Audit Objective
Did the Western Regional Off-Track Betting Corporation (Corporation) Board of Directors (Board) and Corporation management adequately plan and monitor financial operations?
Audit Period
January 1, 2021 – December 31, 2024.
We extended the audit period back to the 2020 calendar year to review Board meeting minutes and verify whether there was Board approval for certain contracts. See Appendix D for additional information.
Understanding the Audit Area
An off-track betting (OTB) corporation’s board of directors and corporation management should adequately plan and monitor financial operations to make informed strategic decisions and help ensure financial stability, regulatory compliance and long-term viability. A public benefit corporation should practice sound financial management to protect the interests of its participating municipalities and the racing industry, which receives a share of the corporation’s proceeds.
The Board and Corporation management must fulfill the Corporation’s purpose, including distributing net revenue among the participating local governments, and supporting the horse racing and breeding industries. The Board and Corporation management must work collaboratively and transparently to ensure financial efficiency, future growth and continued compliance with the Corporation’s statutory requirements. This includes implementing controls such as adopting policies, monitoring for compliance and performing detailed reviews of financial information to ensure revenues and expenses are in line with the operating plan.
For the calendar year 2024, the Corporation’s revenues (net of payments to winning patrons) were $59 million and expenses and statutory payments were $52 million. The Corporation distributed revenues totaling $30.7 million to its participating local governments for calendar years 2021 through 2024.
Audit Summary
The Board and Corporation management did not adequately plan and monitor the Corporation’s financial operations. By not taking action to address the declining handle and to control costs, the Board and Corporation management did not maximize allocations to host local governments where tracks were located or distributions to the Corporation’s participating local governments. Moreover, if the Board and Corporation management do not effectively address the continued decline in handle and increase in expenses, the Corporation may not be able to meet its mission and statutory obligations to the participating local governments and horse racing and breeding industries in the future.
We determined the Board created a lax control environment in which the Corporation’s management made key financial decisions with little or no oversight by the Board. Moreover, the Board could not adequately plan and monitor financial operations and contractual costs because Corporation management did not provide it with financial reports in a timely manner. In addition, the Board did not properly monitor the operating plan or adjust budget lines that were overspent. As a result, the Corporation experienced significant cost overruns or estimation errors. Had the Board received financial reports in a timely manner, taken a more active role in addressing the declining handle,1 and monitoring and controlling spending, the Corporation’s operations may have resulted in greater allocations to local governments where tracks were located (host local governments) and greater distributions to its participating local governments.
The Corporation’s horse racing and wagering operations deteriorated at a steady pace over the four-year period ended December 31, 2024. The handle declined 34 percent ($23.5 million) during this period, resulting in less statutory distributions to the horse racing industry, New York State Gaming Commission and allocations to the local governments. The Corporation’s total operating revenues increased over the 2021 through 2024 calendar years, primarily due to an increase in video lottery terminal and hotel revenues. For the calendar year ended December 31, 2024, the Corporation distributed surcharge revenues and net revenues of approximately $6.7 million to participating local governments, which is more than $3 million (31 percent) less than the previous calendar year (see Appendix B).
The Board and Corporation management regularly contracted with various consultants to assist the Board in identifying potential expansion strategies to increase revenues and other organizational assessments. However, the Board and Corporation management did not always receive progress reports or the results of the reviews from the consultants. By not obtaining written reports from all consultants, the Board and Corporation management could not effectively utilize the information to help improve the Corporation’s operations and address the declining handle. The Corporation’s payments of over $1 million to 14 consultants without sufficient Board approval also contributed to the decrease in net revenue distributions.
In addition, during the audit period, had the Board and Corporation management controlled the increased spending, some of which was unauthorized and unplanned, the Corporation could have distributed more net revenue to its participating local governments than it did.2 Over the four-year period 2021 through 2024, the Corporation’s revenue increased approximately $3.7 million (7 percent) and operating expenses increased by more than $8.4 million (22 percent). The most significant expense increases included:
- Salaries increased by 38 percent since 2021 and accounted for more than $16.8 million (40 percent) of the Corporation’s operating expenses in 2024.
- Professional services increased by 23 percent since 2021 and accounted for more than $2.5 million (6 percent) of the operating expenses in 2024.
- The Board allowed Corporation management to enter into contracts for legal services and consultants without proper Board approval and exceeded the Board-approved spending amounts by $1,012,994.
Lastly, two OSC audits of the Corporation, released in September 2021, identified concerns with the way Corporation management distributed certain marketing and promotional tickets and the CEO’s use of a Corporation car and cell phone, as well as lax oversight of operations by the Board, a troubling tone at the tone of the organization for establishing and following the rules, and poor documentation practices. Corporation management has implemented several of the recommendations from the previous audits by developing policies and procedures for the distribution of tickets, recording who received the tickets, updating the vehicle use policy, restricting vehicle use and reviewing mileage logs. However, current Corporation management could improve its documentation for the distribution of marketing and promotional tickets and the use of mileage logs for take-home vehicles.
This report includes 16 recommendations that, if implemented, could improve the Corporation’s financial operations. The Board generally agreed with our recommendations and indicated that they have initiated corrective action.
We conducted this audit pursuant to the State Comptroller’s authority set forth in Article 5 of the Racing Law. Our methodology and standards are included in Appendix D.
Good management practices dictate that the Board has the responsibility to initiate corrective action. As such, the Board should prepare a written corrective action plan (CAP) that addresses the recommendations in this report and forward it to our office within 90 days. For more information on preparing and filing your CAP, please refer to our brochure, Responding to an OSC Audit Report, which you received with the draft audit report. We encourage the Board to make the CAP available for public review.
1 Handle is the total amount wagered on horse races and other gaming activities.
2 See Appendix B for details.