"Hitting" the Lottery

The popularity of instant lottery tickets has made scratch-off games easy marks for dishonest employees, according to industry specialists.

Instant lottery tickets are "the fastest-growing area of shrink in the convenience store industry," according to Gene Shultz, vice president of Quantum Services, a Columbus, Ohio-based inventory auditing firm that recently issued an "industry alert" after uncovering unusually high losses at chains in different areas of the country.

"Retailers need to treat lottery tickets like cash," Shultz said. "Employees quickly figure out they are the same as cash — but better. One dollar can be turned into $10, $100, $1,000, $1 million."

At one 500-store chain, Quantum Services uncovered nearly $500,000 in instant lottery ticket losses, occurring in just two months. The losses, which were spread throughout the chain, were not immediately caught because the c-store operator's new point-of-sale software package did not allow managers to account for cash and inventory by shift.

"Other chains without the software problem are experiencing great instant-lottery shrink, too," said Shultz.

By conducting daily, if not shift, audits, retailers will more quickly uncover a ticket shrink problem. "Lottery audits can take about 10 minutes per store," Shultz said. "There is no reason not to perform this task to reduce theft."

The most common method of theft occurs when employees ring up bogus transactions or cross-ring. For example a customer comes up to the counter with a $4.99 six-pack of beer. The customer pays $4.99, but unwittingly pays for the dishonest employee's tickets when the transaction is rung up as $4 for lottery tickets, 99 cents for the beer.

Lottery thieves are turning to other methods, too. While some dishonest employees simply wait until there is a lull in customer traffic and start scratching, others have become more devious. A dishonest employee may scratch the area of the ticket holding the control number, then check that number with the state lottery computer to see if the ticket is a winner. If it's listed as a winner, the employee buys it. If not, they sell the losing ticket to an unsuspecting customer who doesn't realize the control number should be concealed.

Some thieves pull a number of tickets from the middle of a book, often located in plastic box merchandiser, then tape the two ends of the remaining tickets together so the theft isn't noticed until later.

With states turning to in-store ticket activation, lottery tickets are a bit more secure. If someone tries to collect on a winning ticket from a book that hasn't been electronically activated by an employee, the computer refuses to pay out.

The Florida Lottery, which offers 30 different scratch games through 11,400 retail outlets and saw instant lottery tickets grow by 12 million tickets to 675 million in fiscal 1998-1999, concedes shrink is a problem in some c-stores.

"But less than 5 percent of our security investigations have found theft to be done by employees," said Leo DiBenigno, a spokesperson for The Florida Lottery, which will introduce more than 50 games in fiscal 2000. "It's the retailer's responsibility to document how many tickets are sold per shift or per day, to keep better controls."

As for winning tickets being detected via a scratched-off control number, DiBenigno said controls are in place to prevent that.

State lottery commissions all over have become more helpful, as sales come under pressure from the increase in legalized gambling, said an executive for a c-store chain selling lottery tickets in four southern states. For instance, if a book of activated tickets is stolen, a retailer can report that inventory to the Florida Lottery, which can de-activate them.

"We have problems. Any retailer who deals with lottery will have people, unfortunately, who try to manipulate the situation to a personal advantage," said the retailer, who allows only assistant managers, managers and area supervisors activate lottery tickets, and then only on demand. The stores also track the ticket numbers sold by shift and by day.

To better control the inventory, this retailer does not allow employees to buy tickets during shifts. "If we see them buying the tickets on their shift, their job is in jeopardy," he said. "But it happens. We see it on our cameras. If it happens again, the employee is dismissed."
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