be the way we can interpret that, Roy? 25 MR. GABRILLO: Roy Gabrillo, Auditor, 0051 1 Lottery Commission. 2 Well, in looking through 2519, 3 there's a section here, in fact, it's going to be 4 2001.435(c): All authorized expenses and 5 distributions of the unit and its member shall be 6 paid from the unit bingo checking account. 7 So that's the other reason that that 8 provision was in there was because of the fact that 9 2519 is requiring the disbursements and/or 10 distributions be paid from the unit's bingo 11 account. Be paid directly from. 12 It could be -- right, this rule, 598, 13 could apply to -- that provision could apply to the 14 unit where they could write it from the unit to the 15 51 -- if it's a 501(c)(3), religious or volunteer -- 16 DAVID HEINLEIN: I think it qualifies 17 them. 18 MR. GABRILLO: Right, they could put 19 it into their general account. Any of the other 20 organizations that are just nonprofit, it wouldn't 21 apply to. 22 DAVID HEINLEIN: Right. That's the 23 way I understand it. 24 One other thing that we talked about 25 in the subcommittee and we've made no headway on 0052 1 doing that in this unit accounting agreement, and 2 that would be to get an advanced ruling from the 3 IRS. We got a little bit of information but we 4 really didn't obtain anything favorable. 5 Would it not be helpful if the 6 Charitable Bingo Division would be able to get an 7 advanced ruling from the IRS? 8 I know it's not your responsibility 9 to do that, but in order for us to be able to 10 collectively do this uniformally across the state, 11 it would seem very helpful if we did apply for an 12 advance ruling from the IRS to be certain that 13 we're not jeopardizing the 501(c) status by 14 entering into this unit. 15 I've gotten differing views from 16 different agents that I've talked with. None of 17 them have given me any flak that it would be a 18 problem as long as -- that's the reason, in our 19 cases, we've decided we'd be putting into a trust 20 agreement because it makes it more legitimate to 21 the IRS eyes than the other methods. So I wonder 22 if it's not beneficial to the industry if we could 23 find some way to fund getting an advance ruling 24 from the IRS. 25 MS. MATTHEWS: Well, I think those 0053 1 take awhile to get and I think they cost money. 2 DAVID HEINLEIN: Yes, they do. 3 MR. ATKINS: And let me address that 4 briefly, David. I think that that's been discussed 5 in the past, and my recollection is at the time, 6 that everybody was kind of the opinion it would be, 7 you know, the organization's responsibility -- 8 DAVID HEINLEIN: Yes. 9 MR. ATKINS: -- to, you know, learn 10 from the IRS what the implication was for the 11 individual organization, or group of organizations 12 was going to be. 13 DAVID HEINLEIN: I agree, but I'm 14 just saying it would be so helpful of you -- 15 CHAIR BRACKETT: You're looking for 16 someone -- yeah, you're looking for someone to take 17 that task on? 18 DAVID HEINLEIN: No. What I'm asking 19 is that there's a sense so that these units might 20 get a sense of the possibility of being approved 21 and once one of the organizations or one of the 22 units might do this and get an advance ruling, we'd 23 have a history then of the IRS having approved it 24 and so that organization spends the 2,000 or 4,000 25 or 5,000, whatever it is that the IRS charges for 0054 1 that, and they've spent -- they've paid the cost 2 for the whole industry then to have that ability to 3 enter into it with confidence knowing that this is 4 what the interpretation of the IRS is. 5 I don't know how we go about doing it 6 from your perspective but it would sure be nice. 7 MR. ATKINS: Yeah, I don't either 8 but, you know, in other words, you say it'd cost 9 anywhere from two- to $4,000, I know that the, you 10 know, bingo won't be -- 11 DAVID HEINLEIN: Yes, sir. Well, 12 that's why I had to -- if you all are able to -- if 13 you have a relation with the IRS in a mode 14 different than the person on the street, you know, 15 you might get a sense that you could advise us as 16 to whether or not we should go in the direction of 17 how to get this advance ruling. 18 There's so many different kinds, it's 19 two or three pages long of how to get advance 20 rulings. It's not an easy task. 21 MS. MATTHEWS: I wonder if an advance 22 ruling is what we need, perhaps it's something 23 lesser that we could get for nothing, you know, 24 advice. 25 DAVID HEINLEIN: I like nothing. 0055 1 That's really what I'm getting at. 2 MR. ATKINS: Don't you all have an 3 IRS representative on this subcommittee or was it 4 on the charitable distribution? 5 MR. GABRILLO: Yeah, it was on the 6 charitable. 7 MR. ATKINS: Okay. 8 MR. GABRILLO: Yeah, it was on 9 charitable. 10 DAVID HEINLEIN: We sure needed one. 11 MS. MATTHEWS: One problem that maybe 12 you know the answer, David, that I've been thinking 13 about a unit accounting apparently the IRS 14 representative said could not have federal 15 identification number, how are we going to file 16 payroll reports without a employer identification 17 number? 18 DAVID HEINLEIN: Well, I think that 19 what they're saying is that you're going to be a 20 nonprofit organization, then that creates other 21 problems, so that's the reason I think we're 22 looking at having to go over trust agreement as 23 being our only options but some others may have 24 some other ideas about that. 25 MS. MATTHEWS: And then you had one 0056 1 more -- 2 DAVID HEINLEIN: But you can form, I 3 mean, you can form an organization and receive an 4 EIM number for purposes of payroll. 5 MS. MATTHEWS: Right. 6 MR. HEINLEIN: You can do that. 7 MS. MATTHEWS: But apparently not the 8 unit. 9 MR. HEINLEIN: Well, then that can be 10 the unit and that's part of your unit agreement. 11 Yeah, you can do that. I mean, I'm not an 12 attorney, gotta be careful, I don't practice law 13 with all these attorneys sitting here. I'll let 14 them speak to that. 15 MR. GABRILLO: Before you go to 16 address your question about, on page 2, line 17, 17 Section F, where you talk about it references a 18 unit accounting agreement has been executed and you 19 were talking about defining it. We can add 20 language in there that references what a unit 21 accounting agreement is, if it's Section 22 2001.431(3) of the act, that's -- so we can put 23 that language -- put that language in there and 24 reference it. 25 DAVID HEINLEIN: Yeah. Sure. 0057 1 MR. GABRILLO: Okay. 2 DAVID HEINLEIN: Any questions for 3 me? 4 CHAIR BRACKETT: Okay. Steve 5 Bresnen, you wanted to speak? 6 MR. BRESNEN: Yes, ma'am. My name is 7 Steve Bresnen and I'm here on behalf of the Bingo 8 Interest Group. I'd like to subscribe to the 9 previous comments on the unit accounting rule that 10 have been made on the subsection (e), where we were 11 looking for that clarification on the maintenance 12 of two sets of inventory records. I gave Phil some 13 language that might sort that out. 14 I'd like to make a few brief 15 comments that I hope will be in addition to those 16 that have already been made. 17 First is, I don't think the intention 18 of unit accounting provisions in the statute, about 19 which I probably know more than anybody, was ever 20 intended to displace the general fund activity of 21 these organizations. 22 We were operating in a environment, 23 the intent of which was to eliminate a bunch of 24 bingo accounts. And seems to me there are not that 25 many charity lessors in existence out there. So if 0058 1 they maintain a separate account to receive the 2 rental income distribution, it would still mean 3 that all the other charities in the state could be 4 part of a unit and all of -- a bunch of their bingo 5 accounts could be eliminated. 6 I do agree that the purpose of a unit 7 accounting list would eliminate a whole bunch of 8 bingo accounts out there but I don't think we ought 9 to let the perfect be the enemy of the good here 10 and we could make substantial change here and 11 substantial improvement if we recognize those kinds 12 of nuances that are raised by that issue. 13 I might also say that one way to 14 address that issue would be to put in your unit 15 accounting agreement that if you're the lessor, 16 your receipts from the unit each month are going to 17 be all of your rental income. So as a practical 18 matter, it seems to me it could all go in there and 19 your rental income could come out of there. I 20 mean, it could be worked out by agreement or it 21 could be worked out by the maintenance of a 22 separate account. So I think there's more than one 23 way to go there. 24 With respect to paying if 25 distributions for charitable purposes out of the 0059 1 unit account, I don't think that that was ever 2 intended. I suppose it could be done under the 3 unit agreement but if we go back to fundamentals, 4 if you look at the definition of unit accounting, 5 it says, it means a method by which charities that 6 are members of the unit account for sharing of 7 revenues, authorized expenses and inventory. 8 That's what unit accounting is. It's things 9 related to the conduct of bingo and I don't think 10 that it was ever intended to take over the general 11 fund activity of all the charities that might want 12 to participate in a unit. 13 And if you do that, there will be no 14 units. I don't think anybody's going to do that. 15 I have been one who has, again, 16 sometimes the private counsel of my -- some of my 17 clients, I've been one that's defended the, as a 18 practical matter, the necessity of the Commission 19 to be able to audit beyond the bingo account 20 because once those funds are distributed, they have 21 to be spent for a charitable purpose and you have 22 to be able to trace those funds. 23 I don't think anybody ever intended 24 that we would end up with one account out of which 25 all charitable expenditures were made. 0060 1 I'm going to have the same comment 2 about the rule on charitable distributions when we 3 get there. 4 A new comment that I'd like to add on 5 the -- I'm trying to look at your version of the 6 rule. I've got an old one here. On page 2, under 7 Subsection B, I've got essentially two comments 8 there. 9 First of all, there's this notion 10 that there's a necessity of qualifying for 11 membership in a unit. There's no such provision 12 in the statute and I think all you have to do to 13 qualify to participate in a unit is to be a 14 licensed authorized organization under Chapter 15 2001.432, it says: Two or more licensed authorized 16 organizations may form an operating unit as 17 provided by this subchapter, and then it goes on to 18 say, executed an agreement, state in the agreement 19 whether you're going to use a unit manager or 20 designated agent. And so those are really the 21 criteria for doing so. 22 Secondly, and this is really my more 23 important point here. It speaks to upon 24 notification from the Commission that you're 25 qualified. That means you all, Billy, are going to 0061 1 have to expend resources in evaluating a 2 qualification and then notifying the people out 3 there. That's, in essence, a licensing function. 4 It's been my position for a long time 5 now that we have excessive state resources which 6 are scarce to begin with, that can be excessive and 7 scarce at the same time dedicated to licensing 8 activities and not enough focus on the auditing 9 activities. 10 And this goes back to my statement of 11 my day in black, but I would consistently focus on 12 the need to address this issue of alleged 13 corruption in the bingo industry. 14 When you divert resources to things 15 like this that are not consistent with the statute 16 and that are unnecessary, it takes money away from 17 pursuing where funds are being spent for fraudulent 18 purpose or somebody's cheating or stealing. 19 And so I would suggest that that be 20 taken out because, number one, the statute sets the 21 qualifications and they have nothing to do with 22 timely filing of anything or delinquency; and 23 number two, take out the part about notification 24 because the statute speaks to notification from the 25 Commission. Take that part out because the statute 0062 1 doesn't speak to it and it's unnecessary. 2 I do think, obviously, that the 3 Commission has to be notified by those forming an 4 accounting unit, that they're going to -- that 5 they're going to operate in this manner. That 6 seems reasonable to me. 7 I think I've spoken to -- oh, and one 8 final thing that relates to this, it's not directly 9 contained in this rule but I think it's got to be 10 addressed along the way and that's going to be the 11 bonding requirements. 12 It's my understanding, and it's a 13 little bit over my head, finance is not my strong 14 suit, but it's my understanding that the way this 15 unit accounting rule meshes with the bonding rule, 16 that no one is ever going to be a unit manager. We 17 won't have that form operating because the bond 18 will be so expensive that nobody can afford it, 19 much less to be a unit manager in multiple settings 20 so we need some attention to that along the way and 21 thank you very much. 22 I want to thank the unit accounting 23 subcommittee that worked so hard on this rule and 24 Roy and others that participated really, really 25 high quality discussion and I was pleased to 0063 1 participate in a couple of those meetings. Thanks. 2 I'll be happy to answer any questions. 3 Let the record reflect that Bresnen 4 was brief today. 5 CHAIR BRACKETT: Well, who's going to 6 define "brief"? Mr. Fenoglio? 7 MR. FENOGLIO: Good morning, Madam 8 Chair, Members. My name is Stephen Fenoglio, I 9 represent over 950 charitable business 10 organizations. 11 I won't repeat the comments of 12 Mr. Bresnen or Mr. Heinlein but I will make a 13 suggestion to cut to the chase on the page 4 of 5, 14 under subparagraph (c): General Provisions, line 15 12, change the word "shall" to "may," and the 16 reason I say that is that the unit agreement, 17 Patricia, may address that the revenues from a 18 charity lessor will not be part of the unit and 19 that's the way -- when I envisioned this, and as 20 most of you all know, Mr. Bresnen and I primarily 21 wrote the early drafts and then negotiated with 22 staff with Billy and Phil Sanderson and others as 23 the target moved in House Bill 2519, and 24 Commissioner Cox was in many of those meetings, but 25 my point was, there may be agreements that will be 0064 1 reached where a charity who acts as a lessor will 2 agree to put those revenues into the unit and there 3 may be other circumstances where that charity 4 lessor has done -- has undertaken certain 5 obligations that it alone is responsible for. 6 For example, it may have signed the 7 lease agreement, and it should be awarded a risk 8 portion, because if the bingo goes away, that 9 charity that's acting as a lessor is standing there 10 holding the bag and it alone. 11 And so with that understanding, I 12 don't envision any lessor that would ever want to 13 unilaterally agree to divvy those proceeds into 14 this as the language is drafted now. It should be 15 made. 16 Under subparagraph (c)(3) page 4 of 17 5, lines 16 and 17, strike it all. This was 18 heavily discussed and contested at the subcommittee 19 meetings, and that is: The disbursements for 20 charitable purposes shall be made directly from the 21 unit's bingo checking account, et cetera. 22 River City Bingo has in effect 23 legally, I might add, operated as a unit agreement 24 from the beginning of inception some eleven years 25 ago, and you all have heard me discuss that. I 0065 1 helped set that up. We have five charities. The 2 largest charity as far as budget is the Family 3 Elder Care that provides services to needy senior 4 citizens. They run a budget, Pete, of about three 5 and a half million dollars a year. The arc of the 6 capital area which I have helped in every way I 7 can, I have a nephew that has Down Syndrome, has 8 about a million dollar budget. 9 The bingo proceeds for those two 10 charities alone is less than 10 percent of their 11 total budget. 12 There is absolutely no way that if 13 they were to join the unit, which they want to do 14 and plan to do, but with that language will never 15 do, because you can't write enough checks out of 16 the unit agreement for those charitable purposes. 17 The reason we created the unit 18 agreement, you got five charities, they're writing 19 between thirty to eighty checks a month, and Larry 20 knows this because he's done effectively the same 21 thing, you're going to cut -- times five, you're 22 going to cut it to thirty to eighty checks, total, 23 so four-fifths of the number of checks of the 24 number of paperwork goes away with unit agreement, 25 and that and Mr. Bresnen alluded to it, that's the 0066 1 reason we created this language, and the 2 Legislature passed the law, is to simplify that 3 aspect. 4 The staff of the Lottery Commission 5 will have to continue to audit to ensure that a 6 charity's bingo proceeds are spent pursuant to law 7 and the only way that will work in River City is if 8 you then audit, which they have done successfully 9 the general funds of those five charities. 10 But I can assure you there won't be 11 many charities that'll ever join a unit if you have 12 to do it that way. 13 And as for the reference to the 14 attempt to save Administrative Rule 402.598(c), 15 that rule will either be -- I believe needs to be 16 rewritten, and if it doesn't, I believe there will 17 be litigation that will go on for two years on it, 18 the way it's drafted today. There are a number of 19 problems with it so please don't reference that in 20 this unit accounting. There are huge problems with 21 that and the staff are aware of some those huge 22 policy discussions about that. 23 So the simplification of unit 24 accounting can be met with those two changes. I 25 agree with the suggestions earlier about what type 0067 1 of inventory records need to be kept. 2 There was a lot of discussion about 3 that in the early drafts and none of us, including 4 Roy, at one time, we all got kind of lost as to 5 what inventory records need to be kept. I think we 6 can clear all of that up pretty easily. And I'll 7 be happy to answer any questions, except before 8 that, the tax-exempt status, that issue was raised 9 in December of '02 and January of '03 in this 10 meeting by Chuck Thompson of the North Dallas Bingo 11 Association, when we were having these early 12 discussions about unit accounting. Even before 13 2519 was introduced, this was the concept period. 14 And I recall the issue and I recall 15 with, and I believe it was Phil, or it could have 16 been Roy, shouldn't we get a comfort level from the 17 IRS, because wouldn't it be a neat trick if a bunch 18 of charities, we get a rule we can all live with, a 19 bunch of charities go do unit accounting and three 20 to five years after the fact, there's an audit by 21 the IRS and the IRS says you did it wrong, your tax 22 exemption is revoked and that reverberates through 23 the entire bingo community. 24 And it was my understanding that the 25 staff was going to undertake to lead the way, be 0068 1 the pathfinder to get -- to lead up to that. You 2 all have a relationship with the Internal Revenue 3 Service that we don't have. And I say "we," the 4 charitable community does not have. 5 And I don't mind drafting whatever 6 documents needs but I'm not a tax attorney and I 7 don't think my charities can pay me enough money to 8 become -- to have a comfort level as a tax 9 attorney, but that was one of the issues that we 10 had addressed a year ago. 11 Mr. Gabrillo has had some informal 12 discussions with someone at the IRS as to some of 13 the issues of, do you need a EIN number? Does the 14 fact that you have an EIN number, employer 15 identification number, affect your tax-exempt 16 status? But there are no resolution of those. 17 I'll be happy to answer any 18 questions. 19 MS. MATTHEWS: Well, I think, again, 20 that we could, instead of going the advance ruling 21 route, I believe your concern is very valid but I 22 think we can get an opinion from the IRS, 23 hopefully, in writing. 24 MR. FENOGLIO: Yes. 25 CHAIR BRACKETT: Okay. Thank you, 0069 1 Steve. 2 MR. FENOGLIO: Thank you. 3 CHAIR BRACKETT: Don Bishop, did you 4 want to make comments on the unit account? 5 DON BISHOP: Thanks. I'm Don Bishop, 6 Dallas, Texas, Post 31. I'll be more brief than 7 Mr. Bresnen and Mr. Fenoglio put together, Madam 8 Chairman. 9 Thanks for all the work you guys have 10 done on all this stuff. I know it's new and 11 complicated. I know that we're always told we need 12 to be careful what we pray for because we may get 13 it but we've got it. 14 We were all excited when we first 15 started thinking that we might have a chance of 16 getting this unit accounting actually approved 17 through the Legislature but we thought it would 18 simplify and reduce our record-keeping and we 19 thought it would reduce our expenses. 20 The way this is constructed, it will 21 add to our record-keeping and it will increase our 22 expenses. 23 The one way the people I'm involved 24 with have been able to survive in bingo is to keep 25 expenses and record-keeping low so we have a very 0070 1 minimum payroll. 2 We operate with one cashier, two to 3 three floor workers, depending on the size of the 4 crowd, a car, and one security guard. That's how 5 we'll survive. We can not add any hours to our 6 payroll. This is going to cause us to have to add 7 to our payroll. Thank you very much. 8 CHAIR BRACKETT: Thank you. Charles 9 Hutchings, did you want to address? You may -- 10 CHARLES HUTCHINGS: No, I don't 11 believe. It's been covered. 12 CHAIR BRACKETT: Okay. Thank you. 13 MS. MATTHEWS: Virginia, I have a 14 e-mail regarding this from a Charlene Keen. She 15 says: "I work with several charitable bingo 16 organizations and am wondering how the unit 17 accounting rules are coming. 18 I understand that I will need to go 19 through a licensing procedure. Also, how will we 20 be notified of what we need to do?" 21 CHAIR BRACKETT: Any other comments 22 on this right now? 23 Okay. Well, as we move on to another 24 part, I believe the advisory opinion. The first 25 thing I would like to do is something I failed to 0071 1 do but which is a whole lot of fun, I want to 2 introduce you to Patricia Greenfield, who is with 3 us today for her first meeting. And is very 4 well-informed and has been in the bingo industry 5 for quite some time. 6 Patty, would you like to just tell 7 us, in three seconds, your life story, your bingo 8 life story. 9 MS. GREENFIELD: My bingo life 10 story. I've been involved in the bingo industry 11 for about eighteen years, since 1984. I've worked 12 in a bingo hall as an usher, a cashier, and I've 13 managed a hall. And for many years now, I've been 14 providing bookkeeping services to charities and 15 that's what I do currently. 16 CHAIR BRACKETT: Okay. The next item 17 that we go to under number three is advisory 18 opinions and -- okay, Phil Sanderson is going to do 19 that now. And the comments -- we're going to have 20 to start limiting our comments to five minutes. 21 I thought you got stage fright and 22 disappeared. 23 MR. SANDERSON: Phil Sanderson, 24 Assistant Director of Charitable Bingo Operations 25 Division. I had to go take a little break. 0072 1 Madam Chair and Members of the 2 Committee, House Bill 2519 added language that 3 authorized advisory opinions and a person may 4 request from the Commission advisory opinion 5 regarding compliance with this chapter in the 6 rules. 7 The statute also required the 8 Commission to respond to advisory opinion request 9 not later than the sixtieth day after the date of 10 the Commission receives the request or receives 11 requested additional information. 12 The rule that you have in front of 13 you today provides guidance to the persons 14 concerning the agency's implementation of the 15 statute as well as provides the agency with some 16 degree of management over the advisory opinion 17 process. 18 The highlights of the rule are the 19 opinion request process, that additional 20 information provisions and response and subject 21 matter provisions. 22 The -- there's no subcommittee formed 23 on this particular rule and it's just a -- the 24 purpose is to provide a flow, orderly flow of 25 requests and the responses to enable the Commission 0073 1 to manage the process of the advisory opinions. 2 Staff would like to request that the 3 Bingo Advisory Committee propose the new 4 administrative rule advisory opinion to the 5 Commission for publication in the Texas Registry. 6 I'll be glad to answer any questions 7 anyone may have. 8 CHAIR BRACKETT: All right. Anyone 9 in the public like to comment on this? Okay, 10 Stephen Fenoglio would like to comment. 11 MR. FENOGLIO: My name is Stephen 12 Fenoglio again. 13 Thanks to Penny Wilkov and Phil for 14 taking the bull by the horns and drafting the 15 amendment of the proposed rule. 16 A couple of clean-up language, if you 17 will. 18 And it's unfortunate, and I've asked 19 several times that these rules be put with page and 20 line numbers because it certainly helps expedite 21 the discussion, and this one doesn't. But if 22 you'll subparagraph A at the last line of 23 subparagraph two, after the first word "notify," I 24 would suggest in writing, so it's just clear, I 25 think it would be typically the Commission practice 0074 1 that you do so in writing, you're requiring the 2 requester to put it in writing and so if the 3 Commission needs additional language, it should be 4 in writing. 5 On subparagraph B, subparagraph two, 6 at the very end of my first page before the last 7 sentence "other," I would add and I'll be happy to 8 give this language at the end, the Commission will 9 publish the request on its web site within, I don't 10 know how many days it would take the staff to put 11 it, but so many days. I mean, I don't know if it's 12 a week, or whatever, of receipt of the request. 13 And the same comment if you ask for 14 additional information put it on the web site. 15 Billy, I can anticipate, as I think 16 everyone can, that there will be -- if people don't 17 know about the request, you'll be covered up with a 18 same or very similar request from the number of 19 people. If you'll put it on your web site -- I 20 continue to be amazed at the number of people who 21 have access to the web. 22 If you let the public know, then they 23 may either, A, want to weigh in on an issue, or, 24 well, gee, that's already been asked and answered, 25 which takes me to one of the other comments -- 0075 1 MR. ATKINS: Steve, let me clarify, 2 your recommendation is that language be inserted as 3 a new sentence before the word "other"? 4 MR. FENOGLIO: Yes. 5 MR. ATKINS: Okay. Okay. And you'll 6 provide that language? 7 MR. FENOGLIO: Yes, I will. And, 8 again, the same kind of comment on subparagraph C: 9 Request for additional information. You're giving 10 the requester so many days to provide the 11 information. And, again, and I'll provide that 12 information, Billy. If I can get this on disk, I 13 can actually do it, you know, in an easier format. 14 My handwriting is terrible, but the same sort of 15 comment at the end of the first sentence of 16 subparagraph one, immediately before the second 17 sentence on "once." 18 And, again, at the end of that first 19 sentence "and shall publish on its web site the 20 requested additional information," or words to that 21 effect. So that, again, the public's aware, not 22 just this particular requester, there's a dialogue 23 going back and forth. 24 Under subparagraph D-1: The 25 commission will not issue an advisory opinion that 0076 1 concerns subject matter of, and I don't have a 2 problem with pending litigation because that's not 3 appropriate, but the words "contested case 4 proceeding," that needs to be massaged. And the 5 reason it does, Billy, is if you've got either an 6 informal audit or a, you know, a case where it's 7 going to hearing on a use of bingo proceeds, and a 8 charity is asking, not about those particular 9 issues, but just generally about the use of bingo 10 proceeds, you could get into a position where you 11 say, gee, we'd like to answer your question but our 12 rule precludes us from addressing that issue 13 because, and I can imagine, Billy, you're always 14 going to have a contested case proceeding on some 15 sort of an audit issue, either at the full-blown 16 contested case, or in the negotiations that go on 17 before it's actually docketed. 18 And I hate, you know, when a charity 19 doesn't have a dog in that fight of that use of a 20 bingo proceed, and let's say there are two 21 different fraternals; one's under a contested case, 22 the other is not, but you could take the -- you 23 might be forced to take the position, Billy, you 24 can't give any advice because this has to do with a 25 501(c)(10) organization and I don't think that's 0077 1 what you intended to do. 2 And then the final comment is in 3 subparagraph E-4. I don't know that you really 4 want to say it the way you did. Where you say 5 "Only the charity that asks for their opinion can 6 rely on it." Think that through. 7 You get a request that says, you -- 8 it's a 501(c)(3) organization can use bingo 9 proceeds in a sort of fashion. Then every 10 501(c)(3) when they read 4, or they talk to their 11 lawyer and say, okay, can I rely upon that advice? 12 No, the rule says only the charity that does it. 13 I can't remember how many hundreds of 14 (c)(3) organizations you have but I can anticipate 15 then all 300 (c)(3) organizations asking the same 16 question, so they can be covered. 17 And I understand from a lawyer having 18 represented an agency before, you want to be 19 careful that you answer Mr. Whittington's question. 20 And Ms. Matthews says, well, gee, I kind of like 21 the way Larry asked it and I kind of like the way 22 they answered it. I'm going to -- I've got a loop 23 hole here and I'm going to take advantage of it and 24 so I'm -- not that you would, Ms. Matthews -- but 25 I'm going to take advantage of it and I want the 0078 1 rule to -- language changed so I can. Now I can 2 understand that. But at the same time, if you -- 3 if there's not something generically, and, for 4 example, IRS revenue rulings are relied upon solely 5 by the requester, but it can be used as precedent 6 by another taxpayer in making their argument to the 7 agency. But the way the language is drafted today, 8 you absolutely couldn't even use it as a precedent 9 or as an argument: Well, gee, Larry's charity had 10 these facts and we've got very close to those 11 facts, why can't we get the same result? Because 12 if you said that was okay for Larry, then you ought 13 to be able to do it for us. 14 And if Phil comes back and says, 15 well, but there's a huge factual difference, well, 16 then, okay, you shouldn't use the opinion that 17 Larry got. But it's close to it, then a SOA judge 18 or the agency should be able to say, okay; 19 otherwise, again, I can -- I would advise every 20 client, once they get an opinion, everyone else 21 asks for the same opinion. And then your staff 22 will be covered up, and none of us want that. 23 We view this, the advisory opinion 24 process, as a good tool. It should be a selective 25 tool. And I don't have suggested language on (c) 0079 1 or (e)(4), but I'll be happy to work with Phil or 2 the staff or whomever, to come up with a 3 middleground. I think this is one of the rules 4 that's pretty close to being ready for sending on. 5 Thank you and I'll be happy to answer 6 any questions. 7 CHAIR BRACKETT: Is there anyone else 8 that wanted to speak to this, kind of general under 9 here. 10 Phil, you have requested that we 11 approve this for publication; is that correct? 12 MR. SANDERSON: I've requested that 13 you all recommend to the Commission that it be 14 published for comment. 15 CHAIR BRACKETT: All right. Are we 16 ready to recommend or do you need to take some of 17 these suggestions today and work on them? 18 MR. ATKINS: We recommend together 19 with Steve's comments and suggestions be considered. 20 CHAIR BRACKETT: So we could 21 recommend that this be posted for public comment, 22 I'm using the wrong word, on posted -- 23 MR. SANDERSON: Well, you can 24 recommend that we take Steve's comments and 25 consider them, and if acceptable or so forth, 0080 1 revise the rule and present that at the next 2 commission meeting before publication -- 3 CHAIR BRACKETT: For publication. 4 MR. SANDERSON: -- Texas Registry. 5 CHAIR BRACKETT: Publication was the 6 word I was struggling to get. Okay. All right. 7 Is this agreeable? No problems with that. All 8 right. Then the general consensus is that we will 9 recommend it for publication with all the comments 10 made today. And we'll see it again at the next 11 meeting. On the bonds and other security? 12 MS. MORRIS: Excuse me, Madam 13 Chairman? 14 CHAIR BRACKETT: Yes. 15 MS. MORRIS: Did you-all vote on that 16 recommendation or did you want to get a sense -- 17 CHAIR BRACKETT: I thought we had a 18 general consensus. Everyone was nodding their 19 heads but if someone would like to make a motion -- 20 MS. MORRIS: I don't know that you 21 have it on the record. 22 CHAIR BRACKETT: Well, if someone 23 would like to make a motion; nods don't appear on 24 the record. 25 MS. TAYLOR: I make a motion that we 0081 1 send that on to the Commission with the inclusion 2 of Steve's comments. 3 MS. MATTHEWS: Second. 4 MR. WHITTINGTON: Second. 5 CHAIR BRACKETT: Okay. It's been 6 moved and seconded. All those in favor? 7 ALL: Aye. 8 CHAIR BRACKETT: Thank you. All 9 right. We're ready to hear comments on -- okay, 10 bingo reports and shall we -- let's take these 11 separately. The comments on the bingo report, 12 402.580. Terry? 13 MS. SHANKLE: Yes, ma'am. Thank you. 14 Good morning. My name is Terry Shankle, 15 S-h-a-n-k-l-e. 16 This morning I'm bringing to you a 17 revision to the bingo rule 580, bingo reports. 18 This -- again, this did not have a subcommittee. 19 It was one that in the review of House Bill 2519, 20 we knew that with the changes to the due date that 21 this particular rule would have to be revised. 22 On 580, all we're doing is changing 23 from the 15th to the 25th of the month following 24 the end of the quarter for conductors and lessors. 25 And also stating in (c)(1) that a unit manager, 0082 1 designated agent or trustee or authorized 2 organization would have to file formally in court. 3 That is all the change to that particular rule. 4 MS. MATTHEWS: Should this say 5 somewhere what date this is effective? 6 MS. SHANKLE: Well, the bill becomes 7 effective September the lst, I'm sorry, however it 8 does say that -- 9 MR. ATKINS: I'm sorry, ma'am, I'm 10 not sure I understand your question. 11 MS. MATTHEWS: Well, I understand 12 that the bill says September 1st but should that be 13 in here as well that this changed? 14 MR. ATKINS: No. 15 MS. MATTHEWS: Okay. 16 MR. ATKINS: Statute would override 17 the rule, effective September 1st, it's effective. 18 This is just bringing this rule in compliance with 19 that legislative changed. 20 CHAIR BRACKETT: Does that answer 21 your question, Marilyn? 22 MS. MATTHEWS: Yes, it does. 23 CHAIR BRACKETT: Okay. 24 MS. SHANKLE: So with that, I would 25 like to recommend that the BAC committee propose 0083 1 this to be brought forward to the Texas Lottery 2 Commission meeting at their next meeting. 3 MS. MATTHEWS: I'll make that motion. 4 CHAIR BRACKETT: All right. Now, 5 which one are you reporting on the 580(b), reports 6 and 583 bonds, altogether -- 7 MS. SHANKLE: Yes, ma'am. 8 CHAIR BRACKETT: -- in one 9 recommendation? 10 MR. ATKINS: That's not correct. 11 She's only discussed 402.580 bingo reports. 12 CHAIR BRACKETT: Okay. 13 MR. ATKINS: The -- and you 14 referenced taking each rule separately. So her 15 request at this time would be that the advisory 16 committee recommend 580 to the Commission for 17 publication in the Texas Register. 18 CHAIR BRACKETT: All right. I think 19 we're all clear on what the recommendation is now. 20 Is there any of you who signed up just to speak in 21 general on Item number three, have any comments you 22 want to make? Did you say "yes" or "no"? 23 MR. FENOGLIO: Stephen Fenoglio, 24 again. Just briefly, does the quarterly report 25 requirement for a unit address whether they have an 0084 1 EI -- the unit has EIN number, and, if so, how that 2 would be filed if it didn't have the EIN number? 3 Do you understand my question? 4 MS. SHANKLE: Does the rule on unit 5 accounting -- 6 MR. FENOGLIO: Not on unit 7 accounting, on this report, if the unit is filing 8 the quarterly report, and according to Roy, the IRS 9 has advised a unit is not required to have an EIN 10 number, then what -- I believe every charity that 11 files a quarterly report has to use their EIN 12 number. The unit's filing report, it may not have 13 an EIN number, are they going to be in violation 14 and you can't accept the report from the unit 15 because they don't have EIN number? 16 MR. ATKINS: My understanding, and 17 Terry will correct me if I'm wrong, but the way the 18 quarterly report for the unit is being designed is 19 it will capture the EIN for the individual 20 organizations that are a number of the unit. 21 MS. SHANKLE: Okay. What we had 22 discussed is that the unit manager will have a 23 license, therefore have a license number, taxpayer 24 number, and all of those organizations underneath 25 that unit manager would roll into that one 0085 1 quarterly report so that the unit manager will need 2 to have a taxpayer number. 3 MR. ATKINS: -- and if there's no unit 4 manager? 5 MS. SHANKLE: Then the designated 6 agent would have a temporary number that -- and if 7 it's a trust agreement, then we will use the 8 designated, the trustee organization taxpayer 9 number. 10 CHAIR BRACKETT: Okay. Do we have a 11 second to Marilyn's motion? Anyone want to second? 12 Somebody want to second? 13 MS. TAYLOR: I'll second it. 14 CHAIR BRACKETT: Okay. All right. 15 Thank you. All right. It's been moved and 16 seconded that we recommend to the Texas Lottery 17 Commission the proposed amendment 402.580, bingo 18 reports, administrative rules be recommended as 19 been presented to us here. 20 If there's no further discussion, are 21 you ready to vote? All those in favor, please say 22 aye. 23 ALL: Aye. 24 CHAIR BRACKETT: All right. That's 25 the majority. All right. You're now going to 0086 1 present 5 -- 402.583. 2 MS. SHANKLE: That is correct. 3 Again, on Bingo Administrative Rule 402.583, Bonds 4 or Other Security. There was not a subcommittee. 5 When reading House Bill 2519, this came to light 6 that this particular rule would have to be revised. 7 I went in and just included, under (a) Who must 8 post a bond or other security. 9 Due to the requirement by the bill 10 that the unit manager be licensed and be bonded. I 11 put that language under item four, and item four 12 defines what the requirements are and how we will 13 determine what the bond will be for that unit 14 manager. 15 In researching, Sharon Ives sends 16 information to us and gave us names of 17 organizations on calls that they had paid taxes in 18 the year 2002, up to $68,000 in prize fees on a 19 yearly basis and said, well, if they paid $68,000 20 in taxes, and -- because, again, the bill refers to 21 Section 514 of the Bingo Enabling Act, that we can 22 charge up to three times the quarterly amount, that 23 that would cost an organization two hundred and -- 24 well, three times that the bond requirement would 25 be $204,000. 0087 1 MR. ATKINS: For the unit manager, 2 not the organization? 3 MS. SHANKLE: For the -- yes, for the 4 unit manager. And so, again, I started researching 5 and asking my staff to pull information on why were 6 bonds required, what were they for, et cetera. 7 And what I found out is that anyone 8 that deals with any amount of money $100, or more, 9 should be bonded. And after reading that, I 10 started looking through the web -- the Yellow Pages 11 and I thought, well, gosh, maids have to be 12 -- the people that clean your house have to be 13 bonded, people that build your fence have to be 14 bonded, and so in keeping with that these -- well, 15 that the unit managers are dealing with so much 16 money, and in cash, the requirement to post a bond 17 in the amount of three times is, to me, a very 18 valid amount. 19 The bond is the only security stay 20 against the loss of prize fees. 21 MS. GREENFIELD: Do we know how much 22 that would cost? How much it would cost a person 23 to have a bond? 24 MS. SHANKLE: No. We did contact 25 several insurance companies yesterday, CNA and some 0088 1 others, and they had not gotten back with us. We 2 had talked in general asking for, it's called a 3 fidelity bond and also an employee dishonesty, and 4 they had not returned our calls, or they were going 5 to research it and call us back, and as of this 6 morning, they have not. 7 MS. GREENFIELD: And a unit manager 8 is over one unit and if you have someone they can 9 be a unit manager over several different units so 10 you would require several different bonds for that 11 same person? 12 MS. SHANKLE: That is correct. 13 MS. GREENFIELD: So I think costs 14 would be an issue that I would like to find out 15 about before I'm comfortable with this. 16 MS. SHANKLE: In our research, some 17 time ago, I believe it was one-tenth. Now, each 18 bonding company is going to be different. And, 19 again, we contacted those that we had on our web 20 site and there might be more, so what I heard in 21 the past is that it's one-tenth percent. 22 CHAIR BRACKETT: So you're asking for 23 -- when you say a bond or other security, other 24 security to include your insurance that you have -- 25 that an organization would have? 0089 1 MS. SHANKLE: Okay. Each -- right 2 now, the organizations have the bonds. If a unit 3 manager were licensed and took over that 4 organization's accounts, the organizations would 5 get rid of their bonds and the unit manager because 6 the unit manager is the one that is going to be 7 responsible for all of it and will be held totally 8 liable. 9 CHAIR BRACKETT: Okay. 10 MS. TAYLOR: At the current time, if 11 the organization is current in paying all their 12 bills, isn't their bond released after three years 13 or some amount of playing time that -- 14 MS. SHANKLE: Suzanne, it is. If, 15 again, if they have eight consecutive quarters of 16 good tax-paying history, we look at their account 17 and we do release it. 18 If a jeopardy determination becomes 19 final, then if we have released one, then we will 20 require them to post another one and it will be 21 held at which time the organization no longer 22 conducts bingo. 23 MS. TAYLOR: So is this something 24 that would also be done for the units after they've 25 paid their taxes for eight consecutive quarters, 0090 1 would it still be required or will it be released? 2 MS. SHANKLE: I foresee it, this 3 particular bond to be held until which time the 4 unit manager is no longer licensed. 5 MR. ATKINS: Again, it was -- the 6 information that Sharon provided was very useful 7 to us. When you see it on paper, the amount of 8 money that these individuals have control over, 9 and, you know, the lack of any kind surety. 10 MS. GREENFIELD: I think Stephen made 11 the comment about how no one would want to do this, 12 no one's going to want to be a unit manager if the 13 bond is so -- the amount is so high and so I mean, 14 that's a concern too that we're going to have to 15 shut down that down. People won't want do it. I 16 understand what you're saying. 17 MR. ATKINS: Yeah. And it's a 18 concern that we're going to continue to have and 19 want to address, whether it's the unit manager, 20 designated agent, or whatever. I think everybody 21 would agree someone with that much control over 22 that much money, there has to be some kind of 23 control. 24 MS. TAYLOR: Does it say anywhere -- 25 I mean, I know that you release the bond, is it 0091 1 actually in the rules or is that just something 2 that is done for the current -- 3 MS. SHANKLE: I'm sorry, it is. In 4 "G," release of bond, it is in 583. 5 MS. TAYLOR: Okay. 6 CHAIR BRACKETT: Are there any other 7 questions? 8 MR. PAVLOVSKY: Terry, I have one 9 question. I didn't see anywhere in here where it 10 said that a designated agent or a trustee would 11 have to have that bond. 12 MS. SHANKLE: That -- you're 13 absolutely correct. The bill does not designate or 14 state that a designated agent or a trustee has to 15 be bonded. 16 MR. PAVLOVSKY: Only a unit manager? 17 MS. SHANKLE: That is correct. 18 MR. PAVLOVSKY: I'm -- I'm missing 19 something. 20 MR. SANDERSON: Let me answer it. 21 The act or the 2519 specifically states that if the 22 unit uses a designated agent or trustee, then the 23 organizations within the unit are responsible for 24 compliance with the reports and paying the prize 25 fees, so they would each still continue to maintain 0092 1 their bond. 2 MR. PAVLOVSKY: Okay. 3 CHAIR BRACKETT: Okay. Are you ready 4 for action on this? Did you have -- want to make a 5 comment? 6 UNIDENTIFIED SPEAKER: Are you 7 looking at me? 8 CHAIR BRACKETT: Well, not really. 9 MS. IVES: Madam Chair, do you -- 10 CHAIR BRACKETT: Yes. Your turn. 11 MS. TAYLOR: While we're waiting for 12 Sharon to come up, I just wanted to ask you one 13 more question. I'm looking that if a new bingo 14 hall was opening and look at the other bingo halls 15 around there and base the bond on, determined on 16 the other bingo halls, what if it's like a ten-cent 17 bingo hall? If you've been in ten-cent halls, I 18 mean, their gross is like really, really low and if 19 they tell you that they're going to operate as a 20 ten-cent hall or as one of the halls that, you 21 know, it's not going to pay out $2500 a session, 22 are you still going to charge them three times the 23 commercial hall that's, you know, has a pretty big 24 gross compared to what -- and pay-out, compared to 25 what the new one is going to try doing? 0093 1 MS. SHANKLE: Well, until there's 2 some type of history on that ten-cent bingo, yes, 3 ma'am, because -- yes, ma'am. 4 MS. IVES: Good morning, still. This 5 is Sharon Ives. I'm with Fort Worth Bookkeeping 6 and I also represent, or I handle 44 bingo 7 organizations, bingo bookkeeping. And thank you, 8 Billy, for the -- for the comment you made earlier. 9 I did e-mail Roy Gabrillo and 10 carbon-copied Terry Shankle here. Basically what I 11 did, I took nine bingo halls that I handle all the 12 bookkeeping for within that hall. Some of them may 13 have five organizations, some of them four, some of 14 them three, but basically what I did was I added 15 all the prize fees that they've paid for the year 16 2002, for that nine bingo halls, that totaled 17 $568,072.80. 18 The way I calculated before I took 19 that, multiplied it times three. According to the 20 rule, that was 1.7 million. 21 In the Dallas/Fort Worth area, any 22 bonding company, the ones that I have contacted 23 will charge 20 percent of whatever the bond amount 24 is. So if I had to get a bond as a unit manager 25 for 1.7 million dollars, that would be $340,843.68, 0094 1 which totally floored me. 2 Then I was told I calculated that 3 wrong. That I was supposed to take that amount, 4 divide it by 12 to get a monthly average. So then 5 I went back to the drawing board. 6 The total amount of bond using this 7 calculation would be $28,403.64, and that is still 8 basing it on 20 percent that the surety company or 9 the fidelity company, whichever company, would 10 charge. 11 And like I said, that's just for 12 Dallas/Fort Worth. I didn't check any other areas 13 around the state. That's still pretty stout. 14 MS. MATTHEWS: And that's presuming 15 the unit manager is managing nine halls? 16 MS. IVES: That's correct. 17 MS. MATTHEWS: Is that reasonable, 18 that they would manage nine halls? 19 MS. IVES: Well, I would -- I mean, 20 me, personally, I don't have $28,000 sitting around 21 that I could go out and get bonded to be a unit 22 manager for those nine halls. 23 MS. SHANKLE: I would like to point 24 out that Sharon is going to be handling, and this 25 is just in prize fees, a half a million dollars so 0095 1 -- and not that Sharon would do such a thing, but 2 if she was dishonest, how -- who is going to 3 recover that money? That's why the bond is there. 4 That if she absconds with the money, that we will 5 have a way for the state to get -- receive its 6 share of the prize fee. 7 MS. GREENFIELD: But you already said 8 that the charities were still going to keep -- 9 they're still going to be required to post their 10 bond. 11 MS. SHANKLE: Only as a unit manager, 12 if Sharon is licensed as a unit manager, all of the 13 organizations underneath her would not have to have 14 a bond. 15 If a designated agent or a trustee, 16 because the -- because, again, states that those 17 two are going to be held responsible, they would 18 have to be bonded; the organizations would have to 19 be bonded, not the designated agent and not the 20 trustee. The unit manager is licensed. 21 CHAIR BRACKETT: And the bond is 22 based on prize fee -- on what the prizes are, 23 rather than on what the deposits are, is that what 24 you're saying? 25 MS. SHANKLE: Is on -- it's based off 0096 1 of the prize fees that Sharon sends to the state on 2 a quarterly basis. 3 CHAIR BRACKETT: Oh, okay. Prize 4 fees. 5 MS. MATTHEWS: How are bonds 6 calculated now for charities? Is it the same 7 procedure? 8 MS. SHANKLE: Yes, ma'am, it is. We 9 take their prize fees that have been paid for the 10 last four quarters and multiply that by three, we 11 get an average and multiply that by three. 12 Again, it is stipulated in 583 how 13 the bonds are calculated and released or forfeited, 14 et cetera. 15 MS. MATTHEWS: So really we're just 16 talking about the same thing; somebody else paying 17 it then -- 18 MS. SHANKLE: No, the -- 19 MS. TAYLOR: It costs the charities 20 $100 to get their bond. I mean, that's what we 21 paid two years ago in the charities I was working 22 with, it cost $100 each to get a bond. So, no, 23 you're talking a tremendous difference in cost. 24 MS. IVES: And also, if I may, just 25 to let you know, the organizations the 44 0097 1 organizations that I handle, they're not required 2 to keep a bond and they haven't for some time. You 3 know, in the beginning, they had to get a bond. It 4 was released in eight quarters, so none of these 5 organizations are required to put up a bond. 6 And I've been doing your books from 7 day one. I mean, I've been doing it for nineteen 8 years, and I haven't ran off with any money yet. 9 And also, for the record, as a 10 business owner, you know, for Bookkeeping, 11 Incorporated, the company is bonded as well as the 12 employees that work for my company. Thank you. 13 MR. WHITTINGTON: Could I ask you a 14 question? 15 MS. IVES: Sure. 16 MR. WHITTINGTON: I can't foresee 17 charity giving you my money and letting you write 18 a check by yourself anyway, I can't -- there ain't 19 no way I'm going to do it. I mean, that's why the 20 money goes to the bank first and then you go to the 21 bookkeeper. 22 MS. IVES: That's correct. You are 23 correct, Larry. 24 MR. WHITTINGTON: So you're not in 25 control of the charity money, you're just doing the 0098 1 bookkeeping for them and I'm going to make sure 2 that you can't sign the check by yourself. 3 MS. IVES: Okay. That is correct. 4 We have checks and balances all the way through. 5 MR. WHITTINGTON: So I'm just getting 6 to the point why this big bond to be a unit manager 7 because if you're my unit manager, you're not 8 going to be able to take the money anyway, you 9 know, you might control the money and tell me why 10 each organization got put this money at, that's -- 11 MS. IVES: Right. I mean we -- 12 MR. WHITTINGTON: -- that's basically 13 it. 14 MS. IVES: We have meetings, we send 15 out financials, I mean, everything has checks and 16 balances. 17 MR. MOORE: So Sharon, you'd have to 18 charge the charities more for your service, I 19 guess, is what it would end up being. 20 MS. IVES: Well, Danny, first I'd 21 have to come up with the $28,000 to get bonded but, 22 yes, that -- if I was a unit manager, that's 23 exactly what I would have to do as a business point 24 of view. 25 MR. ATKINS: Did you know that there 0099 1 are also charities that have given bookkeepers 2 rubber stamps to use on checks? 3 MS. IVES: You betcha. 4 MS. GREENFIELD: How much of a 5 problem is this? I mean, do you have charities 6 coming to you saying, oh, my bookkeeper has run off 7 with my money a lot? 8 MR. ATKINS: Yeah. Not a lot. I 9 don't know how you define "a lot" but yes, yes, we 10 do, but that's something we hear. 11 MS. IVES: But not in the 12 organizations that I do books for. I just want to 13 put that on the record. 14 MS. MATTHEWS: But Sharon, you said 15 your company is bonded? 16 MS. IVES: That's correct. 17 MS. MATTHEWS: So this would be a 18 duplication, wouldn't it? 19 MS. SHANKLE: No, it's not. 20 MS. IVES: The bonding amounts would 21 be different. I would have to get a bond to 22 satisfy that liability with the state versus the 23 bond that I have to put up through my company as 24 far as banking purposes, those amounts are going to 25 be totally different. 0100 1 MS. SHANKLE: And the bond that she 2 has for her company would not be what the State of 3 Texas would need. It's two different things. And 4 her employees would have to be convicted, 5 dishonesty, or whatever, so they are two separate 6 types of bonds. 7 MS. IVES: Any other questions? 8 CHAIR BRACKETT: So what your comment 9 is, is that it's too expensive to do, is that the -- 10 MS. IVES: That would be a big cost 11 to, depending on how -- there's going to be a cost 12 to the charities in the beginning or a cost to me 13 in the beginning, and then I'll have to turn around 14 and charge the charities more to recoup my cost, so 15 it's a cost either way. 16 CHAIR BRACKETT: Okay. So it's this 17 language that the amount of the bond or security 18 require to be posted by the average prize fee 19 calculated times the numbers of conductors in the 20 unit times three. 21 MS. IVES: Times three. That's 22 correct. I mean, I'm just saying this for 23 information purposes only. I would take it -- in 24 my particular case, I would be a designated agent. 25 I wouldn't be a unit manager because of that cost. 0101 1 MR. WHITTINGTON: I don't think we're 2 going to have too many unit managers anyway looking 3 at that. I mean -- I mean, I can't see nobody 4 saying, okay, I'm going to come up and do your 5 books and you pay $50,000 but I gotta get me a 6 $28,000 bond to do it. I can't -- I can't see that 7 happening, so that's something that I guess most 8 people are not going to have, especially charities 9 the way bingo is in Texas today. 10 MS. IVES: That's true. Thank you. 11 CHAIR BRACKETT: Are there any other 12 comments from the public? Okay. 13 DAVID HEINLEIN: David Heinlein. 14 First of all, I want to see if we can clarify 15 really what the amount of the bond is that we're 16 talking about. 17 As I read this, and maybe I've been 18 reading it wrong the whole time. It says, to me, 19 that we what we're concerned about is the quarterly 20 amount of bond fee, I mean prize fee that is due. 21 And when I read both for the conductor license and 22 for the unit manager license, the requirement is 23 the average of the previous four quarters, not the 24 total of the four previous quarters, but the 25 average of the four previous quarters. 0102 1 So if the prize fee that was to be 2 paid by a charity was $5,000 for a quarter, then 3 the bond is for three times that amount, $15,000. 4 Now in the case of a unit, the 5,000 5 times however many conductors there were, if there 6 five conductors, then that's $25,000 times three, 7 would be $75,000; however, in the state that we're 8 in now with the increase in prize fees due to the 9 increase in sales of instant bingo, in our 10 situation, we're seeing charities have a prize fee 11 of over $8,000 in a quarter. Some up to $10,000 12 average in a quarter. 13 So if your previous four quarters 14 might not be today but if it continues for the rest 15 of this year, then that average quarterly prize fee 16 for a particular hall, in the case of five halls at 17 $10,000, would be $50,000, and then the bond 18 requirement would be three times that, $150,000. 19 The statute says that the bond 20 requirement shall not exceed three times, so I'm 21 not sure I understand why we're making the bond 22 have to be that maximum amount. 23 I think the intention was is that if 24 there was reason to believe that there was a 25 problem with that charity, or in that case, a unit, 0103 1 then the Commission should then require up to that 2 three times. But I think that was in the case of 3 some problems, where they've been delinquent in 4 their taxes but not in an initial time frame. 5 Now, I'd like clarification. Am I 6 understanding that correctly? We are talking about 7 a bond amount that's for the amount of the prize 8 fees i