1 1 2 3 * * * * * * * * * * * * * * * * * 4 5 BINGO ADVISORY COMMITTEE 6 MEETING 7 8 August 29, 2001 9 10 * * * * * * * * * * * * * * * * * 11 12 13 14 15 16 17 18 BE IT REMEMBERED that the BINGO ADVISORY 19 COMMITTEE meeting was held on the 29th of August, 20 2001, from 10:00 a.m. to 3:40 p.m., before Leigh Anne 21 Williams, CSR in and for the State of Texas, reported 22 by machine shorthand, at the Offices of the Texas 23 Lottery Commission, 611 West Sixth Street, Austin, 24 Texas, whereupon the following proceedings were had: 25 2 1 APPEARANCES 2 Chairman: Mr. Bill Neinast - Burton, Texas 3 4 Vice-Chairman: Ms. Virginia Brackett - Lubbock, Texas 5 6 Committee Members: Ms. Suzanne Taylor - Corpus Christi, Texas 7 Mr. Lexford Speed - Plano, Texas Mr. Saleem Tawil - Austin, Texas 8 Mr. David Castillo - Kingsville, Texas Mr. Robert Rinehart - Amarillo, Texas 9 10 Charitable Bingo Operations Director: Mr. Billy Atkins 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 INDEX 2 Appearances...................................... 2 3 AGENDA ITEMS 4 Item Number 1.................................... 4 5 Item Number 2.................................... 4 Item Number 3.................................... 6 6 Item Number 4.................................... 8 Item Number 5.................................... 10 7 Item Number 6.................................... 32 Item Number 7.................................... 41 8 Item Number 8.................................... 89 Item Number 9.................................... 197 9 Item Number 10................................... 212 Item Number 11................................... 239 10 Item Number 12................................... 241 Item Number 13................................... 245 11 Item Number 14................................... 246 Item Number 15................................... 248 12 13 Reporter's Certificate........................... 254 14 15 16 17 18 19 20 21 22 23 24 25 4 1 August 29, 2001 2 Bingo Advisory Committee Meeting 3 CHAIR NEINAST: I'll call the Bingo 4 Advisory Committee meeting for Wednesday, August the 5 29th of 2001, to order. We do have a quorum. 6 Ms. Williams, if you'll note those that 7 are absent at the moment, but we do have a quorum 8 without those. 9 I'd like to move on to Item No. 2 on 10 the agenda, which is consideration of and possible 11 action, including approval, of the minutes of the 12 July 25th, 2001, Bingo Advisory Committee meeting. If 13 you recall, that was the first meeting that we had a 14 court reporter, and we have verbatim minutes of that 15 meeting. Here's a copy (indicating). 16 Since it's a verbatim record, I see no 17 reason for having a formal motion to approve because 18 there will be no amendments or deletions. That's the 19 policy followed in the Lottery Commission. As a 20 matter of fact, they do not even take it up on the 21 agenda, and I see no reason for having it on the 22 agenda in the future. 23 Kim Kipling, the general counsel of the 24 Lottery Commission, has made the reporter available to 25 us, and she will be the official custodian of the 5 1 minutes. If there are no objections, we will proceed 2 on that basis today and in the future and we'll not 3 even have to mention it. Any objection? 4 (No response.) 5 CHAIR NEINAST: Okay. As I told our 6 secretary, Suzanne, that means that the only job she 7 has now is to keep us furnished with coffee. 8 And, Suzanne, I see a lot of empty 9 spaces. 10 MS. TAYLOR: Well, I didn't know how to 11 make coffee. So -- 12 MR. ATKINS: And this will be put up on 13 the Web site. 14 CHAIR NEINAST: Yeah. And for those of 15 you who want to review them, they will be available on 16 the Web site. You can just go to the Web and check 17 them out for any particular item you want to review, 18 but copies will not be made available to you 19 individually or provided here at the meetings. 20 I'd like to welcome those members of 21 the public who have just come in. We're glad to have 22 you. You're welcome to comment on any item that the 23 committee takes up today. If you do -- would like to 24 address the committee on any item or any new item that 25 we will discuss for future agenda items, I'd ask you 6 1 to fill out a witness form. 2 MR. ATKINS: There's a copy attached to 3 the box. 4 CHAIR NEINAST: They're available on 5 the -- at the table that you sign in, and we'll need 6 that where you give your name, information and the 7 item you want to address. 8 And for the members of the committee, 9 Ms. Williams, Leigh Anne Williams, is our reporter 10 today, and I'll ask you again -- She can only record 11 one comment at a time. So, if you start talking over 12 someone else, I'll try to interrupt and get you to let 13 one person at a time speak. I think we did real well 14 on that at our last meeting. 15 No. 3, report, possible discussion 16 and/or action on the Bingo Advisory Committee Chair's 17 report to the Texas Lottery Commission relating to the 18 issues discussed at the July 25, 2001, Bingo Advisory 19 Committee meeting. I provided the Commission a brief 20 summary, which was very brief in view of the long 21 meeting we had, and discussed with them at some length 22 the comments that were generated by the discussion of 23 our self-evaluation, recommended that when the minutes 24 of the meeting are available to them, that they may 25 want to review that section particularly. I told them 7 1 that we had lost a quorum and were not able to finish 2 the meeting, and that's why we're having another 3 meeting within a month of the last meeting. 4 The items that they took action on was 5 that they did approve taking whatever action is 6 necessary to change the report date to the 30th of the 7 month for operators. They also approved moving ahead 8 with whatever action is needed to hold some meetings 9 of the advisory committee outside of Austin. So, they 10 reversed themselves on that after giving to them some 11 of the information you'd given to me in that meeting, 12 and that was the extent of my report and the action 13 that was taken by the Lottery Commission. 14 Any questions on -- 15 MS. BRACKETT: I have one. On the 16 report date to the 30th of the month, when -- was that 17 actually taken and, so, it's a done deal or -- 18 CHAIR NEINAST: No. There has to be 19 a -- 20 MR. ATKINS: It requires a legislative 21 change. 22 MS. BRACKETT: Okay. That's what I 23 thought. 24 CHAIR NEINAST: So, it's going to be -- 25 MS. BRACKETT: So, we're almost two 8 1 years away? 2 CHAIR NEINAST: Yes, at least two 3 years. 4 No. 4, report by a bingo -- I'm sorry, 5 No. 5, the consideration of and possible discussion 6 and/or action on reducing -- 7 MR. ATKINS: Are you skipping No. 4? 8 CHAIR NEINAST: I'm sorry. I'm reading 9 too fast to myself. No. 4 -- Back up to No. 4, report 10 by a Bingo Advisory Committee subcommittee on -- 11 possible discussion and/or action on whether the 12 Charitable Bingo Operations Division should be a 13 separate state agency. I'm listed as having action on 14 that one. Virginia, that's really yours as the 15 subcommittee chairman. 16 MS. BRACKETT: Okay. We really, I 17 don't think, have the recommendation to make today, 18 except that we do continue to pursue this. We have 19 been in contact with each other by mail, and we do 20 have some questions that we're working on. We're 21 concerned with the -- what would the change process 22 be, which, of course, I understand would be 23 legislative action -- is that correct -- and would be 24 when the next session convenes. 25 Some of us have discussed this by 9 1 phone, and some of us have discussed it in person, and 2 I wish that some of the members would participate, say 3 where we stand on this at this point. Actually, we're 4 just still in a process of study is where we stand on 5 it. Correct? 6 MR. SPEED: Yeah, I think there's a lot 7 of the legwork to be done as far as expenses, 8 etcetera, etcetera. I think it's going to require a 9 lot of numbers from somebody as to what -- 10 THE REPORTER: I'm having a little bit 11 of trouble hearing. 12 MR. SPEED: -- what our expenses are 13 and -- etcetera. I don't see it can be done 14 overnight. 15 CHAIR NEINAST: Is yours on? 16 MR. SPEED: I think we need a little 17 bit of time to work on that, get some help from other 18 people. 19 CHAIR NEINAST: Are you getting it 20 better, Ms. Williams? 21 THE REPORTER: Yes, sir. 22 CHAIR NEINAST: Any of the other 23 subcommittee members want to make a comment? 24 MS. BRACKETT: Did you get your 25 information, David? 10 1 MR. CASTILLO: Yes, thank you. 2 MS. BRACKETT: Okay. 3 MR. CASTILLO: I received it, and 4 looking at -- nationally at the lotteries, they're 5 going down. So, bingo is going down, the income and 6 so on. So, I saw that the expenses are real -- 7 (inaudible) -- have the Bingo Committee separate from 8 the lottery, and we need to study that. 9 CHAIR NEINAST: Okay. Well, let us 10 know before the next meeting whether you want that on 11 an item on the agenda or whether they'll need more 12 time to study it. 13 MS. BRACKETT: Okay. 14 CHAIR NEINAST: I'd like to recognize 15 Mr. Tom Clowe, the Chairman of the Lottery Commission, 16 who's just joined us. The Chairman is also, for lack 17 of a better term -- and you may have a better term -- 18 is the liaison from the Lottery Commission to the 19 committee, and he makes most of our meetings. 20 Glad to have you with us this morning. 21 CHAIRMAN CLOWE: Thank you, Bill. 22 CHAIR NEINAST: No. 5, consideration of 23 and possible discussion and/or action on reducing 24 license fees. Although I'm listed as action on that, 25 frankly, I do not know how that got on the agenda or 11 1 why. Billy, can you help us? 2 MR. ATKINS: It was one of the items 3 that was passed on the last meeting that was asked 4 that it be put on this agenda. 5 CHAIR NEINAST: Okay. Does anyone have 6 any information on that? Has that come in from the -- 7 MS. TAYLOR: At one of our previous 8 meetings during public comment, one of the people that 9 was sitting there asked -- who had a list of items, 10 and it's in the minutes. I know because I remember 11 typing it, and that was one of the items that he had 12 asked the committee to consider. So, you said it 13 would be on the next agenda. It's in the minutes, I 14 remember. 15 CHAIR NEINAST: Okay. 16 MS. TAYLOR: I can't remember who it 17 was, but it's there, and that would be why it would be 18 on the agenda. 19 CHAIR NEINAST: I have no information 20 to submit on that as to the thinking behind it, why or 21 what the recommendation would be, and the Chair would 22 certainly recognize anyone in the audience who might 23 want to address that issue or anyone on the committee. 24 Anyone have any suggestions as to what prompted this 25 or what fees are at issue and what the reduction 12 1 should be? 2 Yes. 3 MR. FENOGLIO: For the record, my name 4 is Stephen Fenoglio. I'm an attorney in Austin and 5 represent numerous charities throughout the state, and 6 I filled out a witness affirmation form and attached a 7 portion of the charities. 8 I recall this being a part of an agenda 9 item, although I couldn't -- I went back and looked at 10 the minutes and could not decide who had requested it 11 or placed it on the agenda, nor could I ever find out 12 that there had been any discussion of it in previous 13 meetings. 14 The concern that my charities have had 15 is that the, quote, profit from the regulation of 16 bingo is significant. If you look at it from the 17 standpoint what the industry generates, it's about 18 25 million a year, and the cost to regulate bingo is 19 about 3 million a year. So, you've got a, quote, 20 profit, if you will, of 22 million, roughly, a year, 21 and these are numbers from either -- In the 22 appropriations bill, it's almost 3 million is what it 23 cost the Charitable Bingo Division to regulate bingo, 24 and from some of the staff at the Lottery Commission, 25 it's approximately 25 million in gross revenue from 13 1 license fees, from tax payments and the like, and, so, 2 my charities have always looked at it at the 3 standpoint of why shouldn't the license fees be 4 reduced, and they should be reduced substantially, but 5 as to the cause, Mr. Chairman, of why it was put on 6 the agenda, we're at a loss as well, and I think if 7 you would -- if the agency -- and I've got some other 8 comments on some of the other agenda items. If the 9 agency would publish this type of data in a meaningful 10 matter for charities, I think you'd be covered up with 11 comments in support of reducing license fees. 12 CHAIR NEINAST: Okay. Do you have any 13 recommendations as to specific fees or taxes to be 14 reduced and at what level? 15 MR. FENOGLIO: Well, something close to 16 what it costs to regulate bingo. 17 CHAIR NEINAST: Okay. 18 MR. FENOGLIO: I mean, that would be, I 19 think, the appropriate way to start, and obviously the 20 agency's getting ready or going through sunset as we 21 speak, and that's a dialogue that will occur with the 22 Sunset Advisory Commission leading to legislation 23 being proposed, but I think you'll find that there's 24 certain House and Senate members who would also be 25 interested in knowing those kind of numbers and being 14 1 interested in supporting charities by reducing those 2 licensing fees and taxes. 3 CHAIR NEINAST: I've got a question. 4 Billy, maybe you can answer. 5 MR. ATKINS: Can I comment on Steve's? 6 CHAIR NEINAST: Yes. 7 MR. ATKINS: And whether it's 8 intentional or not, I think that part of Steve's 9 comments are that there is some attempt by the agency 10 to hide that information, and there is no intent. 11 It's all there. It's all a public record, what the 12 license fees are, what the license fees are that are 13 set by the legislature, as well as what this agency's 14 appropriation is. So, you know, I think the fact that 15 if it were put out, there would be all kinds of 16 comments, and my response would be is that it's out 17 there. 18 MR. FENOGLIO: And I wasn't trying to 19 cast stones at the agency in any fashion, but I think 20 it's a lot different to publish some raw numbers in a 21 bingo advisory -- I'm sorry, in a -- the quarterly 22 bingo report as opposed to kind of setting up the 23 issue of, is the industry interested in reducing -- 24 there's been some discussion at the Bingo Advisory 25 Committee about reducing license fees and taxes, and 15 1 here are the facts. The facts are that the State 2 recovers about $25 million a year in revenue from the 3 industry, and it costs 3 million -- less than 4 3 million to regulate the industry and, you know -- as 5 opposed to having those kind of numbers -- and, yes, 6 the agency does publish those numbers, but it's not in 7 the content of anything other than a dry recitation, 8 in my view, of what the numbers are recovered from the 9 industry are and what it roughly cost the agency to -- 10 well, what the Lottery Commission's budget is for 11 charitable bingo. 12 I obtained that number from the 13 appropriations bill. The appropriations bill is over 14 1,000 pages in length. So, that information is on the 15 Web site of the Texas Legislature, but I dare say that 16 there are not going to be too many charities who are 17 going to want to sift through 1,000 pages to figure 18 out what the agency's budget is, but I certainly 19 didn't mean to cast any stones at the agency. I mean, 20 the agency's been forthcoming when I've asked their 21 budget information. 22 CHAIR NEINAST: Okay. I have a 23 question for you, Billy. Using Steve's figures of 24 round numbers, it appears that there's a 22 million 25 difference between what is taken in from bingo and 16 1 what is used to support the bingo -- Charitable Bingo 2 Division. What happens to that 22 million? 3 MR. ATKINS: Approximately 50 percent 4 of that is allocated back to local jurisdictions where 5 bingo is conducted. The remainder is deposited into 6 the State's general revenue fund. 7 CHAIR NEINAST: So, roughly 11 million 8 to each? 9 MR. ATKINS: 1 to 15 million. 10 CHAIR NEINAST: So, I assume that 11 that's reallocated to the local jurisdictions is based 12 on the fees and taxes generated by those -- it's 13 propriationalized. So -- 14 MR. ATKINS: That's correct. 15 CHAIR NEINAST: Okay. Any other 16 questions or comments? 17 MS. TAYLOR: I did find in the minutes 18 where this was discussed. February 14th, 2001, 19 minutes, David Linehite asked that this be added to 20 our agenda. It was one of his proposals, and you said 21 that he would be -- you would add this to a future 22 agenda as an item. 23 CHAIR NEINAST: Okay. Thank you, 24 Suzanne. 25 Any other questions or comments while 17 1 Steve is here? Is David Linehite present? 2 (No response.) 3 CHAIR NEINAST: Okay. Yes. 4 Thank you, Steve. 5 MR. FENOGLIO: Thank you. 6 MR. BRESNEN: Good morning, everybody. 7 My name is Steve Bresnen. I represent the Bingo 8 Interest Group, an organization of commercial lessors 9 scattered throughout the state. 10 On this issue, I want to support what 11 Steve said, that we'd like to see the fee and tax 12 structure for bingo brought more in line to the cost 13 to the State of regulating it. It's probably a little 14 unrealistic to think that the State's not going to see 15 some net gain out of the taxation of bingo. I think 16 we would lean heavily in the area of making those 17 fees -- any changes intended to drive more money to 18 the bottom line of charities. 19 But I would point out one thing that's 20 a significant sore spot. To my knowledge, the 21 commercial lessor in Texas is the only one that pays a 22 personal income tax. They pay a tax on the rent that 23 comes in from bingo halls, and that ain't nothing but 24 an income tax, and, so, while some have argued that 25 the state franchise tax is an income tax, this is -- 18 1 there's no doubt about the character of this one, and 2 some -- We'd like to see some consideration given to 3 that along the way. 4 One thing that I'd like to suggest -- 5 and again, sort of extending what Steve said -- is 6 maybe putting on the Web site those kind of relevant 7 facts about this issue, and I'd like to make it as a 8 general comment so I don't say it over and over again 9 today, but there's a number of these issues that I 10 think would be highly susceptible to putting that 11 information -- some raw, basic information out there 12 on the Web site in advance of your meetings that 13 people might educate themselves a little bit before 14 they come to the meeting, people that aren't 15 represented by lobbyists and may want to come down 16 here and talk about those issues. 17 And then, secondly, I think this would 18 be a perfect candidate for an idea that I'd like to 19 propose in general, and that is maybe the use of what 20 some other agencies are calling stakeholder meetings 21 for issues like this for -- that people might sit -- 22 people from the industry might sit down or be invited 23 to sit down and look at issues like this, pull them 24 apart, see what's fair, see if they care. They may 25 not care, but I think this is a kind of issue that 19 1 could be worked through in that process that's being 2 used at some other agencies where you might get some 3 more feedback on them, rather than being posted on an 4 agenda and, you know, hoping everybody shows up to 5 either talk about them or not talk about them. 6 So, just two general suggestions 7 with -- but specifically applied to those, and we'd be 8 happy to participate in any kind of process like that 9 that would take a look at these fees in a -- and 10 restructuring them and making a proposal, especially 11 in light of the fact that we're -- we've got sunset 12 process coming up. I appreciate you letting me talk. 13 CHAIR NEINAST: I appreciate your 14 comments, Steve, and I'll come back to your latter 15 comments about getting more information out to the 16 community on our last agenda item, but stick around, 17 and if I don't hit it, remind me, if you will. 18 MR. BRESNEN: I'll be here. 19 CHAIR NEINAST: Before you leave, any 20 questions or comments on Steve? 21 MR. ATKINS: Can I just get, Steve, a 22 clarification on the stakeholder meetings, some of the 23 agencies that are doing that and how that would be 24 different than what we're doing here today. 25 MR. BRESNEN: Yeah, let me give you an 20 1 example. Yesterday, I attended a meeting at the -- at 2 Texas Department of Mental Health and Mental 3 Retardation. They have a rule that regulates private 4 psychiatric hospitals, and I represent psychiatrists. 5 They also have advisory committees that deal in that 6 area, and they have some -- I forget exactly what they 7 call them, but they're clinical experts. 8 So, in essence, they have a 9 multi-pronged way of getting at this information. 10 They use their advisory committees, but what they did 11 yesterday was they solicited the input of a bunch of 12 different organizations to come to a meeting, and it 13 was a basic round-table, mostly facilitated 14 discussion, but fair -- Mostly it was a discussion, a 15 conversation amongst people about various things that 16 might need to be addressed in the rule or parts of the 17 rule that were not very clear to them right then, and 18 it was just a little bit different format and a little 19 bit more conversational and a way to expand the 20 incoming information. 21 Nothing -- they didn't try to reach a 22 consensus on anything. They didn't try to propose a 23 new rule out of that. A guy worked with a tote board 24 in the back, if that's the right word. Tote board? 25 Is that -- Maybe that's the wrong word for that. 21 1 Anyway, using a big pad and a marker and just 2 highlighted issues and things to be considered. 3 They'll have another one of these 4 meetings sometime in the latter part of September, if 5 you want me to let you know when that is, if you want 6 to have a staff member to look at it. I think it 7 would be very useful to do that. I'm not suggesting 8 that we supplant your role as an advisory committee, 9 but I think it might be a great additional way for you 10 to get your two cents in. 11 You know, I'm a professional witness. 12 I testify all the time for -- You know, y'all have 13 seen me before, and I do it at the legislature and all 14 of that. It's a little bit different when real life 15 people, practitioners, people who are living with 16 these rules are under this fee system, for example, 17 every day are sitting there conversing amongst 18 themselves and pulling something apart and saying, 19 well, what about this and being able to ask questions 20 of the staff, and that kind of format is -- it feels 21 different. So, anyway, just a suggestion. 22 MR. ATKINS: So, it's not the 23 negotiated rule making? 24 MR. BRESNEN: No, sir. No, sir. But 25 that is another process that is out there that might 22 1 lend itself to some of these issues that are coming up 2 which I expect will involve a fair amount of give and 3 take and maybe even some contention. So, anyway, just 4 trying to -- I've been trying to think positively 5 about how we might make this process work even better, 6 and, so, that was just a couple of ideas. 7 CHAIR NEINAST: Well, I appreciate 8 those, Steve, and that's been a concern to the 9 committee, also, and you weren't here, I think, when I 10 made the announcement earlier about the action at the 11 Lottery Commission at its last meeting. They've 12 approved moving ahead now to authorize the committee 13 to meet outside of Austin on some occasions. 14 MR. BRESNEN: I think that would be 15 outstanding. 16 CHAIR NEINAST: I think this would 17 take -- give -- lend itself easily to making a -- 18 maybe a longer meeting and having the regular 19 committee meeting at -- we'll just say Lubbock, and 20 then after that, have a round-table with those who are 21 there with no agenda items, but just letting them 22 speak freely, but I think your suggestion is an 23 excellent one, and it's the type of thing we've been 24 looking for to get more input, feedback from the 25 industry. 23 1 As you know, you come to these 2 meetings, nearly every one, and generally the 3 witnesses are the same ones, you and Steve and a few 4 others who represent the organizations, but we really 5 don't hear too much from the charity operators the 6 organization is -- I mean, the law was passed to 7 assist. So, anyway, that's down the road where we 8 will be holding some meetings outside of Austin to 9 give some people who otherwise would not have the time 10 or the resources or the inclination to travel to 11 Austin to attend one of our meetings. 12 MR. BRESNEN: I think that's a great 13 deal, and, you know, I can tell you I'm -- you know, 14 I'm a government nerd specialist, you know, and I'm 15 going to tell you -- I'm going to give you the 16 government-ese and try to translate between what 17 people's experience day to day is and what we need to 18 do to make rules and regulations. That's my job, but 19 it's a little bit different if Chuck Hutchings tells 20 you about his experience running a bingo hall day to 21 day or Suzanne or any number of other people who are 22 out there and I know that care about these things. 23 We're probably going to have to go an extra mile to 24 get them involved, and we're probably going to have to 25 organize them a little bit in order to get there. 24 1 Several of us talked yesterday a little 2 bit about some ways to lend a hand on that. So, I'll 3 be coming back to you. I won't take all your time 4 today talking about that, but we've got some ideas 5 about how we might help with that. 6 CHAIR NEINAST: Well, we appreciate any 7 suggestions you have. 8 Any questions or comments before Steve 9 leaves? 10 MR. TAWIL: Well, not for Steve 11 specifically, but, Billy, could you expand a little 12 bit on negotiated rule making? Because I got several 13 calls from people that were concerned about this 14 certificate rule that we were going to be talking 15 about. 16 MR. ATKINS: No, I can't, Saleem, 17 because we've never done it. I've just heard it 18 suggested before. So, maybe either -- Maybe one of 19 the Steves would have actually gone through it and can 20 talk a little more about the process. 21 MR. TAWIL: Steve, can you tell us a 22 little bit about that? One of y'all. 23 MR. BRESNEN: He's the real lawyer. 24 Let him. 25 MR. FENOGLIO: Stephen Fenoglio again. 25 1 I have participated in contested rule making 2 proceedings, and it's sort of like it suggests, and 3 each agency can have it a little differently depending 4 on their particular rules, internal rules, but you 5 might have it where you'd actually take testimony. 6 You might have it where an administrative law judge or 7 someone at the particular agency's going to act as a 8 judge and you're going to actually -- as opposed to 9 writing in comments, which can be very dry and there's 10 no dialogue, and that's the classic way an agency 11 engages in rule making. They publish a document, a 12 proposed rule making in the Texas Register, and then 13 people are given at least 30 days comment period, and 14 someone might comment -- As an example, on one of the 15 existing rules and one of the issues on the agenda 16 today is some sort of action on 402.543, denial, 17 suspensions, revocations and hearings. What the 18 agency could do is just publish that with perhaps some 19 changes, and I might respond to one of the suggested 20 changes which raises a question on the staff's mind, 21 well, what was Fenoglio talking about. Well, there's 22 no way in that dry recitation to have a give and take. 23 In a contested rule making, it would be 24 a meeting, perhaps similar to this -- and, again, it 25 could be very informal or it can be very formalized, 26 1 and you can negotiate. You can discuss, well, 2 Mr. Fenoglio, when you're talking about one of the 3 grounds for suspension and revocation and your 4 suggested language is this, what did you mean by that, 5 and I would respond hopefully with something that 6 would be intelligent and make sense, and then there 7 would be that give and take, and other members of 8 either the informal group, like Bingo Advisory 9 Committee, could weigh in or members of the audience 10 could then weigh in and have a more involved 11 discussion as opposed to just, again, the classic way 12 is I write in comments, the agency, by law, must 13 assess those comments in another document they publish 14 in the Texas Register whenever they get ready to adopt 15 or reject or whatever they're going to do with that 16 particular proposed rule. 17 You can also have a hearing on a rule, 18 and the agency has done that on a couple of their 19 rules, but it's just a hearing where there's a one-way 20 dialogue, where I would get up and make a comment and 21 either Mr. Atkins or someone like him, Kim Kipling 22 perhaps or one of the assistant general counsels is 23 just there to receive that oral comment, but there's 24 no ongoing dialogue where everyone in the room can 25 engage in it and react to it, and, so, a contested 27 1 rule making would be more of a dialogue, although 2 albeit on a more formalized basis. 3 MR. TAWIL: What if the laws and rules 4 are silent about issues and you enter those in a 5 negotiated -- because a lot of times people want to do 6 something and there's no -- the rules are silent on 7 some things. 8 MR. FENOGLIO: Well, it's a part of -- 9 If, for example, it was under the code of 543 and 10 there was a provision that isn't addressed that some 11 member of the public wanted to be addressed in 543, 12 under that negotiated, they could address it, and you 13 wouldn't be -- As long as the rule is broad enough, in 14 my view, you wouldn't be precluded -- or the agency's 15 not precluded from actually changing the rule based 16 upon input, and that's the rule making. 17 Now, obviously in the rule making, you 18 can't change what the laws are. That's for the 19 legislature to do. 20 MR. TAWIL: Can you have a proposed 21 rule from industry and negotiate that with the staff? 22 MR. FENOGLIO: Yes, under a negotiated 23 proceeding. 24 MR. TAWIL: Yeah, but would they have 25 to agree to participate or, by law, are they bound to 28 1 participate? 2 MR. FENOGLIO: Well, it would be 3 pursuant to whatever the rules and whatever -- and 4 there's a particular division of Texas law that allows 5 negotiated rule making. So, I mean, the point is, 6 once they start it, they can't stop it, I guess is 7 your question. I mean, they have to follow the 8 process through. 9 MR. ATKINS: Well, are you talking, 10 Saleem, about that there's a process whereby you can 11 petition for rule making, the industry can petition 12 the agency to develop a rule? Is that what you're 13 talking about? 14 MR. TAWIL: No. In that matter, it's 15 one way. They just submit it, and it goes through the 16 normal proceedings. Whereas, in negotiated, both 17 parties are forced to negotiate the resolution, from 18 what I understand. Is that correct? 19 MR. FENOGLIO: Well, yes and no. You 20 can't -- Again, each agency is different, but you 21 can't force an agency to -- Let's say that I want a 22 rule that says that only -- the agency can only hire 23 lawyers in Austin to do something, and the agency 24 says, well, we're bound under our negotiated rule 25 making to undertake this, but we're not going to agree 29 1 to that. You can't force them to -- 2 MR. TAWIL: No, that's not what I'm 3 saying. The negotiated, you go through the process 4 instead of being one way as it is now. 5 MR. FENOGLIO: Under the negotiated 6 rule making, there would be an opportunity to have 7 meaningful dialogue. Now, whether or not there's a 8 positive result from that, you know, who knows. 9 MR. ATKINS: Steve, can I ask you a 10 couple of -- When we've held the public hearings in 11 the past on rules, there has been an opportunity for 12 dialogue between the agency and whoever's making the 13 presentation. I mean, there's been an opportunity to 14 say, okay, Steve, what do you mean by that statement. 15 MR. FENOGLIO: Yes, there has been, but 16 there have been other things where the agency -- As I 17 recall one of the meetings that I attended, well, 18 we're here to receive comment, we're not going to 19 respond to you in -- you know, when I say, well, are 20 you -- Billy, I've got some questions for you -- as an 21 example, not to pick on you. Now, Billy, I want to 22 know "X," and then I've had the assistant general 23 counsel say, well, now, wait a minute, that's not part 24 of this process, in that regard, but, yes, there have 25 been opportunities, and I can recall when you've 30 1 asked, well, Mr. So-and-so or Ms. So-and-so, are you 2 saying this or are you saying that, I want to make 3 sure I understand what your comment is. 4 MR. ATKINS: Okay. And on the 5 negotiated rule making process, is that the only 6 opportunity for the public to comment is in that, I 7 guess, hearing? 8 MR. FENOGLIO: No. Within a rule 9 making proceeding? Is that what you're -- 10 MR. ATKINS: In the negotiated rule 11 making process, I mean, if you go that route, is there 12 still an opportunity for public comment in writing? 13 MR. FENOGLIO: Yes. And there's also 14 the opportunity, if you don't know, in any rule 15 making -- It's not an ex parte proceeding. It's not a 16 contested case, rule making by law. So, there's 17 nothing that prohibits me individually, while rule 18 making is either going on or while it's not, to go 19 meet with Mr. Atkins or Chairman Clowe, depending on 20 schedule availability, but the problem with that is 21 it's not a formalized process. There may not be a 22 record made and, you know, etcetera, but you can 23 also -- You can always go through some other processes 24 in the rule making activities. 25 Thank you. 31 1 CHAIR NEINAST: Thank you, Steve. Any 2 other questions of -- back to the issue, then, of 3 lowering the license fees. We don't have any specific 4 proposal that I can ascertain at this time, but a 5 comment on something that Billy has said about, well, 6 it's out there on the Internet. In my opinion, the 7 Internet is not a cure-all. There are a lot of people 8 who don't have Internet or have access to it. 9 In my particular case, I have access, 10 but because of a choice of the provider I have, I have 11 to pay eight cents a minute while I'm on line, and to 12 read 1,000 pages on line gets a little expensive. So, 13 I don't think saying it's on the Internet and they can 14 find it there is the -- is a solution. It's one 15 channel, but I would think it would be of interest and 16 might spark some more interest in discussion if we 17 took the suggestion of Steve to publish this in a more 18 assessable manner, possibly the bingo bulletin, and I 19 would suggest -- I don't think we need a motion on 20 it -- that, Billy, you consider putting that 21 information in one of the next bulletin. That would 22 be how much revenue is generated by the fees and taxes 23 and then what your budget is, and it would be helpful 24 to me -- It might not have to be in that bulletin, but 25 I would like to know -- have it broken down by how 32 1 much each fee generates and how much the taxes 2 generate. I think it's important to know for those 3 who might read that in the bulletin how that extra or 4 excess over your operating budget is distributed, 5 particularly that 50 percent of it -- or about 6 50 percent of it goes back to the local jurisdictions. 7 Any comments on that -- my comments? 8 (No response.) 9 CHAIR NEINAST: Okay. If none, we will 10 move to the next agenda item. No. 6, consideration of 11 and possible discussion and/or action on the use of 12 debit cards in connection with the conduct of bingo. 13 Suzanne, this has been your baby for 14 quite awhile. 15 MS. TAYLOR: I did talk to Card 16 Services International who have debit cards and credit 17 cards both. They said with the debit cards, that that 18 does come with a two-line item, two separate line 19 item, one showing each individual transaction and one 20 showing the amount of money that's actually going to 21 be deposited back in your account, because, of course, 22 there is a fee on each one of the transactions. So, 23 for instance, if somebody used their debit card and 24 you did $100 transaction with them, it would show that 25 you sold $100 on the debit card to that individual. 33 1 Then the second line item would show that you were 2 only going to be receiving $97 back into your bank 3 account from that transaction. 4 CHAIR NEINAST: And when will the 5 operator get that from the debit card? 6 MS. TAYLOR: Within 48 hours. 7 CHAIR NEINAST: Within 48 hours. So, 8 would there be a problem if this is done on the last 9 day of the month? Would they get that information 10 back in time for their report? 11 MS. TAYLOR: Yeah, 48 hours. 12 MR. TAWIL: I got a question on this. 13 Isn't a debit card like a bank check? I mean, because 14 the money has to be in the bank account before 15 they'll -- 16 MS. TAYLOR: Right. It is taken out of 17 the bank account, but the company that does it -- I 18 forgot what they call it. Anyway, by the time they 19 actually -- It's taken out of their account -- The 20 moment that it is debited, it is taken out of the 21 account, but it goes into the account of the company, 22 that is your debit card company, who, in turn, puts it 23 back into your account, but they only actually put 24 97 percent of it back into your account, but 25 audit-wise is what we were talking about before, what 34 1 kind of an audit trail is it. They do line item. 2 They said it's a two-line item, one for the actual 3 amount, one for the amount you're being paid back. 4 MR. ATKINS: And the company you talked 5 to was called Card Services International? 6 MS. TAYLOR: Yes. And they -- I talked 7 to them because they happened to work with a Telecheck 8 machine, which I'm familiar with the Telecheck 9 machine. So, that is why I happened to call that 10 particular company. 11 MR. ATKINS: Okay. Can you -- I don't 12 need it now, but can you give me that contact 13 information? 14 MS. TAYLOR: Uh-huh. 15 MR. TAWIL: People can spend checks 16 right now right in the bingo hall. So, what would be 17 the legal issue? 18 CHAIR NEINAST: That was the question 19 I'm going to ask in view of the -- Assuming that this 20 is the way that they're handled and the operator gets 21 that information within 48 hours, why do we -- do we 22 need a rule change or why would we need a rule to 23 authorize? Seems to me that it's like cash. 24 MS. TAYLOR: I would think that that is 25 not one of the approved expenditures at this time. 35 1 Would that be the 3 percent fee? Would that be the 2 approved expenditure? 3 MR. ATKINS: I don't know. That's one 4 of the issues that have to be looked at. 5 MR. SPEED: Could you not pass the fee 6 on to the customer, make theirs come out where you 7 don't wind up paying the fee? 8 MS. TAYLOR: Well, it doesn't matter 9 how much the debit card would be. I mean, whatever 10 you debit it for, you might wind up collecting an 11 extra $3 from it, but according to the transaction, 12 it's going to show it was $100 transaction for which 13 you received $97. 14 MR. ATKINS: Oh. So, instead of -- for 15 your purposes, instead of charging them $100, you 16 charge them $103. Then the debit card company would 17 charge the 3 percent against the 103? Is that what 18 you're saying? 19 MR. SPEED: That's what I'm saying. 20 CHAIR NEINAST: So, the actual -- 21 MR. SPEED: That's the way your ATMs 22 operate, same thing. You know, they charge a fee. 23 CHAIR NEINAST: So, even if you charged 24 $103, the operator would not get that $100. It would 25 still be just a little under $100, 3 percent of a 103? 36 1 MS. TAYLOR: 99.85. 2 CHAIR NEINAST: Okay. Steve, I -- 3 MR. FENOGLIO: I'm sorry to interrupt, 4 and I didn't intend to comment on this issue directly, 5 but in the past, I have represented the Pulse system 6 which is one of the better known, in the southwest at 7 least, ATM network companies. It would require them, 8 I believe, to undergo a significant software change to 9 do what you just suggested. Right now, that's not how 10 it works. 11 I'm not saying they couldn't do it, but 12 I also, having represented them, know that they're not 13 particularly interested in negotiating too many 14 issues, and I'm not sure it would be worth it for them 15 to do it that way, but if they could do it, then it 16 would certainly solve the charities' problem about the 17 three-dollar charge or the dollar-fifty charge, 18 whatever the ATM company is going to charge the 19 charity. The charity -- Obviously, the general fund 20 can pay that just like they do the NSF fund check, but 21 that would not -- That would be a surprise to a number 22 of charities. 23 CHAIR NEINAST: Let me see if I 24 understand you. I'm not sure that I do, Steve. Why 25 would this require negotiating with the Pulse network 37 1 if the charity just charges $103 to try to get 100? 2 They won't get quite 100. 3 MR. FENOGLIO: Because when you go to 4 the ATM and you say you want $100 or $103, that 5 system -- Well, number one, they don't -- To my 6 knowledge, I've never seen one that does it on an 7 even -- not -- in either five or ten-dollar 8 increments. 9 MS. TAYLOR: Debit card. 10 MR. FENOGLIO: I thought that's what 11 you were talking about. 12 MS. TAYLOR: Debit cards are for any 13 amount. You go to HEB for $33.96. 14 MR. FENOGLIO: Then -- Well -- but 15 you've still got the problem that you're going to 16 swipe it. You know, if you're going to get out 17 $33.96, in your example, that's what's going to be 18 swiped off the cards. I don't know how you can then, 19 after the fact, go recoup that and negotiate with 20 either Chase Bank, if it's -- or the debit card 21 issuer, which in some cases is Pulse, and negotiate 22 and try to prove up, well, that $3 really comes to us 23 or whatever it is. I think it would create a lot of 24 challenges. I'm not saying you can't overcome them, 25 Mr. Chairman, but it's not going to be as simple as 38 1 you might suggest, I believe, because it's on the 2 bank's system, and you've got to be able to get that 3 money through that account back to the charity's 4 account, I think. 5 CHAIR NEINAST: I don't think it's as 6 complicated as you seem to think it is, and it might 7 be because I'm ignorant of the system, but what I'm 8 saying is using the $100 is what you want, and if I 9 walked in with a $100 bill, I'd give that to the 10 operator. If I say I want to use my debit card, $103 11 swiped, and the charity then would get -- instead of 12 $100, would get $99.85. I don't see where that would 13 require any change or -- in the procedure for the 14 debit card operator. 15 MS. TAYLOR: So, what we'd be talking 16 about doing is automatically adding a 3 percent fee 17 for using your debit card at the location to whatever 18 the purchase is going to be? 19 CHAIR NEINAST: Yes, or whatever -- 20 There might be some companies that charge more or less 21 than 3 percent, whatever the company is charging 22 that's being used. 23 Thank you, Steve. 24 Okay. Suzanne, what action do you 25 desire to take on this? 39 1 MS. TAYLOR: Personally, I never 2 thought I would be a person that would use debit cards 3 because it's just not something that I thought I would 4 be using, but I found more recently that I use my 5 debit card a lot because I don't have a checkbook, and 6 it has -- and it is more convenient. If we're going 7 to move into the future, I think it's something that 8 we need to consider, that we need to be, you know, 9 progressive along with everybody else, and I'd like to 10 see, if the use of the service charge for a debit 11 card, the bank charges are an approved bingo 12 expenditure, could the charge for use of a debit card 13 be an approved bingo expenditure. Would that be a 14 rule change or would that have to be a legislative 15 issue? Would that be considered a bank charge? 16 MR. ATKINS: I'd have to check. I 17 can't -- Because I'm hearing that question for the 18 first time, I don't know that I can give you an answer 19 right now. Maybe if we'd had the opportunity to talk 20 about it beforehand, but I'll look at it. 21 CHAIR NEINAST: Well, may I suggest, to 22 move this, the Chair would consider a motion that 23 whatever action is necessary -- or let's take it, 24 necessary action be taken to authorize the use of 25 debit cards in paying for bingo cards and that any 40 1 service charge resulting would be authorized as an 2 expense item for the charity. 3 MS. TAYLOR: I would move that motion. 4 CHAIR NEINAST: Okay. Ms. Williams, 5 did you get the motion? 6 THE REPORTER: Yes, sir. 7 MS. BRACKETT: I'll second. 8 CHAIR NEINAST: Okay. Motion's been 9 made and seconded. Further discussion? 10 MR. RINEHART: I don't believe I've 11 ever recalled anybody even asking, you know, if we 12 could take a debit card -- (inaudible) -- 13 THE REPORTER: I can't -- 14 MR. RINEHART: -- some other areas, but 15 I don't believe I've ever been asked, you know, to 16 take a debit card -- 17 MR. ATKINS: Would you talk into your 18 mic, Bob. She's having -- 19 MR. RINEHART: -- I'm sorry -- would 20 you ever take a debit card. So, I'm not sure -- I'd 21 just be open on it as to whether that's a very 22 important issue or not. 23 CHAIR NEINAST: Well, it's a business 24 transaction that is becoming more popular every day, 25 and if it is something that is available in the halls, 41 1 they may use it. 2 MR. RINEHART: That's true. 3 CHAIR NEINAST: Any further discussion 4 on the motion? 5 Saleem, looks like you've got a 6 comment. 7 MR. TAWIL: No, sir. 8 CHAIR NEINAST: Thought I saw a smile 9 there. 10 MR. TAWIL: I'm in favor of technology. 11 CHAIR NEINAST: If no further 12 discussion, the Chair will call the motion. All in 13 favor, aye. 14 ALL MEMBERS: Aye. 15 CHAIR NEINAST: Opposed, no. 16 (No response.) 17 CHAIR NEINAST: Motion carried 18 unanimously. 19 No. 7, consideration of and possible 20 discussion and/or action, including recommendations to 21 the Texas Lottery Commission on a proposed rule, on 22 the use of gift certificates and/or coupons in 23 connection with the conduct of bingo. We have Billy 24 listed as that and Suzanne as proponent. So, Billy 25 submitted a draft. It's in your notebook from the 42 1 last meeting. We didn't get to take action on it 2 because that was about the time we lost a quorum, and 3 I think it's one of those things, Suzanne, that -- the 4 old saying, be careful what you ask for, you may get 5 it, but there is a draft rule. It's somewhat long, 6 but I think under the circumstances, the requirements 7 placed on the Bingo Division to -- for audit purposes, 8 it's got to be that detailed. 9 Any comments on the proposed rule? 10 Yes, Steve. 11 MR. BRESNEN: Is there a copy that -- 12 Sorry. It's not meant to be testimony, but is there a 13 copy that we could be privy to? 14 MR. TAWIL: Here (indicating). That's 15 mine. 16 CHAIR NEINAST: Would someone else like 17 to take a look at it? I'll jerk it out of my book, 18 also. 19 (No response.) 20 MR. BRESNEN: Mr. Chairman, earlier you 21 said that I'd been at almost every meeting, and I 22 guess this is the one I missed. I don't think I was 23 there. I hope nobody was taking attendance and proves 24 me wrong, but -- 25 MR. TAWIL: I looked for you. You 43 1 weren't here last time. 2 MR. BRESNEN: I think this raises 3 significant issues about transactions that people are 4 engaging in out there right now, and it's the -- This 5 is -- Being -- Given that it apparently has some 6 immediacy is probably even more appropriately 7 addressed through some kind of stakeholder meeting 8 where you could get some immediate feedback from 9 people about how this rule might work, and I'm ashamed 10 to say that I haven't studied it, and I haven't had 11 people that I represent to look at it and give you any 12 feedback about the workability of it, and, so, unless 13 there's a pretty robust discussion here today, I'd 14 like to see this being one of those that would be 15 subjected to some kind of a stakeholder process or 16 some kind of continuing process, and I guess that's my 17 comment. 18 MR. TAWIL: You haven't seen this? The 19 general public hadn't seen this proposed draft? 20 MR. BRESNEN: I have not seen it, and 21 if it's due to a lack of diligence on my part, I'll 22 plead guilty, but I know that people are dealing with 23 gift certificates out there now. I'm not aware of 24 specific problems with it, but I'm also not aware of 25 the specifics of the rule and whether it would address 44 1 those problems or cause more problems or increase the 2 regulatory costs out there. 3 We're talking about reducing fees, 4 which I know the legislature next time is going to be 5 tight for money. I'm a little bit skeptical as to 6 whether we could pull that off, but I know we've got 7 a -- There's a lot of items listed for rules and 8 things in this list. I hear people complaining about 9 the amount of time they spend on regulatory matters 10 now, and if we're imposing additional regulatory 11 matters here, I think we ought to move very 12 deliberately and get a lot of input on that, and I'm 13 suggesting that we do that. If I need to go run off 14 in the corner here and work out some better comments 15 about the specifics of this rule, I'll be glad to do 16 the best I can at this -- on this -- on a moment's 17 notice. 18 I do know that there was, about a year 19 or a year and a half ago, some discussion about a gift 20 certificate rule. I'm not aware of the sky having 21 caved in on us in the meantime. That rule 22 presented -- When I reviewed that rule -- or that 23 draft, it presented a huge number of issues, to me, 24 that I think, you know, need to be worked through 25 before you go forth and do something on this. So, 45 1 anyway, that's my two cents. 2 CHAIR NEINAST: Well, you made one 3 comment that peeked my interest. You say they're 4 already being used. Upon what basis are they being 5 used and how are they being used? 6 MR. BRESNEN: There are people who are 7 issuing gift certificates out there for bingo product. 8 CHAIR NEINAST: And how are they 9 accounting for them? That's the whole purpose of this 10 rule. 11 MR. BRESNEN: Well, I don't know. Has 12 anybody come to you and told you how they're being 13 accounted for? 14 CHAIR NEINAST: Well, not to me because 15 I was unaware of the fact until you made the statement 16 that they're already being used. 17 MR. BRESNEN: That's why I'm suggesting 18 that there be some more deliberation about this so you 19 can know how they're being used and what techniques 20 people are using to account for that money. That's 21 why I'm suggesting that you do that. 22 I don't know the specifics of that, and 23 my guess is there may be more than one methodology, 24 and one may be more satisfactory than another, and 25 that's why I'm suggesting that you use something like 46 1 a stakeholder process and get some people involved who 2 might say, you know, here's what we do and here's how 3 we do it and here's how it benefits the charity. 4 My anecdotal information is that 5 there's a substantial benefit to the charities from 6 this, and I think it's an important issue, one that 7 needs a little more workmanlike approach to it. 8 Again, if I haven't been diligent enough about this, I 9 apologize for that, but apparently this has been on 10 more than one agenda. You don't know what people are 11 doing and you don't know how they're doing it, and I 12 would suggest that you need to have that information 13 before you can make a reasonable decision about 14 whether to support a rule or whether to change it, and 15 I'm just suggesting that you do that. 16 It's a process issue, and I'll probably 17 be up here saying similar things about several of the 18 other things on here. I've given a lot of thought 19 about the process, and I'm trying to be -- trying to 20 make suggestions about how we might do a little more 21 workmanlike job at working through these kinds of 22 things. 23 CHAIR NEINAST: I appreciate your 24 comments, but what bothers me is, as you recognize, it 25 has been an agenda item on a number of occasions. I 47 1 think we've been discussing this that -- in one form 2 or another for about a year, and the final result 3 of -- was, several meetings ago, a resolution to -- or 4 a motion to have the Bingo Division draft a rule that 5 would allow the use of gift certificates, and that was 6 done, and it was in -- available last -- at the last 7 meeting, and we just didn't get to it at that time. 8 Because of the length of the meeting, we lost a 9 quorum, but it's been an item -- 10 MR. BRESNEN: Was there a discussion 11 about the rule at the last meeting? 12 CHAIR NEINAST: It was just mentioned 13 that it was a long rule. 14 MR. BRESNEN: And has anybody come to 15 you and explained to you what they're doing now and 16 how they account for the money and that sort of thing? 17 CHAIR NEINAST: The first time that I 18 heard that they were already using them was when you 19 made the statement a few minutes ago. 20 MR. BRESNEN: That's why I'm suggesting 21 that there's a failure in the process, and I'm not 22 blaming anybody. In fact, I'm taking personal 23 responsibility for not having been at the last meeting 24 and not having the contents of this rule and being 25 able to share it with my clients and have them say 48 1 here's the problems I see, but I ain't the only guy in 2 the state. There's about 20 million people here, and 3 I'm telling you that these things are in use in the 4 state, around the state. People are accounting for 5 this money now and dealing with this process, and it 6 strikes me as -- There's something wrong when you -- 7 when something's been out there like this and, yet, 8 you don't have any more information about it than you 9 apparently do, and I'm suggesting a way to correct 10 that before you go into the formal rule making 11 process. 12 MR. TAWIL: Why can't we have a 13 subcommittee look into what he's saying? 14 MR. ATKINS: Can I address some of your 15 comments before you do that? 16 CHAIR NEINAST: Certainly. 17 MR. ATKINS: You know, Steve, not 18 speaking for the Chair or the advisory committee, the 19 staff is well-informed that there are organizations 20 that are doing that. Now, part of the reason that 21 we're informed is because sometimes when we do audits, 22 you know, we find some funds from bingo that we can't 23 account for that are attributed to gift certificates. 24 So, a lot of the information in this rule is derived 25 from that broad experience that the staff has in 49 1 dealing with it. 2 Now, again, I just want to comment what 3 the Chair said. This has been on numerous agendas, 4 and it's been available to those members of the public 5 that have requested it, but, you know, I just -- I 6 want you to know, because this is one thing that I 7 explained to the committee last time, staff put a lot 8 of work into this, and, you know, it looks like your 9 typical overly burdensome, you know, bureaucratic 10 hoo-ha, but the staff -- You know, it's like I told 11 the committee the last time. The only thing any 12 auditors want to know is where the money comes from 13 and where it goes, and as long as they can be 14 comfortable that they're being provided with records 15 that are showing that, they're happy. 16 MR. BRESNEN: Okay. The -- I think 17 what we're doing today is for the advisory committee 18 to exercise its reasonable judgment about a specific 19 rule and specific language in the rule. There wasn't 20 a quorum for that purpose last time. Was this rule 21 before them longer than that? 22 CHAIR NEINAST: Well, it was in the 23 notebook, and we had discussed it. We discussed the 24 issue, but not the specifics of the rule. 25 MR. BRESNEN: And I'm suggesting that 50 1 you discuss the specifics of the rule before you put 2 your affirmative vote on it, and, you know, if I go 3 back in the corner, I can come up with some pretty 4 quick comments about this rule, but I'm really trying 5 to make a bigger point than just this rule here, and, 6 you know, I would think if you guys are going to vote 7 on something, that you'd want to have that in a sort 8 of detailed and reasoned process about the specifics 9 of the rule, and I'm just suggesting that you do that 10 and maybe circulate a little bit wider, find some 11 people who could -- If y'all have been talking to 12 people, then you know some people who are doing it, 13 and, so, you might ask those people, what do you think 14 about this rule. Maybe you have already. I don't 15 know. 16 I'm not -- Nobody I represent and 17 nobody that I'm aware of -- I talk to a lot of 18 people -- has had that -- have had y'all ask them 19 that. If you have, maybe I just don't know. There's 20 a lot of people involved in bingo that I haven't 21 talked to, but I'm suggesting that you go through that 22 sort of reasoned, detailed process and get some more 23 feedback because, you know, we all -- I know from my 24 legislative experience that bills go through 25 iterations over and over and over again because a lot 51 1 of people look at them and go, wait a minute, what 2 about this, something's not apparent or something 3 could be done in a more efficient way or whatever. 4 So, anyway, I don't want to beat the 5 horse to death, but I think the fact that you -- 6 you're the Chairman of this committee and you don't 7 know that it's being done and you don't have some 8 background about how people are accounting for it says 9 loads about the decision you're about to make, and I 10 don't know if the rest of the members share that view, 11 if they would sign on to the same comments, but it 12 says a lot to me that you'd be willing to vote on 13 something today after making those two statements. 14 So, I'm just trying -- I keep trying to 15 focus on this process and trying to make something 16 work better, and that's -- I guess that's my four 17 cents now. 18 CHAIR NEINAST: And, of course, Steve, 19 that's the reason that it's on the agenda today to be 20 discussed. 21 MR. BRESNEN: Yes, sir. 22 CHAIR NEINAST: I represent the general 23 public. I'm not in the bingo halls every day like 24 most of the other members are. So, I certainly would 25 not have the detailed knowledge that they do. 52 1 Each member of the committee has had 2 this rule for more than a month, and they could, if 3 they wanted to, discuss it with their group that they 4 represent or their clientele and bring in their 5 comments, but -- So, we're not doing it, in my 6 opinion, in the blind. Billy didn't come in this 7 morning and hand this to us and say -- 8 MR. BRESNEN: I'm not suggesting that 9 he did. 10 CHAIR NEINAST: Yeah. So, it has been 11 in the hands of committee members who have access to 12 their constituency for over a month, and, hopefully, 13 they will have gotten some -- 14 MR. BRESNEN: Well, does anybody -- I 15 hate to ask a question I don't know the answer to. 16 You know -- You're a lawyer. You know you're not 17 supposed to do that. Well, let me ask a question I 18 don't know the answer to. Does anybody else know how 19 people are doing this and how they're accounting for 20 it and whether it's being done in an appropriate 21 manner? 22 MR. SPEED: Yeah, I think I can address 23 that. 24 MR. BRESNEN: Great. 25 MR. SPEED: This might not sound 53 1 exactly right with Billy here, but bingo halls have 2 been selling gift certificates. I've been in the 3 business 16 years. I don't know of anybody in here 4 that don't sell them. They normally -- Here's how 5 they normally sell them, which doesn't fit in the 6 manual, but they normally find someone at the bingo 7 hall that's there every night, be it maybe someone 8 that works for all the charities or maybe a concession 9 stand manager or whatever, and somebody comes in, they 10 want to buy $50 worth of bingo gift certificates, and 11 whoever it is, whatever person it is, sells them the 12 gift certificate, and then whenever the people come in 13 to play bingo, they give them the certificate, and 14 whoever has the pot for it gives them the money. 15 It's real simple, and maybe it's not 16 the orthodox way, but we're making too much out of 17 this right here for the expense involved and -- but 18 what the charity gets out of it. I suspect, without 19 really knowing, that if you made it this complicated 20 to do it, that the charities would just duck away from 21 messing with them because it's not a big item. 22 There's not a profit in it. Nobody makes a profit, 23 and a gift certificate is just a -- it's a way of 24 helping your charities get bingo players, and some 25 lady going in buying their friend a $50 -- or $10 54 1 worth of bingo certificates for their birthday -- 2 it's not a big item, and I bet that there's not a 3 charity or a bingo hall that's represented here that 4 hasn't been doing it for years. 5 MR. TAWIL: Is it better left unsaid 6 and unwritten, just go on down the road, Bud? 7 MR. SPEED: Oh, sure. I think so. 8 Billy doesn't -- probably doesn't think so. 9 MR. TAWIL: Well, unless we give Billy 10 a way to -- His concern is tracking, is the only 11 thing. I'm in favor of tracking without more 12 regulation. 13 MR. SPEED: Why do you need to track 14 it? I mean, there's no way of anyone making a profit 15 on a gift certificate, and the charities don't want 16 the workload of doing the paperwork. Why not just 17 simplify it and let somebody handle a gift 18 certificate, regardless of who they are, for the bingo 19 hall. There's no profit involved in it. That's 20 unorthodoxed, but that's the way it's been going on 21 for years at every hall. 22 Do you have them, Suzanne? 23 MS. TAYLOR: Yeah. 24 MR. SPEED: Does anybody -- 25 CHAIR NEINAST: Do you want me to 55 1 advise you of your Fifth Amendment rights? 2 MR. SPEED: Does anybody in here not 3 have them? 4 MR. RINEHART: We don't. 5 MR. SPEED: Have you been at your hall 6 a long time? 7 MR. RINEHART: As long as we've had it, 8 yeah. We don't take gift certificates or have gift 9 certificates. The reason doing it is trying to track 10 down, you know, the money that you give to this 11 person. In some way, you're going to have to keep 12 track of that, how much money this person got. 13 MR. SPEED: It's just someone that's at 14 the hall seven days a week that's there, it being a 15 charity or any -- somebody that works for a charity or 16 whatever. 17 MR. RINEHART: I'm sure that would be 18 documented, though, wouldn't it, as to how much money 19 was in that pool? 20 MR. SPEED: I wouldn't think so. 21 MS. TAYLOR: When we had gift 22 certificates printed up, we had them printed up 23 locally, and they made the carbon copy gift 24 certificate so that -- I mean, it sounds a lot like 25 this: They were pre-numbered gift certificates. 56 1 There were carbon copies. We had a piece of paper we 2 wrote the number of the gift certificates on. The 3 money -- When somebody would purchase a gift 4 certificate, they would take the money, staple it onto 5 the carbon copy. That money would be put in a 6 zippered bag. When the gift certificate was turned 7 in, the organization would go to the zippered bag. 8 They had a key to the cabinet. They would get the bag 9 out, and take the $10 off the gift certificate, write 10 void, staple it together and put it in the bag in 11 place of what they took out. Real easy. Not hard to 12 do, you know, and they -- That's how they've done it 13 for years. 14 So, I understand the need for -- to be 15 able to track it, you know, that if the lottery -- My 16 problem with this isn't the tracking because we have 17 tracked them, and we track them in the hall. We have 18 a list. We write down who sold the gift certificate, 19 what date it was sold on, how much it was for. That's 20 all written on the list, which is really similar to 21 what I'm reading on here. 22 My worry with this is that -- is the 23 accounting part of it. For the organization that 24 sells a gift certificate, they're putting the money 25 into their bingo account, but they're not counting it 57 1 as income. If the gift certificate is not redeemed 2 before the quarter is up, then that money is in their 3 account at the end of the quarter. It's not income 4 money, but -- So, it's going to throw my undistributed 5 funds off because when I add my checking and my 6 savings and my money that -- you know, the three 7 things together, I'm going to have -- my undistributed 8 funds are going to be inaccurate. They're not going 9 to match my quarterly report because I'm going to have 10 these gift certificates in there that aren't accounted 11 for. Since it's not put in as income and it's not put 12 in as an expense and it's still in there at the end of 13 the quarter, then where did the $100 come from that's 14 in my account. 15 MR. TAWIL: Well, Billy, is this -- 16 because it's so widely done, it's making it difficult 17 for the auditors? Is that what the problem is? What 18 is the problem? 19 MR. ATKINS: Well, because, you know, 20 you go in 20 different halls, you'll have 20 different 21 methods, and what organizations have said to us is, 22 fine, just tell us how you want us to do it. So, 23 we're responding to that. 24 CHAIR NEINAST: I think the drafter of 25 the rule has just taken the witness Chair. Phil? 58 1 MR. SANDERSON: Phil Sanderson, 2 assistant director of Charitable Bingo. 3 To answer your question, Suzanne -- You 4 answered your question yourself. To get your 5 undistributed proceeds, you take your bank balance 6 plus your savings plus your petty cash, if it's bingo. 7 The other denominator is gift certificates that are 8 outstanding. 9 MS. TAYLOR: Okay. So, that would be 10 an added line on the quarterly report? 11 MR. SANDERSON: No. It's on the 12 quarterly report. Petty cash isn't on the quarterly 13 report, and your savings account is not on the 14 quarterly report. It's just your reconciliation to 15 make sure that your undistributed proceeds and your 16 quarterly report are in balance with your bank 17 statements and those numbers that you -- How you 18 derive that is you take your bank statement balance or 19 the reconciled balance plus your savings account, if 20 you have one, plus the petty cash if it's bingo, and 21 then you deduct the gift certificates that are 22 outstanding, and that will equal your undistributed 23 proceeds. 24 MS. TAYLOR: Okay. So, we would just 25 automatically deduct it. When the auditor comes in, 59 1 we would say the reason it's $100 off is because 2 there's $100 in gift certificates in the account 3 that's -- 4 MR. SANDERSON: Well, yeah, but you 5 balance it every quarter, don't you? So, you would 6 actually do that report and the auditor would do it 7 when they did the audit, yes. 8 MS. TAYLOR: Okay. I just like it to 9 match. I just want it -- I don't even like it if the 10 pennies never match up. It always throws it off a 11 dollar. 12 CHAIR NEINAST: Other questions of Phil 13 while he's on the chair? I see Steve Fenoglio has -- 14 MR. TAWIL: I've got a question. Phil, 15 can you work with this without a rule? Is it really, 16 really difficult? 17 MR. SANDERSON: The short answer is 18 yes -- no, we can't, because the Act has -- there's 19 some promotional issues promoting bingo, advertising 20 issues on the gift certificates. You know, there's 21 several sections of the Act that are not taken into 22 account or in compliance -- or you're not in 23 compliance with doing the gift certificates the way 24 they're being done. 25 MR. TAWIL: The reason I'm asking you 60 1 is I got several calls in the last week that were of a 2 negative nature. I'm not an interested party of the 3 problem, but I'm a vote, and I want to think what's 4 right for everybody, and that is the complaints are 5 more regulations, more things that they have to do 6 paperwork-wise, and they'd like to just leave things 7 as they are, and I'm kind of caught in between because 8 I'd like to help the division do what's right, but 9 respond to people's complaints, and the short answer 10 is that I'm told it's better not to have another rule, 11 and I don't know that I believe that necessarily 12 listening to you and Billy. I'm just trying to see 13 what's the simplest thing to do. 14 MR. SANDERSON: I think that the way 15 the rule is written, it allows the charities the 16 opportunity to provide gift certificates as an option. 17 MS. TAYLOR: And without this rule, 18 they're not supposed to have gift certificates? 19 MR. SANDERSON: We can't find where the 20 law allows for those. 21 MS. TAYLOR: Okay. 22 CHAIR NEINAST: Well, Phil, you just 23 said you can't find where the law allows for it. If 24 the law doesn't allow it, how can we allow it by rule? 25 MR. TAWIL: Well, why not just ignore 61 1 it if it's silent? 2 CHAIR NEINAST: But that's a serious 3 question. If it's unauthorized by the law, can we 4 authorize it by rule? 5 MR. SANDERSON: There's several 6 questions with the gift certificates, and it comes up 7 with the -- you know, the -- in order to promote 8 bingo, you have to be an operator for the 9 organization, and you got to have -- You know, then 10 you've got advertising restrictions because it's 11 considered print, and it would fall under advertising. 12 It would fall under the -- when funds are supposed to 13 be deposited from bingo. The redemption of the 14 coupons themselves doesn't -- You can't deposit a 15 coupon or a gift certificate. 16 So, there's several areas -- It's not 17 just one section of the Act. It's several sections 18 mixed together, and that's what took us so long to get 19 the rule drafted in the first place was to see if 20 there was a way that we could draft a rule to allow 21 for the gift certificates. 22 MR. ATKINS: And I think, if I can jump 23 in, when Phil says that, you know, there's a question 24 as to whether or not, under the Act, it's even 25 authorized, I think that's what he's explaining more. 62 1 There's nothing in the Act that says the word gift 2 certificate, but it does talk about receipts, 3 etcetera, and, so, staff agrees with what everybody 4 else has said, that we think this would be a benefit 5 for the organizations, and, so, we're looking for a 6 way to help bring it about. 7 MS. TAYLOR: Is this written for one 8 organization to -- in the hall to sell them or for all 9 the organize -- for only one organization to have 10 their name on the gift certificate or for all of them 11 to have their name on the gift certificate? Because 12 when I'm reading it, it sounds like maybe it's meant 13 that one organization, like, spearheads it, or does 14 everybody trade checks back at the end of the month? 15 MR. SANDERSON: Everybody trades. 16 It's -- The -- Each organization has their gift 17 certificates and then -- The rule allows for your 18 organization to accept Mr. Speed's organizations' gift 19 certificates and then he accepts yours, and at the end 20 of the month or the quarter -- I can't remember what 21 it says on there -- y'all trade back and forth between 22 the two to make sure all the funds balance out, and 23 then there's a calculation for -- at the end of the 24 quarter if it -- one is accepted more than the other, 25 how to balance that out. 63 1 MR. CASTILLO: On that draft that we 2 have, Line 7, it says, at each occasion, deposit the 3 proceeds from the sale of each gift certificate in 4 their bingo bank account as prescribed by -- it's got 5 an asterisk and so on -- 2001.451 of the Bingo 6 Enabling Act. So, they had been looking at this, the 7 sale of gift certificates. 8 MR. BRESNEN: Well, I'll try to go off 9 in the corner and see if I've got any other comments, 10 but while I'm standing here I see one that jumps out 11 at me is that we're now going to have to purchase the 12 gift certificates from a distributor, and then the 13 distributor is going to keep records and be required 14 to give those copies of those records, and I don't 15 know of anything in the Act that authorizes a 16 distributor to be a sole supplier of gift 17 certificates. 18 And, you know, just -- If I could jump 19 into my citizen hat for just a minute, generally 20 speaking as a free person in this country, I can do 21 what's not prohibited, and I think it's highly 22 questionable as to whether or not gift certificates 23 are promotion, advertising, etcetera, and we're -- It 24 seems to me that we're working really hard to arrive 25 at a justification for something at the end -- So far 64 1 my comments have just been basically at the process 2 and trying to get some more people involved who may do 3 this in the development of this rule, but the more I 4 hear the explanation of it, it sounds like if it's not 5 authorized in the Act, then the operator can't inhale 6 during a bingo session, and that's not right, and I 7 don't know why, and I don't think the law requires -- 8 and I'd be surprised if this Commission can require 9 that you buy a bingo -- a gift certificate from a 10 distributor. 11 Is this bingo equipment? The statute 12 tells you specifically what you must buy from a 13 distributor, and my guess is this does not fall under 14 the definition of bingo equipment. If it does, 15 somebody correct me and explain how, but, I mean, 16 we're creating a profit center for distributors in 17 gift certificates here and moving it up the chain. 18 Where does the distributor get it? 19 Does the distributor get it from a manufacturer, and 20 are these going to be approved by the Lottery 21 Commission in a form and content approved by the 22 Lottery Commission? And I mean, you've created a 23 slippery slope here that's -- I think is problematic. 24 I don't understand -- and I don't spend 25 much time in the bingo hall, and that's probably to my 65 1 detriment, but I don't understand, if you're requiring 2 everybody -- If this is a problem, require everybody 3 to keep a carbon copy of a gift certificate that's 4 issued, and if you want to put a dollar denomination 5 on it, put a dollar denomination on it. That way, 6 there ought to be money -- It seems to me that money 7 would come in and you would have it and it would be 8 bingo money. So, it seems a lot simpler than that to 9 me. 10 I don't -- I'd like to hear a rationale 11 for why a licensed distributor -- you have to get this 12 from a distributor. How much is the distributor going 13 to charge? Is this -- Are they expected to do it at a 14 profit? I suspect they will. 15 And then we have another cost to the 16 charity that's -- where you've had them come up here 17 ad infinitum and say don't add any more costs onto us. 18 So, anyway, I'll go back and try to come up with more 19 substantive comments if we're going to -- 20 MR. TAWIL: It says to print here. 21 MR. BRESNEN: Pardon? 22 MR. TAWIL: No. F, the license 23 distributor is authorized to print. 24 MR. BRESNEN: Okay. 25 MR. TAWIL: That's how he makes them. 66 1 MR. BRESNEN: Well, anyway, I'll go 2 back and try to come up with some more substantive 3 comments. Somebody else that's been more diligent 4 than I may be able to come up with something, but 5 I'll -- Thank you for your time. 6 CHAIR NEINAST: Okay. Thank you, 7 Steve. 8 And, Steve Fenoglio, you've been 9 waiting patiently. 10 MR. FENOGLIO: Thank you. For the 11 record, again, my name is Steve Fenoglio. I did 12 obtain a copy of this draft rule after filing open 13 records request about a week ago or so -- or received 14 it about a week ago. I don't think this is bingo 15 equipment as defined in Section 2001.0025 of the Bingo 16 Enabling Act. 17 CHAIR NEINAST: Do you have to file an 18 open records request to get this draft? 19 MR. FENOGLIO: Yes. That is the 20 process by which any member of the public can get 21 anything from the agency, which, as you might imagine, 22 causes a delay in the activity, but that's the process 23 the agency's established. 24 CHAIR NEINAST: Well, that -- Frankly, 25 that bothers me personally that that's a rule that we 67 1 have to follow. It seems like when you have a draft 2 regulation where we want to get comment from the 3 public, it ought to be open -- I mean, freely and 4 openly available. It's not put out on the Web site? 5 MR. ATKINS: It is not. When it is 6 proposed and run for public comment, it's put out on 7 the Web site, but we haven't gotten anywhere close to 8 that point. This is still actually an internal 9 working document. 10 CHAIR NEINAST: Okay. Sorry. 11 MR. FENOGLIO: And, actually, I did 12 meet with staff about a year ago, as I recollect, with 13 Mr. Sanderson and one of the assistant general 14 counsels, after one of the -- I believe it was the 15 investigator warned a client of mine that they could 16 not issue gift certificates, and we met, and I 17 provided arguments as to why I thought they were 18 legal, and this is the first I've known when 19 Mr. Sanderson responded that, you know, there's a 20 legal question of whether a gift certificate is 21 actually authorized. 22 You know, to respond briefly to that, I 23 think that's an incorrect reading of the Bingo 24 Enabling Act. The Bingo Enabling Act never mentions 25 checks as -- and defines what a check is. The Bingo 68 1 Enabling Act does not define cash, currency or coins, 2 and under that reading, then, arguably, a charity 3 could not receive quarters or 50-cent pieces as 4 purchase of a bingo supply or equipment. It's a 5 medium of that exchange, and it's similar in some 6 respects to cash, but I don't think that anyone 7 would -- hopefully and -- well, I don't think that's a 8 real issue in this, and personally, from my clients' 9 perspective, this is -- the rule is generated -- the 10 need for it is generated by the staff itself in 11 warning -- and I've had conversations with charities 12 throughout the state that they've been warned in 13 either audits or by the auditors or the investigators 14 that gift certificates are not an approved medium of 15 exchange. 16 As to the advertising comment, I don't 17 think anyone would suggest that a gift certificate 18 that's commonly referred to as a Bingo Buck is 19 advertising or promotion of bingo, any more so than a 20 dollar bill is or any more so than a phone number of a 21 bingo hall or a charity that conducts bingo in the 22 business section of the telephone book. It's not 23 promoting bingo, and I would suggest to you that it's 24 not advertising bingo. 25 There is no definition of what 69 1 advertising or promotion is in the Bingo Enabling Act 2 or, for that matter, in the Commission rules. 3 There -- I will grant you, there's a prohibition 4 against anyone advertising or promoting bingo other 5 than a licensed authorized organization, and for the 6 record, that's found in 16 TAC 402.548A, and I believe 7 2001.415 of the Bingo Enabling Act, but this isn't 8 advertising. 9 I think it's kind of like what 10 Justice Wright said about what obscenity is: You know 11 it when you see it. And advertising is a sign in 12 front of your bingo hall or it's a flyer that we've 13 all seen or it's a newspaper ad, and a gift 14 certificate isn't an advertisement. 15 As to some of the problems in the 16 bill -- and Steve touched on one. Number one, these 17 will now be charged -- agencies are now -- charities 18 will now have to pay for what -- a higher price, I 19 would submit, than what they can get them at a local 20 copy center, and the requirement that they be 21 sequentially numbered raises the price substantially 22 for the copying charge, because that just is a huge 23 cost from a copier center, a publisher, if you will, 24 and I don't believe the Commission can require a 25 charity to obtain these only from a licensed 70 1 distributor when this isn't bingo equipment as defined 2 in Section 2001.002, Subparagraph 5, bingo equipment. 3 I'm not quite sure why, under 4 Subparagraph E4 and 5, you can award a gift 5 certificate as a prize for bingo if a charity wants to 6 and why, under 5, you can't award a bingo certificate 7 as a door prize. I mean, charities -- why should they 8 have to purchase from Sam's Club or whomever a door 9 prize, stereo or TV, when they could use as the door 10 prize the gift certificate itself. It's a form of a 11 different profit, if you will, and Mr. Speed mentioned 12 something about they don't make a profit. Well, you 13 could offer as your prize a bingo certificate, and 14 obviously the charity will make money through the sale 15 or redemption of a certificate for the bingo 16 certificate, the bingo product for the bingo 17 certificate, and that would be another way to 18 introduce revenue to a charity. 19 There are a lot of accounting 20 requirements, and I submit to you what one of the 21 gentlemen, I believe, said is that if you put too many 22 requirements on it, all of sudden, charities won't use 23 these, and they have used them, Mr. Chairman, to my 24 knowledge, and I've been representing licensed 25 organizations for about eight years, and at least for 71 1 the last six or eight years -- I guess for twelve 2 years, and for the last six or eight years, they've 3 been -- to my knowledge, they've been using 4 certificates for either -- and, again, one of the 5 examples that I've used is if I want to purchase a 6 birthday gift for -- if I happen to be a player and I 7 want to purchase a birthday gift for one of my friends 8 at the bingo hall. I could give them a $25 gift 9 certificate to a Wal-Mart or go buy -- if they're a 10 music fan, go buy them a CD or I could buy them a $25 11 gift certificate to the bingo hall, and if they're a 12 regular customer, they might enjoy that more, number 13 one, and, number two, I would be supporting the bingo 14 hall and the charities that conduct there by doing 15 that. 16 Under Subparagraph 7, again, there's a 17 lot of records -- Under Subparagraph 8, you now have 18 to have a gift certificate register, which I assume is 19 going to be different than a cash register, and that 20 information was going to be, again, more detailed 21 record keeping requirements for charities. The 22 reconciliation, I believe, charities regularly do, be 23 it with U.S. currency, checks or coins or a gift 24 certificate -- and as I think Ms. Taylor indicated 25 earlier, most of them try to do it to the penny after 72 1 every occasion. 2 Under Subparagraph E11, they're going 3 to have to maintain each of these records for four 4 years, which, again, is another record keeping 5 problem, paper retention problem. Each of the 6 certificates that they deface, under Subparagraph 10, 7 so they can't recycle them and use them again, they're 8 going to have to maintain for at least four years. 9 MR. TAWIL: Could I -- Steve, it seems 10 to me that I'm beginning to understand the situation. 11 This whole thing can be summed up into charities being 12 able to pre-sell bingo games. They're outstanding 13 here. They haven't been -- They've collected their 14 money and the game hasn't been played, but when 15 somebody utilizes this thing, the books balance out? 16 MR. FENOGLIO: Yes. 17 MR. TAWIL: So, it seems to me like 18 when the quarter ends, the only simple question is -- 19 for the charity is if there's any outstanding games 20 that haven't been redeemed, report them, because 21 really all it is, when you get the certificate in your 22 hand, it's a promise for the hall to allow you to play 23 with that piece of paper. 24 MR. FENOGLIO: Yes. 25 MR. TAWIL: So, they're pre-sold. 73 1 MR. FENOGLIO: Yes. 2 MR. TAWIL: That's all it is. 3 MR. FENOGLIO: Yes. 4 MR. TAWIL: So, it's future games to be 5 played, and if it occurs within the quarter, 6 everything should balance out without having to have 7 concern about auditing or trailing. What occurs is -- 8 MS. TAYLOR: No, Saleem, because what 9 if your charity sold all the gift certificates because 10 some came in on your session, but they redeemed them 11 over on her session. 12 MR. TAWIL: Yeah, but you can simplify 13 that. What I see here with this rule is a huge burden 14 not only for the charity, but for the agency. 15 It's going to be hard for you, Billy. 16 This is a lot of work. You're going to have to have 17 people that track all this stuff to verify it. How do 18 you know all this information they're reporting is 19 real. You don't know. So, you got to check that out, 20 too. 21 You're doubling -- You've got a square 22 law function. You're doubling the amount of work, and 23 I'm not sure if the ill is as bad as the cure, and I 24 sympathize with the agency having to track all this 25 stuff that's going on out there that they're not aware 74 1 of, but really, to me, if there's no games that are 2 left at the end of the -- if all certificates were 3 sold -- Let's say right now they do whatever it is 4 they're doing. At the end of the quarter, there's no 5 certificate outstanding. Why does anybody need to do 6 anything? Everything's accounted for. 7 But I can understand what she said to 8 you in a sense that, hey, wait a minute, I do my 9 balancing here, I got these certificates that haven't 10 been played. So, the only issue that I see that's 11 outstanding right now is, how do you handle unredeemed 12 games or whatever it is that the certificate's for, 13 whether it's for handhelds, cards. You know what I'm 14 saying? If there was a way that can be articulated 15 that says, at the end of a quarter, a charity reports 16 whatever it is that's unredeemed, that's all that 17 needs to be done. It balances out for the auditors. 18 But from what I read here, this is a 19 lot of work for you, not only for the charities and 20 everybody else, but a lot of work for you and your 21 division who's got to track all of this. 22 CHAIR NEINAST: I think based on what 23 I've heard so far, Billy, I think there's a threshold 24 question, and it may have been answered, but I'd like 25 to know whether Kim has been -- and the question -- 75 1 the answer you get depends on the question you ask, 2 and I'd like to know whether Kim's office has been 3 asked simply, is the sale and redemption of bingo gift 4 certificates illegal? 5 MR. ATKINS: Again, I don't know if 6 they've been asked that specific question. 7 Do you, Phil? 8 MR. SANDERSON: No. 9 CHAIR NEINAST: Isn't that a threshold 10 question? If it's not illegal and they're doing it, 11 why do we need a rule? 12 MR. FENOGLIO: That -- I can tell you, 13 while Phil is thinking perhaps, that was at a point of 14 discussion with Mr. Sanderson and his counsel -- I 15 believe Ms. Wilkov was at the meeting when we 16 discussed this, and that was one of the questions I 17 asked, and the response was, at that point, we're 18 going to take what you've given us, Mr. Fenoglio, and 19 we're going to go and do some research, and that's as 20 far as I recall it. 21 MR. SANDERSON: That's where we began 22 drafting the rule. 23 MR. FENOGLIO: Yeah. So, I mean, I 24 asked the same question and never got either, yes, it 25 is, no, it's not, or -- I mean, my recollection was 76 1 we're not sure, and there was some discussion about 2 whether advertising and promotion is a part of the 3 issuance of a gift certificate or the redemption of a 4 gift certificate, but we never even got that far 5 either as to whether, definitively, that was the -- 6 that was the agency's answer, but that was one of the 7 agency's concerns. 8 I don't know if that helps you, 9 Mr. Chairman, but I asked the question. 10 CHAIR NEINAST: What I'm getting from 11 both of you and Phil is that that specific question 12 has not been addressed and answered, a simple 13 question, is it illegal to start with. We would need 14 a rule only if it is. 15 MR. TAWIL: That's right. See, this 16 happens in industry all the time where a -- somebody 17 sells a product or a service and it's not delivered 18 yet and you come up to the quarterly report and how 19 you got to report it. It's not that big a deal. 20 We're making a big issue out of nothing. 21 CHAIR NEINAST: Questions or comments? 22 MR. ATKINS: I guess my comment would 23 be, I think, probably, you know, to you, Mr. Chairman. 24 I'm -- Now I'm kind of to the point like Steve Bresnen 25 is. I'm not sure where we are in the process. 77 1 MR. TAWIL: This is a lot of work for 2 you, Billy. 3 MR. ATKINS: And, I mean, I don't know 4 how or if I should respond. If it's the committee's 5 design that we take the comments, you know, that are 6 in today and consider them and, based on those 7 comments, make or not make changes to this draft rule 8 and come back to the advisory committee, I mean, we 9 could -- 10 MR. SPEED: I make a motion, 11 Mr. Chairman, that we -- 12 MR. ATKINS: Before you do that, Bud, I 13 think that somebody wanted to -- 14 MR. BRESNEN: I just wanted to say, if 15 you wanted to do -- It doesn't have to be a big formal 16 deal or anything. If you wanted to do some kind of 17 stakeholder deal to get some people that are doing it 18 sitting down, looking at the rule and talking about 19 how the agency's need might be met without, you know, 20 killing off a practice that, at least, I view as 21 benign, I'd be happy to help you get some people 22 together if you want. 23 MR. ATKINS: Is that -- Is the 24 stakeholder meeting -- is that done outside the rule 25 making process? 78 1 MR. BRESNEN: Well, I guess. It's just 2 some people sitting down, going through the thing and 3 talking about the deal and saying, you know, well, 4 here -- if this is your problem, here's how we might 5 get there, but it doesn't supplant any authority that 6 you or the agency has or this advisory committee to 7 make rules and follow the normal process to do it. 8 I'm just saying I think some questions have been 9 raised about this rule. It's out there now. I 10 don't -- The -- There's -- The press of time is not 11 apparent to me. You have people who are willing to 12 sit down and talk about it and work through it. 13 There may be some alternative ways of 14 doing it that are fairly simple. One of my clients 15 just pointed out to me that, you know, it's not really 16 money that's come in to you until somebody redeems the 17 gift certificates. That's when the dollar -- the cash 18 currency comes back to you and the bingo paper goes 19 out so there's something to account for there, and 20 that's a very practical way of looking at it, it seems 21 to me, and, anyway, I'm just offering to help 22 facilitate that and be available to get some people to 23 do it, sit down and talk about maybe a workable way to 24 do it. 25 MR. ATKINS: And I'm perfectly happy 79 1 with that. I mean, Steve's got to understand I may 2 want to, you know, talk to my own attorney about that 3 process. 4 MR. BRESNEN: No doubt about it. And, 5 you know, you guys are the government, and, you know, 6 these other people are not. We know that, but I can 7 tell you a lot of agencies are doing this sort of 8 thing, and it may head off some problems, and some 9 really practical solutions may come through that 10 are -- everybody can go, well, that's better than what 11 we got now and it's not too burdensome and let's try 12 that and see where we are, you know, in a year or so. 13 So, let me know. 14 CHAIR NEINAST: Okay. Bud, would you 15 state -- or restate your motion. 16 MR. SPEED: I was going to make a 17 motion we dump this and go on to something that's more 18 important, and I think we're making something real big 19 out of this that is a small, small item of bingo. I 20 don't think it's -- I know it's not a problem for the 21 bingo -- maybe a problem for Billy and them, but I 22 don't think it's a problem. I think we got other 23 things we could pick on that's much more important. I 24 make a motion we just thank Billy and his staff for 25 all the time and effort that they put in it and pass 80 1 on it. 2 CHAIR NEINAST: Is there a second? 3 MR. TAWIL: I'll second it. 4 MR. RINEHART: Yes. 5 CHAIR NEINAST: Was that you? Did you 6 second, Saleem? 7 MR. TAWIL: I'll second the motion, 8 yes. 9 CHAIR NEINAST: Any discussion, further 10 discussion on the motion? 11 MR. TAWIL: Yeah, I'd like to have just 12 a few comments. I am concerned about Phil's work and 13 the responsibility for tracking and auditing. I don't 14 want to ignore that. Might be there's a simpler 15 solution to say what they should do at the end of a 16 quarter to let them know. We're not trying to -- I'm 17 in favor of the division being able to be efficient, 18 but I believe that this whole thing here is really a 19 bad thing from the standpoint it puts a lot of work on 20 the staff. It increases the workload. It increases 21 the work of the charities. To me, that's not a 22 solution. 23 CHAIR NEINAST: Well, I appreciate both 24 of your comments, but I'm still bothered by that basic 25 threshold question I asked, is it illegal, and I think 81 1 that that -- but I think it ought to come out of this 2 meeting, and we ought to ask for an opinion from the 3 general counsel. Is the sale and redemption of bingo 4 gift certificates illegal, just that question and no 5 other, and yes or no, and if it's illegal, then we 6 need to take another look at it. If it's legal, do it 7 the way you're doing it. 8 MR. CASTILLO: Mr. Chairman, I had two 9 questions. Perhaps we could table it and salvage some 10 of it because if we were to pass this draft, what 11 about those charities that do not deal with gift 12 certificates? They don't. Then this draft was passed 13 and you had to have numbered from the distributor and 14 so on and then somebody will ask, well, why don't you 15 sell gift certificates. That was my -- where I was 16 preoccupied with this draft. 17 So, rather than kill it all at once, 18 perhaps we should table this issue and look at those 19 things that can be salvaged because if it's illegal to 20 sell gift certificates, they're not covered, and, yet, 21 they show up on the audits, we're doing something 22 wrong. 23 CHAIR NEINAST: Was your motion more 24 than just to table the issue? Did you extend it -- 25 Did you intend it to go further than table -- 82 1 MR. SPEED: Well, you know, I just 2 think that we're dwelling on something that's really 3 not that important. I don't know. Maybe the problem 4 has been caused that I'm not aware of of how people 5 have been doing it. I think we're just making it a 6 real large issue, and I don't think it is. I think 7 it's simple. As I said earlier, there's not any 8 profits made in gift certificates. 9 The charity -- The way they handle them 10 right now, when the charity gives them a bingo card, 11 they get a certificate and somebody gives them the 12 money, whether it's one charity to another, etcetera, 13 etcetera, and if -- but if it's a bookkeeping problem 14 that's caused Billy and his people all the problems, 15 maybe we need to address it, but I don't think it's a 16 major issue. I think we got other things to talk 17 about. 18 I just don't see -- Now, I don't know 19 whether they're legal or illegal, but I do know that 20 people's been doing them ever since Mr. Bullock had 21 bingo. So, now, I know that. 22 CHAIR NEINAST: Well, if we just drop 23 it as you have suggested, Bud, that is really going to 24 leave it in limbo, and I think, based on what I have 25 heard today, the auditors are going to continue to go 83 1 out to the various locations and say you can't do 2 this. 3 MR. SPEED: Is this an audit problem? 4 CHAIR NEINAST: Phil, can you answer 5 that one or who -- 6 MR. TAWIL: Here's the head auditor. 7 MR. GABRILLO: Roy Gabrillo, senior 8 audit manager, Charitable Bingo Division. Some -- 9 I've heard some concerns from some of the office -- 10 regional offices that have conducted audits on 11 organizations. I don't know how many. I can't tell 12 what all -- you know, every audit they took down, 13 every compliance review that we've done, they've come 14 across gift certificates, but the concern they have, 15 they have seen some organizations or some halls 16 actually giving away gift certificates. One hall, for 17 example, I know what -- from what I was told, was all 18 they do, they recycle the certificates. In other 19 words, someone turns it in. The money -- What they 20 do, the money that's received when the certificate is 21 purchased is kept in a cigar box. Now, where the 22 cigar box is kept, I don't know, and when the 23 certificate is redeemed, they go to that cigar box at 24 the end of the night, they take out the cash, and it's 25 given to the organization or the cashier, and it's 84 1 included in the deposit. That's how they've been 2 handling it. 3 So, the concern there is the cash 4 itself that is laying around. Is it in a secure 5 place? Is it all accounted for? What happens if, you 6 know, they sold, say, 50 gift certificates in a night. 7 Did all $50 -- if it was a dollar apiece, say, did all 8 that money get into that cigar box, and, again, is 9 that cigar box secure? So, that's the concern that 10 I've heard. 11 MR. SPEED: What's wrong with the cigar 12 box? 13 MR. GABRILLO: I mean, it's simplistic. 14 MR. SPEED: As long as the bingo 15 records match, no missing funds, etcetera, I don't see 16 anything wrong with it. 17 MR. GABRILLO: Well, again, you know, 18 as Billy mentioned earlier, you know, it's been 19 addressed by other organizations saying, well, tell us 20 how you want us to do it. So, we're telling you -- 21 or, you know, we're setting up this rule to do it, 22 and, you know, apparently it's not -- right now it's 23 not too popular. 24 CHAIR NEINAST: Okay. Thank you. Any 25 other questions of Roy? 85 1 (No response.) 2 CHAIR NEINAST: Thank you. 3 Let me ask you one question, Roy. As 4 your personal opinion as the head auditor, is it 5 improper to use gift certificates in a bingo hall? 6 MR. ATKINS: Are you asking him 7 legally? Because I don't know that Roy's -- Roy's not 8 an attorney. 9 CHAIR NEINAST: No. I know. But I 10 mean, if you were auditing a bingo hall yourself and 11 you found that they were using gift certificates, 12 would you tell them that they couldn't do it? 13 MR. GABRILLO: I would tell them that 14 there's nothing in the Act that says they can do it, 15 but at the same time, there's nothing in the Act that 16 prohibits it. I would just -- I would recommend to 17 them that, you know, if they're going to do it, that 18 they should implement, you know -- 19 CHAIR NEINAST: Good accounting. 20 MR. GABRILLO: -- good accounting 21 procedures and good controls as far as the cash 22 itself. You know, again, if they're keeping it in a 23 cigar box, you know, make sure that all that money is 24 accounted for and that, you know, they track the 25 certificates themselves, that they have a good 86 1 accounting procedure for the certificates themselves. 2 CHAIR NEINAST: Okay. Thank you. Any 3 other questions of Roy? 4 MR. TAWIL: Seems to me like the 5 certificates or coupon or whatever you want to call it 6 is just a way -- If I want to give you one for your 7 birthday -- okay? I give you a certificate for your 8 birthday. So, I buy it from him, give it to you. All 9 that that ensures is that you use it for that 10 function, because I could have given you the money 11 just as easily, right, because I spent it. So, really 12 it's an affectionate way of someone giving something 13 for their birthday or Christmas or whatever. It's not 14 that big a deal. 15 Most people ought to be able to run 16 their business without having to sit here and worry 17 about whether it's a cigar box or money or anything. 18 What occurs to me in my mind is for the auditors to 19 know when they audit them, if there's any certificates 20 that are outstanding that haven't been redeemed, they 21 need to be accounted for. That would solve the whole 22 problem. That's all there is to it. 23 Is that the way you see it, Bud? 24 MR. SPEED: I don't even see it as 25 being that complicated. 87 1 MR. CASTILLO: Mr. Chairman, on the 2 certificates, like, I know we have two sessions and 3 first session is $5 and the next session -- so, you 4 don't buy cards. You just buy, say, $10 and give it 5 to David for his birthday. That's what happens. We 6 don't -- (inaudible). 7 CHAIR NEINAST: Bud, just for clean 8 record keeping, would you consider amending your 9 motion to make it a motion to table? That doesn't 10 mean that we ever have to take it up again, but the 11 way your motion is stated is kind of complicated and 12 hard to follow. 13 MR. SPEED: No. That's fine. I mean, 14 we can take it up again. I sure hope I miss that 15 meeting. 16 CHAIR NEINAST: No -- 17 MR. SPEED: When I see the agenda, I'm 18 going to get sick, because I'm sick of talking about 19 gift certificates, but, no, we can -- It's one of 20 those rules, you know, that you -- Maybe it's not the 21 most well-handled thing, but it's also not the most 22 important thing that a bingo hall has to do. 23 I see it -- The way it's done now, it 24 promotes bingo. Frankly, there's no accountability on 25 these bingo certificate until it's presented. Who's 88 1 out? You know, who's going to steel the money? When 2 they bring the gift certificate in, whoever's there 3 takes it to whoever keeps the pile -- pot, so to 4 speak, and I see it as -- I see it -- I don't think it 5 could be handled any better than it is right now with 6 the various bingo halls. Maybe it's not in the Act, 7 but it's one of those things that's been going on, and 8 it's a very, very minor percentage of bingo, but it 9 also promotes bingo, yes. 10 MR. RINEHART: Let me ask one question. 11 What would happen if you gave out a $10 gift 12 certificate and the night that this person wanted to 13 play bingo, it was $9 for a paper? What would happen 14 to that dollar? 15 MS. TAYLOR: We would give them the 16 dollar back. 17 MR. RINEHART: You refund it back -- 18 MS. TAYLOR: We would give them their 19 $9 of book in there, because we get the 10 out of the 20 cabinet. So, in essence, we've got a $10 bill in our 21 hands. We give them $9 of the book and a dollar bill 22 back and hope they spend it on a pull tab. 23 CHAIR NEINAST: Okay. The motion on 24 the floor is restated as to table action on 25 Item No. 7. No further discussion, the Chair will 89 1 call the question. All in favor, aye. 2 ALL MEMBERS: Aye. 3 CHAIR NEINAST: Opposed, no. 4 (No response.) 5 CHAIR NEINAST: Motion carried 6 unanimously. 7 Okay. Believe it or not, No. 8 is some 8 more rule making. No. 8 is consideration of and 9 possible discussion and/or action, including 10 recommendations to the Texas Lottery Commission, on 11 proposed rules relating to licensing taxes and fees 12 and audits and on proposed amendments to 16 -- It goes 13 on with a bunch of sections. 14 Billy, you have the responsibility for 15 that one, and each of you are provided copies of these 16 drafts in your last -- the booklet for your last 17 meeting. 18 MR. ATKINS: And those are the same 19 rules that were in the last booklet. So, I guess I 20 would ask Mr. Chair or members if there's a preference 21 on how I proceed. 22 CHAIR NEINAST: I have none. Just go 23 down the way you have them in the notebook. 24 MR. ATKINS: Okay. Well, the last 25 time, they were broken out into two separate, I guess, 90 1 groups. The first group deals with rules that relate 2 to the accounting services section, and I'll ask Terry 3 Shankle, the accounting services manager, to come up, 4 and those are -- The first one is a rule that's 5 labeled "Bingo Reports," and it is approximately two 6 and a half pages. The next one is one that is titled 7 "Interest on Delinquent Tax," and the third is on the 8 following page, and it is labeled "Waiver of Penalty, 9 Settlement of Prize Fees, Rental Tax Penalty and/or 10 Interest." 11 The first rule of bingo reports lays 12 out the requirements and expectations as they relate 13 to the quarterly reports that organizations follow 14 relating to their activity in a given calendar 15 quarter. It makes allowances for organizations that 16 come in with incorrect information or calculations, 17 and it also provides a means for organizations filing 18 requests for extensions. 19 CHAIR NEINAST: Any questions or 20 comments from any board member on those, that part of 21 the proposed rules? 22 (No response.) 23 CHAIR NEINAST: And what I -- the Chair 24 would like to do would be to go through all of them 25 and, as we go, make any suggested amendments, and if 91 1 there are none, then I -- just a motion to approve 2 submission of these rules to the Commission or, if 3 there are amendments, to submit them as amended. 4 So, if there are no questions or 5 comments on that part of the proposal, what's the next 6 one, Billy? 7 MR. ATKINS: The next one deals with 8 interest on delinquent tax. I believe, Terry, this is 9 a requirement of an another statute? 10 MS. SHANKLE: That is correct. 11 MR. ATKINS: Okay. Would you lay this 12 out briefly for the advisory committee? 13 MS. SHANKLE: Yes. It just -- The 14 interest on delinquent taxes tells all of our 15 organizations and lessors how we are going to charge 16 interest on either delinquent rental tax or a prize 17 fee. It also says -- states that each year, we will 18 determine what the interest rate is based on the first 19 day of the year that -- published by the WALL STREET 20 JOURNAL. 21 Also, it states how we will refund 22 moneys, overpayments or give credit and what the 23 interest will be on those funds, and for those that 24 were prior -- Any overpayment that was due prior to a 25 certain date will be charged the -- will not be given 92 1 interest. 2 CHAIR NEINAST: Just checking to make 3 sure we still have a quorum. 4 MR. ATKINS: You do. You have five 5 here. 6 CHAIR NEINAST: Okay. Any questions or 7 comments on that section? 8 (No response.) 9 CHAIR NEINAST: If none, let's proceed 10 to the next. 11 MR. ATKINS: The last rule in that 12 section, Mr. Chairman, sets out a process whereby 13 organizations may file a request for a penalty and 14 interest to be waived on any delinquent tax payment 15 and also sets forth the requirements that the 16 organization would have to meet in order for that 17 request to be considered. 18 CHAIR NEINAST: I just noticed one typo 19 in that one, Billy. Down on A1(c), looks like you 20 have an extra "the" in there. 21 MR. ATKINS: Yeah. Right here 22 (indicating)? 23 CHAIR NEINAST: Yeah. 24 MR. ATKINS: Okay. 25 CHAIR NEINAST: Just a typo. 93 1 Any further questions or comments on 2 that section? 3 (No response.) 4 CHAIR NEINAST: Okay. Let's move to 5 the next one. 6 MR. ATKINS: Okay. The next set of 7 rules, Mr. Chairman, are audit related rules. So, I 8 will call Roy Gabrillo back up. The first rule is a 9 general audit rule. It's labeled that on the first of 10 the top page. It lays out the procedures and 11 processes that the agency will follow when conducting 12 any type of audit. 13 The next -- and it addresses the 14 notification of the organization, the entrance 15 conference that's held with the organization, the 16 field work that's done by the audit staff, as well as 17 the exit conference that's held with the organization 18 after the audit's been completed and the resolution of 19 any alleged violations noted in the audit. 20 CHAIR NEINAST: Just to establish that 21 I do read what you submit to me, Billy, another typo. 22 MR. ATKINS: Okay. Great. 23 CHAIR NEINAST: On the second line of 24 that first page of your general audit rule, 25 "licensees" should be "licensee." 94 1 MR. ATKINS: Where are you at? 2 CHAIR NEINAST: Right here 3 (indicating). A licensee rather than licensees. 4 MR. GABRILLO: Oh, okay. 5 CHAIR NEINAST: Okay. Any other 6 comments or questions for Roy or Billy? 7 (No response.) 8 CHAIR NEINAST: Okay. The next 9 section. 10 MR. ATKINS: The next one deals with 11 our assessment and assistance inspection. This is an 12 inspection whereby an auditor visits -- Our plan is to 13 audit each bingo location at least once a year, and, 14 again, it's just a means to make ourself available to 15 licensees, and, again, this sets out the general steps 16 that the auditor will undertake in conducting the -- 17 what we call A&A inspection. 18 CHAIR NEINAST: Questions or comments 19 from the committee? Yes, we have one from the -- You 20 want to pull a chair up? 21 Roy, can you get a chair there? 22 MR. HUTCHINGS: That's fine. It will 23 just take a second. 24 My name's Charles Hutchings. I turned 25 in a request on No. 8 here. 95 1 CHAIR NEINAST: Okay. 2 MR. HUTCHINGS: I represent Geodesics 3 Living Systems, Inc., a commercial lessor out of 4 Dallas, and also a member of several organizations 5 that play bingo scattered around Dallas. When we talk 6 about an audit every year -- We just went through some 7 audits. It took them eight months to get it done. 8 Eight months they had our stuff. We had them come to 9 the hall. We got -- to do it. We got, you know, 10 just -- It just got impossible. They wouldn't show up 11 when they said they would. It was just a burdensome, 12 cumbersome piece of junk, and it took them eight 13 months or longer. I'm not even sure that they got it 14 done in eight months. 15 So, to audit every hall every year 16 would mean you're going to have to have more auditors 17 than you just know what to do with. You know, it's 18 just -- That's just not even -- From what I've seen 19 and experienced in 20-something years in the bingo 20 business, that's not even feasible. 21 CHAIR NEINAST: Okay. Roy, would you 22 like to comment on that? 23 MR. ATKINS: Actually, I'd like to 24 comment on it. The A&A inspection is not an audit. 25 It takes approximately 20 minutes to half an hour. 96 1 MR. HUTCHINGS: The word that was used 2 is audit. 3 MR. ATKINS: These are audit rules that 4 fall under the audit section. 5 MR. HUTCHINGS: Okay. So, we're 6 talking about the little A&A where they come in -- is 7 that the terminology you use, I mean, where they come 8 in, they look the situation over, they -- I don't 9 know -- You know, we have them come in all the time 10 for that anyway. 11 MR. ATKINS: Sure. They look to see if 12 the license is posted, if the operator-on-duty sign is 13 posted, they don't review any records. 14 MR. HUTCHINGS: So, that's what we're 15 talking about? 16 MR. ATKINS: That's what we're talking 17 about. 18 MR. HUTCHINGS: At least once a year 19 for that type of visit? 20 MR. ATKINS: That's correct. 21 MR. HUTCHINGS: Not an audit? 22 MR. ATKINS: That's correct. 23 MR. HUTCHINGS: Okay. Pardon me. 24 Thank you. 25 CHAIR NEINAST: Steve, did you have a 97 1 comment. 2 MR. FENOGLIO: Yes. And I -- 3 Mr. Chairman, I understood that you were going to go 4 through and take some public comments. I have some 5 detailed comments on the draft audit rule. 6 CHAIR NEINAST: I'm sorry. I was 7 trying to get it all -- as we take up each section, to 8 get comments from either the general public or from 9 the -- So, we'll go back to that in a minute since we 10 passed, but if any of these others that come up, 11 Steve, you have comment, just jump in on those at the 12 time. 13 MR. FENOGLIO: And I do have some 14 comments on the one that's pending before you right 15 now. 16 CHAIR NEINAST: Okay. Well, we'll back 17 up to the other ones. 18 Okay. Where were we on this assessment 19 and assistance? I think we've finished that. 20 MR. ATKINS: Yeah. 21 CHAIR NEINAST: Okay. So, Steve, now 22 it is your -- 23 MR. FENOGLIO: All right. Just 24 briefly, my comment on the audit assessment and 25 assistance inspection is I'm not sure why, under C1, 98 1 there's any need for the auditor to check and see if 2 there's a snack bar and if alcoholic beverages are 3 being -- are available. I mean, I don't think the 4 Lottery Commission regulates snack bars or alcoholic 5 beverages. 6 And the same thing on No. 5, on the 7 nonsmoking areas available and noting if it is 8 enclosed. You've got a city -- in many cities, a city 9 ordinance on nonsmoking, but the Lottery Commission 10 doesn't regulate those ordinances, doesn't have any 11 jurisdiction over those ordinances, and to follow up 12 on a comment earlier, I don't guess you can have a 13 nonsmoking area because it's not mentioned in the 14 Bingo Enabling Act. Well, that's absurd. But I mean, 15 it's another area, in my view, of the agency wanting 16 to be more than it should be, and, again, I don't know 17 why in the world the agency cares about a snack bar, 18 alcoholic beverages or nonsmoking. 19 And it also says under C, "In addition, 20 the" -- last sentence before the subparagraphs of C, 21 "In addition, the observation will include, but is not 22 limited to, the following items." I would hope this 23 agency would know what they're going to look for and 24 not have "include, but not limited to" language. I 25 don't know if they're going to try to inspect the 99 1 ventilation system, the wiring, the air-conditioning 2 and heating. 3 You know, if you're going to have a 4 requirement that every year someone come out and look 5 at a bingo hall, I think the licensees are entitled to 6 know what they're going to be looking for, and I think 7 there needs to be some further drafting insofar as 8 that. Those are the only comments I have on the 9 assessment and assistance inspection. 10 CHAIR NEINAST: Your recommendation is 11 to drop the words "but is not limited to" in the next 12 to the last line in C? 13 MR. FENOGLIO: Thus that it would read, 14 "in addition, the observation will include" -- 15 CHAIR NEINAST: "Include the following 16 items." 17 MR. FENOGLIO: Or will -- The 18 observation will -- I'd rewrite the sentence, the 19 observation will address the following items, and 20 again -- and Mr. Gabrillo may have a reason why he 21 wants them to look at a snack bar and decide if 22 alcoholic beverages are sold. I can't think of any 23 reason why they need to, and the same way with the 24 smoking, nonsmoking issue. 25 CHAIR NEINAST: Well, on that last one, 100 1 the nonsmoking issue, I assume there may be some towns 2 out there, maybe the smaller ones, where there is no 3 local ordinance on smoking one way or the other. 4 MR. FENOGLIO: And I can assure there 5 are a number of cities that do not regulate -- that do 6 not have smoking ordinances, and again -- but, again, 7 what does that have to do with the regulation of 8 bingo? 9 CHAIR NEINAST: I think that's a good 10 question. I'll address it to Roy or Billy as to why 11 those two items are in the list. 12 MS. BRACKETT: Would it be that what 13 they really need to see is the environmental health 14 certificate and the fire marshall's certificates that 15 they are -- In most places, they do have to come out 16 once a year. 17 CHAIR NEINAST: Well, even that, I 18 think -- taking on what Steve says, that's not the 19 province of the lottery. It's for the local 20 authorities that have responsibility for that. 21 MR. ATKINS: Well -- and I think part 22 of the reason for having the snack bar -- having that 23 information in there is, again, as we discussed 24 earlier, there are some organizations that have their 25 own canteen facility, and, so, it oftentimes becomes a 101 1 question for the auditor if the organization, whether 2 it's inadvertently or not, is commingling their funds 3 in that situation. Say, if you take some sort of 4 veterans organization where they're playing at their 5 own post and they have their own snack bar or facility 6 or whatever, it's something that helps the auditor in 7 future occasions, you know, if something that is for 8 them -- aware of it in case they come back and conduct 9 an audit or anything like that, and just like on the 10 no smoking facility, there are some halls throughout 11 the state who actually have smoking facilities that 12 are nonsmoking facilities that are almost -- I don't 13 want to say the word hidden, but you have to know 14 they're there in order to find them. 15 MS. BRACKETT: Are we required to have 16 them by the Bingo Enabling Act? 17 MR. ATKINS: No. 18 MS. BRACKETT: Well, I don't want the 19 Bingo Division to get involved in that smoking thing. 20 I've been involved with it. It's a very unpleasant 21 situation, and I don't want to get involved in that, 22 enforcing that. 23 MS. TAYLOR: So, what are you saying, 24 that they're noting whether there is or not so that 25 when they go to do an inspection of other things, they 102 1 know to look for the nonsmoking area? 2 MR. ATKINS: Yes. 3 MS. TAYLOR: That it won't be lost in 4 the shuffle? 5 MR. ATKINS: Yes, right. 6 CHAIR NEINAST: And on that snack bar 7 and alcoholic beverages, based on what you said, say 8 the VFW has a bar and plays bingo, are the auditors 9 authorized to go in and audit the bar account? 10 MR GABRILLO: No, but as Billy 11 mentioned, if they're commingling funds, in other 12 words, they're taking -- they have a separate snack 13 bar and also a canteen where they serve alcoholic 14 beverages, you know, they could make the auditor aware 15 of the fact that the possibility could exist that they 16 could take funds either from bingo and pay for snack 17 bar expenses or purchasing alcoholic beverages, which 18 is not allowed by the Bingo Enabling Act. So, at 19 least that would let the auditor know that -- so that 20 they can look more closely rather than just going in 21 and saying everything -- I'm not even going to 22 consider this. This way, at least the auditor's aware 23 of the situation that it could exist. 24 There have been audits in the past -- 25 or past -- recently have been done where funds from 103 1 bingo were used to support the canteen. They used it 2 to purchase liquor. They used it to pay the liquor 3 taxes. You know, they were using bingo money, which 4 is not an authorized expense. 5 CHAIR NEINAST: Well, is there a need 6 to have both of those in the rule? Can't the auditor 7 just be instructed, when you go in, to look and see if 8 they have a bar, and if they do, you have to look at 9 this or look and see if they have a smoking section or 10 whether they're accounted for? 11 MR GABRILLO: Well, another reason for 12 having this, number one and number -- 13 CHAIR NEINAST: Five. 14 MR. GABRILLO: -- five, is also 15 informational purposes. It -- Eventually, you know, 16 when we set up a database of all the halls in the 17 state, have information like this where -- you know, 18 especially if you post it on the Web site where if 19 individuals or people out in public want to know where 20 the nearest bingo hall is. Once they find it, well, 21 what kind of amenities are there, do they have a 22 nonsmoking section, do they have a snack bar, do they 23 serve alcoholic beverages. So, it's, you know, 24 strictly information -- it's also informational 25 purposes. 104 1 CHAIR NEINAST: So, it would serve a 2 purpose other than assisting your auditors, is what 3 you're saying? 4 MR GABRILLO: Right. It's not just 5 limited to -- for the auditors. I mean, it would help 6 when we set up a database and post it on the Web site 7 that -- you know, for people to know what kind of 8 amenities are at that hall. 9 CHAIR NEINAST: Do you have any problem 10 with changing that last sentence of "C" before the 11 subsections to read, "In addition, the observation 12 will address the following items"? 13 MR. GABRILLO: Well, the only reason we 14 put in that language "not limited to," other things 15 could be noticed by the auditor that are not included 16 in the scope of this rule, and, I mean, right off the 17 top of my head, I couldn't give you a specific, but 18 each A&A might be different. 19 CHAIR NEINAST: Are you saying that 20 it -- Well, let's say that he does notice something. 21 Are you saying that he could not note that in the 22 report if it were not included in the rule? 23 MR GABRILLO: Well, I think by putting 24 it in -- He could note in the report -- 25 MR. ATKINS: Well, that's going to be, 105 1 I'm almost going to guess, a recommendation from the 2 legal division, the agency's legal staff. So, I don't 3 know that we're going to be in a position today to, 4 you know, come to any type of agreement on that. 5 I would guess that legal is thinking 6 that there may be some individuals who would say -- 7 You know, let's say an auditor went in on an A&A and 8 noticed some other violation of the Bingo Enabling Act 9 occurring or whatever. You know, it's unfortunate, 10 but there may be some individuals that would say, oh, 11 no, you were doing an A&A, so these are the only 12 things that you can look at, and, you know, just 13 because you noticed that other violation occurring, 14 you know, you can't take any action on that. 15 CHAIR NEINAST: I understand and 16 appreciate what you're saying, and I understand and 17 appreciate what Steve said, and it's kind of a 18 dilemma. It really is. I can see where the operators 19 would want to know in advance what they're going to be 20 looking at, and I can understand why some would say if 21 it's not listed, you can't list it. So, it's a 22 question, I guess, best left, as you suggested, to 23 general counsel's office. 24 MR. ATKINS: For the great legal minds 25 to work out. 106 1 CHAIR NEINAST: Okay. But it's 2 something I think should be addressed by your staff 3 and general counsel's office. 4 Any other questions or comments on that 5 section? 6 MR. BRESNEN: I'd just like to know if 7 there's a copy of it readily available, and anything 8 else we're going to talk about today so I quit asking 9 the same question. 10 And I would like to make another -- 11 CHAIR NEINAST: We'll get you a copy in 12 a minute, Steve. 13 MR. BRESNEN: I would like to make 14 that -- for the purposes of this one, I can use 15 Steve's. 16 CHAIR NEINAST: Sure. On this 17 particular section, now. We're going to back up to 18 the audit in a minute. 19 MR. BRESNEN: Yeah. I want to talk 20 extensively about the audit one, but I'm going to get 21 independent and explain what's going on here to people 22 who are not here. So, it would probably do well for 23 me to understand. 24 Usually the rules are what the licensee 25 can and can't do and how they're supposed to do it, 107 1 but I'm not really seeing any of that in these rules 2 that you're talking about right now. Is that fair? 3 CHAIR NEINAST: Oh, that the licensee 4 can or cannot do? 5 MR. BRESNEN: Yeah, I mean that's 6 usually what the rules are. They're regulating the 7 conduct of the licensee, but I'm not seeing really any 8 new regulation of the licensee's conduct in what we're 9 talking about right now. It's more what the auditor 10 will do. 11 CHAIR NEINAST: It's just giving them 12 notice -- Like, the one we're talking about now, it's 13 giving them notice of what they'll look at when they 14 do come for an A&A. 15 MR. BRESNEN: All right. Is that any 16 different from what's being done currently? 17 MR. ATKINS: No. 18 MR. BRESNEN: Okay. And the -- I've 19 noticed a couple of places in here, since Steve was 20 good enough to do my highlighting for me, that it says 21 "but not limited to." So, we got -- Well, I'm having 22 a hard time -- Here's what I think is going to happen 23 in the world. You're going to put these rules out 24 there, and people are going to be notified of them, 25 and then despite the fact that it doesn't require them 108 1 to do or not do anything and it's no different from 2 what's currently happening and it is not limited -- in 3 any way limiting what the agency does, people are 4 going to go, oh, more rules, and it's going to require 5 an explanation, and people -- You're going to have a 6 lot of questions follow up on this. 7 So, I'm having a hard time 8 understanding, you know, why you're doing this and 9 what the need for it is, and I can assure you that 10 we're going to have a lot of questions to answer. So, 11 I would suggest -- My suggestion in closing would be 12 that there be some sort of a Q&A deal worked out and 13 maybe put in the bingo bulletin or maybe mailed to all 14 the licensees that says we adopted these rules, here's 15 why we did it, because I think you're going to get a 16 lot of phone calls. A lot of people are going to look 17 at it and say, well, how is this different, what do I 18 need to do differently. You're going to spend a lot 19 of time telling them that. So, I just -- I suggest 20 that you give them a heads up in advance that it 21 doesn't -- this is what we've always done. 22 CHAIR NEINAST: Well, two comments on 23 that, if I may. First, this is just the beginning of 24 the rule making process, and it will be put out for 25 comment, and you know and I know that not too many 109 1 people pay that much attention to it. 2 When it's all said and done and all the 3 rules are finally adopted, I am guessing, Billy, you 4 will publish a new publication of administrative rules 5 and that -- and submitting those and making them 6 available -- I don't know whether you've done it in 7 the past, but you might in the next issue have a 8 preface that says new rules or changes to the rules 9 and just to kind of highlight them at the beginning of 10 the booklet. 11 MR. ATKINS: Well, yeah. Yes. I mean, 12 I guess there's -- Whenever there are new rules, 13 there's an entire process that's followed by -- you 14 know, by the staff, whether it's during the rule 15 making process or after the actual adoption of the 16 rules, where the rules are provided to the 17 organizations, and, you know, of course all of this 18 would be incorporated in the operator training program 19 and would be covered there, also. So, when the rules 20 are actually adopted, they are provided to the 21 organizations. We still send every organization a 22 hard copy. They're posted on the Web site. It's 23 included in the bingo bulletin. 24 CHAIR NEINAST: And my only suggestion 25 would be, if you have not already done it, include a 110 1 preface that says new rules as follows and amendments 2 to rules as follows, just so they can kind of be 3 highlighted and they can look at it. 4 MR. BRESNEN: I'm suggesting that the 5 message be this doesn't require anything different of 6 you, we're formalizing our internal process and making 7 it explicit out there for you. The -- You know, we're 8 going to have seven or eight pages just in these 9 things. 10 CHAIR NEINAST: Yeah, but, I mean, when 11 the final rules go out, they're going to be more than 12 just what we're looking at now, changes. Well, I 13 think there probably will be because there -- 14 MR. BRESNEN: Can we anticipate what 15 those changes might be? 16 MR. ATKINS: Well, we're going to look 17 into existing rule that's out there, as well as areas 18 where we think rules need to be developed. 19 MR. BRESNEN: It's going to be a tough 20 year. 21 MR. ATKINS: You know, I'm ready. 22 MR. BRESNEN: I'd like to ask a 23 question, then. If -- In the rules, wherever it 24 states -- a number of times it says that -- but not 25 limited to. Does that mean if that language is not in 111 1 a particular section, that that section is limited? 2 MR. ATKINS: I'd direct you to the 3 agency's general counsel. 4 MR. BRESNEN: Okay. Okey-doke. 5 Thanks. 6 CHAIR NEINAST: Any other questions or 7 comments on this section? 8 Ms. Williams, do you need a break? 9 THE REPORTER: Yes, sir. 10 CHAIR NEINAST: Okay. Let's take a 11 ten-minute break. The committee will recess for ten 12 minutes, re-gather at 12:20. 13 (Recess.) 14 (Mr. Saleem Tawil no longer present.) 15 CHAIR NEINAST: Okay. I'll call the 16 Bingo Advisory Committee back into session. It's now 17 12:22, and we do have a quorum present. I think we're 18 ready to move on to the next section with Roy and 19 Billy which is compliance review. 20 MR. ATKINS: Compliance review is an 21 audit that is performed by the audit section that 22 covers a one-quarter period, and this rule lays out 23 some of the reasons that a compliance review could be 24 requested, the scope of the compliance review, again 25 notification to the organization, discussion of the 112 1 field work and what's covered in that, as well as the 2 exit conference. 3 CHAIR NEINAST: Any questions or 4 comments on that? Any questions or comments on this 5 section? Steve? 6 MR. FENOGLIO: Thank you, Mr. Chairman. 7 For the record, my name is Stephen Fenoglio. Can 8 anyone explain to me what the risk assessment is -- 9 it's mentioned in A4 -- and what specifically it 10 includes? 11 CHAIR NEINAST: Billy or Roy. 12 MR. ATKINS: I'm sorry, Steve? 13 CHAIR NEINAST: What is risk assessment 14 under A4? What is a risk assessment? 15 MR. ATKINS: Risk assessment is a 16 program that's developed by the division based on a 17 number of factors that are reported by licensees, and 18 based on where organizations come out in a ranking 19 from that risk assessment is how audits are selected 20 to occur, and that's done on the basis of a 21 recommendation by the State Auditor's Office. 22 MR. FENOGLIO: Okay. So, we'll be able 23 to get that risk assessment? 24 MR. ATKINS: What do you mean, get that 25 risk assessment? 113 1 MR. FENOGLIO: Well, I gather it's some 2 sort of a -- for lack of a better word, a mathematical 3 formula? 4 MR. ATKINS: Yes. 5 Phil, do you want to come up and talk 6 about the risk assessment? 7 CHAIR NEINAST: While Phil is coming 8 up, Rolanda does have copies of the proposed rules for 9 anyone that would like a copy, just raise your hand. 10 Okay. Phil, what is a risk -- how do 11 you do the risk assessment? 12 MR. SANDERSON: The risk assessment is 13 a methodology that takes a number of factors into 14 account based on the reports that the organizations 15 file. They're ranked as to whether or not there is a 16 high risk to the study as far as charitable 17 distributions not being met, prize fees not being 18 paid, the organizations, you know, reporting the 19 correct amount, and sometimes they'll, you know, 20 misreport information and -- you know, through just 21 mathematical errors, and, so, we use the risk analysis 22 to go out and verify that the sales they're reporting 23 are accurate, their distributions, the taxes and prize 24 fees that are paid. 25 CHAIR NEINAST: Is that all objective 114 1 information you can just plug into a computer program? 2 MR. SANDERSON: Based strictly off 3 what's on the return. 4 CHAIR NEINAST: Okay. And you just 5 plug it into a computer program that does the -- 6 MR. SANDERSON: (Nods head.) 7 CHAIR NEINAST: Okay. Did you have 8 some questions, Steve? 9 MR. FENOGLIO: And, so, that would be 10 something -- Since it's a part of the agency rule 11 making, it would be something the licensee could 12 obtain, the risk assessment? 13 MR. ATKINS: I would assume so, unless 14 I'm told otherwise. 15 MR. SANDERSON: I think right now it's 16 still pending. We don't know for sure what is 17 confidential and what's not about it. 18 CHAIR NEINAST: Is the program up and 19 running now? 20 MR. SANDERSON: We've used various 21 versions of it in the past, yes. 22 CHAIR NEINAST: But you do have a risk 23 assessment in being now? 24 MR. SANDERSON: Yes. 25 CHAIR NEINAST: Okay. 115 1 MR. FENOGLIO: And -- Okay. Well, I 2 guess we'll revisit that issue. My only suggestion 3 is, if you have a risk assessment and you're 4 promulgating a rule on it, I think it's a matter of 5 public record, that an agency -- that the licensee 6 ought to have it, but I understand. 7 The other question I have is 8 Subparagraph D1, and, Mr. Chairman, at some point, I 9 do want to go back to the audit rule because I think 10 the compliance review and the audit rule are 11 intertwined together. 12 I have represented a number of 13 licensees in the last year and a half who have been 14 subjected to either a compliance review or the formal 15 audit, and what D1 -- and what my clients' position 16 is, is an adoption of the agency rule -- or adoption 17 of the agency policy that they're going to decide 18 whether a charity is a bona fide charity, and in 19 essence, this agency is going to start acting like the 20 IRS in determining whether a charity is operating and 21 using bingo proceeds, like an IRS would do in trying 22 to determine whether either, A, a charity should have 23 a 501C, or in B, following some -- a complaint 24 process, the IRS seeks to revoke the charitable 25 status, and I think this is an extremely slippery 116 1 slope. 2 I'm aware of charities now that are 3 undergoing -- and the audits haven't been finalized -- 4 where the staff is trying to disallow the general fund 5 expenditures for charities to send people to a state 6 meeting of the organization, be it a veterans 7 organization or a fraternal organization, and my 8 clients' fear is that D1 is going to give them the 9 official imprimatur of Bingo Advisory Committee, 10 number one, and then if it's adopted, from the 11 commissioners themselves for these -- for this staff 12 to go in and do some sort of top to bottom review of 13 the charity to determine if the charity ought to be 14 conducting bingo and looking at the general fund, not 15 the Bingo Enabling Act, and my suggestion on that is 16 if they have a 501C designation, that ought to end 17 most of it. I'll recognize and I'll grant that there 18 may be some charities that have engaged in activities 19 that are so repugnant that they offend any sort of 20 fairness in the Bingo Enabling Act or the Texas 21 Constitution, but I don't think anyone intended for 22 this agency to start doing that type of review that D1 23 contemplates. 24 CHAIR NEINAST: If I can comment on 25 that, because I think you anticipated it and I do 117 1 anticipate it coming up under a later section of the 2 agenda, Steve, is that I was informed of a procedure 3 that disturbs me personally in some halls where the 4 charitable bingo operator's combining their income and 5 their expenses and dividing out the net on a -- some 6 percentage basis. I question if that isn't contrary 7 to the purpose of each charity, if they're, in effect, 8 giving some of their money to other charities. So, I 9 think that kind of comes under this, and, so, that's 10 going to be discussed -- It may not be the problem as 11 I see it clear, but I can see where there would be a 12 question of that procedure, and I think that could 13 very well fall under D1 of -- where they're -- you're 14 taking some of your profit tonight and you're with the 15 VFW and you give it to the Elks Club because they 16 didn't make as much as you. I'm not sure that that 17 would be consistent with the donor organization's 18 stated purpose, and apparently -- or at least I have 19 an indication that that is going on in some places. 20 So, I think there -- You know, I 21 understand what you're saying, it's on a slippery 22 slope, but there might be some situations where there 23 is a reason to look into, from the bingo audit 24 situation, that particular thing, what are they using 25 their funds for. 118 1 MR. FENOGLIO: And, Mr. Chairman, if 2 that's going on -- and I don't know if it is or not, 3 but assuming for the sake of argument it is, there's a 4 complaint process in which any member of the public 5 can file a complaint, and the agency now has those 6 complaints that you mentioned earlier in the Internet 7 and whether or not a lot of people are in the digital 8 age fully and completely, but you can actually file 9 the complaints, easy to do, over the Internet. You 10 can call in a complaint, you can write a compliant, 11 and the agency is duty bound to get to the bottom of 12 those complaints, and if, in fact, they determine that 13 that's a violation of either the Bingo Enabling Act or 14 the underlying articles of incorporation, bylaws, 15 etcetera, of a particular charity as it relates to 16 bingo, then they can do that already, but what this 17 rule is going to do is going to, in my view, highly 18 formalize that process and use it -- and be used as a 19 sword and a shield to the detriment of charities. 20 You know, I have a charity, and we did 21 resolve it informally, but it was American -- it was 22 either an American Legion or Amvets post, in which the 23 staff challenged whether they could use their general 24 fund to buy an American flag, which they did, to give 25 to a surviving member at a funeral, and the agency's 119 1 position -- and they ended up hiring me, and we ended 2 up resolving it, but the agency's position at the time 3 was that that was prohibited under the Bingo Enabling 4 Act or the underlying organization powers, and I think 5 it's a very slippery slope that you're going to be at 6 the -- advisory committee is now being asked to 7 approve of some of those policies, and I don't think 8 you should. 9 And in any event, if you're going to do 10 that, I think this is a -- this opens up a can of 11 worms along the lines of the gift certificate rule, 12 that I would urge that you hold this off and do the 13 kind of process that I think y'all have already 14 adopted impliedly on the gift certificate rule because 15 I think you're going to find in either the audit or 16 the compliance review that there are a lot of 17 charities who had a lot of problems with what's going 18 on, and I've represented charities all over the state 19 on these issues in the last year. 20 CHAIR NEINAST: Well, I appreciate your 21 comment and agree to a certain extent it might be a 22 slippery slope, but, again, going back from the -- 23 assuming for the purpose of argument what I stated is 24 going on, there might not be a complaint filed under 25 that, and it should -- could be -- whether it should 120 1 be or not, could be an item for the auditors to look 2 into. Anyway, I just throw that out as an example of 3 another case where it might be appropriate for the 4 advisory committee to -- because it really -- what 5 that amounts to in that -- in my opinion, if that's 6 going on, for purposes of argument, I think each 7 organization would be filing fraudulent reports at the 8 end of the quarter, not accurately reflecting what 9 they made from their bingo operation. That's my 10 opinion. 11 MR. ATKINS: And I'd like to clarify 12 one thing, Mr. Chairman, and it's something that I 13 know has been brought up before, and I'll bring it up 14 again, and I'll keep bringing it up. When the agency 15 goes to an organization's general fund, it's only to 16 look at those funds that come from bingo. That's all 17 we look at, and how those funds were used, and if 18 there are other funds in there that the organization 19 gets from other sources, we don't really care, nor do 20 we care what they do with them, but if, you know, an 21 organization distributes $1,000 to their general fund 22 and all they have is $1,000 and that $1,000 goes to 23 pay for a vacation in Mexico, I don't know that that's 24 the appropriate use of bingo funds under the Bingo 25 Enabling Act, and that's what we're looking at, and 121 1 that's all we're looking at. 2 MR. TAWIL: Billy, isn't the IRS 3 involved in this process? And they're doing more than 4 just local fraudulence. It would be federal 5 fraudulence as well. 6 MR. ATKINS: The IRS does have an 7 exempt organization, and they do audit organizations, 8 but the IRS, you know, also operates under a different 9 statute than we do. So, it's entirely likely that 10 something that would be authorized under the Internal 11 Revenue Code wouldn't necessarily be authorized under 12 the Bingo Enabling Act or vice versa. 13 MR. FENOGLIO: Well, I mean, to go 14 back, and an agency that I -- charity that I'm very 15 familiar with, having been board chair, and happens to 16 conduct bingo at River City Bingo in Austin, Texas, 17 and the Arc of the Capital Area -- we have a 18 million-dollar budget a year. Bingo is about 60 to 19 80,000 a year. How in the world can this agency 20 determine -- When we have a fund-raiser and purchase 21 alcoholic beverages for the fund-raiser, the 60,000 22 goes into our general fund. How in the world can the 23 agency determine whether those bingo funds were used 24 for the purchase of alcoholic beverages at a 25 fund-raiser where we net 150,000 a year? 122 1 You know, but what this D1 says is 2 you're going to be -- whether the charitable 3 distribution, our 35 percent distribution, 4 Mr. Chairman, under D1 will be reviewed to determine 5 whether the distributions were consistent with the 6 donor organization's stated purpose, Bingo Enabling 7 Act and administrative rules. How is the agency going 8 to do that? There's 100,000 -- a million dollars in 9 the general fund. 60 to 80,000 comes directly from 10 bingo. 11 CHAIR NEINAST: Roy. 12 MS. BRACKETT: I would like to ask a 13 question, Billy. You're saying that after that money 14 is in the general fund, that you can look at it and 15 see how it's spent. Am I understanding that 16 correctly? 17 MR. ATKINS: Yes. 18 MR. GABRILLO: What the auditors do 19 when -- as part of the audit, they do what's called a 20 general fund analysis. They go through the general 21 fund, determine -- as Billy mentioned, if they're 22 writing the check from the bingo account to the 23 general fund, they'll go through the general fund and 24 determine how much money came from bingo that was 25 deposited in the general fund account. They'll also 123 1 look at any expenditures that came out of the -- Well, 2 first of all, they'll also note that -- if there was 3 any other funds other than bingo going into that 4 account. 5 They're going -- Again, they're only 6 going to concentrate on the bingo funds. If there are 7 other expenses being paid out of the general fund, if 8 there's money to cover those other -- that are not 9 charitable, if there's other money to cover those 10 expenses, that's fine. As Billy said, it doesn't 11 matter -- You know, we don't care where that money 12 came from or if that money is used to pay for those 13 other expenses. What we do concentrate on is the use 14 of those funds because, you know, the Act states that 15 those funds must be used for a charitable purpose. 16 So, the auditors do -- There is a methodology to 17 determining if the funds from the conduct of bingo 18 were used for charitable purposes. 19 MR. ATKINS: I think one methodology 20 that I might suggest, Steve, is if you had an 21 organization with a million-dollar budget and, say, 22 $80,000 of it is bingo funds, then one thing the 23 organization might try to show is where they, in fact, 24 spent $100,000 on their stated charitable purpose from 25 the general revenue fund, and I would think that would 124 1 cover it. 2 MR. FENOGLIO: And I would certainly 3 hope it would, but under 454 of the Bingo Enabling 4 Act, it says you must benefit an indefinite number of 5 needy or deserving persons in this state by -- and 6 there's five subcategories. How can the agency 7 determine -- and I don't think you can, and my concern 8 is that you're going to use D1 at a later time to, in 9 my view, create havoc for a charity that undergoes a 10 year -- a compliance review or a full-blown audit -- 11 and I do want to come back to that audit rule because 12 these are intertwined -- and say, Arc of the Capital 13 Area, you have to prove to us that -- and we do a golf 14 marathon and we -- the last year we netted $150,000, 15 and we wine and dine golfers and ask them to 16 contribute or play. It's 2,500 to $5,000 to play at a 17 golf marathon. It's -- you know, play a hundred holes 18 of golf, if you will, and we wine and dine them, you 19 know, and we do that because they're going to give us 20 pledges from 2,500 -- one guy got about 20,000 in a 21 pledge and collected it, but we provide booze for 22 them. You're on a golf course. It's in the 23 springtime. Golfers like to drink beer. How -- I 24 mean, you can use this rule to say, okay, Arc of the 25 Capital Area, prove to us that that 60 or $80,000 is 125 1 not bingo funds. 2 And let me say we're a United Way 3 agency. We go through the United Way audit 4 procedures. We get funds from the state, local and 5 city government to run different programs. It's not 6 your typical bingo charity, if you will. 7 But you can look at this D1 and say, 8 okay, Arc of the Capital Area, prove to us -- we want 9 to look at your general fund, and for a calendar year 10 basis, the revenues, the expenses, the invoices are 11 going to be in excess of 10,000 pages of documents, 12 and we want you to prove to us that none of that 13 funds -- because the agency has taken a position in 14 prior audits that you can't use, quote, bingo funds to 15 purchase beer, and I don't think Mr. Gabrillo would 16 disagree with that. Whether or not it meets -- if you 17 use the purchase of the beer to raise a huge sum of 18 money that you then use to benefit an indefinite 19 number of needy or deserving people in this state by 20 relieving them from disease, suffering or distress, 21 contribute to their physical well-being, but they're 22 going to back-door and say, no, you can't do that, Arc 23 of the Capital Area, or a charity that has a smaller 24 budget, and, again, my concern is this is going to use 25 the back door to, quote, shut down charities. However 126 1 well-intentioned it may be, the practical effect is 2 they now can come in and audit Ms. Brackett's charity 3 general fund and force -- under the previous rule, 4 force you to produce all 10,000 pages of those 5 documents in Lubbock or in Austin. 6 MR. ATKINS: I'd like to address what, 7 you know, may just be a general impasse, that, you 8 know, we're not going to come to an agreement on, and 9 if we don't, that's fine, but I think both Steve 10 Fenoglio and Steve Bresnen have mentioned it a couple 11 of times, and I think some people on this advisory 12 committee have mentioned it a couple of times, and it 13 deals with the fact, you know, no matter how 14 well-intentioned this may be, somewhere down the line, 15 some evil may come from it, and I mean, that's hollow 16 to me to the extent -- You know, let me turn that 17 around on Steve, and he's talking about, you know, 18 this great charity that he works for, that they would 19 never do anything evil or in violation of the Act or 20 the rules or whatever, and, you know, unfortunately, 21 sometimes that happens, and that's why we're going 22 through this process, and, you know, Steve's right, 23 you know, and I hate to say it, hi, I'm from the 24 Government and I'm here to help, but, you know, 25 there's nothing hidden in these rules. 127 1 I mean, they're very -- We think -- We 2 are trying to be very straightforward. We were trying 3 to, you know, put the licensees and the general 4 public, you know, on notice of, you know, generally 5 what's occurring now, and, you know, I've stated what 6 we look at in general funds. I've stated why we do. 7 I've stated how, you know -- the specific example he 8 gave, how it could be addressed. 9 You know, this to me is becoming 10 beating a dead horse. You know, if the argument's 11 just going to be, you know, we don't want more rules 12 or we don't want that, then maybe we can say that in a 13 blanket statement and get it over with and, you know, 14 go on to some of the specifics, but, you know, it's 15 either well-intentioned now and will be held to that 16 in the future or, you know, it's not. 17 CHAIR NEINAST: Well, I think that 18 Steve has raised a good question on -- specifically to 19 a specific provision on D1, and let me ask Roy if I 20 understand this correctly. 21 If -- Taking Steve's organization -- he 22 says he has an organization with a budget of about a 23 million dollars. About 80,000 of that comes from 24 bingo. If your auditors go in and see that they've 25 got checks or some type of proof that $75,000 of that 128 1 has been paid out to a recognized charitable purpose, 2 and maybe 5,000 still available, would you question 3 any further than that? 4 MR. GABRILLO: No. 5 CHAIR NEINAST: You could care less 6 where the other balance of the million dollars was 7 used? 8 MR. GABRILLO: Right. Exactly. You 9 know, as long as those funds were used to comply with 10 the Act and also to comply with their own stated 11 purposes, there's no other reason to go on -- to go 12 any further than that. 13 In other words, for example, they write 14 a check to SPCA. We're not going to call SPCA and 15 say, well, you got a check or $1,000 from Arc of the 16 Capital, how did you use that money. If it's a 17 recognized -- like you said, a recognized -- 18 nationally recognized charitable organization, that's 19 fine. That's where it's going to stop. We're not 20 going to pursue it any further than that. 21 CHAIR NEINAST: That's what I thought. 22 Okay. 23 Okay. In looking at these again, I 24 assume you and your staff will look at that also, 25 again review that and see if there's any problem that 129 1 might arise or that -- something that might be 2 addressed. 3 I understand what you're saying, Steve, 4 but I can also see where, in some organizations, there 5 might be a question of how they have used their bingo 6 money, and this would authorize them to question it. 7 MR. FENOGLIO: Well -- and my only 8 point is if you're going to have that, then let's have 9 all the rules that they use in writing up front, and 10 we've already alluded to one. The purchase of 11 alcoholic beverage is never an approved bingo 12 expenditure. Let's have that in writing. 13 Mr. Gabrillo used the nationally 14 recognized charity donation. Well, what if it's a 15 locally recognized charity, a fraternal organization? 16 Can one fraternal organization make a charitable 17 contribution to another and not be subjected to the 18 same level of review? I don't think it can. 19 I think there's -- They decided if it's 20 the American Red Cross or the SPCA, it's okay, but if 21 it's another fraternal organization that has a 501C 22 designation, for example, well, we need to go ask that 23 organization, you need to prove to us, that sort of 24 thing. You know, if you make the contribution to the 25 American Red Cross, it's okay, but if you make it to 130 1 the Elks Lodge, a 501C designation -- I think they're 2 C7 or C9, whatever it is, then, no, we're not going to 3 allow it. So, if we're going to have these rules, 4 let's have them all in black and white so that 5 everyone knows what the rules of the road are, and I 6 don't think you have all the rules of the road in 7 front of you. 8 MS. TAYLOR: Would you track it 9 further? If we made a donation to the Moose Lodge, do 10 you go through the Moose Lodge's books, see what they 11 did with the donation or is that the end of it, also? 12 MR. GABRILLO: Well, it depends. I 13 mean, it has happened where -- There have been audits 14 in the past where organizations playing in the same 15 hall will write checks to each other and show it as a 16 charitable donation, and if we're auditing that 17 particular organization, well, we'll look and see if 18 that money was used for charitable purposes. 19 MS. TAYLOR: And if it's to an 20 organization that is not associated with the hall? 21 MR. GABRILLO: More than likely, we 22 probably won't pursue it, but, again, it just depends, 23 too. It depends, too, if that organization -- it 24 probably will be a 501 -- it probably does have a 25 501C, but that still -- just because it has a 501C 131 1 doesn't mean that it's a charitable organization 2 because 501C just designates that it's tax exempt, and 3 it could be a nonprofit, and there are certain 501C's 4 that the IRS says when you write a check to them, 5 yeah, they're a 501C, but you can't take it as a -- 6 you know, as a charitable contribution on your taxes 7 when you write that check to that organization. 8 MS. TAYLOR: Okay. So, if an 9 organization you wrote a check to did not disburse the 10 funds like you intended that they were going to 11 disburse the funds, would that go back to the -- to my 12 charity who made the donation to them? Are we going 13 to be in trouble for that because we gave it with the 14 best intentions that they were going to disburse it in 15 a way that they should have been disbursing it? What 16 if we give it to the Moose Lodge and they have a beer 17 party with it? How much are we responsible for what 18 they've done with the funds that we have donated to 19 them? 20 MR. GABRILLO: Again, at that point, we 21 probably wouldn't pursue it, but, again, we would have 22 to look at the type of 501C that that Moose Lodge 23 would hold. 24 MS. TAYLOR: Okay. If they were a tax 25 exempt, charitable donation, take off your income tax 132 1 type, that would end it right there. I mean, we're 2 not responsible for their actions -- 3 MR. GABRILLO: Right. If it's -- You 4 know, we probably would question it. I'm not saying 5 that we would make you put that money back. We would 6 probably question it and, you know, make a 7 determination of whether or not to allow that 8 deduction. You know, we would probably research it 9 through IRS maybe and find out, you know, is it 10 deductible, is it a charitable donation, can we allow 11 it. So, in other words, no, we would not contact that 12 Moose Lodge and say, well, you got a donation from 13 Ms. Taylor's organization, what did you do with that 14 money. 15 MS. TAYLOR: So, wouldn't the easiest 16 way to get these bingo funds so they do not have to 17 look at the entire general account of a million 18 dollars just to set up a separate account for the 19 bingo's funds and always make sure they're disbursed 20 in accordance with the -- 21 MR. GABRILLO: That could be something 22 they could do where it's like -- 23 MS. TAYLOR: Because then when you go 24 to look, you only have access to that one checkbook 25 where the bingo funds have been put into and taken out 133 1 of -- 2 MR. GABRILLO: The other thing would be 3 to make the donation straight out of the bingo account 4 to that particular organization or if it's a needy 5 individual, you know, for that purpose. That's just a 6 practice -- That was a rule -- There was a rule that 7 covered that, that the organizations write the 8 bingo -- write a donation from the general -- from the 9 bingo account to the general fund so that they can 10 disburse -- The easiest way would be -- The best way 11 to do it would be disburse it directly from the bingo 12 account for whatever charitable purposes it's going to 13 be used for. 14 MS. TAYLOR: Okay. 15 CHAIR NEINAST: If I could comment or 16 question Billy on something that Steve said about 17 having all of this in the regulation. That's what 18 you're trying to do, isn't it? 19 It's a long, tedious process, and 20 that's what we're involved right now in, Steve, is to 21 try to have it down where it will be available to 22 those who are subject to the regulations. There will 23 be more coming, I'm sure, and as time passes and a 24 need is recognized or thought of, there will be more 25 regulation, but that's what the Bingo Division is 134 1 attempting to do right now is to get all of this down 2 in writing so that you will be -- have prior notice. 3 MR. ATKINS: And I am glad to know that 4 Steve supports that. 5 MR. FENOGLIO: Well, if you're going to 6 have the rules, have them all in writing, and there 7 are rules this agency has that they're not putting in 8 this rule, and Mr. Gabrillo has been kind enough to 9 outline some of those issues, and, you know, my only 10 point is if you're going to have D1, then say what you 11 really mean and how you're interpreting it on a daily 12 basis. 13 MR. ATKINS: And I'll go back to what 14 the Chair said. You know, this is the first batch out 15 of the shoot. There will be more coming. 16 MR. FENOGLIO: And my suggestion to 17 that is, until they're ready, maybe the Bingo Advisory 18 Committee ought to put this on hold until you've 19 gotten the flushing out of what the agency's really 20 doing on a day-to-day basis today. 21 MR. GABRILLO: I don't know if I'm 22 understanding you. I think you want specific -- in 23 other words, you know, to address each specific 24 situation, and that's going to be impossible to do 25 because every audit's different. Every audit that 135 1 we've done -- that we do is different. There's 2 different situations that come up. Different uses of 3 the money is different that arise. So, it would be 4 impossible for us to address every single issue that 5 comes up or that could possibly come up. 6 I think, you know, by -- I mean, my 7 opinion on D1 is all we're doing here -- all this is 8 saying here is we're just making sure that -- you 9 know, that they're adhering to the Act concerning 10 expenses and receipts and charitable distributions. I 11 don't think we're going any further than we have to. 12 CHAIR NEINAST: We have another 13 gentleman back there I think may want to address the 14 issue. 15 MR. WEBB: Yeah, my name is Don Webb. 16 I'm with Amvets. We were under an audit and we get 17 back to the funds where we put -- out of our bingo 18 account, we put into the general fund. Okay. There 19 was one -- under one audit that was -- the audit that 20 we're under, they disallowed an Alzheimer's check that 21 we donated to Alzheimer's because it's a national 22 organization. You told me that the Red Cross is not 23 an organization. They also disallowed -- in our 24 constitution and bylaws, our parent -- you know, the 25 parent company, like Redmen or Amvets, they'll have a 136 1 meeting that they request that you have so many 2 members there to represent your -- in compliance with 3 your -- to keep your 501C. Okay. They disallow that. 4 We -- You know, you don't -- It's like different rules 5 for different ones, and I'm with Amvets and -- 6 CHAIR NEINAST: Let me make sure. 7 You're talking now that you used some funds to send 8 some members from your local chapter to the state or 9 national convention? 10 MR. WEBB: Yes, to the state 11 convention, and it was disallowed. That's all that 12 the money was used for. So, how are we to comply with 13 our parent organization and what are we supposed to 14 do? 15 And then we had another one where we 16 donated money to another Amvets, not in the hall, but 17 to another Amvets and to another Redmen in another 18 city. That was disallowed. They're a 501C. So, how 19 do you determine? I mean, where do you draw the line 20 and say, okay, you should -- Then the auditor told me 21 to my face, you should find out before you give the 22 money what they're going to give the money to. If I 23 give you $1,000 for your organization and you're 24 nonprofit, are you going to tell me what you're going 25 to do with that money? That's not what you give money 137 1 for. It's not really our responsibility. We give it 2 in good faith, but how do we know what the money is 3 actually spent for? 4 If they play bingo, there's a way that 5 they can go there and follow a paper trail. The 6 Lottery Commission can go there if it's a -- if they 7 play bingo, they can follow our paper trail and show 8 where that money came into their general fund, but if 9 it's not and you're donating to Alzheimer's, 10 Red Cross, things like that -- That shouldn't even be 11 questioned. I mean, you give it in good faith. You 12 have no way of knowing what they're going to do with 13 the money. If you give it to the chapter here in 14 Texas and they send the money up north, we have no 15 control over that for -- we don't know what they do 16 with it. 17 So, that's one of the main things 18 that's going on right now is they're asking questions, 19 and, true, there are probably bingo halls that are not 20 in compliance, but when you have it there in black and 21 white that you send it to an organization or if you 22 spent money on a hotel or spent money for food to send 23 a member of yours to keep compliance with your parent 24 organization, there shouldn't be no questions asked. 25 That's just -- I mean, that's what you have to -- 138 1 that's your bylaws -- your constitution and bylaws. 2 CHAIR NEINAST: Well, I don't -- I 3 appreciate what you're saying, and I don't think that 4 this is the forum to get into -- What you're doing is 5 having a complaint about a specific audit, and this is 6 not the forum. I'll just say to you -- 7 MR. WEBB: No. I just understand that 8 he said awhile ago that he didn't -- they just went by 9 certain rules and that they don't do that. 10 CHAIR NEINAST: Well, I would say in my 11 personal opinion on the thing that you have given, if 12 I were an auditor, I would disallow also sending 13 members of your organization to a state or national. 14 That's not the -- When you fill out -- I don't know 15 what you put on your application for what you're going 16 to use your money for, but that's not using it for a 17 charitable purpose. Let's don't get into an argument 18 now, but I can see why the auditor would question 19 that. I would question that. 20 MR. WEBB: But we couldn't keep our 21 501C. 22 CHAIR NEINAST: Those are two different 23 things, two different questions entirely. Whether you 24 satisfied the requirements that the IRS and whether 25 you satisfy the requirements of the Texas Charitable 139 1 Bingo Enabling Act and what the funds from bingo can 2 be used for, two completely separate questions. 3 MR. WEBB: Okay. 4 CHAIR NEINAST: Thank you, though. I 5 appreciate your comments. 6 Steve? 7 MR. BRESNEN: Well, with all due 8 respect, I don't think they are separate questions. I 9 think what Don was trying to do was to give a -- by 10 way of example, an idea about the varying judgments 11 about what's in compliance and what's not in 12 compliance. So, let me -- First of all, there is -- 13 there are operational expenses that charities have by 14 way of carrying out their charitable purpose. Those 15 may include travel, and it may be important for those 16 people to go and meet with other people in the 17 organization in order to decide what they're going to 18 do, how they're going to do it, what they're 19 contribution to the overall deal is going to be, and 20 all that's just as much as it is writing the 21 scholarship check. 22 My understanding from talking to a lot 23 of people is that this is a -- that this issue about 24 second-guessing the use of funds once they've gone 25 into the general fund is a widespread problem, and I 140 1 think that's just one example. Another example, an 2 auditor has questioned the use of -- There is an 3 entity that's set up to provide scholarship money for 4 kids to go to college. So, in order to do that, they 5 have expenses of soliciting applicants from school 6 counselors, and that necessitates having a desk where 7 you can fold the paper, put it in the envelope, put 8 the stamp on it and a telephone where you do follow-up 9 and a mailbox where people call in. These are all 10 expenses that are attendant to actually writing the 11 scholarship check. It's my understanding that those 12 attendant expenses have been questioned as not being 13 charitable expenditures when, in fact, they're every 14 bit as much of operating a scholarship program, and by 15 the way, the -- benefitting educational advancement is 16 one of the expressed purposes in the statute, and, 17 yet, those expenses have been questioned, and, so, I 18 suppose that what you would literally have to do is 19 write a check to -- from the general fund that was 20 just for the scholarship and then go raise the stamp 21 money and the money for the phone to call school 22 counselors, that sort of stuff, from another source, 23 and I think this is a big problem. 24 It's inherent in the -- I was really 25 going to raise all this in the course of the audit 141 1 rule, which I've had a chance to review now, but it's 2 obviously a takeoff point here. We're obviously 3 discussing the subject matter. So, I wanted to raise 4 it at this time. 5 You've got a couple of problems. One, 6 it's -- sometimes it seems to be in the eye of the 7 beholder as to what's in and what's out. Judgments 8 seem to change over time without any change in the 9 rules, and I think people are sometimes told you can't 10 do that without much specificity as to which 11 expenditure's out of bounds, what rule or statute is 12 violated and some rationale, some good rationale for 13 why it's violated. That tends to get -- In the 14 absence of that, you tend to get things reduced to 15 anecdote and then I hear them and then you hear them 16 back at these meetings, and that's probably not the 17 best way to conduct our business. So, when we get to 18 the audit rule, I'd like to talk more about how we 19 might document -- better document some of those things 20 and maybe a better process for getting those issues 21 resolved. 22 CHAIR NEINAST: Well, to use a famous 23 quote from "Cool Hand Luke" that I just saw again for 24 the tenth time, I think we have here a failure to 25 communicate, but as I see it, what both of you are 142 1 asking for is that we completely circumscribe 2 subjective judgment, and that is just impossible to 3 do, and I can tell you that from experience of having 4 two years of trying to draft legislation for the army, 5 to try to foresee every possible contingency that 6 might come up -- and we need some rules, and you just 7 cannot list all of the subjects that are going to come 8 up and how it has to be addressed. It's going to be 9 the view of the individual auditor when he's down 10 there on that audit. 11 MR. BRESNEN: That is a prescription 12 for arbitrary and capricious activity which is 13 prohibited under law. You've got -- There are some 14 specific things that keep coming -- I'm not trying to 15 eliminate discretion, but I am trying to corral 16 discretion, and there are some things that keep coming 17 up. If you -- If y'all -- the agency or the advisory 18 committee or whoever thinks that board member travel 19 to a meeting of that board or convention or whatever 20 it is is out of bounds, promulgate a rule about that. 21 That's come up -- I know that's come up repeatedly. 22 This isn't the first time this subject matter's been 23 raised. If it's out of bounds, put a rule out there 24 and tell people they can't do it. 25 Most of these people are actively 143 1 engaged in an ongoing enterprise, which is the 2 charity, and there's not a single feature of your life 3 that you can -- They're being asked to parcel up 4 aspects of human behavior into a little box that's not 5 very well defined and take care of the rest of the 6 activities out of some amorphous pot, and on the other 7 hand, the agency's resisting being more specific so 8 they can be more general -- You're asking -- You're 9 asking these guys to comply with something that they 10 can't comply with because they don't know, and the 11 judgment -- If it's the judgment of each individual 12 auditor, how would they ever comply? 13 There -- Seems to me you could do 14 several things that would be of benefit to these 15 rules. Process, do a stakeholder-type process. With 16 respect to the specific rules, if there's something 17 that you think's out of bounds and you've seen it out 18 of bounds, at a minimum, put out a policy statement 19 that this is out of bounds and we're going to treat it 20 as out of bounds, if you're not going to do a formal 21 rule making process, but the other thing is, make the 22 auditor cite the instrument. If there's a check by 23 which an expenditure was paid, either cite the invoice 24 or the check or something where it's highly specific 25 to that. State the rule, the exact rule or statute 144 1 that's been violated and give some kind of an 2 explanation that's more than boiler plate about what's 3 wrong with that. 4 And I think if some of these issues 5 start getting surfaced up in a little more systematic 6 way like that, then maybe they'll -- maybe the things 7 that need to be -- have big policies addressed to them 8 will fall out, and there will be probably a scattered 9 bunch of individual things out there that don't 10 require any rule making, but what's happening right 11 now is not working. A lot of people are very 12 frustrated. It is a huge drain on the agency's 13 resources. I know that some of my clients have just 14 flat fought with the auditors and then they never hear 15 another thing about it again because they had the 16 gumption to stand up and say that ain't right. 17 CHAIR NEINAST: Well, let me ask you 18 one more question, Steve, and then we have to move on. 19 MR. BRESNEN: Yes, sir. 20 CHAIR NEINAST: Are these organizations 21 that you're talking about -- is their sole source of 22 income bingo? 23 MR. BRESNEN: If -- Sometimes, and 24 sometimes not. 25 CHAIR NEINAST: Well, I think it makes 145 1 a big difference, make a big difference. 2 MR. BRESNEN: There's probably more 3 than 30 halls -- I'm just guessing now -- in the 4 organization of people that I represent, and at those 5 halls, you've got anywhere from probably three to 6 seven charities. So, it's a lot of them. There's a 7 lot of different varieties. Some of them -- Let's 8 just assume that they're -- the vast majority of them, 9 their money is from bingo. 10 CHAIR NEINAST: Okay. Well, again, I 11 think it makes a big difference as to what you charge 12 off against bingo and what you charge off against the 13 other funds. Anyway, I think we've beat this horse to 14 death, and I think that Billy and Roy and his staff 15 will take your comments into consideration. 16 Any further questions? 17 MS. TAYLOR: I would like to just ask 18 one question. Roy, why would the Alzheimer's 19 Foundation not be considered a charitable -- what 20 would be the question on that? 21 MR. GABRILLO: I really can't answer 22 that question because I wasn't aware of that. 23 MR. ATKINS: And, you know, Suzanne, 24 it's just -- it's very unproductive, in my opinion, 25 for people to come up and talk about the specifics of 146 1 a case when we don't have the details to -- 2 MS. TAYLOR: But in a normal course -- 3 MR. ATKINS: I mean, sure, the way it 4 was laid out, you would think it was, but, you know, 5 we don't have the audit, and we don't have what was or 6 was not supplied to the auditor. 7 MS. TAYLOR: Okay. I mean, I 8 understand sending members to a meeting because I've 9 always thought that that was not something I could use 10 bingo funds for. I mean, I always -- but I was just 11 wondering, like -- I think it would be helpful if 12 there was guidelines for organizations on where they 13 could distribute their funds that it would be, like, 14 no questions, like, you know, recommendations even, 15 you know, so you could have some kind of an idea of -- 16 because I didn't realize the thing about 501C didn't 17 necessarily mean that that organization's one that you 18 can distribute funds to, I mean, and I've been 19 involved in bingo a long time -- 20 MR. ATKINS: 501C designation by itself 21 doesn't mean you're a charity. 22 MS. TAYLOR: Right. And, I mean, I've 23 been there a long time, and I wasn't aware of that 24 until today. So, I do think that if there was some 25 guidelines of -- you know, or recommendations even or, 147 1 you know, something from the Lottery Commission to let 2 us know, you know, for anybody, you know, these are 3 examples of -- 4 MR. GABRILLO: And that's something 5 that we're working on as far as -- one of the rules is 6 being amended. 7 MS. TAYLOR: You know, just something 8 to give you kind of an idea of, this is the kind of 9 thing that it's okay and the nod of approval and you 10 don't have to worry about it, and other things. Maybe 11 you want to call the lottery in question before you 12 make the donation if this is going to fall within the 13 guidelines. 14 MR. GABRILLO: I just wanted to address 15 one thing that was brought up by Mr. Bresnen as far as 16 the -- you know, making copies of the specific check 17 or the specific invoice, cite the particular section 18 of the Act or rule. All of that is done by the 19 auditor. In other words, we don't just say, okay, 20 we're going to disallow $5,000 and we're not going to 21 tell you what that $5,000 was for. You know, we make 22 copies of the check. When we exit with the 23 organization, at that time we present those exhibits. 24 We tell them these are the checks that we disallowed, 25 this is invoice that was paid. We cite the specific 148 1 section of the Act or the specific rule that states 2 why this particular expense or distribution was 3 disallowed. So, that is -- The auditor's already do 4 that. That is part of the audit process. That is 5 part of the exit conference. 6 MR. ATKINS: And I'd like to follow up, 7 and, Mr. Webb, if you'd like the -- I'll give you a 8 card after the meeting, and if you'd care to give me a 9 call, I can point you to several organizations that 10 recommend that you do get a statement from an 11 organization before you make a donation to them, what 12 it is they do and what they do with the money they 13 give. 14 You know, for example, you know, my 15 college, you know, contacts alumni, and they raise 16 money, and they'll say in a letter or a brochure, you 17 know, we use, you know, money we receive from alumni 18 for this, this and this. I think that would go a long 19 way -- you know, something like that from the charity 20 would go a long way towards addressing some of the 21 issues that arise for the auditors. 22 CHAIR NEINAST: Yes? 23 MR. HUTCHINGS: Once again, my name is 24 Charles Hutchings. I'm from Dallas. We just went 25 through an audit at Amvets Post 52 there in Dallas, 149 1 and there was no such thing -- gave us any specific 2 thing on what they disallowed. They ran a column down 3 one side of the sheet. What he said was -- Of course, 4 it's only a draft at this time, but he ran a column 5 down one side, said out of your general fund -- which 6 they do have other sources of income -- this is what 7 we -- you know, came from that, this is what you 8 spent, we take that all away from that, over here is 9 what you donated to it from your bingo license, and we 10 can't find where you spent any of that money for 11 charitable purposes, therefore, it's all disallowed. 12 In a nutshell. Recently. 13 MR. ATKINS: Okay. Well -- and I'll 14 restate what I said earlier. None of us have the 15 audit here in front of us. If you'd like to follow up 16 with that man after this meeting, I'm sure that he'll 17 be happy to go over it with you. 18 MR. HUTCHINGS: Well, what we need is 19 exactly what' been stated up here. I mean, you know, 20 if we're not in compliance, okay. You know, that's -- 21 we'll take care of it. The problem is, how do you 22 know. 23 As Bresnen just said, you know, we need 24 something to tell us this is the check, that you 25 should not have done this, why you should not have 150 1 done it and why, from the Bingo Enabling Act or the 2 rules, it's not allowable, and that's what we need to 3 get past this process. This process of coming out and 4 just deciding what's what at the whim of someone, 5 that's no way to run a railroad, guys. They're 6 absolutely right. We need particulars. We need down 7 to earth, in-print rules that make good sense that 8 will carry things on through, and when you get that 9 out there, all this stuff really will go away because 10 99 percent of the people out there want to comply, but 11 how in the world do you know if you're complying. 12 I've been through -- Amvets Post 52 has 13 been through one complete audit with this Commission. 14 Not a problem. We haven't changed doing a thing. Not 15 a problem. Fact of the matter is they said great 16 audit, you moved a lot of checks around, you gave good 17 written evidence as to what it was for and where it 18 went, who did what and when it came back. We've been 19 through two IRS audits in the many years I've been 20 with them. Not a problem. We get this audit, we got 21 major problems. 22 MR. TAWIL: Mr. Hutchings, it seems to 23 me just listening to you, knowing that you're there 24 doing all of this, maybe what we need to see is how to 25 train these auditors in order for them to know what's 151 1 right and what's wrong and give the same list to the 2 organizations so they'll learn how to track what 3 they're doing. Is that what you're saying? 4 MR. HUTCHINGS: Well, that would be 5 fine, but all we need is just down to earth, 6 straightforward, simple English rules as to what can 7 be done, what cannot be done, and, you know, these 8 aren't really dumb people out here or anything, guys. 9 They can follow it if you put it in writing. That's 10 all we really need. 11 CHAIR NEINAST: I agree what you said, 12 and I'll repeat what I said and what Billy said 13 earlier. That is what we're trying to do, and this is 14 the first shot out of the gun and that we're hearing 15 complaints about that they're too specific, we have 16 too much. We're starting something else. So, we're 17 trying to do that. We're trying to get rules and 18 regulations out there so that you'll know what's going 19 on and to give guidance to both you and to the 20 auditors and to the other people in the division -- 21 Bingo Division. It's going to take awhile to do it. 22 And on the other hand, you're saying 23 you're putting out too many regulations, you're 24 overregulating. So, we're caught in the horns of a 25 dilemma, but that's exactly what we're trying to do, 152 1 and that's the purpose today of this hearing on these 2 regulations. There will be more. 3 MR. HUTCHINGS: Mr. Chairman, I'm not 4 trying to be a wise guy. Do you know how many times 5 we've heard that? I've been in this for 20-something 6 years, from the get-go. You know, some of our 7 organizations -- the Amvets had some of the first 8 licenses that were granted in this state, and ours 9 were somewhere in that first bunch, and I was there 10 years before it became a -- or got a bingo license. 11 I've been a longtime member of that organization, and 12 I've seen these things come, and I've seen them come, 13 and I hear the same thing, and it keeps being the same 14 way, and when -- Like I say, when you propose a rule, 15 I have no problem with the rules, but I want it 16 straight and to the point. Let's don't leave it wide 17 open to go over here or over there or over yonder. 18 Let's leave that rule straight and to the point, and 19 that's not what I'm hearing here today. 20 Everything has -- you know, let's leave 21 it up to this and let's leave it up to that. That's 22 not going to do the people out here that's trying to 23 run these things any good. What we need is a 24 straightforward, objective set of rules, and the 25 way -- In my opinion, the way you get them is by 153 1 posting all this stuff out there. If you really want 2 that, is to post it all out there where everyone can 3 get it and take information from the public, the 4 people who play bingo, the people who run bingo. The 5 people who run bingo have a wealth of information in 6 this area. I heard Steve Fenoglio had to do a request 7 to get the draft of these rules. That's no way to -- 8 You know, this is supposed to be an industry. This 9 Commission down here is supposed to take care of that 10 industry. Their job is to assist us to run a better 11 industry. It's not to come in here and write rules 12 that just are arbitrary, just float about and leave us 13 totally unknowing as to what in the world we should be 14 doing and shouldn't be doing, and that's what I've 15 seen for 20 years. 16 I'll get off my soapbox. Thank you 17 very much for listening. 18 CHAIR NEINAST: Okay. I mean, this is 19 the purpose of this -- 20 MR. ATKINS: I'd like to discuss -- 21 CHAIR NEINAST: One at a time. 22 MR. ATKINS: You know, I want to 23 reiterate what the Chair said. That's the point we're 24 trying to get to, but, you know -- Let me finish. You 25 know, but now we're having the recommendation made 154 1 that, you know, we don't even consider any of these 2 until they're all done. So, there's another delay. 3 What we're trying to get to -- There's 4 a process in place. There's a rule making process 5 that's set out by law, and what we're trying to get to 6 is the process whereby we can publicize these and get 7 them out to the public and get that comment, and it's 8 a process that this agency, you know, has followed all 9 along. 10 MR. HUTCHINGS: And how -- when you say 11 published, we're talking about in the register. 12 MR. ATKINS: That's correct. 13 MR. HUTCHINGS: Well, once it hits the 14 register, it's not going to get changed. 15 MR. ATKINS: That's not true. 16 MR. HUTCHINGS: I have not seen that 17 many get changed, maybe one, two. You know, what has 18 to happen is the industry needs to take this stuff 19 before it ever gets to the commissioners and have 20 their say in it, they get their input into it and, 21 between everyone, work out a system that will work. 22 If you have to come down here and request this stuff, 23 I mean, you know, that's -- If -- Let me just put it 24 this way: If I'm standing out there and I don't know 25 this is going on, I'm not in here today because it's 155 1 not out there for you to readily get off of the 2 Internet or anything. How are you supposed to know? 3 How can you come in here and give comment -- If you 4 don't know it's there, how do you come down here and 5 give comment? You can't. 6 This stuff needs to be out there on the 7 street a couple of months where people can actually 8 access it, where the bingo industry can find out it's 9 out there and start talking about it and look it over 10 and then you'll find out you'll get a lot of comment, 11 but as long as you have to request the information 12 from the agency down here, someone has to up front 13 tell you that something's going on. Otherwise, you 14 have no idea, absolutely none. 15 MR. ATKINS: We're going to agree to 16 disagree. There is a public comment period. Folks 17 are welcome to take part in it. 18 MS. BRACKETT: Let me ask him a 19 question. So, you would be for a stakeholders meeting 20 like Steve Bresnen was referring to? 21 MR. HUTCHINGS: Well, yes, these things 22 should be, you know, discussed all over the state 23 before they go to the commissioners. The 24 commissioners have the right to change them if they 25 wish, the way I understand it, but, you know, it 156 1 should be discussed out there with the industry, but 2 this Commission, by terms of the way commissions are 3 set up in the state of Texas, is here to assist the 4 bingo industry. They're here to assist the bingo 5 industry, and that's not what -- that's not the way 6 it's working out, I mean, you know, the way I see it. 7 We get these audits where people, and 8 I'll tell you -- I just went through one. Never had 9 a problem, never thought I was going to have a 10 problem, and then it comes back and we have all kinds. 11 Yeah, we need a lot more openness. 12 This stuff needs to be gotten out there two months. 13 You have them -- I don't know how often you guys meet, 14 once a month or every quarter or -- 15 MS. BRACKETT: Quarterly. 16 MR. HUTCHINGS: Is it quarterly? But 17 if you'll put it out -- like, if you have a meeting 18 here and you put this stuff on the street where people 19 can actually get it and start talking about it, next 20 meeting you'll have a full house down here wanting to 21 discuss this stuff. 22 MS. BRACKETT: Okay. Thank you. 23 MR. HUTCHINGS: Thank you very much. 24 CHAIR NEINAST: Any further questions 25 or comment? 157 1 Okay. Let's move on to books and 2 records inspection. 3 MR. ATKINS: Books and records 4 inspection, if you -- if you'll recall, I believe it 5 was the last meeting when we gave a presentation on 6 the different training programs that we offer to 7 licensees. One of those that we discussed, what's the 8 books and records inspection. Books and records 9 inspection is generally conducted within six months of 10 an organization getting their original license. It's 11 an opportunity for the auditor to sit down with the 12 organization and go over the books and records that 13 they're keeping. The rule, again, lays out the 14 purpose, the scope of the information, the process for 15 a notification, and exactly what's covered in the 16 books and records inspection and then the exit 17 conference. 18 CHAIR NEINAST: Questions for Billy? 19 MR. ATKINS: This, again, would be -- 20 As Mr. Bresnen noted earlier, this is something that's 21 putting the organization on notice of agency process 22 and wouldn't necessarily require anything of them. 23 MR. SPEED: Why is this item even on 24 here, Billy? 25 MR. ATKINS: Again, it puts -- 158 1 because -- to provide organizations information. 2 Instead of them getting the letter and going, you 3 know, you're going to have a books and records 4 inspection, that way they can go and see what a books 5 and records inspection is and what is going to occur. 6 CHAIR NEINAST: As we discussed 7 earlier, what they're trying to do is get as much 8 information out in the rules as possible to -- so that 9 the -- all of the licensees will have an idea of what 10 to expect and when to expect it, and there will be 11 more to come. 12 Any further comments or questions on 13 that section? 14 (No response.) 15 CHAIR NEINAST: Okay. Tax review 16 inspection. 17 MR. ATKINS: The tax review inspection 18 occurs whenever an organization is delinquent in their 19 quarterly report -- filing their quarterly report or 20 paying the fees and taxes to the State. This rule 21 lays out the reasons for a tax review inspection, how 22 it's performed and the results of the tax review 23 inspection. 24 CHAIR NEINAST: Questions or comments? 25 (No response.) 159 1 CHAIR NEINAST: If none, next section 2 is game observation. 3 MR. ATKINS: Game observation is 4 generally conducted in conjunction with either an 5 audit or another inspection, and the game observation 6 lays out the requirement for the operator in charge of 7 the organization, obtaining information from the 8 workers. It verifies that that occasion is being 9 conducted in compliance with the Act and the rules. 10 It is generally -- it generally does not involve a 11 detailed examination of either books or records, but I 12 believe, based on the determination from the 13 observation, it may. 14 CHAIR NEINAST: Comments or questions? 15 MS. TAYLOR: I do have one comment. 16 Under that 1C where it talks about the Commission 17 could provide questionnaires to the workers to be 18 completed during the bingo occasion, most workers 19 aren't going to have time -- I mean -- you know, I 20 mean, they're busy. 21 MR. ATKINS: Right. 22 MS. TAYLOR: So, I think that could be 23 a problem that it has to be completed during the 24 occasion, because most of them are pretty busy. 25 MR. ATKINS: Are you thinking about the 160 1 occasion or the game? 2 MS. TAYLOR: The game. 3 MR. ATKINS: Okay. We're not talking 4 about the game. We're talking about the occasion 5 which is, you know, that entire licensed time. 6 MS. TAYLOR: Okay. But most of the 7 workers don't show up until the game time. You know 8 what I mean? And most of them work for the second 9 session if you've got two sessions. So, I just -- 10 That could be a slight problem in the fact that 11 there's not time for them to stop and start filling 12 out questionnaires. 13 MR. GABRILLO: Normally, in game 14 observations we've done in the past, we randomly 15 select workers. In other words, we don't go down your 16 list that's on the CVS and say, okay, we're going to 17 talk to this one and this one. We usually try to 18 arrive before the occasion starts or before the game 19 starts. If some of your workers are there, you know, 20 we'll go ahead and do it at that time. 21 In other words, the whole purpose of 22 this is to do this with minimum disruption of the 23 session, and, so, if we can't get them right then and 24 there during the session -- you know, if the game 25 starts, we realize that they're busy, you know, we'll 161 1 wait till after the occasion's over -- or after the 2 games are over. 3 MS. TAYLOR: Most of us don't pay them 4 any more than we have to which means they get there 5 earlier than the games start and when the game's over, 6 they're -- 7 MR. GABRILLO: Right. 8 CHAIR NEINAST: Steve? 9 MR. FENOGLIO: Just briefly to follow 10 up on that, if you're going to -- and my clients 11 identified that as a potential problem because it says 12 one or more. I mean, presumably -- and I hear what 13 Mr. Gabrillo is saying, and to the extent that I 14 participated in this type of an observation, they 15 usually select only a few of the employees, but if 16 they decided to choose all of them, they may not be 17 able to complete it within that occasion, and I'd hate 18 for that then to be used as an independent basis for a 19 citation of a Commission rule, and I don't think 20 that's their intent at all, but my suggestion would be 21 if you're going to adopt "C," is that you modify that 22 to say may be returned during the bingo occasion. 23 Again, she's right, a lot of employees you employ, you 24 don't want to pay them any more than they have to. 25 So, they don't show up at the beginning of a licensed 162 1 occasion, they'll start up 15 minutes after and then 2 they're going to leave shortly after that, and, so, I 3 wouldn't want that to become a separate licensing 4 problem, and I think it can be solved pretty easily. 5 CHAIR NEINAST: Other questions or 6 comments? 7 MR. BRESNEN: Mr. Chairman, I just got 8 one quick question, I think. Who will do these game 9 observations? Is it just auditors or will the 10 security people be doing them as well? 11 MR. ATKINS: Well, this rule is written 12 by the audit staff, but it would be my suspicion that 13 a game -- any game observation conducted by any 14 Commission employee would be subject to that. 15 MR. BRESNEN: Okay. I would like to 16 suggest that you consider limiting that to the audit 17 people, and I hope I'm not too far off base on this. 18 One thing I hear a lot is when -- You know, the 19 security folks are all peace officers. I'm assuming 20 that means some of them carry weapons, and what I'm 21 understanding is that in bingo halls, that that 22 sometimes causes a bit of a commotion and concern by 23 people when armed peace officers are entering the 24 hall. So, I'd just like to suggest that if this is an 25 audit-type deal, that it be done by auditors and that 163 1 the rule reflect that it be done by auditors and 2 unarmed auditors, for that matter. 3 CHAIR NEINAST: Well, I question that, 4 Steve, based on personal experience. I made a 5 complaint to the Commission at one time about a 6 specific -- and it fell clearly under the security 7 division, and one of their men came out to observe 8 what was going on, and I think that may happen 9 frequently. I don't know what Mike would say about 10 it, but I know in my -- the complaint that I made, in 11 effect, required a security division to go observe the 12 game or observe what was going on. 13 MR. BRESNEN: I gather that this -- the 14 game observation is not necessarily a, quote, 15 investigation in response to a particular complaint, 16 but would be a more routine sort of thing. So, I 17 think you could distinguish -- I'm not trying to say 18 keep the security people out of the halls when they're 19 doing what security people need to be doing. 20 CHAIR NEINAST: Oh, okay. 21 MR. BRESNEN: I'm just saying, on these 22 routine matters -- and by the way, just for 23 foreshadowing, you're going to hear this discussion 24 about the need for peace officers to be involved in 25 this over and over because it's something people 164 1 routinely tell me about that is -- it grates on them. 2 So, anyway. 3 MR. ATKINS: The game observation, like 4 I said, Steve, I think is usually done -- for our 5 purposes, the Bingo Division's purposes, is usually 6 done in conjunction with another type of audit. 7 If that's correct, Roy. So -- 8 MR. GABRILLO: Right. It's done with 9 an audit -- in conjunction with an audit. It could 10 happen -- it could be complaint based. In other 11 words, security may go ahead and refer it to us even 12 though the Chairman stated that he filed a complaint 13 and security -- and security, you know, handles 14 investigations, the complaints, and they go into the 15 halls, but at the same time, there might be times 16 where they find that it's appropriate for audit to 17 handle it, and this is one method for us investigators 18 to do game observations. 19 MR. BRESNEN: There may be a way to 20 distinguish inside, but it's a concern of some people. 21 MR. ATKINS: We'll check. 22 MS. TAYLOR: I have one other little 23 question about this. I notice that it says the 24 operator in charge must verify the prize structure, 25 the operator in charge has to verify the inventory, 165 1 the operator in charge must count the number of cards 2 sold, the operator in charge must count the 3 attendance. I mean, at most normal bingo occasions, I 4 mean, the operator in charge is also the head cashier, 5 and, I mean, they -- Honest to God, it has to be the 6 operator in charge doing each of these things at this 7 occasion? 8 MR. GABRILLO: Well, that is the 9 operator -- 10 MS. TAYLOR: Most of the halls, you've 11 got a floor worker that runs around and counts the 12 attendance for you and comes up and tells the 13 operator, you know, there's 203 people here. I mean, 14 there's a lot of things that you're asking the 15 operator in charge -- I mean, why would it matter who 16 does it as long as it's done during that occasion and 17 the operator in charge is notified of the result? 18 MR. ATKINS: Because we've -- you know, 19 and this is part of the broader issue. The operator 20 in charge is supposed to be bound, the operator in 21 charge. So, if you're telling me that, you know, the 22 operator in charge is the cashier and there's a 23 problem over here that the operator in charge should 24 be dealing with, but they can't because they're the 25 head cashier, then that's a concern. We want an 166 1 individual that can respond to those type things. 2 MS. TAYLOR: So, the operator is the 3 one that has to run around and count everybody? 4 MR. ATKINS: No. Well, if it -- in 5 conjunction with the game observation, and it doesn't 6 say that the operator in charge has to do it, is that 7 they have to verify it. 8 MS. TAYLOR: No. It says the operator 9 in charge must count the number of cards sold and the 10 number of people playing the cards. 11 MR. ATKINS: Okay. I'm sorry. 12 MS. TAYLOR: They must count the 13 attendance. So, I mean, it's saying that they can't 14 delegate somebody to go do it and bring the result to 15 them, that they must go out there and personally do 16 all of these things. 17 MR. GABRILLO: Well, I mean, I guess we 18 can modify that, because, I mean, I can understand -- 19 MR. ATKINS: Yeah. Okay -- 20 MS. TAYLOR: I'm not saying they're not 21 responsible. I just mean that, you know, that's what 22 delegating is all about. 23 MR. ATKINS: Okay. 24 MR. RINEHART: Are you talking about 25 the operator or the primary operator? 167 1 MR. ATKINS: Well, we're talking about 2 the operator in charge of -- 3 MS. TAYLOR: Of the bingo occasion. 4 MR. ATKINS: -- of the bingo occasion. 5 CHAIR NEINAST: I think it goes back to 6 the old thing that -- Harry Truman, the buck stops 7 here. The operator is responsible to see that it is 8 done. 9 MS. TAYLOR: Right, not that they have 10 to physically go and do every one of those things 11 during the occasion. 12 MR. ATKINS: Okay. 13 CHAIR NEINAST: Janice. 14 MS. WOODS: I've tried to be quiet all 15 day. My name's Janice Woods, and I'm a bookkeeper at 16 River City Bingo here in Austin which you've already 17 heard about. I have a couple of concerns about this 18 one. One, again, I would reiterate what a lot of 19 people have said here today about getting specific 20 about what it is that an audit and the auditors want. 21 Having just gone through one, it gets, you know, a 22 little tedious, but there's a couple of things in this 23 one that I would like for you to at least consider. 24 One is about the minimum amount of disruption to the 25 occasion. I'm talking about minimum, especially in 168 1 the middle of the games, and I've heard horror stories 2 and even about this particular agency. So, that -- I 3 would ask that that be -- and that this be clearly an 4 audit issue and not particularly your -- like Steve 5 Bresnen might have addressed, the security division. 6 CHAIR NEINAST: Well, your -- Janice, 7 if I might interrupt on that. Your first comment 8 there, that's in there. The only way you could make 9 it more specific would be to change will to shall, and 10 that's just semantics. 11 MS. WOODS: Okay. They have it. 12 Having been down that other building. Will, shall and 13 must are really horrible words. 14 I am also a little concerned about 1C 15 about the workers -- I believe Suzanne brought that 16 up -- and what would be on that questionnaire. Now, I 17 mean, I understand you want to make sure they know 18 what they're doing. I understand that, but what is on 19 this questionnaire? 20 MR. ATKINS: What is your concern with 21 that? 22 MS. WOODS: I just want to know what it 23 is, because this is where misinterpretations and that 24 lack of clear-cut communication comes in that 25 causes -- well, to use a term I use in one of my 169 1 daily, is resentment and fear, and, so, rather to -- I 2 wouldn't want to go there. Sometimes -- clear-cut 3 communication, what's on this questionnaire. I don't 4 have any fear about it with my particular workers, but 5 I just would like to know. 6 CHAIR NEINAST: Is there a standard 7 questionnaire you use, Roy? 8 MR. GABRILLO: Yeah, there is. I mean, 9 but it's an internal document. In other words, it's 10 part of -- 11 CHAIR NEINAST: Why can it not be made 12 an appendix to this rule? 13 MR. ATKINS: I would think it could be, 14 but, you know, at the same time, I think we're getting 15 to a point -- you know, this is one of those things 16 where, you know, it would be impractical for us to go 17 down and list every conceivable question. 18 MS. WOODS: I just want to make one 19 other comment. I just want to get off this soapbox 20 and then I'll go back there and sit down, and it has 21 to do with this operator in charge where, if you have 22 the word "must" make that attendance count, you know, 23 that is impractical. You know, the operator in charge 24 has a lot of responsibilities, and, you know, walking 25 up and down aisles counting people is impractical. 170 1 It's just totally impractical. That's my opinion. I 2 have different people that do that, usually one of my 3 security staff because it's -- you know, they're the 4 ones that are out here observing. 5 So, these musts -- you might want to 6 consider changing some of these musts because that 7 is -- you know, probably be challenged, and, you know, 8 you got enough of that going on today anyways. 9 So -- and, again, this also creates 10 much more work for us charities. You know, my word, I 11 ain't never seen so much paperwork in my entire life. 12 You know, what do you want me to do with this paper? 13 We had to go get a storage room to put all the paper 14 in, you know, but that's okay because when they came, 15 I had paper. 16 MR. ATKINS: That's the best thing to 17 do with an auditor. That's what I do. 18 MS. WOODS: I got boxes and boxes and 19 they were -- well, they're gone now. They just have 20 so much fun reading all that paper. 21 MR. ATKINS: Hey, can I ask you, 22 Janice, your security person, are they armed? 23 MS. WOODS: Yeah. Some -- Yeah. 24 MR. ATKINS: Is that a concern for your 25 players? 171 1 MS. WOODS: No, it is not. In fact, it 2 makes them feel very secure. 3 MR. ATKINS: Okay. 4 MS. WOODS: Because, you know, they're 5 also in uniform. I have off-duty Austin Police 6 Department in uniform with their little vest on and 7 everything because of just -- they feel good, and at 8 night -- we only conduct one midnight game -- they 9 escort our customers to their vehicles. 10 MS. TAYLOR: I think what he's trying 11 to ask is, why do they feel okay to have your security 12 guards with a gun and not the security from the 13 Lottery Commission walk in with a gun? 14 MS. WOODS: Because that is 15 intimidating when they walk in a bingo hall and -- you 16 know, in the middle of a session, that's a little bit 17 different. 18 MR. ATKINS: How is that different? 19 Would it be better if they were in a uniform? 20 MS. WOODS: I'd rather not get into 21 that at this moment because I know where you're going 22 with that, and I'm not going to address this at 23 this -- at the bingo advisory. 24 CHAIR NEINAST: Well, can we address 25 that one concern that Janice just expressed before we 172 1 got off on security, and it's been expressed 2 previously. On the responsibilities of the 3 organization's operator, couldn't it be a section, 4 Roy, that would say the organization's operator shall 5 be responsible for providing that and then list it and 6 then he can provide it by having someone else go do 7 it, but he's responsible for the end product? 8 MR. ATKINS: Yeah. Or even, you know, 9 consistent with "E" and "F" where it's the operator's 10 responsibility to verify it, but not necessarily do 11 it. I mean, any means that they choose. 12 (Discussion off the record.) 13 CHAIR NEINAST: Yes? 14 MR. BAKER: Can I say one thing? I'm 15 not registered. Can I say one thing? 16 CHAIR NEINAST: We'll ask you to fill 17 out a -- but you can do that later. Come on up and 18 identify yourself and -- 19 MR. BAKER: Sure. My name is Ronnie 20 Baker. I'm with the Texas Bingo Supply, and I was 21 going to answer Billy's question. I'm an ex-felony 22 probation officer, and Billy's question was, how is it 23 different than to have an agent with the Lottery 24 Commission coming in who wears a sidearm versus an 25 Austin police officer. When you have a regulatory 173 1 agency coming in who's given the responsibility of 2 overseeing the game itself and he comes in and he's in 3 a suit -- or I'm sorry, he's in a shirt, tie, he's got 4 a pistol, a Glock or whatever on his belt. He's not 5 an Austin PD. People don't know who he is. They 6 readily associate seeing a police officer in uniform 7 as a peace officer who's there to protect and serve. 8 When they see somebody walking in with a shirt with a 9 pistol -- what I would say is put on a jacket and 10 cover up the pistol. I think that's intimidating, and 11 that's the difference. 12 CHAIR NEINAST: Okay. Thank you. 13 MR. RINEHART: That would be easy 14 enough to wear a jacket, wouldn't it? 15 MR. ATKINS: Uh-huh. 16 CHAIR NEINAST: Will you pass that on 17 to Mike? 18 MR. ATKINS: I will. 19 CHAIR NEINAST: Okay. Okay. Let's 20 move to the last one, location verification 21 inspection. 22 MR. ATKINS: The location verification 23 inspection is done on original applications for a 24 license to conduct bingo, a bingo activity, and this 25 sets forward the provisions that an auditor undergoes 174 1 when they inspect a location for a conductor/lessor or 2 manufacturer/distributor, what they review and the 3 notification process. One of the things that we have 4 found most beneficial for the location verification 5 process is, in the original application process when 6 the auditor goes out to meet with the organization, 7 they're able to work with the organization and obtain 8 any missing information from their application. They 9 also will just -- I don't want to say by accident, but 10 it's worked out that oftentimes when the auditor goes 11 out for the location verification is the time that 12 they'll also conduct the books and records of -- the 13 pre-licensing interview with the organization. So, 14 it's an opportunity to kind of kill two birds with one 15 stone. 16 CHAIR NEINAST: Questions or comments? 17 MR. SPEED: Hasn't this always been the 18 rule here, Billy? Is there anything different here 19 than what we've always had? 20 MR. ATKINS: It's never been a rule. 21 It's the process, and it's always been the process. 22 MR. SPEED: It's all the same, though? 23 MR. ATKINS: That's correct. 24 MR. SPEED: Right. Okay. 25 CHAIR NEINAST: Okay. Steve, we said 175 1 we'd go back to the general audit. 2 MR. FENOGLIO: If I may just sit here. 3 CHAIR NEINAST: Sure. Please. 4 MR. FENOGLIO: Under the general audit 5 rule, you've got a couple of problems or challenges. 6 First, on the notification, you're going to have the 7 auditor notify the agency of the records that are 8 going to be available under Subparagraph B, and then 9 as I read it, the audit's going to start within ten 10 working days. At the entrance conference, you're 11 going to have a requirement that that auditor bring 12 all of those records, including general fund records, 13 to the regional office. 14 In the case of -- and Janice mentioned 15 it -- the River City Bingo charities, five charities, 16 they wanted -- initially wanted over 3,000 pages of 17 general fund records for one charity, and we actually 18 did a random sample to count, and it was over 3,000 19 pages of records that would have had to have been 20 taken from the general fund files of the Arc of the 21 Capital Area -- by the way, another charity, Family 22 Elder Care is another agency that's about a 23 3-million-dollar-a-year agency, and we thought their 24 general fund records were in the nature of another 25 10,000 pages. 176 1 For what reason? And the way we raised 2 it -- and I think this rule is drafted because of what 3 happened in the process of the audit, is if you want 4 to come look at the general fund records, they're 5 available for inspection at the Arc's office. It 6 actually has an office where it has a staff of 7 approximately 22 people, or if you'll tell us which 8 particular records you want, particular accounts 9 payable, accounts receivables of the general fund, not 10 the bingo records -- the bingo records are at the 11 bingo hall. We'll make those available, but if you 12 want us to take up 3,000 pages, we're going to have to 13 copy those, because guess what. The agency, like any 14 organization, is going to lose records. 15 I had a client who sent in on their 16 renewal license fingerprint records, and my office 17 hand delivered those to the agency. The fingerprint 18 records were lost. So, records will be lost. 19 A general fund, if there's a -- if the 20 agency, the Lottery Commission were to lose those 21 records, we may be in violation of our contracts with 22 either the State government, local government, a 23 private supplier, contractor, if you will. So, we're 24 then left with the opportunity to, well, let's make 25 copies of 3,000 to 10,000 pages of general fund 177 1 records, and that's what this rule in Subparagraph C 2 and D is now going to require the agency. If we don't 3 want to lose or let go of our general fund records, 4 then our solution is to have copies made, not at the 5 agency's expense, but at our expense, which I think is 6 the wrong way to approach it, and that's outlined in 7 Subparagraph C1 and C3. We have to either produce the 8 originals or make copies and make those available. 9 By the way, if -- in our case, they 10 would have been taken from the Austin office of Arc to 11 the Austin office of the Lottery Commission, the 12 regional office, but if we have an office in another 13 area 100 miles away, then it's our requirement to get 14 those general fund records to the regional office, and 15 I think that's the wrong way to do this. I'm not 16 quarreling with the bingo records, but my point is 17 insofar as the general fund records. 18 Turning to the exit conference, there 19 is no requirement in here which is contrary to what 20 Roy's staff always does, to itemize specifically -- 21 and Roy identified what they do, and I've examined a 22 number of the audit records. They identify by check 23 number, by deposit number, whatever it is, in great 24 detail. The rule doesn't require that. For example, 25 if they find that there's a charity that has a 178 1 discrepancy. 2 I think if you're going to have the 3 rule, you ought to have that type of detail so every 4 charity will know what type of documentation they'll 5 get insofar as a discrepancy or an error in -- or a 6 violation of a particular statute or rule and tie that 7 failure to have that record to a particular cite of 8 the rule or the statute. That's what Roy already does 9 and -- but it hasn't been captured in this draft rule. 10 Under Subparagraph F again, the second 11 sentence -- third sentence, the response -- the 12 charity's response must be received by the auditor not 13 later than seven working days after the date the 14 organization received the draft audit report. That's 15 not enough time. That's a denial of the charity's due 16 process rights, period, end of sentence, to have seven 17 working days, after an auditor or the agency may have 18 had these records, and, again, if the charity's given 19 all of the original records, bingo or general fund, to 20 the agency, how in the world can the charity then 21 develop a meaningful response in seven working days 22 when it doesn't even have access to those records? 23 They're in the agency's hands at that point. It's far 24 too short. 25 The resolution under Subparagraph 2 of 179 1 "F," the auditor will address any audit violations and 2 provide appropriate recommendations to the 3 organization, and that's pretty well what Roy's staff 4 does today. 5 Proof of the corrective measures taken 6 to address any audit violations must be submitted to 7 Commission in writing within 20 working days of the 8 exit conference. Well, wait a minute. What happens 9 if the charity disagrees, as some of my charities 10 have? And I can cite you chapter and verse. One of 11 them was that the auditor wanted to deny a triple net 12 payment, and one of the auditors didn't even know what 13 a triple net payment was in a commercial lease 14 context. We have to -- Under that sentence, we have 15 to have proof of the corrective measure taken within 16 20 days. We're going to contest it. We'll go to 17 hearing, but the way the rule is now drafted, that's 18 an independent violation of the Commission's rule if 19 we exercise our due process rights and challenge one 20 or more of the audit findings because we have to show 21 proof of the corrective measure taken even though we 22 disagree about whatever the corrective measure is or 23 we disagree with -- that there was any violation at 24 all. 25 I think the general audit rule needs 180 1 some more work, bottom line. There are clearly -- 2 what Roy's staff is doing today -- I mean, you're 3 trying to draft some procedures so everyone knows what 4 the rules of the road are. I don't think it's ready 5 for comment, and I would suggest to you that this 6 general audit rule be put in the same category as the 7 gift certificate rule and make it subject to -- you 8 know, tabling this issue and put it on the Web, get 9 more comment, and I think staff needs to do a little 10 more work in fleshing out what their internal 11 procedures already are, and again, the best example is 12 in Subparagraph F1. They know. I mean, Roy has 13 trained his staff. I don't always agree with some of 14 their findings or recommendations, but when I get a 15 hold of the audit record, I know what Roy or his staff 16 have decided is a violation. This rule doesn't give 17 us that right to know immediately by chapter and verse 18 of the rule or of the statute and which particular -- 19 and, again, if you're looking at either a bingo fund 20 or general fund, there may be hundreds of checks, 21 thousands of invoices at issue, and the practice is 22 not for us to guess at it. Let's just put it in the 23 rule if we're going to have the rule. 24 And one final comment -- and I don't 25 know the answer to it, Billy, and let me say that I 181 1 also got this copy of the rule pursuant to the open 2 records request. I couldn't tell from your Notice 8 3 if, in fact, this rule would be coming up today. 4 So -- and the same is true of all of them, other than 5 I knew there was going to be a discussion of the draft 6 gift certificate rule. 7 I'm not sure that you have the legal 8 authority under Subparagraph C3 to charge the charity 9 with the cost of the audit if the charity says we want 10 you -- we want the audit to be conducted at someplace 11 other than the regional office. For example, if, in 12 the case of the Arc of the Capital Area, we'll make 13 available to you upon reasonable notice and reason -- 14 and if you'll reasonably accommodate us, you can have 15 access to our general fund records. Although, I think 16 as a general rule, the Arc is appropriate in saying, 17 no, you can't look at all of our general records, but 18 when -- the audit that we went through, we preserved 19 our area not to provide it, and we said, nonetheless, 20 you can come look at them, we'll make them available, 21 or if you know of a specific record, we'll make a copy 22 of that and send it to you, no problem, but if you 23 want to look at everything, which initially the 24 auditors did, I don't think you necessarily -- I'm not 25 sure, Billy, y'all have the authority to require us to 182 1 pay those costs, but I haven't researched the issue. 2 MR. ATKINS: I'd look to 2001.56 -- 3 sorry, Steve, I don't know the -- "D," I think it is. 4 MR. FENOGLIO: And I'm sorry. 200.56? 5 MR. ATKINS: 560. 6 MR. FENOGLIO: 560. 7 MR. ATKINS: "D." 8 MR. FENOGLIO: Okay. Without 9 researching it any further there, there is authority 10 there which, I guess, then you can use later to 11 charge -- or start charging agencies for all of these 12 processes if you want to. 13 MR. ATKINS: You know, I'll go back to, 14 you know, somewhere down the line, something bad can 15 happen, but, you know, that's not the intent. 16 MR. FENOGLIO: Well, assuming the 17 agency has that authority, I would submit to you that 18 if the Arc wants -- doesn't want to incur the cost of 19 copying 3,000 pages of original records and it doesn't 20 want to incur the possibility that some of those 21 records, which United Way will require whatever will 22 be lost, that shouldn't have -- it shouldn't have to 23 require the payment of the Lottery Commission to come 24 look at those records at its home office. That's 25 policy issue that you and I may disagree on. 183 1 CHAIR NEINAST: Steve, one question on 2 just one -- the first thing you raised on timing for 3 getting the stuff ready. If -- Changing later to 4 earlier -- that's the last sentence of "B" at the top 5 of the page. Would that suffice? 6 MR. FENOGLIO: Yes. Yes, that would 7 solve the problem so you're not under a trigger day, 8 but ten working days may be reasonable for some, but 9 totally unreasonable to others. 10 CHAIR NEINAST: Could you live with 11 that, Roy? 12 MR. ATKINS: Are you talking about the 13 last sentence of "B"? 14 MR. FENOGLIO: "B" as in Baker. 15 CHAIR NEINAST: Yeah. Has to be 16 scheduled -- an entrance conference must be scheduled 17 not later than ten working days. In other words, it 18 has to be scheduled within ten days or less from the 19 receipt of the letter. 20 MR. GABRILLO: But it's just talking 21 about scheduling. 22 MR. ATKINS: Well -- and it's talking 23 about -- what we intended for that to be was 24 notification to the organization that that's a time 25 line we're going to follow. 184 1 MR. GABRILLO: Right. 2 MR. ATKINS: That it's going to be 3 incumbent upon the agency to start the audit within 4 ten days to -- you know, because some concerns people 5 have raised that, you know, they don't know when these 6 audits start or how long it takes us or whatever. 7 MR. GABRILLO: It's really on the 8 auditor. The auditor has ten days to at least make 9 contact and then schedule the entrance conference. 10 CHAIR NEINAST: Oh, okay. 11 MR. GABRILLO: They could schedule 12 it -- you know, the operator may not be -- or 13 bookkeeper or both of them may not be available for 14 two weeks. 15 CHAIR NEINAST: So, it's not saying 16 that the entrance conference must be scheduled -- 17 MR. GABRILLO: Within ten days. 18 CHAIR NEINAST: It just says you have 19 to talk to the -- 20 MR. GABRILLO: Or take place in ten 21 days. 22 CHAIR NEINAST: But you have to talk to 23 the agency and say -- within ten days and say we want 24 to schedule this a month down the road? 25 MR. GABRILLO: Exactly. 185 1 CHAIR NEINAST: Oh, okay. Do you 2 understand that, Steve? 3 MR. FENOGLIO: I'm not sure that's 4 quite what it says. I appreciate what the agency's 5 trying to get to, but I think you could read it two 6 different ways, because it says the audit will 7 begin -- and then you read through the rest of it -- 8 but not later than ten working days after the 9 identified start date, and that could be construed to 10 be you've got ten days to come meet with us on our 11 initial meeting, and I hear you -- what I hear you 12 saying, you don't intend for them to state that -- to 13 be that. 14 MR. ATKINS: Right, because if you look 15 at C1, it says the entrance conference is the start 16 date. So, you know, I think what that's saying is ten 17 days after the entrance conference, the auditor's 18 going to start on the audit. 19 MR. FENOGLIO: I agree, but the last 20 sentence of "B" says the audit will begin. So, you 21 got begin, start and -- I mean, I did read this 22 several times, Billy, and I couldn't try to -- I kept 23 trying to figure out, well, how do these ten working 24 days work, and it seems to me they're blurred as to -- 25 MR. ATKINS: Well, it says -- you know, 186 1 the audit will begin after the auditor has contacted 2 the organization and the entrance conference has been 3 scheduled. 4 MR. GABRILLO: Not later. 5 CHAIR NEINAST: Okay. But I see what 6 Steve is saying. It says the audit will begin not 7 later than ten days. I mean, if you cut through all 8 of that and go down to the active verb, the audit will 9 begin -- or from the active verb to the subject, not 10 later than ten working days. So, that says that the 11 entrance conference has to be within ten working days. 12 So, I think it could be clarified just saying not 13 earlier than. Then leave it up to the auditor to 14 contact the -- 15 MR. GABRILLO: But it's also talking 16 about the identified start date. So, that means we've 17 already agreed on a date to meet. 18 MR. ATKINS: I mean, we can look at it. 19 We're obviously reading it one way. I guess we 20 haven't thought of the other way. 21 CHAIR NEINAST: It could be written two 22 ways. 23 Okay. Any other comments or questions 24 of Steve or anyone else? 25 MS. TAYLOR: I have one question. It's 187 1 under bingo reports. It's C2, and it all comes back 2 to the thing that, as of this time, we still have to 3 provide -- we have to send a quarterly report by the 4 fifteenth day. The sentence that says the person 5 signing the report must have provided a copy of the 6 report to each officer or director, which means that 7 you have to have had it completed before the fifteenth 8 if you've already provided a copy for everybody to 9 look at. It doesn't just say will provide. 10 MR. ATKINS: No, I don't think -- 11 MS. TAYLOR: It says will have 12 provided, which to me means that you've already done 13 that, you've already completed that. 14 MR. ATKINS: But I don't think that 15 we're necessarily tying it to that fifteenth day. 16 CHAIR NEINAST: Which one are you 17 reading from? 18 MS. TAYLOR: The quarterly report, C2. 19 CHAIR NEINAST: Oh, okay. 20 MR. ATKINS: It's the first one, the 21 very first one. 22 MS. TAYLOR: It's okay that you have to 23 provide it, but must have provided makes it sound like 24 you've already given everybody a copy before you mail 25 in the quarterly report. That's how I read that to 188 1 say. 2 MR. ATKINS: Okay. 3 MS. TAYLOR: It's only the "have" word. 4 MR. SPEED: Just cut one word out, must 5 provide. 6 MR. FENOGLIO: And while we're on that 7 one, I gather from this that there's a -- the 8 quarterly reports have been required, but I gather the 9 agency's now decided that they had no authority to 10 mandate the filing of quarterly reports, and this is 11 what this rule is designed to correct, among other 12 things? And, again, I'm talking about the bingo 13 report. 14 MR. ATKINS: No, I don't think that's 15 the purpose of the rule. I think it's to set down the 16 different requirements for the quarterly report. I 17 think we would think the quarterly report is required 18 under the Act. 19 MR. FENOGLIO: And the licensee would 20 be sanctioned -- or could be sanctioned if they 21 refused to provide the quarterly report on a timely 22 basis? 23 MR. ATKINS: I think so. 24 CHAIR NEINAST: But I think that's the 25 requirement of rule now, isn't it? 189 1 MR. ATKINS: Well, I think it's a 2 requirement of the Act. 3 CHAIR NEINAST: Yeah. There's not a 4 change in that regard. 5 MR. ATKINS: Not that I'm aware of. 6 MR. FENOGLIO: Thank you. 7 CHAIR NEINAST: Okay. 8 MR. BRESNEN: May I? 9 CHAIR NEINAST: Sure. 10 MR. BRESNEN: I'll be really quick. I 11 want to sign on to the points that Steve made. I 12 would suggest that on any of these time frames that 13 you have a phrase that says something -- or at another 14 time that the licensee and the agency agree on, just 15 to give yourself a little wiggle room. Anytime you 16 have flat deadlines or flat time frames, you might 17 just think about that. 18 More importantly, I'd like to talk 19 about this cost issue a little bit more. I'm not 20 familiar with the provision of the statute that you 21 referenced, though, but where a licensee is going to 22 be required to pay the cost of the field work being 23 done on-site, is that being done now? Has that been 24 past practice? 25 MR. ATKINS: I don't think we have. 190 1 MR. GABRILLO: We did have it in the 2 past where the organization refused as far as -- 3 (inaudible). The auditors had to do the audit at the 4 location. They refused to release the records. So, 5 the auditors had to go to the halls to conduct the 6 audits and -- but, no, we didn't charge them. 7 MR. BRESNEN: In his case, the costs 8 were fairly minimal because there's a regional office, 9 you know, near him. 10 MR. ATKINS: Right. 11 MR. BRESNEN: But I'm questioning -- 12 There's a whole lot of places in the state where I 13 imagine those costs wouldn't be so minimal. So, it 14 looks to me like the way the rule is written is 15 basically saying if you -- if you say, no, do it at my 16 shop, you're going to have to pay. That's the way 17 this rule will be. That is a fundamental change in 18 the agency's past practice and policy. 19 MR. ATKINS: Well, I want to go back 20 and correct myself, Steve, because there may have been 21 some examples where organizations requested the audit 22 and we might have charged them. I don't recall off 23 the top of my head right now. 24 MR. BRESNEN: Do we know whether this 25 money's been appropriated? 191 1 MR. ATKINS: Whether what money has 2 been appropriated? 3 MR. BRESNEN: There would be costs that 4 people would be paying to the agency to cover their -- 5 the expenses of doing an on-site audit, and does the 6 appropriations bill appropriate the money to the 7 agency once you get it to be spent for that purpose? 8 MR. ATKINS: It appropriates money for 9 travel, but as you know, I believe that amount is 10 reduced fairly commonly. 11 MR. BRESNEN: But there's also a method 12 of finance that supports your appropriation, and does 13 that method of finance include these costs? 14 MR. ATKINS: Which costs? 15 MR. BRESNEN: Your -- the cost -- I'm 16 looking at C3. You're going to collect some money 17 from some people to recoup some expenses. Now, is 18 that money going to go to the treasury or is it going 19 to go to support your expenses or what? 20 MR. ATKINS: Okay. I understand. Is 21 that reappropriated? 22 Yeah. I'm being told yes. 23 MR. BRESNEN: I'll follow up on it, but 24 I'd like to know who and where, why. Was this money 25 included in the legislative appropriations request 192 1 from the agency to the legislature, the estimated 2 revenues, and requested that it be appropriated or -- 3 MR. ATKINS: No, because at the time 4 that the LAR was created, this wasn't in place. It's 5 not in place now. 6 MR. BRESNEN: So, the legislator's 7 already appropriated money for the agency to do what 8 it's been doing in the past or what you anticipated 9 other costs would be, which I'm assuming included the 10 past practices which was doing some on-site interviews 11 or audits. So, I'm having a -- Why are we needing -- 12 Why are you needing this extra money if it's already 13 been appropriated by the legislature? 14 MR. ATKINS: I'm -- You know, there's 15 authority in the Act to charge for it, and as a matter 16 fact of fact, if I'm not mistaken, I believe this 17 year, in part because of the operator training program 18 which we have which we weren't granted any funds for 19 or whatever, I don't know that we have the travel 20 funds to actually complete all of the audits that were 21 scheduled. 22 MR. BRESNEN: Well, if you don't have 23 the money, then it must not have been appropriated. I 24 don't want to beat this horse to death. 25 MR. ATKINS: And I'm not sure I'm 193 1 understanding what you're trying to get at. Steve, if 2 there's a question, maybe you can ask it. 3 MR. BRESNEN: I'm asking all the 4 questions I can think of. 5 MR. ATKINS: Was it appropriated? No. 6 MR. BRESNEN: Y'all get the legislature 7 and you're asking for a certain amount of money to do 8 a job, and the legislature appropriated the money, and 9 now there's an additional source of revenue that was 10 not anticipated during that appropriation process, and 11 it's going to come out of licensees' pockets. You're 12 going to the licensees to ask them for more money 13 after the legislature has met and dealt with your 14 finance issues, and it's real easy for Chuck -- in 15 fact, most of my clients live in a major urban area 16 where there's probably one, but it's probably not 17 so -- I don't know. 18 You' got a regional office in Lubbock? 19 Maybe you do. I don't know. 20 MS. BRACKETT: Odessa. It's two hours 21 away. 22 MR. BRESNEN: Odessa. And, so, you 23 know, we're forcing them into the second scenario 24 which Steve raised which is to make copies of all 25 these things, and I think there ought to be a pretty 194 1 significant look at your -- whether this money was 2 budgeted for already to do those things. If it's 3 already been covered out of the Treasury, then don't 4 ask licensees to pony up more money. 5 Oh, and one final question. The last 6 sentence in F1 says that you must make the completed 7 audit report available to all members of the 8 organization. I'd either like to know what make 9 available means, have that be more specific, but more 10 importantly, I guess, I'd like to understand why that 11 would be required. There's probably general law on 12 the availability of records to a member of an 13 organization, but it's -- if it means you have to 14 distribute it to everybody affirmatively, then there's 15 another cost that's coming in, and I would imagine 16 some of these organizations have a lot of members. I 17 don't know. How long is an audit report when you get 18 it back? 19 MR. GABRILLO: It would just depend on, 20 you know, how detailed it was, how many violations 21 they noted and how -- in fact, a lot of it has to do 22 with the condition of the record. So, if they find a 23 lot of violations, it can get pretty lengthy. So, you 24 know, it's been tough. 25 MR. BRESNEN: Maybe some abbreviated 195 1 way of letting them know there was a report or maybe 2 make it available upon request of a member or 3 something like that where you didn't automatically 4 assume that you had to mail it to everybody, a lengthy 5 document. 6 MR. ATKINS: And I think something like 7 that would be fine. It's amazing how many times 8 organizations tell us -- or members of organizations, 9 officers and directors of organizations tell us, you 10 know, they didn't even know they'd gone through an 11 audit. 12 MR. BRESNEN: Well, maybe there should 13 be just notification to the officers and directors 14 because, ultimately, they're the ones that are 15 responsible for that anyway, and that would cut down 16 the paper and eliminate some of that cost. 17 CHAIR NEINAST: Any other questions or 18 comments? 19 Before we go further, I believe 20 Ms. Williams is exhausted. Let's take another 21 ten-minute recess till ten minutes -- 2:20. 22 (Recess.) 23 CHAIR NEINAST: The Chair will call the 24 Bingo Advisory Committee back into session. It's now 25 2:25. 196 1 Back on to Item No. 8. We've had -- 2 (discussion). We're back on Item No. 8. There's been 3 a lot of discussion on each of these rules. In 4 retrospect, it might have been better to have taken 5 each one up separately, but we can't undo what's been 6 done. The Chair will recommend -- and I've discussed 7 this with Billy -- that there be a motion that the 8 rules be recommended for revision by the bingo staff 9 after considering the comments that were made when the 10 verbatim record is made and that the rules as amended 11 with those comments taken into consideration then be 12 referred to the Lottery Commission for further 13 processing in accordance with the rule making process, 14 with the understanding that everything that was 15 discussed, everything that was questioned, everything 16 that was recommended may not be adopted in those 17 rules, but by -- and this is not part of the motion, 18 but part of the understanding with Billy that when it 19 goes to the Lottery Commission, that again will be an 20 item on the Commission agenda, and anyone interested 21 can come and address the Commission on those items. 22 And then if -- whatever the Commission approved will 23 be put out for public comment for at least 30 days in 24 accordance with the rule making process. That would 25 be my recommendation for a motion. 197 1 MS. BRACKETT: I move that we accept 2 his recommendation as a motion. 3 MR. RINEHART: Second. 4 CHAIR NEINAST: Okay. Further 5 discussion? If none, call the question. All in favor 6 of the motion, aye. 7 ALL MEMBERS: Aye. 8 CHAIR NEINAST: Opposed, no. 9 (No response.) 10 CHAIR NEINAST: Motion carried 11 unanimously. 12 Next item is No. 9. Consideration of 13 and possible discussion and/or action on establishing 14 a minimum price for card faces. I'm listed as the 15 action officer on that, but that was put on the agenda 16 at the request of Mr. Kris Eilers, and he is -- 17 Keller, rather, and he's here, and if you would come 18 in and have a seat, Kris, and identify yourself and 19 make your proposal. 20 MR. KELLER: Yes. My name is Kris 21 Keller, and basically the way that we came up with 22 this idea about studying the price of the face of the 23 bingo card was to help assist other games in following 24 laws that are already in place, which are going over 25 the 40 percent rule in -- on electronics sold and 198 1 paying their electronic bill within 30 days, those two 2 there, but we didn't intend it to be a big ordeal. 3 Like, some operators might say, oh, another rule, 4 another Lottery Commission banging down on us now 5 again. Not at all. It's more like setting the price 6 the same way that we set the maximum dollars allowed 7 to be given away, like $2,500. It doesn't have to be 8 a complicated thing, just a simple thing. You can't 9 sell the card for anything less than ten cents a face. 10 Basically that's it. 11 I represent 14 charities in 12 San Antonio. I spoke with approximately 30 charities 13 across the state, 3 distributors. All of those people 14 were in favor of this -- setting the price. The only 15 one that -- you know, he wasn't really against it at 16 all. I think he just needs more information, is 17 Mr. Fenoglio today when I brought it up to him. He is 18 the only one that showed any opposition to this at 19 all, and once again, I'm not sure if he's opposed to 20 it or not, but -- So, everyone that I have spoke to is 21 much in favor of this committee recommending that the 22 Lottery Commission set the price -- minimum price, and 23 there again, ten cents a face, it may not be the 24 number. Some people might say that's too low, and 25 they would worry about games dropping their price to 199 1 that. I don't see that happening. I think that it 2 would ensure a level playing field for all bingo 3 halls. 4 Also, if that -- if this gets done, it 5 would -- as I said before, it would ensure -- or help 6 ensure games to stay within the law more than they do 7 today, and if our competitor at that time was not 8 paying his bill within 30 days, we wouldn't care that 9 much because we know that they couldn't -- at least 10 they couldn't go in and give their stuff away for one 11 and two dollars where we can't because we do pay our 12 bill. 13 I did bring one of our charity 14 representatives with me today, and I don't know if you 15 wanted to speak, Jack, or -- 16 MR. KIEST: On the next item, 4. 17 MR. KELLER: But that's all I have to 18 say. 19 MS. TAYLOR: Billy, this is something 20 that had been brought up previously to the Lottery 21 Commission, and they did discuss this at the Lottery 22 Commission. The commissioners discussed this many 23 years ago, in fact, at the February 21st, 1996, 24 meeting. Is there any way we can get a copy of that 25 portion of the meeting to find out why they did or did 200 1 not decide against this particular issue? Because I 2 have a letter here from Mark Garcia that was sent out 3 to the primary operators in Nueces County saying that 4 they were going to be holding a meeting and that was 5 an agenda item, but I don't recall -- 6 MR. ATKINS: When was the date of 7 the -- 8 MS. TAYLOR: Here, I'll give you this. 9 MR. ATKINS: I mean, if there was a 10 transcript made, yeah, it should be available 11 somewhere. The Lottery Commission went through the 12 same kind of, I guess, process that the BAC had. For 13 a while, they just took minutes, and, so -- 14 MS. TAYLOR: Okay. I mean, I know we 15 went through this before because I think that most 16 places in the state at one point or another have had 17 the same problem that Kris' charities are having in 18 San Antonio and that you've got some charities that 19 perhaps have been in bingo a long time besides -- 20 smaller charities or newer charities out of business 21 and drop the prices, and, I mean, if it hasn't 22 happened in your community, believe me, it will at 23 some point in time, and, unfortunately, it's one 24 nonprofit trying to put another nonprofit out of 25 business, when we're really all in it for the same 201 1 thing. 2 I just don't recall anymore what 3 happened and why the commissioners have decided 4 against a minimum price because I was just reading the 5 letter again that we had sent to them, and we were 6 asking for a minimum price of ten cents a face, and 7 the Lottery Commission came to Corpus and -- on 8 Tuesday, January 9th, 1996, did come and have a town 9 meeting in Corpus for all the charities in Nueces 10 County. Unfortunately, they only let primary 11 operators, officers and directors of the organization 12 into the meeting. So -- but we've made presentations 13 to them before on the price war. So, I brought the 14 little folder along. I mean, it's something that 15 we've gone through before, and I personally think a 16 minimum price isn't a bad thing. 17 MR. KELLER: Also, the -- one of the 18 distributors that I, you know, posed this to that said 19 that they would welcome this asked a lot of his 20 customers how they felt, and he said -- his response 21 was the same as mine. Everybody that he spoke to was 22 in favor of this. 23 MS. TAYLOR: I believe, at the time, 24 the rule called that the Lottery Commission could set 25 the price by county, but I notice now when I read it, 202 1 it does not say by county. So, does that make a 2 difference in the wording? Would you have the 3 authority to set it area by area or would it have to 4 be statewide if that was something that was proposed? 5 MR. ATKINS: I don't know. 6 MS. TAYLOR: It used to say by county. 7 MR. ATKINS: I don't recall it saying 8 by county. I believe now it says something about can 9 adopt one or more schedules. 10 MS. TAYLOR: Okay. So, then it would 11 be the same thing. 12 CHAIR NEINAST: Well, Suzanne, 13 regardless of what the Lottery Commission did before 14 or did not do, as we learned by going back to them on 15 this issue of holding meetings out of the city of 16 Austin, I think if we think it's a good idea to have 17 them set a minimum price, then we should make that 18 motion, and it has to be specific as to the amount 19 and -- 20 MS. TAYLOR: I will make that motion. 21 I make a motion that the Lottery Commission sets a 22 price of -- a minimum price of ten cents a face for 23 electronic and paper cards. 24 CHAIR NEINAST: Okay. The -- Someone 25 wants to address that, but remember that the Lottery 203 1 Commission asked that when we make a recommendation 2 like that, that we come in with a lot of supporting 3 data, and I have not seen the item that you held up. 4 Apparently, it was prepared in '96, but we would -- or 5 I will need something -- or we will need something 6 like that to take to the Lottery Commission before 7 they act on the recommendation. 8 We have another -- Steve would like to 9 make a comment on the -- 10 MR. SPEED: Isn't ten cents awful low? 11 MS. TAYLOR: Minimum. It's a minimum. 12 MR. SPEED: I understand. Isn't that 13 very low? 14 MS. BRACKETT: I think it's a very low 15 minimum. 16 MR. SPEED: Wouldn't that entice people 17 to just keep lowering it? 18 MS. TAYLOR: We have people that -- ten 19 cents -- they're charging a dollar a book. 20 MR. KELLER: You know, I brought this 21 up at the last meeting. Ten cents is kind of low, and 22 as much as I dislike the electronics, if that price 23 goes up too high, then it would be great for me, but 24 it would probably be bad for them, because, you know, 25 somebody has to pay $90 for a computer, they probably 204 1 wouldn't buy one. 2 CHAIR NEINAST: Suzanne, speak up. 3 MS. TAYLOR: What I was reminding him 4 is that it's ten cents a face for every single face in 5 a book, which means if you have a nine on five up, a 6 minimum price on that book would be four fifty because 7 there's a total of forty-five faces in that book, 8 because there's five pages, nine faces on a page. 9 Four fifty -- ten cents might be too much for some 10 places. I mean, they might come back and say that it 11 needs to be eight cents, but since we need to start 12 somewhere for the discussion, I just said ten cents 13 because that's what Kris asked for, but that would 14 be -- on a nine on five up, that would be $4.50 would 15 be the minimum you could charge for that book. 16 MR. KELLER: 12 cents would be a good 17 number, too. 12 cents would probably be more in line. 18 It's just I threw 10 out there because it was an easy 19 number to work with for me. 20 MR. BRESNEN: Mr. Chairman, I rest my 21 testimony, from Steve Bresnen representing the Bingo 22 Interest Group. I was around in '96 when this was 23 being discussed. For the earlier part of that year, I 24 worked with the lieutenant governor. The latter part 25 of that year was my initiation into the bingo world, 205 1 and this is -- I feel like I've started -- come into 2 the middle of a movie again. You know, it's time for 3 me to go, I guess. 4 The reason is -- The reason that the 5 Commission did not set prices then is because of the 6 very thing that just happened here. You've got a 7 situation where somebody says I like for it to be ten, 8 and you say -- you start doing the math and you say, 9 well, maybe eight would be okay. The other guy says, 10 well, twelve would be a really good number, and, you 11 know, let's face it, y'all don't know what the number 12 is. The market will set the number. 13 The problem in Corpus elicited a huge 14 amount of correspondence to members of the legislature 15 in '96 which caused an interim committee to be 16 formed -- as a matter of fact, two interim committees 17 to be formed that held hearings all over the state. 18 There was testimony about this very issue and 19 complaints about, I guess, what, in essence, is 20 predatory pricing in another context, and the -- after 21 all of the discussion, I think the uniform conclusion 22 was that nobody knew where to set the price statewide 23 or at a given locality, that this is, in fact, a 24 business, that people do compete. They locate halls 25 right next to each other. You know, some of us talked 206 1 about trying to get halls -- a rule where you couldn't 2 have a hall within a certain distance of another hall, 3 and, so, all these efforts of trying to parcel up the 4 market and keep the -- everybody sort of whole and you 5 get yours and I got mine and everything, it doesn't 6 work. There's no principle basis for doing it. 7 There's no magic line that you can draw there. You 8 hunker down. You compete. Some people go out of 9 business. Some people thrive. 10 The situation in Corpus -- I haven't -- 11 the last few years, I haven't heard any more about 12 that sort of undercutting going on down there. I do 13 remember I received through the lieutenant governor's 14 correspondence system a lot of correspondence in '96. 15 Am I right? You're smiling. Am I 16 right? 17 MS. TAYLOR: Yeah, I initiated that 18 correspondence. 19 MR. BRESNEN: Well, there you go. You 20 were successful, but the problem generally seems to 21 have gone away. 22 MS. TAYLOR: The halls went out of 23 business. We lost two of the biggest halls that had 24 been there for a while, and it's, you know -- 25 MR. BRESNEN: I hate to cite the 207 1 Wal-Mart example, but, you know, people -- a lot of 2 main-street businesses went out of business, but we 3 didn't go say, you know, Wal-Mart can't set its prices 4 where it does. There are reasons that people set 5 these prices, and they're bona fide business reasons, 6 and we have some people here who are in this business 7 that can explain what happens on a day-to-day basis. 8 Let me just say by conclusion of my 9 remarks that we're strongly opposed to the Commission 10 setting prices, and these things come and go, and it's 11 a function of competition, and it can't be protected 12 from competition out there. We're competing for all 13 kinds of dollars, including the lottery dollar. So, 14 you know, while you're at it, make a recommendation 15 that they set the price of the lottery ticket up about 16 ten bucks, you know, for one set of numbers. That 17 would probably help bingo. 18 MR. KELLER: I wanted to just stress 19 the point that we don't want the lottery to set the 20 price, just the minimum price of what you can charge. 21 If you can get more and the market will bear it, 22 great. We're all for it. 23 CHAIR NEINAST: Well, that is the 24 motion on the floor right now, to establish a minimum 25 price of -- 208 1 MR. KELLER: Not a set price, though. 2 CHAIR NEINAST: No. It's been stated 3 as a minimum price of. 4 MR. FENOGLIO: Just briefly, and Mr. -- 5 My name is Steve Fenoglio, and Mr. Keller did ask 6 me -- well, actually, I asked him why he was here, and 7 he volunteered this issue, and it may be that there's 8 a competitive issue that needs to be addressed. My 9 only concern is if it's the ten cents, then what you 10 would have is, for a full pack, either paper or 11 electronic, of $33 for five games, is ten cents a card 12 face. 66 faces is 6.60 per game, 50 games in typical 13 larger bingo halls. So, that's $33 is the minimum 14 price for electronics, and I'm not so sure that when 15 you look at it from that aspect, that that makes good 16 sense from what some halls are doing today that are 17 much less than that, and I represent well over 100 18 charities. I don't know which way to go because 19 they're not all here, and I didn't know what the 20 proposal would be, but I'm not saying they wouldn't 21 support it, but they can't -- I can't say yes or no 22 right now because of the concern that I've just 23 raised. 24 I know they're charging less than $33 25 for a full pack at certain charity halls. A lot of 209 1 times they like to charge more, but the market won't 2 bear it, and I don't know that it makes -- in the 3 deregulating world, makes sense to establish it that 4 high. I mean -- and certainly there's a provision in 5 the statute that gives the agency this authority to do 6 so, and there's also another provision that says you 7 can't have a free bingo. I'm just not sure that ten 8 cents is the appropriate level at this point. 9 CHAIR NEINAST: Did you have -- 10 MR. SMITH: My name is William T. 11 Smith. 12 CHAIR NEINAST: And you've filed a -- 13 MR. SMITH: Yes, I have, sir. 14 I'm against the set pricing because we 15 have price levels -- different price levels in our 16 bingo halls, and we have price levels as low as a 17 nickel a card face. In our area, we couldn't -- we 18 wouldn't be able to do that. Like, it would be $33, 19 like you said, just for one set, and we play double 20 sets. So, therefore, if a player wanted to play a 21 full session of bingo just on a computer, it would be 22 $66. I don't know of any bingo player right now that 23 could do that on a regular basis. Competition is good 24 for the player, and if it's good for the player, in 25 turn, it will be good for the charities. 210 1 CHAIR NEINAST: Do you represent an 2 organization or a -- What is your representation? 3 MR. SMITH: Yes, I'm an operator for 4 the VFW Post 2549. 5 CHAIR NEINAST: Where? 6 MR. SMITH: Texarkana, Texas. 7 CHAIR NEINAST: Any questions of 8 Mr. Smith? 9 Yes. 10 MR. HUTCHINGS: Chuck Hutchings, 11 Dallas. This price thing has been visited several 12 times. If you put a ten-cent minimum, especially on 13 the computers, you're going to price a whole lot of 14 these people right out of the market playing bingo. 15 Instead of being able to get out and come to these 16 things two times a week or three times, you know, 17 they're going to have to cut back. 18 They're going to make the visits. 19 They're going to spend their money. We don't need a 20 price set to determine what's going to happen in the 21 bingo halls. Every bingo hall is individual like any 22 other company. We have and we need the right to set 23 the price. If someone comes in and you want to run 24 specials and stuff, that's fine. I mean, that's been 25 going on for 20 years in the bingo industry, and, you 211 1 know, it's worked well. 2 As I just heard, eventually -- well, 3 maybe. I'm not sure they were the halls that were 4 causing the problem in Corpus Christi, but they might 5 have been. Eventually the marketplace took care of 6 it. Two of them disappeared. They're no longer 7 generating problems down there. They have it under 8 control, and that's how things work out. This is just 9 arbitrarily supporting someone, you know, to just try 10 to stay there longer. You know, they need to take 11 care of business, get out there, be competitive, you 12 know, run a business as a business as if it was 13 anything besides bingo, and, you know, that's how we 14 try to conduct ours. We don't -- you know, we're 15 totally against setting prices. Thank you. 16 CHAIR NEINAST: Thank you. 17 Yes, sir. 18 MR. WEBB: Don Webb with Amvets and 19 Redmen. I think that our group would oppose it 20 because it would just price us out. Without going 21 into a long discussion, I just think that it wouldn't 22 be feasible. So, I would strongly vote against it. 23 CHAIR NEINAST: Thank you. Any other 24 questions or comments from the visitors or members of 25 the committee? 212 1 (No response.) 2 CHAIR NEINAST: We have a motion, but 3 there is no second. The motion was to recommend to 4 the Lottery Commission that they establish a minimum 5 card face fee of ten cents. Is there a second? 6 (No response.) 7 CHAIR NEINAST: Motion dies for lack of 8 a second. 9 Is there any other motion on this 10 issue? 11 (No response.) 12 CHAIR NEINAST: Okay. There being 13 none, we will move to Item No. 10 on the agenda, 14 consideration of and possible discussion and/or action 15 on delinquent payment to bingo distributors and 16 manufacturers. Again, this was an item requested by 17 Mr. Keller, and if you would. 18 MR. KELLER: Yes. Let's see. This is 19 about the letting games go past 30 days and not paying 20 their bill. Right? 21 CHAIR NEINAST: Yes. 22 MR. KELLER: That was part of the 23 reason for bringing up this minimum price for face is 24 that, in San Antonio, we have games that are 25 continuing to get supplies from their bingo 213 1 distributor and they have gone past their 30-day 2 payment deal, and quite frankly, we cannot compete by 3 paying our bill like we do. We cannot compete against 4 a game that is allowed to go past 30 days and continue 5 to get service, and that's what Mr. Kiest, I think, is 6 going to attest to. 7 We want the Lottery Commission to 8 enforce the 30-day rule on electronics and paper both. 9 We've had complaints since April with our local people 10 in San Antonio mainly for games going over their 40 11 percent rule on the electronics, and I think three 12 weeks ago, we finally got some action on it. 13 Hell, I wish I'd have brought up the 14 point about outlawing electronics all together. That 15 might have been a better issue, and then people that 16 were worried about not getting a certain price for 17 their electronics wouldn't have to worry about it 18 because we could all go back to paper and charge what 19 we used to charge five years ago, but maybe we should 20 bring that up at another meeting. I guess that's all 21 I've got to say. 22 CHAIR NEINAST: Well, before you leave, 23 let me see if I understand what you're saying. If I 24 understand it correctly, there is now a requirement 25 that all bills be, you might say, current, that they 214 1 have to be paid in 30 days, and is there a requirement 2 if they're not paid, they cannot be served by 3 distributors or -- 4 MR. ATKINS: They can. It has to be on 5 a cash only basis. 6 CHAIR NEINAST: Okay. 7 MR. ATKINS: If an organization's more 8 than 30 days late -- and that's for either an 9 organization conducting or distributor. We have 10 manufacturers that report distributors for being late. 11 CHAIR NEINAST: Okay. So, the rule is 12 there then, and as I understand it, you're, in effect, 13 saying that it's not being enforced, and you want to 14 see it enforced. Are you recommending or suggesting 15 any action that this committee could take in the way 16 of a motion or proceeding to the Lottery Commission? 17 Since it's already on the books, it's just not being 18 enforced, if I understand it, according to your 19 statement. 20 MR. KELLER: Well, if the Lottery 21 Commission could get a supplier to tell them which 22 groups are behind 30 days, they could probably act on 23 it, but if I understand the deal right, the Lottery 24 Commission doesn't know that a game's 30 days or more 25 behind unless someone turns them in. Is that right 215 1 or -- 2 MR. ATKINS: Yeah. Let me walk you 3 through the process real quick. We receive on a daily 4 basis information from, like I say, both manufacturers 5 and distributors regarding organizations that are 6 delinquent in their payments for products, and when we 7 get that information in, it's entered onto our 8 charitable bingo system, the CBS. We open what we 9 call the compliance case, and that identifies who owes 10 who and how much they owe, and what that does is that 11 creates what we call a delinquent purchasers list, and 12 that list is then generated, I believe, on the 1st and 13 15th of every month and sent out to all manufacturers 14 and distributors, and, so, if an organization is on 15 that list -- for example, Jane's in the front row. 16 So, she gets picked to be the example. If there's an 17 organization that's on that list that's been reported 18 as delinquent, then Jane is only supposed to sell to 19 them on a cash only basis. 20 Now, at the same time, manufacturers 21 and distributors also fax in daily organizations that 22 have become current or paid off any of their 23 liabilities. So, that list is, as I say, changing on 24 a daily basis. Now, we do, whenever we conduct audits 25 or inspections on organizations, whether they're 216 1 conductors, distributors or manufacturers, if we find 2 that they're violating that provision, then they're 3 cited for it. So, you know, to that extent, I take 4 exception with your comment that it's not being 5 enforced. It is being enforced. 6 CHAIR NEINAST: Any further questions 7 of Mr. Keller? 8 Mr. Kiest, I understand you wanted to 9 address this item. 10 MR. KIEST: I'm Jack Kiest. I'm for 11 the Central Park Lion's Club. I have been in this 12 business for -- I don't know, six years or so, I 13 guess, at a couple of different halls in San Antonio. 14 I'm primary operator right now and have been. 15 If the information that we get is true 16 that there are -- you know, my friendly charities that 17 are not paying their bill at all, that is a 18 manufacturer/distributor is loaning the computers to 19 them and they're selling those computers, you know, it 20 puts us at a tremendous disadvantage competitively, 21 and this is our concern. 22 We're a 501C4 organization. You know, 23 a lot of people are in that category, and the 24 computers constitute the third biggest cost that I 25 have as a charity. Rent's number one. Payroll's 217 1 number two. Computer's number three. Now, we've 2 chosen to play with computers, and I was around when 3 computers came on the scene, and I thought, you know, 4 that everyone had to pay rent on the computers, but 5 I'm finding out that some people aren't paying that 6 rent or they're pretty delinquent in the rent and may 7 not ever pay it. It puts us at a real disadvantage 8 competitively in San Antonio trying to compete with 9 those halls, you know, who are not paying their rent 10 on the computers because we are, and I feel bad about 11 it from that point of view. 12 I heard somebody say that, well, the 13 30-day rule didn't apply to computers because they 14 were different from paper or they weren't the same as 15 paper, and I'd like to mention a couple of things on 16 that account. Back in '68 -- 17 CHAIR NEINAST: May I interrupt just a 18 minute? 19 MR. KIEST: Yes, sir. 20 CHAIR NEINAST: That's not the view of 21 the Bingo Division, is it? 22 MR. ATKINS: I'm sorry? 23 CHAIR NEINAST: That's not the view of 24 the Bingo Division, is it, that the computer devices 25 don't come under the same rule, the 30-day rule, that 218 1 they're different for paper? 2 MR. GABRILLO: It's bingo equipment. 3 MR. ATKINS: Yeah, it's bingo 4 equipment. 5 MR. GABRILLO: It falls under the same 6 category. 7 MR. ATKINS: I know that a number of 8 the distributors have wanted to differentiate lease 9 from sale. 10 CHAIR NEINAST: And you've said no? 11 MR. ATKINS: I believe that we've held 12 to the 30-day requirement. 13 MR. KIEST: I have no other -- no 14 comment beyond that. Thank you for your time. 15 CHAIR NEINAST: Okay. Thank you, 16 Mr. Kiest. 17 Steve. 18 MR. BRESNEN: I just want to say we 19 strongly support what these two gentlemen said. If 20 there's anything we can do to help, you know, see to 21 that enforcement or support the agency's efforts to 22 enforce that strongly, we'd be for it. 23 CHAIR NEINAST: Well, I frankly am at 24 kind of a loss at what is being proposed. The rule is 25 there, and Billy says it's being enforced through a 219 1 procedure that he's outlined. So, my question is, 2 what does the industry want, or what does it expect? 3 But maybe we'll get an answer here. 4 MS. THOMPSON: Hi. I'm Jane Thompson 5 of Thompson Allstate Bingo Supply. When this was 6 effective -- This particular rule used to be effective 7 when the -- I guess it was still the Lottery 8 Commission, when licenses could not be renewed if 9 their name was on the delinquent purchasers list. 10 That's when this really worked well, but, Billy, I 11 don't remember why that's not happening anymore. 12 MR. ATKINS: Well, I think it was 13 because there wasn't any specific provision in the Act 14 or the rules to deny that, and, so, it was challenged 15 in a hearing and -- 16 MS. THOMPSON: So, I think basically 17 what people are saying, it's not that it's not being 18 enforced, there's just no teeth in the law. I mean, 19 we'll report somebody and they'll be on COD, but 20 that's as far as it really goes, and it used to 21 work -- when people were afraid that they weren't 22 going to be able to renew their license, then they'd 23 get caught up and stay caught up, but I think that's 24 what they may mean when they say it's not being 25 enforced. That's not really the right word. 220 1 MR. ATKINS: And I'll have to check, 2 Jane, because I don't recall that specifically. I'm 3 not saying it didn't happen. I'm just not recalling 4 it off the top of my head really clearly. So, I'll go 5 back and check on that. 6 CHAIR NEINAST: I knew you were 7 bringing the answer to my question, and I think I have 8 it now. If I could state what you'd like to propose 9 would be that there be a proposal for a change in 10 either the rule or the statute, whatever is required, 11 that would permit the suspension of any licensee that 12 is delinquent in accounts for more than 30 days. Am I 13 paraphrasing what you have just stated? 14 MS. THOMPSON: Well, you wouldn't 15 necessarily suspend their license. It's just that 16 when it came time to renew their license, if they were 17 on the delinquent purchasers list, then they could not 18 renew until they got current, but it didn't allow them 19 to suspend their license at that moment. It's just 20 whenever renewal came around. 21 MR. ATKINS: Well -- but I think what 22 Bill's saying is if we're not going to renew, then 23 we're going to be looking to deny or revoke the 24 license. I mean, we just don't get a license in and 25 not do anything with it. 221 1 CHAIR NEINAST: If you wait till the 2 renewal date, that might be five, six or seven months 3 that they're on the list. So, yeah, you don't want to 4 wait. I wouldn't think you'd want to wait until it's 5 time to renew to have the teeth. I would still -- 6 That wouldn't solve the problem for you for a number 7 of months before the expiration date. 8 MS. THOMPSON: And I don't know if that 9 would require legislative change or if that would be 10 rule. 11 MR. ATKINS: Something to look at. 12 CHAIR NEINAST: Okay. Thank you. 13 MR. SPEED: It's already a rule. 14 CHAIR NEINAST: But as I understand 15 what the last witness said, it's a rule that now does 16 not have any teeth in it because previously there was 17 some provision for, if they were delinquent, not 18 renewing their license or taking some action against 19 them, and Billy says that was challenged and held to 20 be unauthorized, if I understand what you said. 21 MR. ATKINS: Yeah. Let me try and 22 clarify it. It's not a rule. It's in the statute, 23 and what Jane was saying is that the license used to 24 be -- what she referred to as not renewed if someone 25 was on the list. Now, the problem is, is that it's 222 1 not in and of itself -- how do I say this -- bad to be 2 on the list. It's not a deniable or revocable grounds 3 to just be on the list. It's a denial -- it's -- The 4 problem becomes -- I guess, is if they're not paying 5 cash if they're on the list, and then I think the 6 question would go to, would you take action against 7 the organization or would you take action against 8 either the distributor or the manufacturer. 9 So, again, I don't -- You know, to 10 follow up on Jane's last comment, I don't know if you 11 could, you know, through rule, make it a requirement 12 that an organization not be on the delinquent 13 purchasers list in order to renew their license or 14 not. That's something that I think would -- we'd have 15 to look into a little more. 16 MR. HUTCHINGS: Mr. Chairman, this is a 17 widespread problem, I believe. When money becomes -- 18 if money -- If you owe money 30 days, when that money 19 becomes 90 days past due, I don't think there's too 20 many people in this industry that would have a problem 21 with revocation of license. When money -- They should 22 be notified or whatever -- how it's done. I guess the 23 distributors notify them that they're 30 days past due 24 or however the process works. 60 days after that, I 25 don't think that too many people in the industry would 223 1 have a problem -- and I say 60 days because in summer, 2 some people get behind. Summer's a bad time for 3 bingo, or it is in our area. So, you know -- but 60 4 days from that time, well, then, you know, they should 5 be catching that money up, getting caught up and out 6 of there. 7 So, I don't think there's too many 8 people in the industry that would have a problem with 9 a rule that says, you know, you get 30 days behind, 10 you get notice. 60 days after that, if you haven't 11 paid it, we're going to send you notice. If you can't 12 get up the money to pay it, then we're going to start 13 the revocation process. 14 Thank you. 15 MR. KELLER: I just want to ask another 16 question about the -- if -- say Ronnie -- Ronnie's 17 back there from distributing. How does the Lottery 18 Commission know now, Billy, if one of his clients are 19 more than 30 days behind? 20 MR. ATKINS: He notifies us. 21 MR. KELLER: He notifies you. And if 22 he fails to notify you, then how do you know? 23 MR. ATKINS: If he fails to notify us, 24 how do we know? We know when we do an audit on his 25 organization or when we do an audit on an organization 224 1 that he supplies to. 2 MR. KELLER: You know, we went through 3 an audit, and we just got a notice from Trend Gaming 4 for a bill that's a year and a half old. They're 5 saying that we owe them these moneys due, and we 6 haven't done business with them for a year and a half, 7 and we've gone through an audit. I guess they didn't 8 put us on their 30-day list, and I guess that we 9 slipped through the cracks on the audit because nobody 10 ever notified us about owing this money till about two 11 weeks ago. 12 MR. ATKINS: What period did the audit 13 cover? And the reason I ask is because usually audits 14 only cover one year. So, if this is something that 15 occurred a year and a half ago -- 16 MR. KELLER: Well, that's true. Maybe 17 it didn't occur in the year that -- 18 MR. KIEST: We were doing business with 19 Trend during the audit. 20 MR. KELLER: We were doing business 21 with Trend during the audit. So, I think it -- 22 MR. ATKINS: But what I'm saying is, 23 was the delinquency for a period that was audited? 24 MR. KELLER: To me, a real simple way 25 to do this would just be if the Lottery Commission 225 1 would call, like, Trend and Ronnie Baker and said, do 2 you have anybody that's more than 30 days behind, yes 3 or no. Yes? Okay, who is it. If they say no, then I 4 guess that they don't. 5 Because I'm telling you that in the 6 San Antonio area, we have bingo games today that are 7 more than 30 days behind on their bill and are 8 continuing to get service from their supplier with 9 no -- like it's nothing, and I brought this point up, 10 too, at the last meeting, that if we were allowed to 11 give away $5,000 a game and all the other halls were 12 limited to 500 a game, how long would the Lottery 13 Commission let us go before they came in and stopped 14 us? It would probably be quick. If we don't get 15 something done quick on this -- our halls are 16 suffering now. I don't know how long they can stay 17 open and in operation. 18 MS. TAYLOR: Billy, could I ask you a 19 question? 20 MR. ATKINS: Uh-huh. 21 MS. TAYLOR: On the paper, I understand 22 it's real easy to order stuff as COD, and it comes, 23 you have to have the check. You have to pay them when 24 it's delivered. How does the COD work on electronics 25 if you're on a COD basis? 226 1 MR. ATKINS: I would assume it would be 2 when they're invoiced. 3 CHAIR NEINAST: Sure, come on up. 4 MR. BAKER: The COD on electronics is a 5 little more difficult than paper. The reason being is 6 that you may have one organization in the halls 7 playing 14 sessions, and one organization may be 30 8 days out, 60 days out, 90 days out, and everybody else 9 is current. So, what happens is the electronic 10 manufacturer has a dilemma. Is he going to shut down 11 one, which means he's going to have to go in and shut 12 down the units when that one organization plays and 13 let the others play, or is he going to go in and take 14 all the units. 15 I think what Mr. Keller is referring to 16 is that Trend has had a problem with that. I don't 17 use that particular product, but I'm familiar with 18 what he's speaking of. We are -- By statute, Billy 19 has let us know that we are required by law to turn 20 charities in, which we do, and this -- because I know 21 the distributor got their hand spanked because they 22 did not turn somebody in. So, we do turn people in, 23 and it behooves us to do that, but the problem with 24 electronics is that we are going 14 sessions, the bill 25 gets up to seven, eight, nine, $10,000, which it does 227 1 within a week or two, then some of the electronic 2 manufacturers will -- in lieu of taking one out, which 3 would mean shutting down the entire hall and cutting 4 off their revenue source, will continue to carry 5 somebody for a lengthy period of time. 6 I can sympathize with him. Texas Bingo 7 Supply no longer sells electronic bingo for that very 8 reason, but that was a decision that was made by 9 Brenda Reynolds, but I can sort of sympathize with 10 them, but paper-wise, we do turn people in, and 11 electronic-wise, we used to turn people in, and then 12 we ended up getting turned in ourselves. So, you 13 know -- but we -- but that's not an issue anymore. 14 So, anyway. 15 MS. TAYLOR: So, in essence, halls that 16 are not current continue to use electronics, even 17 though they're not current? 18 MR. BAKER: I would say there's a 19 substantial number of halls. 20 MS. TAYLOR: Is that the same with you, 21 Jane, also? 22 MS. THOMPSON: We have some that are on 23 the delinquent purchasers list that are on COD. We'll 24 collect at that -- at the end of that week so that 25 we -- You know, we can't predict what they're going to 228 1 sell. So, we collect at the end of the week for what 2 they've used. 3 MR. BAKER: What happened, the reason 4 we no longer sell any type of electronics is that we 5 didn't collect at the end of the week, and we, in 6 turn, were held to a 30-day contract with the 7 manufacturer who chose to go ahead and exercise his 8 option and turn us in, and it very quickly went up to 9 $40,000. 10 MS. TAYLOR: So, is there a solution to 11 the problem of the electronics? I mean, I understand 12 that -- 13 MR. ATKINS: I'm open to suggestions. 14 MR. KELLER: We could outlaw them. 15 MS. TAYLOR: I can see that it's a 16 problem because all the -- you know, you don't share 17 paper in the hall. Everybody's got their own bingo 18 supplies paper-wise, but you do share electronics. 19 MR. ATKINS: I think this is a prime 20 example of where we'd be happy to receive input. 21 CHAIR NEINAST: This reminds me of the 22 discussion that we had at length on granting the 23 division summary suspension power, if that one 24 operator in a hall is suspended, that affects all the 25 others, and that's just what we're hearing. If you go 229 1 in and pull the electronics because one is delinquent, 2 it affects all the others. So, it sounds to me 3 like -- Maybe Mr. Kiest will have a solution, but it 4 sounds like a problem without a solution or at least 5 without obvious solution. 6 Mr. Kiest? 7 MR. KIEST: Jane mentioned doing a 8 check when the license applications come in for 9 renewal. Most of us go ahead and order six tempy 10 licenses a year. So, there would be six other times a 11 year when you could use the license process to enforce 12 payment of computer bills, and those are usually 13 spread out, you know, pretty evenly over the 12 months 14 of your permanent license. So, if you could use the 15 license process and enforce the 30-day regulation, 16 you'd have those other six checkpoints to use. 17 CHAIR NEINAST: Before you leave -- and 18 I'm thinking out loud right now, which is a bad habit. 19 If you deny the temp application, that wouldn't 20 necessarily affect your yearly, your annual license. 21 MR. KIEST: That's true, but, you know, 22 we're all looking for those tempies to make additional 23 money, and they're usually special occasions, and it 24 would hurt us to have that tempy revoked -- or not 25 issued. So, I mean, it's just a way of enforcement, 230 1 if that's what is needed. 2 MR. SPEED: Well, don't most halls buy 3 all their temporaries at the same time? 4 MR. KIEST: I can't speak for most 5 halls. I buy them as I need them. You know, in Alamo 6 Hills, we buy them as we need them because we're not 7 sure when we're going to -- what occasions we're going 8 to have until we review it month by month. 9 CHAIR NEINAST: Yes? 10 MR. BRESNEN: I do have one suggestion. 11 It won't lead to an immediate fix, but we got a sunset 12 process coming up, and this sounds to me like an issue 13 that ought to be preserved somewhere so if there's a 14 need or statutory change, to give you the tool you 15 need to do to plug that hole, if there's a hole in the 16 statute. I hope there will be a list formulated as we 17 work this year for those kind of things that need to 18 be taken into account of it during the lottery 19 process -- I mean, the sunset process. 20 CHAIR NEINAST: And I think this is the 21 procedure really to start. If there's a belief that 22 there's a need for statutory authority of any type, I 23 think it should start with this committee as a 24 recommendation to the Lottery Commission and get the 25 wheels rolling through Nelda's shop. What's the 231 1 wishes of the -- or what are the wishes of the 2 committee? 3 MR. SPEED: It looks to me like it 4 should be just -- if Billy says it's being enforced 5 and the other side says it's not, looks to me like 6 we've got some discrepancies, and he's already 7 explained the complications of the electronic. I 8 don't know. I think it should be studied. I think 9 there's a lot of points in it, and it's not fair for 10 one to compete against the other when the other's not 11 paying the bills. 12 CHAIR NEINAST: Studied by whom? 13 MR. SPEED: Maybe by us. Are the 14 manufacturers sticking to reporting? 15 MR. ATKINS: Uh-huh. Yeah. 16 MR. SPEED: Do you see a high number of 17 people on the list? 18 MR. ATKINS: Bud, I'm going to be real 19 honest, I haven't looked at the list. I don't know. 20 Have you, Phil? 21 MR. SANDERSON: A little over 300 22 sounds -- 23 MS. TAYLOR: Is most of that 24 electronics? 25 MR. SANDERSON: It's not specific. 232 1 MR. ATKINS: Yeah, it doesn't break out 2 what they owe for. It's just who they owe and, I 3 think, a total amount. 4 MS. TAYLOR: From your perspective, 5 Jane, is most of the nonpayment -- is this electronics 6 or is it split? 7 MS. THOMPSON: It's a combination. 8 It's both. 9 CHAIR NEINAST: And that list of 300, 10 give or take, is changing every two weeks, as I 11 understand from Billy. Is that right, Phil? 12 MR. SANDERSON: It changes daily. 13 CHAIR NEINAST: Daily? 14 MR. SPEED: That's a lot. 15 MR. KELLER: Would my suggestion work 16 where the Lottery Commission called the distributors 17 and asked them, do you have someone that's more than 18 30 days behind? 19 CHAIR NEINAST: Well, in my opinion, it 20 was just contrary to everything we've been discussing 21 earlier today, just not feasible, that the rule is 22 already out there, that they're to report it, and now 23 you're saying ask the Lottery Commission to go out and 24 ask if they're doing their job, and we've had all 25 kinds of comments that there's too much of that being 233 1 done by the division now. So, I don't think it would 2 be feasible. I don't think there's enough staff to 3 call them. 4 MR. KELLER: I'm not sure that they're 5 being reported. I mean, I don't -- I can't -- There's 6 no way that -- I hate to keep using Trend as an 7 example, but there's no way that they are turning 8 theirself in for these people that are buying, and it 9 just can't -- they can't. They can't be doing it, and 10 it wouldn't be hard to call. There's only -- How many 11 distributors is there? Five? 12 MR. ATKINS: 21. 13 MR. KELLER: 21. I could call them in 14 one day and ask them, do you have somebody more than 15 30 days behind on the electronic bill or paper bill. 16 CHAIR NEINAST: I understand what 17 you're saying, but here we're saying that we already 18 have a rule requiring them to do it, and we've had a 19 lot of objections of some of the rules that are being 20 proposed for auditing to see that they're doing the 21 job, and now you're proposing that we go even further 22 and call once a month. It's just contrary to what a 23 government agency should do, in my opinion. 24 The rule is out there. If they're not 25 following it, it comes to the appropriate agency's 234 1 attention, then action is taken against that 2 individual, but I don't think it's incumbent upon any 3 agency, state, federal or whatever, to call up the 4 people they regulate and say are you complying with 5 our law. They do that by the audits and other 6 inspections. 7 MR. SPEED: Most of the time, these 8 things have a way of working themselves out. Most of 9 the people that don't pay their bill eventually go out 10 of business. Now, they're a pain while they're in 11 business, but you just can't last long without paying 12 your bill and -- 13 MR. KELLER: And I've been saying that 14 for 12 years. 15 MR. SPEED: -- with these electronic 16 payments being as high as they are, I don't see how 17 the supplier can afford to let them go. 18 MR. KELLER: We don't either. 19 MR. SPEED: I don't understand that 20 either. 21 MR. KELLER: But I've been saying that 22 for 12 years. It's going to come to a head, and I'm 23 saying it today. I agree with you. Somewhere down 24 the line, it's going to catch up, but when? After I 25 go out of business maybe for paying my bill. 235 1 MR. SPEED: Somebody's going to suffer. 2 MR. RINEHART: Do you know for sure 3 that they are delinquent or is it just hearsay? 4 MR. KELLER: I'm 99.9 percent sure that 5 they're delinquent. This particular person has told 6 me he's delinquent, and his supplier has told me he's 7 delinquent. Other than that, that's all I have to go 8 on. 9 You can't believe how upset we are 10 about having to compete against this. It's just 11 impossible. I don't know what else we can do besides 12 come to this committee and, you know, tell you our 13 side, what we're feeling and -- 14 MR. ATKINS: And, Kris, can I ask you, 15 this organization and this distributor that's told you 16 they're delinquent, you know for a fact they're not on 17 the delinquent purchasers list? 18 MR. KELLER: They are on the delinquent 19 purchasers list for paper, but the computer 20 distributor says that does not apply to electronics. 21 They've been on the list for paper for -- I don't -- 22 several years. 23 MR. SPEED: Does it apply to 24 electronics, Billy? Does it -- What if they lease it? 25 MR. ATKINS: Well, that's -- you know, 236 1 that's an issue that the distributors always raise, 2 that a lease is different from a sale, and we've 3 always said that if there's an invoice due, if there's 4 an amount due, then it falls under the same 5 requirements. 6 MS. BRACKETT: Is that an 7 interpretation that will stand up? Do we need to have 8 some authority look into that or is that -- 9 MR. ATKINS: I'm sorry? 10 MS. BRACKETT: That interpretation of 11 if it's a lease or not, it's still a due bill, is that 12 something that will stand up, something you could 13 enforce? 14 MR. ATKINS: I don't know if you'll 15 find out until you try and enforce it and it goes to a 16 hearing, and, you know, that's -- 17 MR. SPEED: Have you had that occasion? 18 MR. ATKINS: We have not gone on 19 delinquent accounts. That's something that -- When 20 the violation's raised, the organizations usually 21 clarify it. 22 CHAIR NEINAST: Well, based on what the 23 Chair has heard today, the Chair would -- to move this 24 discussion along, the Chair would entertain a motion 25 that a recommendation be made to the Lottery 237 1 Commission that legislation be sought to authorize the 2 revocation, suspension or denial of a license of any 3 licensee who is more than 30 days in arrears. 4 MR. SPEED: I make that. 5 CHAIR NEINAST: Okay. 6 MS. BRACKETT: I'll second it. 7 CHAIR NEINAST: Motion has been made 8 and seconded to seek such legislation. Is there 9 further discussion? 10 MR. KELLER: Does that mean we have to 11 wait till -- 12 MR. ATKINS: I was going to say, I 13 can't believe I'm opening my mouth. Does that mean 14 the committee doesn't want to see if it can be 15 accomplished through rule? 16 CHAIR NEINAST: Well, it was my 17 understanding that it did require legislation. If it 18 can be done by rule -- 19 MR. ATKINS: I don't know. I don't 20 know. 21 CHAIR NEINAST: Amend the motion to 22 seek necessary authority through legislation or rule. 23 MR. RINEHART: I thought we did have a 24 rule and it had to be paid within 30 days. 25 CHAIR NEINAST: There's a rule, but 238 1 there's no enforcement procedure apparently. 2 MR. ATKINS: He's talking about the 3 denial or revocation if there's an organization on the 4 delinquent purchasers list at the time of renewal. 5 CHAIR NEINAST: The purpose of the 6 motion would be to put teeth in that rule, in effect. 7 Ms. Williams, did you get that 8 amendment, that it would be to seek authority, either 9 legislative or through rule, to allow the division to 10 revoke, suspend or deny a license to any licensee in 11 arrears in accounts of more than 30 days? 12 THE REPORTER: Yes, sir. 13 CHAIR NEINAST: Okay. That is the 14 motion. 15 MR. RINEHART: Are you going to add in 16 electronics into that, too? Didn't they say that 17 electronics wasn't included in that? 18 CHAIR NEINAST: Apparently, that is 19 what some of the suppliers are contending, but that is 20 not the position of the Bingo Division. The Bingo 21 Division's position right now is that they are 22 included and it is a delinquent account. 23 Further discussion? 24 (No response.) 25 CHAIR NEINAST: If not, call the 239 1 question. All in favor of the motion, aye. 2 ALL MEMBERS: Aye. 3 CHAIR NEINAST: Opposed, no. 4 (No response.) 5 CHAIR NEINAST: Motion carried 6 unanimously. 7 Okay. Thank you, Mr. Keller. 8 Next item is No. 10 -- I mean, 11, 9 consideration of and possible discussion and/or action 10 on charitable bingo advertising, another subject we're 11 revisiting, and, Suzanne, you have responsibility for 12 that one. 13 MS. TAYLOR: What I would like to 14 discuss here, which we touched on somewhat last week, 15 is the fact that bingo -- across the state the 16 attendance is down, and to get people into the bingo 17 hall, I would like to see us trying to do more 18 advertising. The problem is what we'd like to do is 19 do a group advertisement, and I was asking if the 20 Lottery Commission perhaps had an advertisement or 21 could put one together or if there was a way that they 22 could be involved in the procedure so that we could 23 have a generic bingo advertisement commercial for the 24 television that does not say to go to Hall A or 25 Hall B, but just advertises bingo, you know, fun, fun, 240 1 fun, like the lottery, you know, fun, fun, fun, win 2 money, you know, and let it be available for the 3 charities. 4 The charities in Corpus -- I've talked 5 to three out of -- well, actually four out of five 6 halls have said that they would like to go in together 7 and have a commercial to advertise bingo in Nueces 8 County, but they didn't want to necessarily advertise 9 their hall or the other hall, but just a generic bingo 10 commercial. So, I wanted to try and move forward on 11 some way to -- you know, without going through all the 12 stumbling blocks, of some way that they could 13 advertise bingo without advertising one hall or the 14 other. So, what we needed was a commercial. 15 CHAIR NEINAST: I'm sorry, you said all 16 you needed is a commercial. The question is -- 17 MS. TAYLOR: What we need is a 18 commercial, and then the question is, can we 19 advertise, if we're not advertising a bingo occasion, 20 a specific bingo occasion? They just want to 21 advertise bingo in general, the same way the lottery 22 advertises the lottery. 23 CHAIR NEINAST: Has that question been 24 put to general counsel, Billy? 25 MR. ATKINS: Not in those terms, no. 241 1 MS. TAYLOR: So, that's what I would 2 like to propose that -- to request a motion to request 3 the general counsel what procedure we would need to 4 follow for a generic bingo commercial, just 5 advertising bingo without a specific location or 6 occasion. 7 MS. BRACKETT: I second her motion. 8 CHAIR NEINAST: Okay. The motion's 9 been made and seconded that general counsel of the 10 Lottery Commission be asked for an opinion as to how 11 bingo may be advertised generically by a group of 12 licensees. Is that -- 13 MS. TAYLOR: (Nods head.) 14 CHAIR NEINAST: Further discussion? 15 (No response.) 16 CHAIR NEINAST: If none, call the 17 question. All in favor, aye. 18 ALL MEMBERS: Aye. 19 CHAIR NEINAST: Opposed, no. 20 (No response.) 21 CHAIR NEINAST: Okay. Move to No. 12. 22 I'm not sure this requires any action. Maybe it does. 23 Consideration of and possible discussion and/or action 24 on the nomination process to be used by the Texas 25 Lottery Commission in making appointments of persons 242 1 to the Bingo Advisory Committee. I had this put on 2 because I started thinking about it. The way the 3 procedure works now -- and, Billy, you need to correct 4 me on this. Word is put out for nominations. Those 5 nominations come into your division, and all of the 6 nominations are just submitted to the Lottery 7 Commission without recommendation by the Bingo 8 Division? 9 MR. ATKINS: No, that's not correct. 10 All of the nominations come in. They are sorted by 11 category that the individual's applying for. Copies 12 of all of those nomination forms are provided to each 13 of the three commissioners. They then, at a public 14 hearing, have an item on the agenda whereby they 15 consider nominations to the Bingo Advisory Committee. 16 They have in the past -- I would say at 17 least the last two, maybe three nomination processes, 18 the entire Lottery Commission has requested that the 19 member of the commission designated to represent -- to 20 be the bingo representative meet with agency staff, go 21 over those nominations and come up with, if you will, 22 a slate of nominees, and that's how the nominations 23 have been made. 24 CHAIR NEINAST: In my opinion, this is 25 an appropriate body to look at those, in my opinion, 243 1 at some time, because I think the members of this 2 committee may have more knowledge about some or all of 3 the nominees than possibly those on the staff, and 4 there might be a reason why one of those continuing 5 nominees is good or not good for the committee, and I 6 personally feel that the committee ought to be in the 7 review process or nomination process, whatever you 8 want to call it, in one way or another. What's the 9 thinking of the committee? 10 MS. BRACKETT: I agree. 11 CHAIR NEINAST: This is nothing that's 12 set down in concrete by rule or statute, is it? 13 MR. ATKINS: No. 14 MR. SPEED: I don't have an opinion on 15 it. 16 CHAIR NEINAST: Suzanne? 17 MS. TAYLOR: I really haven't given 18 that much thought, of the committee deciding upon 19 people that are going to be taking their place. I 20 think it would be a great idea because you know some 21 people that might be nominated, but I think there's an 22 awful lot of people that we wouldn't have any 23 knowledge of, and maybe the Bingo Division does have 24 knowledge of those people. 25 MS. BRACKETT: Well, it would have 244 1 knowledge from what they have submitted, and also you 2 would know what makes a good balance to committee, 3 maybe. 4 CHAIR NEINAST: Well, I think that's 5 taken into consideration by both Billy's office and -- 6 but what I'm thinking is there might be someone who's 7 nominated that you might know and know that this 8 person would be hell on the committee for one reason 9 or another, and I think that the chances of some of 10 those nominees being known by some member of the 11 committee are fairly good. There might be a slate of 12 nominations that no one knows anyone, and if so, just 13 say, okay, whatever the committee wants to do, but I 14 think it's worth having the Bingo Advisory Committee 15 take a look at it and possibly point out some serious 16 mistakes that could be made by personal knowledge that 17 no one on the -- in the Bingo Division may be aware 18 of. It might be a personal vendetta, but so what, but 19 I think that's important, particularly if there's 20 someone on there that someone's having a personal 21 vendetta with and then that person remains on the 22 committee and the other person is appointed. That's 23 the only thing, just to have a chance for the 24 committee to have a look at it and say, good God, 25 don't put this person on. 245 1 MR. SPEED: Sure get into personalities 2 there, though. 3 CHAIR NEINAST: Well, we do here every 4 day when we have a meeting. 5 MR. SPEED: And I suspect that Billy 6 knows -- his people probably know a lot about these 7 people you put on the committee, don't you, or you 8 think you do? 9 MR. ATKINS: We hope we do. 10 MR. SPEED: Yeah. 11 CHAIR NEINAST: Okay. Well, it looks 12 like I might be the only one that thinks there's a 13 problem there. So, there being no motion on it, we'll 14 pass on to the next item which is public comment. 15 Anyone in the audience who would like 16 to comment on any subject that we've covered today or 17 might want to cover in the future, you're welcome to 18 come forward and present your views. And recognize we 19 cannot take any action on what you may present now 20 because it has to be a formal agenda item. 21 MR. HUTCHINGS: Well, I still want to 22 go back to just make one comment, that there needs to 23 be more publication of proposed rules out where it 24 could be gained access by the public to where the 25 people that are going to be covered by these rules 246 1 have a legitimate opportunity and chance to study them 2 and bring forth their comments to these meetings. 3 Thank you. 4 CHAIR NEINAST: Okay. Thank you. Any 5 other comments? 6 (No response.) 7 CHAIR NEINAST: If not, we'll pass onto 8 the final item which is consideration of and possible 9 action on future Bingo Advisory Committee meetings 10 dates and/or items to be considered for future 11 meetings. I want to make two comments on that on 12 future agenda items. First of all, you notice today 13 we did not have as an item a usual item which is a 14 report from the advisory -- I mean, from the security 15 division. I discussed this with Billy, and I see no 16 reason on having that on the agenda more than once a 17 quarter, and I also think that there's really no need, 18 unless you feel otherwise, to have Mike Pitcock or one 19 of his employees or men here to discuss it with us, 20 that we will just put in -- or Billy will just put 21 into the notebook the quarterly report, and if any 22 member of the committee looking at it sees that there 23 is a question he may have on an item, to notify Billy 24 so that Mike can have someone here to answer that 25 question. Otherwise, it will be in there just for 247 1 information, and we will not have it on the future 2 agendas as an agenda item. It will just be put in the 3 notebook as an information item. 4 Any objection to that procedure for 5 future agendas? 6 (No response.) 7 CHAIR NEINAST: Save a little time. 8 Secondly, I've passed among you -- and 9 we've talked about this before. This is to try to 10 standardize it and I hope move the discussions along a 11 lot smoother, and any item on the agenda, as we've 12 done in the past, someone will have responsibility for 13 it. Of course, if you recommend the item on the 14 agenda, you automatically have a responsibility for 15 it. If it just comes up from general discussion, I 16 will assign someone that responsibility, and I request 17 that you use this form. The form is the -- in bold 18 typed, and I just filled in some information there to 19 show how it -- what you may want to put in. Starting 20 off where you have the resolution -- or you have the 21 motion, this will have us start on a motion that we 22 can address our comments to, and then supporting 23 information, I hope it will be a lot -- in more detail 24 than I've given on the form, but if you will use this 25 form in the future, and we have that available for the 248 1 notebooks to get out to you, and as we discussed at 2 the last meeting, Billy will try to get them out to 3 you a week or more in advance. The agenda, when it 4 comes out, may not be the final agenda, but it will 5 be -- have as much information that's available to 6 Billy at the time. 7 Any questions or problems with the use 8 of this form to standardize it and we'll get it down 9 to a kind of a formalized procedure? 10 (No response.) 11 CHAIR NEINAST: Okay. With that, items 12 for the next meeting which will be October the 10th? 13 Yes, sir. 14 MR. BAKER: Can I ask just one more 15 question? I'm sorry, I've been outside. Now that 16 Fabian's no longer here -- he'd been given the 17 responsibility to work with Billy as far as moving the 18 rule change through regarding the seal card, and I was 19 just curious to know if we were going to have that 20 coming up. Are we going to revisit that? Because 21 that was something that I've been very interested in 22 for the last eight months. 23 MR. ATKINS: When you say seal card, do 24 you mean pull tab? 25 MR. BAKER: Yes. 249 1 MR. ATKINS: Yes, that is still under 2 consideration, and when we have something ready, we'll 3 bring it forward to the committees. 4 MR. BAKER: Fabian's not here anymore. 5 I didn't know if he was going to -- 6 MR. ATKINS: Well, contrary to popular 7 belief, Fabian wasn't driving that horse. You know, 8 it's still being worked on. 9 MR. BAKER: Thank you. 10 CHAIR NEINAST: And it will be not -- 11 Hopefully the -- What we're looking at is for revision 12 of the definition of pull tabs that would include more 13 types of pull tabs that could hopefully include a type 14 of seal tab. 15 MR. BAKER: Thank you. 16 CHAIR NEINAST: That's what's being 17 worked on. 18 Okay. Items for the agenda which will 19 be October the 10th. Any -- Have any agenda items at 20 this time? 21 Billy, do you have any that -- I guess 22 that debit issue is still -- Didn't we ask that you 23 get a -- 24 MR. ATKINS: We'll follow up with 25 Suzanne. We'll follow up with that. 250 1 CHAIR NEINAST: But doesn't that 2 require another agenda item? Wasn't the result of 3 that to ask for a legal opinion on a -- 4 MS. TAYLOR: To see if the 3 percent 5 fee could be adopted. 6 CHAIR NEINAST: So, that would require 7 another discussion by the committee and a 8 recommendation for a rule change. Right? 9 MS. TAYLOR: Yes. 10 CHAIR NEINAST: Okay. 11 MR. ATKINS: Mr. Chairman, well, I'm 12 advised that we already have -- the staff will be 13 doing a legislative briefing on October the 10th. So, 14 both I and this -- This facility will be unavailable 15 and -- 16 CHAIR NEINAST: And most of your staff 17 would be, also. Right? 18 MR. ATKINS: Uh-huh. And I'm also out 19 the following Wednesday, the 17th, but we could either 20 look at doing it the day before, on October 9th, or 21 the day after, October 11th, if that's suitable for 22 the members. 23 CHAIR NEINAST: What's the -- 24 MS. BRACKETT: I cannot attend on the 25 11th. It's one of our board of directors meetings. 251 1 CHAIR NEINAST: What about the 9th? 2 MS. BRACKETT: The 9th would be okay. 3 Now, if we meet that week, Bill's not going to be 4 here, and I'm going to have to reside. So, would you 5 rather, Billy, that we meet at another week? 6 MR. ATKINS: Apart from that week and 7 the following week, I'm available. 8 MS. BRACKETT: Okay. 9 MR. ATKINS: You're not going to be 10 here on the 9th? 11 CHAIR NEINAST: No. I'm gone that week 12 and the following week. 13 MS. BRACKETT: Oh, you're gone the 14 following week, too? 15 CHAIR NEINAST: Yes. 16 MR. ATKINS: I think Virginia is 17 looking towards the 24th. 18 MS. BRACKETT: Yeah, the 24th is great. 19 CHAIR NEINAST: Let's go on the 9th. 20 You need practice. 21 MR. RINEHART: So, we've decided now on 22 the 9th? 23 CHAIR NEINAST: Yes, Tuesday, October 24 the 9th. The only item we have at this time is 25 revisiting the use of debit cards. 252 1 MR. ATKINS: I think there were, 2 Mr. Chairman -- I think when we review the transcript, 3 I think there's some other items that we were either 4 going to follow up on or come back with additional 5 information on, and we'll do that when we get it. 6 CHAIR NEINAST: Okay. Any further 7 items that you'd like to have on the next agenda? 8 (No response.) 9 MR. ATKINS: Not on the next agenda. I 10 just did -- Chairman, if I could, I wanted to take the 11 opportunity. I know that a lot of us felt a lot of 12 frustration at the last meeting with some of the 13 things that were discussed or whatever, and I just 14 wanted to say to the committee members if there's 15 anything that I said or I did or any way that I acted 16 that offended any of you, I apologize for that. That 17 was not my intent, and I, you know, will commit to you 18 to do better in the future. 19 CHAIR NEINAST: Good. Thank you. No 20 further business, this Chair will entertain a motion 21 to adjourn. 22 MS. BRACKETT: So moved. 23 MS. TAYLOR: Second. 24 CHAIR NEINAST: All in favor, aye. 25 ALL MEMBERS: Aye. 253 1 CHAIR NEINAST: Okay. Thank you very 2 much. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 254 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, LEIGH ANNE WILLIAMS, Certified 7 Shorthand Reporter for the State of Texas, do hereby 8 certify that the above-captioned matter came on for 9 hearing before the BINGO ADVISORY COMMITTEE as 10 hereinafter set out, that I did, in shorthand, report 11 said proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 16 Witness my hand on this the 20th day of 17 September, 2001. 18 19 20 21 LEIGH ANNE WILLIAMS, CSR No. 4446 22 Expiration Date: 12-31-02 1609 Shoal Creek Boulevard, Suite 202 23 Austin, Texas 78701 (512) 474-4363 24 JOB NO. 010829LAW 25