WYOMING LOTTERY CORPORATION
(A COMPONENT UNIT OF THE STATE OF WYOMING)

FINANCIAL REPORT
JUNE 30, 2016

 CONTENTS
INDEPENDENT AUDITOR’S REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
(Required Supplementary Information)
BASIC FINANCIAL STATEMENTS
Statements of Net Position
Statements of Revenues, Expenses, and Changes in Net Position
Statements of Cash Flows
Notes to Financial Statements
REQUIRED SUPPLEMENTARY INFORMATION
Schedule of the Lottery’s Proportionate Share of the Net Pension Liability
Schedule of the Lottery’s Contributions
Note to Required Supplementary Information
INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS
BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED
IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

1 and 2

3-8

9
10 and 11
12
13 - 25

26
27
28

29 - 31

 INDEPENDENT AUDITOR’S REPORT

To the Board of Directors
Wyoming Lottery Corporation
Cheyenne, Wyoming
Report on the Financial Statements
We have audited the accompanying financial statements of the business-type activities of the Wyoming
Lottery Corporation (the “Lottery”), a component unit of the State of Wyoming, as of and for the years
ended June 30, 2016 and 2015, and the related notes to the financial statements, which comprise the
Lottery’s basic financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or
error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the Lottery’s
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Lottery’s internal control. Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.

1

 Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective
financial position of the business-type activities of the Lottery as of June 30, 2016 and 2015, and the respective
changes in financial position and cash flows for the years then ended in accordance with accounting principles
generally accepted in the United States of America.
Other Matter
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management’s
Discussion and Analysis on pages 3 through 8, the Schedule of the Lottery’s Proportionate Share of the Net
Pension Liability on page 26, and the Schedule of the Lottery’s Contributions on page 27, be presented to
supplement the basic financial statements. Such information, although not a part of the basic financial
statements, is required by the Governmental Accounting Standards Board who considers it to be an essential
part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or
historical context. We have applied certain limited procedures to the required supplementary information in
accordance with auditing standards generally accepted in the United States of America, which consisted of
inquiries of management about the methods of preparing the information and comparing the information for
consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge
we obtained during our audit of the basic financial statements. We do not express an opinion or provide any
assurance on the information because the limited procedures do not provide us with sufficient evidence to
express an opinion or provide any assurance.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated November 16, 2016,
on our consideration of the Lottery’s internal control over financial reporting and on our tests of its compliance
with certain provisions of laws, regulations, contracts and grant agreements, and other matters. The purpose of
that report is to describe the scope of our testing of internal control over financial reporting and compliance and
the results of that testing, and not to provide an opinion on internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in accordance with Government Auditing
Standards in considering the Lottery’s internal control over financial reporting and compliance.

Cheyenne, Wyoming
November 16, 2016

2

 Wyoming Lottery Corporation
Management’s Discussion and Analysis
For the Years Ended June 30, 2016 and 2015

The Wyoming Lottery Corporation (the “Lottery”) is a private non-profit lottery established by House
Bill 77 in the 2013 legislative session and signed into law by Governor Matt Mead. The Lottery, which is
considered a component unit of the State of Wyoming (the “State”), is entirely self-funded through its
sales. The Lottery is accounted for as an enterprise fund that uses the accrual basis of accounting, much
like a private business entity. The Lottery shall be self-sustaining and self-funded, as the Lottery does not
receive any State funding. Lottery operations are designed to fulfill its duty to develop, produce, and
market lottery games; pay winners and operating expenses; and remit the remaining net proceeds less
prizes to the State.
In order to fund its start-up costs in fiscal year 2014, the Lottery secured an operating line of credit. Upon
paying off the start-up loan in January 2016, net proceeds less prizes (hereinafter referred to as net profits)
have been transferred to the State Treasurer quarterly. State law requires the first $6 million of the
Lottery’s net profits to be distributed to cities, towns, and counties based on Wyoming’s sales tax
formula. Any additional earnings will be deposited into the State’s Permanent Land Fund’s Common
School Account.
Under the Act, unclaimed prizes are considered restricted funds to be used for future prizes, special prize
promotions, and up to $200,000 annually shall be used to develop programs for the treatment of
compulsive gambling disorder and educational programs related to the disorder.
This section of the Lottery’s financial report presents management’s analysis of the Lottery’s financial
performance for the fiscal years ended June 30, 2016 and 2015. This analysis is to be considered in
conjunction with the financial statements and the notes thereto in order to provide an objective analysis of
the Lottery’s financial activities based on facts, decisions, and conditions currently facing management.

OVERVIEW OF THE FINANCIAL STATEMENTS
In addition to this discussion and analysis, the financial report contains the financial statements and notes
to the financial statements, as well as the required supplementary information. The basic financial
statements offer short-term and long-term financial information about the Lottery, which is structured as a
single enterprise fund. The required supplementary information contains Schedules of the Lottery’s
Proportionate Share of the Net Pension Liability and Contributions and accompanying notes for a defined
benefit pension plan in which the Lottery participates – the Public Employee Pension Plan administered
by the Wyoming Retirement System.
The Statements of Net Position provide information about the nature and amounts of resources with
present service capacity that the Lottery controls (assets); consumptions of net assets that are applicable to
a future fiscal year (deferred outflows of resources); obligations at the end of the fiscal year to use
resources that the Lottery has little or no discretion to avoid (liabilities); and acquisitions of net assets that
are applicable to a future fiscal year (deferred inflows of resources). The residual (net) of these four
elements is reported as net position.
The Lottery’s revenues and expenses are accounted for in the Statements of Revenues, Expenses, and
Changes in Net Position. These statements measure the results of the Lottery’s operations over the past
two years.

3

 The primary purpose of the Statements of Cash Flows is to provide information about the Lottery’s cash
receipts and cash payments during the reporting periods. These statements report cash receipts, cash
payments, and net changes in cash resulting from operations, investing, and financing activities.
The financial statements are prepared on the accrual basis of accounting in accordance with accounting
principles generally accepted in the United States of America. Thus, expenses are recorded when
liabilities are incurred and revenues are recognized when earned, not when received.

FINANCIAL HIGHLIGHTS
During the year ended June 30, 2016:


The start-up loan was paid in full as of January 30, 2016.



Revenues from the sale of lottery tickets totaled $33.3 million for the year ended June 30, 2016,
an increase of $15.8 million over the prior year’s sales of $17.5 million.



The Lottery returned $18.4 million to winners of lottery games for the year ended June 30, 2016,
an increase of $8.7 million over the prior year’s prize expense of $9.7 million.



Operating expenses for the Lottery were reduced $1.1 million to $4.0 million for the year ended
June 30, 2016, from the prior year’s operating expenses of $5.1 million.



The Lottery transferred $2.0 million to the State of Wyoming during the year ended June 30,
2016.



Unclaimed prizes totaled $645,000. Of this amount, the Lottery designated $200,000 to be used
for future treatment of, and educational programs related to, compulsive gambling disorder,
bringing the total funds available for use in future years to $338,000. The remaining balance of
unclaimed prizes is designated for future prizes and promotions.



In consultation with the Wyoming Department of Health, the Lottery spent $28,000 on
compulsive gambling programs during the year ended June 30, 2016.

During the year ended June 30, 2015:


The Lottery made an investment of $757,000 in capital assets.



The Lottery began selling Powerball® and Mega Millions® tickets on August 24, 2014, and
Cowboy Draw™ was subsequently launched on March 15, 2015. First year sales of all Lottery
products were $17.5 million.



The entire amount of unclaimed prizes totaling $166,000 was designated for future treatment of,
and educational programs related to, compulsive gambling disorder.

4

 ANALYSIS OF FINANCIAL POSITION AND OPERATIONS
Statements of Net Position
The following table summarizes the Lottery’s Statements of Net Position as of June 30:
2015

2016
Assets
Total Current Assets
Total Noncurrent Assets

$ 3,732,103
658,457

Total Assets
Deferred Outflows of Resources
Liabilities
Total Current Liabilities
Total Noncurrent Liabilities
Total Liabilities
Deferred Inflows of Resources

$

$

21,105
175,920

1,598,668

490,714

438,529

3,165,215
901,219

3,287,864
598,600

1,496,185
-

4,066,434

3,886,464

1,496,185

587,858
831,025
(621,998)

Total Net Position

806,807
791,861

4,390,560

17,955

Net Position
Net Investment in Capital Assets
Restricted, expendable
Unrestricted

$

2014*

796,885

-

197,025
-

-

786,861
210,917
(2,847,045)

170,920
700
(1,470,780)

$ (1,849,267)

$ (1,299,160)

* GASB 68 is effective for the year ended June 30, 2015. The year ended June 30, 2014, as presented in this column,
was not restated. For further discussion, see Note 6 of this report.

Fiscal Year 2016
Total assets at June 30, 2016 were $4.4 million, an increase of $2.8 million from the prior year. The
change in assets consists primarily of an increase in cash, which is attributable to the completion of a full
year of Lottery operations, as well as the increase in operating income as discussed on page 7. The
Lottery’s restricted cash balance increased $620,000, resulting from unclaimed prizes totaling $645,000
during the year.
While total liabilities at June 30, 2016 remained consistent with the previous year, there were notable
offsetting variances. The line of credit balance decreased $1.4 million as it was paid in full and, as a
result, transfers to the State of Wyoming were initiated for the quarter ending March 31, 2016. As of June
30, 2016, the Lottery has a payable of $916,000 to the State of Wyoming. In addition, due to continued
growth in the Lottery’s operating revenues, prizes payable increased $578,000.
The most notable change in the Lottery’s net position at June 30, 2016, was the reduction in the deficit
unrestricted balance of $2.2 million, resulting from the Lottery’s first year of operating income. The
increase in the restricted net position is directly attributable to the unclaimed prizes as discussed above.

5

 Fiscal Year 2015
Total assets at June 30, 2015 were $1.6 million, an increase of $1.4 million from the prior year. The
change in assets consists primarily of an increase in cash and net capital assets, both of which are
attributable to the start-up of lottery operations during the year. The largest portion of the Lottery’s assets
were invested in capital assets, which are discussed further in Note 3.
Total current liabilities increased $1.8 million over the prior year to a balance of $3.3 million at June 30,
2015, the majority of which relates to the Lottery’s prizes payable and line of credit. Similar to the
increase in assets above, the increase in current liabilities was also attributable to the start-up of lottery
operations during the year. As noted above, GASB 68 was also effective for the year ended June 30,
2015, resulting in a long-term net pension liability of $599,000.
Of the Lottery’s net position of $(1.8) million at June 30, 2015, $787,000 reflected its investment in
capital assets, primarily gaming software and the Lottery’s website. An additional $211,000 of the
Lottery’s net position was restricted at year end related to the fidelity deposits and unclaimed prizes as
discussed previously.
Statements of Revenues, Expenses, and Changes in Net Position
The following table summarizes the Lottery’s Statements of Revenues, Expenses, and Changes in Net
Position for the years ended June 30:
2016
Operating Revenues
Gaming Revenues
Other Revenues

2015

2014*

$ 33,348,627
2,900

$ 17,531,435
87,487

33,351,527

17,618,922

700

24,644,121
3,983,150

13,046,934
5,050,942

28,780
1,265,459

Total Operating Expenses

28,627,271

18,097,876

1,294,239

Operating Income (Loss)

4,724,256

(478,954)

(1,293,539)

(2,035,751)
(42,353)

(38,738)

(5,621)

(2,078,104)

(38,738)

(5,621)

2,646,152

(517,692)

(1,299,160)

(1,849,267)
-

(1,299,160)
(32,415)

-

796,885

$ (1,849,267)

$ (1,299,160)

Total Operating Revenues
Operating Expenses
Gaming Expenses
Other Expenses

Nonoperating (Expense)
Transfers to State of Wyoming
Other

Change in Net Position
Net Position, Beginning of year, as previously reported
Adjustment to Prior Year
Net Position, Ending

$

$

700

* GASB 68 is effective for the year ended June 30, 2015. The year ended June 30, 2014, as presented in this column,
was not restated. For further discussion, see Note 6 of this report.

6

 Fiscal Year 2016
During the year ended June 30, 2016, the Lottery’s net position increased by $2.6 million, which is
primarily attributable to a $4.1 million increase in gross profit during the year. Total sales of lottery
tickets increased 90% over the prior year. Powerball® ticket sales are up significantly in fiscal year 2016
as compared to fiscal year 2015, due to the large jackpot of $1.58 billion that occurred in January 2016.
In addition, as discussed below, Cowboy Draw™ had it first full year of sales in fiscal year 2016,
reaching total ticket sales of $13.7 million, an increase of $10.2 million over the prior year. The Lottery
returned 55% of the lottery sales to winners of lottery games and paid commissions to gaming vendors
and retailers totaling 18% of the lottery sales, which is consistent with the prior year.
Of the total increase in operating income of $5.2 million, approximately $1 million of that increase is
attributable to a focus by the Lottery on reducing its operating expenses for fiscal year 2016. During the
year ended June 30, 2016, the Lottery reduced its advertising and promotion expense by $1.5 million.
The Lottery’s most significant operating expenses continue to be advertising and promotion (46%) and
personnel (24%).
As a result of paying off the line of credit, the Lottery initiated transfers to the State of Wyoming in fiscal
year 2016 and made its first transfer in April 2016 in the amount of $1.1 million. The total amount of
transfers to the State of Wyoming were $2 million for the fiscal year. The Lottery’s operating income of
$4.7 million for the year ended June 30, 2016 was a significant improvement over the prior year loss of
$(479,000). The Lottery increased its overall net position during fiscal year 2016 by $2.6 million.
Fiscal Year 2015
The Lottery’s net position decreased by $550,000 as a result of fiscal year 2015 operations, which was
primarily attributable to advertising and promotion expenses of $3.3 million related to the launch of
gaming activities during the year. The Lottery began selling Powerball® and Mega Millions® tickets on
August 24, 2014, and reached its first $1,000,000 in sales within the first two weeks after launch.
Cowboy DrawTM was subsequently launched on March 15, 2015. Total sales of lottery tickets were $17.5
million in the first year. The Lottery returned 56% of the lottery sales to winners of lottery games and
paid commissions to gaming vendors and retailers totaling 18% of the lottery sales.
Given the launch of the gaming activities during the year and expansion of the Lottery’s operations,
operating expenses were significantly higher than the previous year. The Lottery incurred operating
expenses of $5.1 million during the year ended June 30, 2015, 65% of which was related to the
advertising and promotion expenses for the lottery games launched during the year. Other significant
expenses incurred during the year were attributable to personnel (19%) and professional, legal, and
accounting services (5%). The Lottery’s operating loss of $(479,000) for the year ended June 30, 2015
was improved over the prior year, primarily due to the fact that there was minimal revenue in the prior
year as all of the start-up costs incurred were funded by the line of credit.

7

 CAPITAL AND DEBT ACTIVITY
Capital Activity
The Lottery made significant investments in its capital assets during fiscal year 2015 primarily related to
vehicles (including upgrades to the Lottery’s event bus, which is used for state-wide marketing purposes)
and software (specifically related to gaming products and the Lottery’s website). During the year ended
June 30, 2016, the Lottery’s investment in capital assets for the current fiscal year was minimal and
primarily related the acquisition of a copier. Additional information on the Lottery’s capital assets can be
found in Note 3 of this report.
Debt Activity
In August 2013, the Lottery entered into a revolving line of credit for $1 million, which was subsequently
increased to $3 million in April 2014 and decreased to $2.5 million in March 2015. The proceeds of the
line of credit were primarily used to fund the Lottery’s start-up costs, as well as subsequent operating
costs. Due to the significant lottery sales resulting from the Powerball® jackpot in January 2016, the
Lottery paid the line of credit in full on January 30, 2016. Additional information on the Lottery’s debt
can be found in Note 7 of this report.

FACTORS RELEVANT TO FUTURE OPERATIONS
Future operations always have the potential to be impacted by economic factors and rising costs, the most
significant of which currently relates to the decreasing energy prices, which could impact future
unemployment rates within the State of Wyoming. To the extent that future economic conditions
continue to impact discretionary consumer spending, net revenues generated through Lottery sales will
likely be affected.
The Lottery strives to maximize revenues by identifying future events that will have a positive impact on
the Lottery’s financial outlook. The Lottery plans to launch a new game, Lucky for Life®. Lucky for
Life® is a national game with a totally unique grand prize, in which the winner receives $1,000 a day for
life! The second prize winner gets $25,000 a year for life. Tickets will be available for purchase at
Wyoming retailers starting December 4, 2016. Leading up to that day, the Lottery is launching a major
giveaway that began on October 3, 2016 and runs through November 18, 2016. One lucky winner will
win a 2016 Chevrolet Camaro LT, a 2016 Harley-Davidson Freewheeler, and $3,000 cash.
In addition, the Lottery continues to work with a Joint Judiciary Committee regarding the impact to the
Lottery’s revenues if additional products were added to the portfolio of games offered, specifically
scratch games.

CONTACTING THE LOTTERY’S FINANCIAL MANAGEMENT
This financial report is designed to provide a general overview of the Lottery’s financial activity for all
those interested in the Lottery’s operations. Questions concerning any of the information provided in this
report or requests for additional financial information should be addressed to the Chief Executive Officer,
Wyoming Lottery Corporation, (307) 432-9300, 1620 Central Avenue, Suite 100, Cheyenne, Wyoming
82001.

8

 WYOMING LOTTERY CORPORATION
STATEMENTS OF NET POSITION
June 30, 2016 and 2015
ASSETS

2016

Current Assets
Cash (Note 2)
Cash, restricted (Note 2)
Retailer accounts receivable
Prepaid expenses
Total current assets

$

Noncurrent Assets
Capital assets, net (Note 3)
Capital assets, trademarks (Note 3)
Deposit on lease (Note 5)
Total noncurrent assets
Total assets
DEFERRED OUTFLOWS OF RESOURCES
Pension Related Outflows (Note 6)
LIABILITIES
Current Liabilities
Prizes payable
Accounts payable
Accrued expenses (Note 4)
Current maturities of capital lease obligation (Note 5)
Line of credit (Note 7)
Due to State of Wyoming (Note 8)
Unearned revenue
Total current liabilities
Noncurrent Liabilities
Capital lease obligation, less current maturities (Note 5)
Net pension liability (Note 6)
Total noncurrent liabilities
Total liabilities
DEFERRED INFLOWS OF RESOURCES
Pension Related Inflows (Note 6)

2,272,524
831,025
310,426
318,128
3,732,103

$

See Notes to Financial Statements.

9

$

318,517
210,917
129,688
147,685
806,807

610,881
42,576
5,000
658,457

744,285
42,576
5,000
791,861

4,390,560

1,598,668

490,714

438,529

1,471,909
383,336
37,770
13,092
915,751
343,357
3,165,215

893,145
542,173
119,838
1,426,325
306,383
3,287,864

52,507
848,712
901,219

598,600
598,600

4,066,434

3,886,464

17,955

NET POSITION
Net Investment in Capital Assets
Restricted, expendable
Unrestricted
Total net position

2015

587,858
831,025
(621,998)
796,885

786,861
210,917
(2,847,045)
$ (1,849,267)

 WYOMING LOTTERY CORPORATION
STATEMENTS OF REVENUES, EXPENSES, AND CHANGES
IN NET POSITION
Years Ended June 30, 2016 and 2015
2016
Operating Revenues
Revenue from sale of lottery tickets, net (Note 7):
Powerball® game
Mega Millions® game
Cowboy Draw™ game
Total revenue from sale of lottery tickets

$ 15,245,071
4,383,156
13,720,400
33,348,627

2015

$

9,059,334
4,939,751
3,532,350
17,531,435

Retailer application fees
Jackpot insurance recoveries, net

2,900
-

44,000
43,487

Total operating revenue
Direct Costs
Prize expense:
Powerball® game
Mega Millions® game
Cowboy Draw™ game
Total prize expense

33,351,527

17,618,922

7,368,636
2,047,139
8,950,455
18,366,230

4,361,709
2,462,532
2,922,192
9,746,433

3,965,157
2,040,540
258,847
13,347
24,644,121

2,136,563
1,070,140
93,798
13,046,934

8,707,406

4,571,988

1,849,401
941,680
341,396
268,576
229,130
95,201
71,971
66,831
43,085
31,785
25,238
18,856
3,983,150

3,293,611
935,719
253,403
171,627
141,016
89,043
8,724
40,566
33,040
45,010
481
38,702
5,050,942

Commissions to gaming vendor (Note 10)
Commissions and incentives to retailers
Jackpot insurance expense, net
Retailer investigations
Total direct costs
Gross profit
Operating Expenses
Advertising and promotion (Note 10)
Salaries, wages, and benefits (Note 11)
Contracted and professional services
Pension expense (Note 6)
Depreciation and amortization (Note 3)
Rent and utilities (Note 5)
Training and recruitment
Membership dues
Office supplies and equipment
Board of Directors compensation and meetings
Other general and administrative
Meetings and travel
Total operating expenses
Operating income (loss)

4,724,256

(478,954)
continued

10

 WYOMING LOTTERY CORPORATION
STATEMENTS OF REVENUES, EXPENSES, AND CHANGES
IN NET POSITION (Continued)
Years Ended June 30, 2016 and 2015
2016
Nonoperating (Expense)
Interest expense, net
Transfers to State of Wyoming (Note 8)
Compulsive gambling treatment expense
Net nonoperating (expense)

$

(14,451)
(2,035,751)
(27,902)
(2,078,104)

Change in net position

2,646,152

Net Position
Beginning of year, as previously reported
Adjustment to prior year (Note 6)
Beginning of year, as restated

(1,849,267)
(1,849,267)

Ending

$

See Notes to Financial Statements.

11

796,885

2015
$

(38,738)
(38,738)
(517,692)
(1,299,160)
(32,415)
(1,331,575)

$ (1,849,267)

 WYOMING LOTTERY CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended June 30, 2016 and 2015
2016
Cash Flows from Operating Activities
Cash received from retailers
Cash payments to prize winners
Cash payments to suppliers for goods and services
Cash payments to employees for services
Cash payments to Board of Directors for services
Net cash provided by operating activities

$

Cash Flows from Noncapital Financing Activities
Cash drawn on line of credit
Cash paid on line of credit
Interest paid on line of credit
Cash payments to State of Wyoming
Cash payments for compulsive gambling treatment
Net cash (used in) noncapital financing activities
Cash Flows from Capital and Related Financing Activities
Acquisition of capital assets
Principal payments on capital lease obligation
Net cash (used in) capital and related
financing activities
Cash Flows from Investing Activities
Interest received
Net increase in cash and restricted cash
Cash and Restricted Cash
Beginning of year
End of year
Reconciliation of Operating Income (Loss) to Net Cash
Provided by Operating Activities
Operating income (loss)
Adjustments to reconcile operating income (loss) to net cash
provided by operating activities:
Depreciation and amortization
Net pension expense
Changes in operating assets, deferred outflows, liabilities, and
deferred inflows:
Retailer accounts receivable
Prepaid expenses
Prizes payable
Accounts payable
Accrued expenses
Unearned revenue
Net cash provided by operating activities
Noncash Capital and Related Financial Activities
Acquisition of capital assets financed by capital lease obligation
See Notes to Financial Statements.
12

2015

31,167,223
(17,877,466)
(6,987,783)
(1,077,269)
(31,785)
5,192,920

$

16,681,990
(8,763,288)
(5,548,015)
(1,016,838)
(45,010)
1,308,839

1,076,603
(2,502,928)
(14,899)
(1,120,000)
(27,902)
(2,589,126)

1,519,277
(1,522,972)
(38,770)
(42,465)

(21,726)
(8,401)

(756,957)
-

(30,127)

(756,957)

448

32

2,574,115

509,449

529,434

19,985

$

3,103,549

$

529,434

$

4,724,256

$

(478,954)

$
$

229,130
215,882

141,016
127,656

(180,738)
(170,443)
578,764
(158,837)
(82,068)
36,974
5,192,920

(129,688)
(146,565)
893,145
504,292
91,554
306,383
1,308,839

74,000

$
$

-

 WYOMING LOTTERY CORPORATION

NOTES TO FINANCIAL STATEMENTS
Note 1.

Nature of Activities and Significant Accounting Policies

Nature of activities: The Wyoming Lottery Corporation (the “Lottery”), was established in 2013 as an
instrumentality of the State of Wyoming (the “State”) with the enactment of the Wyoming Lottery Act
(the “Act”), codified as Title 9, Chapter 17 of the State of Wyoming Statutes. The Lottery is responsible
for the provision of lotteries on behalf of the State of Wyoming in accordance with the Act and is a
component unit of the State of Wyoming. The Act established a board of nine members appointed by the
Governor to oversee the operations of the Lottery. The Board of Directors exercises powers comparable
to those of the governing board of an entrepreneurial organization. The Lottery transfers net proceeds, as
defined by the Act, to the State of Wyoming.
Basis of accounting: The accompanying financial statements of the Lottery have been prepared in
conformity with generally accepted accounting principles as prescribed by the Governmental Accounting
Standards Board (GASB).
The Lottery is accounted for as an enterprise fund. Enterprise funds are used to account for activities that
are financed and operated in a manner similar to private business enterprises where the costs of providing
lottery games to the general public on a continuing basis are to be financed through the sale of lottery
game tickets. The Act requires that all costs of providing lottery games, including capital costs, be
recovered from the sale of lottery game tickets.
The Lottery’s financial statements are prepared using the economic resources measurement focus and the
accrual basis of accounting in accordance with accounting principles generally accepted in the United
States of America. Under this method, revenues are recognized when they are earned, and expenses are
recognized when they are incurred, regardless of the timing of related cash flows.
Revenues and expenses are categorized as operating or nonoperating in the Statements of Revenues,
Expenses, and Changes in Net Position. Operating revenues and expenses are those that result from
selling Lottery games to the public. Operating revenues include the sale of Lottery products and
incidental revenues associated with operating the Lottery. Operating expenses include the cost of sales
and services, administrative expenses, and depreciation on capital assets. Expenses that do not result
from selling Lottery games are reported as nonoperating expenses. The only nonoperating expenses are
interest expense, transfers to the State of Wyoming, and expenses incurred for compulsive gambling
treatment.
Revenue recognition: Revenues for draw games are recognized when the draws occur. All revenues are
reported net of free plays, which totaled $66,815 and $164,065 for the years ended June 30, 2016 and
2015, respectively.
Unearned revenue: All draw games can be purchased in advance of the drawings. When tickets are sold
in advance of the draw date, sales revenue is not yet earned. Unearned revenue includes revenue
associated with tickets that have been sold for draw dates after the June 30 fiscal year-end.
Prize expense: Prize expense for draw games is recognized as drawings are held, based on the tickets
sold and the estimated or known cost of the prize payments. Prize expense is adjusted as prizes are
claimed and the actual cost of the prize is known.

13

 WYOMING LOTTERY CORPORATION

NOTES TO FINANCIAL STATEMENTS
Commissions: The gaming vendor receives an 11.89% commission on total sales. Retailers receive a
6% commission on total sales and a 1% commission on prizes cashed.
Prizes payable: A liability for prizes payable is recorded when the prize expense is recognized.
Unclaimed prizes: Prizes must be claimed within 180 days after the draw date. A portion of unclaimed
prize money, not to exceed $200,000 annually, shall be used by the Lottery to develop, in consultation
with the Wyoming Department of Health, programs for the treatment of compulsive gambling disorder
and educational programs related to the disorder. In addition, unclaimed prizes may be added to the
pool from which future prizes are awarded or used for special prize promotions.
Under the Act, unclaimed prizes do not constitute net lottery proceeds and are restricted funds that are
not available for transfer to the State of Wyoming. Total unclaimed prizes amounted to $644,661 and
$166,185 for the years ended June 30, 2016 and 2015, respectively. Unclaimed prizes are netted against
prize expense in the Statements of Revenues, Expenses, and Changes in Net Position.
Net proceeds: Net proceeds, as defined by the Act, consist of all revenue derived from the sale of lottery
tickets or shares and all other monies derived from the lottery, less operating expenses.
Operating expenses: Operating expenses, as defined by the Act, in the determination of net proceeds,
consist of all costs of doing business including, but not limited to, commissions and other compensation
paid to retailers, advertising and marketing costs, personnel costs, capital costs, depreciation of property
and equipment, and other operating costs.
Advertising and promotion: The Lottery expenses advertising and promotion costs as incurred.
Production costs of future media advertising, such as those related to the launch of a new lottery product,
are recorded as prepaid expenses and expensed the first time the advertising takes place.
Restricted cash: In accordance with the Act, retailers contribute a fee to a fidelity fund upon acceptance
as a retailer for the Lottery. Monies deposited to the fund may be used to cover losses the Lottery
experiences due to nonfeasance, misfeasance, or malfeasance of lottery retailers. In addition, the funds
may be used to purchase blanket bonds covering the Lottery against losses from all retailers. During
fiscal years 2016 and 2015, no amounts were used to reimburse the Lottery. At the end of any fiscal year,
the Lottery must transfer to the general lottery account any amount in the restricted fidelity account which
exceeds $500,000. The balance of the retailer fidelity fund was $48,081 and $44,732 as of June 30, 2016
and 2015, respectively, and no amount was available for transfer as net proceeds.
The retailer fidelity fund and the balance of unclaimed prizes at June 30, 2016 and 2015, as previously
discussed, are held in a separate account and appear in the accompanying Statements of Net Position as
restricted cash and expendable restricted net position.
Retailer accounts receivable: Retailer accounts receivable represents Lottery proceeds due from retailers
for ticket sales, less commissions due to retailers and prizes paid by the retailers. Lottery proceeds are
collected by the Lottery from retailer trust accounts established in trust for benefit of the Lottery. Most
retailers selling Lottery products are required to remit weekly net proceeds (Sunday through Saturday)
on the following Wednesday.
Prepaid expenses: Payments to vendors for services that will benefit accounting periods beyond the
current year are reported as prepaid expenses.

14

 WYOMING LOTTERY CORPORATION

NOTES TO FINANCIAL STATEMENTS
Capital assets, net: Capital assets are stated at cost less accumulated depreciation. Physical and
intangible assets with a cost of $5,000 or more and a useful life of more than one year are capitalized.
Capital assets are depreciated using the straight-line method over the following estimated useful lives:
Assets
Office equipment
Computer hardware and software
Vehicles
Leasehold improvements
Trademarks

Years
5
2 to 7
5
5
Indefinite

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is reflected in the results from operations in the
period of disposal.
Compensated absences: Employees earn annual vacation leave of 8 to 15 hours per month, depending
upon length of service. Accumulated vacation leave is recorded as an expense and a liability as the
benefits accrue to employees. The compensated absences liability is calculated based upon salary rates in
effect at fiscal year-end and includes taxes and retirement costs. No liability is reported for accumulated
sick leave benefits since employees are not paid for unused sick leave benefits when leaving Lottery
service.
Defined benefit pensions: For purposes of measuring the net pension liability, deferred outflows of
resources and deferred inflows of resources related to pensions, and pension expense, information about
the fiduciary net position of the Wyoming Retirement System (WRS), and additions to/deductions from
the WRS’s fiduciary net position have been determined on the same basis as they are reported by the
WRS. For this purpose, benefit payments (including refunds of employee contributions) are recognized
when due and payable in accordance with the benefit terms. Investments are reported at fair value.
Deferred outflows of resources: Deferred outflows are the consumption of net position by the Lottery that
are applicable to a future reporting period and so will not be recognized as an outflow of resources
(expense) until that time.
Deferred inflows of resources: Deferred inflows are the acquisition of net position by the Lottery that are
applicable to a future reporting period and so will not be recognized as an inflow of resources (revenue)
until that time.
Net position: The Lottery’s net position is classified as follows:
Net investment in capital assets – This represents the Lottery’s total investment in capital assets, net
of accumulated depreciation and debt related to those capital assets.
Restricted, expendable – Restricted expendable net position includes resources in which the Lottery is
legally or contractually obligated to spend in accordance with restrictions imposed by external third
parties. This represents cash maintained in the Lottery’s restricted fidelity fund and the balance of
unclaimed prizes to be used for the treatment of, and educational programs related to, compulsive
gambling disorder, as well as on future prizes or special promotions.
Unrestricted – This represents the remaining net position that does not meet the definition of net
investment in capital assets or restricted.

15

 WYOMING LOTTERY CORPORATION

NOTES TO FINANCIAL STATEMENTS
When both restricted and unrestricted resources are available for use, it is the Lottery’s policy to use
restricted resources first, then unrestricted resources as they are needed.
Risk management: The Lottery is exposed to various risks of loss related to torts, theft of, damage to, and
destruction of assets, errors and omissions, injuries to employees, and natural disasters. The Lottery has
purchased commercial insurance for these various risks, including workers’ compensation insurance, and
did not incur any significant claims resulting from settlement of these risks.
Budgetary data: Formal budgetary accounting is employed as a management control of the Lottery.
Annual operating budgets are adopted each fiscal year as required by Wyoming State Statute.
Estimates: The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could different from those estimates.
Reclassification of certain expenses: Certain expenses in the Statement of Revenues, Expenses, and
Changes in Net Position for the year ended June 30, 2015 have been reclassified, with no effect on the
change in net position, to be consistent with the classifications adopted for the year ended June 30, 2016.
Recent pronouncement: In March 2016, the GASB issued GASB Statement No. 82, Pension Issues, an
amendment of GASB Statements No. 67, No. 68, and No. 73. This statement addresses issues regarding
(1) the presentation of payroll-related measures in required supplementary information, (2) the selection
of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for
financial reporting purposes, and (3) the classification of payments made by employers to satisfy
employee (plan member) contribution requirements. This statement is effective for years beginning after
June 15, 2016, except for the requirements of this Statement for the selection of assumptions in a
circumstance in which an employer’s pension liability is measured as of a date other than the employer’s
most recent fiscal year-end. In that circumstance, the requirements for the selection of assumptions are
effective for that employer in the first reporting period in which the measurement date of the pension
liability is on or after June 15, 2017. Earlier adoption is allowed. Management has elected to adopt this
update for the fiscal year ended June 30, 2016. The impact of adopting this update is reflected in the
financial statements.

Note 2.

Cash

The Lottery’s cash consists of bank deposit accounts which are carried at cost and are subject to FDIC
insurance up to $250,000 per institution. The carrying amount of the Lottery’s deposits was $3,103,549
and $529,434 for June 30, 2016 and 2015, respectively. The Lottery’s bank balance on deposit was
$3,222,224 and $1,103,735 for June 30, 2016 and 2015, respectively, with FDIC insurance totaling
$250,000 at both year ends. The Lottery maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Lottery does not operate with the use of public funds or State money.
Therefore, the Lottery is not required to follow State laws requiring all amounts over the FDIC limit to be
collateralized or insured. The Lottery believes it is not exposed to any significant credit risk on cash.

16

 WYOMING LOTTERY CORPORATION

NOTES TO FINANCIAL STATEMENTS
Note 3.

Capital Assets

The following is a summary of changes in capital assets and accumulated depreciation during the years
ended June 30, 2016 and 2015:

Balance
June 30, 2015
Capital assets being depreciated:
Office equipment
Computer hardware and software
Vehicles
Leasehold improvements

$

Less accumulated depreciation for:
Office equipment
Computer hardware and software
Vehicles
Leasehold improvements

Total capital assets, net
Capital assets not being depreciated:
Trademarks

87,653
681,921
108,574
20,785
898,933

Additions
$

18,585
109,407
21,170
5,486
154,648
$

744,285

$

$

42,576

$

$

Less accumulated depreciation for:
Office equipment
Computer hardware and software
Vehicles
Leasehold improvements

Total capital assets, net
Capital assets not being depreciated:
Trademarks

51,125
51,454
39,000
20,785
162,364

$

28,631
174,081
21,715
4,703
229,130

Balance
June 30, 2014
Capital assets being depreciated:
Office equipment
Computer hardware and software
Vehicles
Leasehold improvements

74,000
21,726
95,726

Deletions

(133,404)

-

2,828
9,370
650
784
13,632

36,528
630,467
69,574
736,569

$

-

161,653
703,647
108,574
20,785
994,659
47,216
283,488
42,885
10,189
383,778

$

-

$

610,881

$

-

$

42,576

Additions
$

-

Balance
June 30, 2016

Deletions
$

15,757
100,037
20,520
4,702
141,016

-

Balance
June 30, 2015
$

-

87,653
681,921
108,574
20,785
898,933
18,585
109,407
21,170
5,486
154,648

$

148,732

$

595,553

$

-

$

744,285

$

22,188

$

20,388

$

-

$

42,576

17

 WYOMING LOTTERY CORPORATION

NOTES TO FINANCIAL STATEMENTS
Note 4.

Compensated Absences

The current portion of accrued compensated absences is included in accrued expenses in the
accompanying Statements of Net Position. The following is a summary of changes in the Lottery’s
liability for compensated absences during the years ended June 30, 2016 and 2015:

Balance
June 30, 2015
$

26,839

Additions
$

Balance
June 30, 2014
$

Note 5.

17,759

41,719

Deletions
$

Additions
$

35,256

(36,843)

Deletions
$

(26,176)

Balance
June 30, 2016
$

31,715

Current
Portion
$

Balance
June 30, 2015
$

26,839

31,715
Current
Portion

$

26,839

Leases

Operating lease: The Lottery entered into a five-year operating lease effective October 1, 2013 for the
rental of office space for its headquarters. The lease expires September 30, 2018, and is renewable at the
option of the Lottery for an additional five years subject to the 2% per year rate increases provided in the
original agreement.
Effective January 1, 2014, the monthly rent was $5,000 per month. Effective January 1, 2016 and for
each January 1st thereafter, the monthly rent will be increased by an amount equal to 2%.
Future minimum rental payments on the operating lease are scheduled as follows:

2017
2018
2019

$

61,812
63,048
15,918
$ 140,778

Rent expense under the operating lease was $66,807 and $62,400 for the years ended June 30, 2016 and
2015, respectively.

18

 WYOMING LOTTERY CORPORATION

NOTES TO FINANCIAL STATEMENTS
Capital lease: In October 2015, the Lottery recognized a capital lease for a copier in the amount of
$74,000. The lease terminates in October 2020 and includes a bargain purchase option at that time. The
lease has been accounted for as a capital lease using an imputed interest rate of 11.70%.
Following is a schedule by year of anticipated lease payments under the capital lease subsequent to the
year ended June 30, 2016:

Imputed
Interest

Principal
2017
2018
2019
2020
2021

$

$

13,092
14,021
15,752
17,697
5,037
65,599

$

$

6,336
5,407
3,676
1,731
104
17,254

Total
$

$

19,428
19,428
19,428
19,428
5,141
82,853

The following is a summary of the changes in the Lottery’s liability for capital leases during the year
ended June 30, 2016:

Balance
June 30, 2015
$

Note 6.

-

Additions
$

74,000

Deletions
$

(8,401)

Balance
June 30, 2016
$

65,599

Current
Portion
$

13,092

Retirement Commitment – Wyoming Retirement System and Prior Period Adjustment

On July 1, 2014, the Lottery implemented GASB Statement No. 68, Accounting and Financial Reporting
for Pensions, which recognizes a long-term obligation for pension benefits. The accounting change
adopted to conform to the provisions of GASB No. 68 has been applied retroactively by restating the
beginning net position for the fiscal year ended June 30, 2015 by $32,415, which included recording an
initial net pension liability of $63,343 and an initial deferred outflow of resources of $30,928.
Plan description: Substantially all employees of the Lottery are provided with pensions through the
Public Employee Pension Plan – a statewide cost-sharing multiple-employer defined benefit pension plan
administered by the Wyoming Retirement System (WRS). The authority to establish and amend benefits
and contributions rates rests with the Legislature of the State of Wyoming. WRS is granted the authority
to administer the Plan by Wyoming State Statutes 9-3-401 through 432. WRS issues a publicly available
financial report that can be obtained at http://retirement.state.wy.us/home/index.html.

19

 WYOMING LOTTERY CORPORATION

NOTES TO FINANCIAL STATEMENTS
Benefits provided: The determination of retirement benefits is dependent upon the employee’s initial
employment date.
Service Retirement Tier 1: Full retirement at age 60 or qualifies for the Rule of 85. Early
retirement is permitted at age 50 or 25 years of service. Formula for retirement equals 2.125%
times the number of years of service times the three-year highest average salary for the first 15
years and 2.25% times the number of years of service times the three-year highest average over
15 years.
Service Retirement Tier 2: Full retirement at age 65 or qualifies for the Rule of 85. Early
retirement is permitted at age 55 or 25 years of service. Formula for retirement equals 2% times
the number of years of service times the five-year highest average salary.
Disability Benefits: Partial or total disability retirement is available to any member who becomes
incapacitated, mentally or physically, and cannot continue in the performance of his/her duties.
To qualify, the member must have at least 10 years of service and must be “in service” at the time
of application for disability retirement. Upon retirement for a partial disability, the member
receives a monthly disability retirement benefit for the period of his/her disability equal to 50% of
the normal benefit payable to the member, as if the member was eligible for normal retirement
benefits. Upon retirement for a total disability, the member receives a monthly disability benefit
equal to 100% of his service retirement benefit as if the member was eligible for normal
retirement benefits. Disability benefits are payable for the life of the member or until death.
Survivor’s Benefits: Certain surviving dependents receive benefits based on the deceased
member’s compensation and their relationship to the deceased, as well as the benefit option
selected by the member at the date of retirement.
Contributions: Per Title 9-3-412 and 413 of State Statutes, for the years ended June 30, 2016 and 2015,
member contributions were required to be 8.25% of compensation, and employer contributions were
required to be 8.37% and 7.62% of compensation, respectively. In accordance with Title 9-3-412 (c) (ii)
of State Statutes, the Lottery has elected to pay 3.63% of the member’s contribution in addition to the
employer’s contribution. Total contributions to the pension plan from the Lottery were $106,492,
$101,098 and $49,024 for the years ended June 30, 2016, 2015, and 2014 respectively.
Pension liabilities, pension expense, and deferred outflows of resources and deferred inflows of resources
related to pensions: At June 30, 2016 and 2015, the Lottery reported a liability of $848,712 and
$598,600, respectively, for its proportionate share of the net pension liability. The net pension liability
was measured as of December 31, 2015 and 2014, respectively, and the total pension liability used to
calculate the net pension liability was determined by an actuarial valuation as of January 1, 2016 and
2015, respectively. The Lottery’s proportion of the net pension liability was based on the relationship of
the Lottery’s total contributions to the plan for the years ended December 31, 2015 and 2014 to the
contributions of all participating employers for the same periods. At December 31, 2015, the Lottery’s
proportion was 0.036435586%, which was an increase from its December 31, 2014 proportion of
0.033920917%.

20

 WYOMING LOTTERY CORPORATION

NOTES TO FINANCIAL STATEMENTS
For the years ended June 30, 2016 and 2015, the Lottery recognized pension expense of $268,576 and
$171,627, respectively. At June 30, 2016 and 2015, the Lottery reported deferred outflows of resources
and deferred inflows of resources related to pensions from the following sources:
June 30, 2016

Differences between expected and actual experience

June 30, 2015

Deferred
Deferred
Outflows of Inflows of
Resources Resources

Deferred
Inflows of
Resources

Deferred
Inflows of
Resources

$

$

$

-

$ 17,955

-

-

Net difference between projected and actual
earnings on pension plan investments

205,108

-

49,080

-

Changes in proportionate share of contributions

260,016

-

339,685

-

25,590

-

49,764

-

Contributions subsequent to the measurement date

$ 490,714

$ 17,955

$ 438,529

$

-

An amount of $25,590 reported as deferred outflows of resources related to pensions resulting from the
Lottery contributions subsequent to the measurement date will be recognized as a reduction of the net
pension liability in the year ending June 30, 2017. Other amounts reported as deferred outflows of
resources and deferred inflows of resources related to pensions will be recognized in pension expense as
follows:

Year ended June 30:
2017
2018
2019
2020

$

$

172,227
172,227
60,640
42,075
447,169

Actuarial assumptions: The total pension liability in the January 1, 2016 and 2015 actuarial valuation
were determined using the following actuarial assumptions, applied to all periods included in the
measurement:
Inflation

3.25%

Salary increases

4.25% – 6.0%, including inflation

Investment rate of return

7.75%, net of pension plan investment expense, including inflation

Mortality rates were based on the RP-2000 Combined Mortality Table for Males or Females, as
appropriate, with adjustments for mortality improvements based on Scale BB.

21

 WYOMING LOTTERY CORPORATION

NOTES TO FINANCIAL STATEMENTS
Long-term expected rate of return: The long-term expected rate of return on pension plan investments
was determined using a building-block method in which expected future real rates of return (expected
returns, net of pension plan investment expense and inflation) are developed for each major asset class.
These real rates of return are combined to produce the long-term expected rate of return by weighting the
expected future real rates of return by the target asset allocation percentage and by adding expected
inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset
class as of December 31, 2015 and 2014 are summarized in the following table:

December 31, 2015

Asset Class
Fixed income
Equity
Marketable alternatives
Private markets
Cash

December 31, 2014

Target
Allocation

Long-Term
Expected Real
Rate of Return

Target
Allocation

Long-Term
Expected Real
Rate of Return

15.00%
59.00%
15.50%
8.00%
2.50%

0.87%
5.13%
4.75%
5.84%
0.25%

15.00%
55.00%
15.50%
12.00%
2.50%

0.98%
6.66%
4.19%
7.13%
0.50%

100.00%

100.00%

Experience analysis: An experience study was conducted on behalf of all WRS’ plans covering the fiveyear period ended December 31, 2011. That study provided a detailed analysis concerning the
development of the long-term inflation rate, real rate of return, and discount rate. The study also analyzed
each major actuarial assumption (e.g., mortality, salary increases, retirement, termination, and disability)
and proposed assumptions consistent with the findings.
Discount rate: The discount rate used to measure the total pension liability as of December 31, 2015 and
2014 was 7.75%. The projection of cash flows used to determine the discount rate assumed that
employee and employer contributions will be made at the current contribution rate. Based on those
assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected
future benefit payments of current active and inactive employees. Therefore, the long-term expected rate
of return on pension plan investments was applied to all periods of projected benefit payments to
determine the total pension liability.
Sensitivity of the Lottery’s proportionate share of the net pension liability to changes in the discount rate:
The following presents the Lottery’s proportionate share of the net pension liability as of June 30, 2016
calculated using the discount rate of 7.75%, as well as what the Lottery’s proportionate share of the net
pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower
(6.75%) or 1-percentage-point higher (8.75%) than the current rate:

June 30, 2016
1%
Decrease
(6.75%)
Proportionate share of the
net pension liability

$

1,218,449

22

Current
Discount
Rate (7.75%)
$

848,712

1%
Increase
(8.75%)
$

536,131

 WYOMING LOTTERY CORPORATION

NOTES TO FINANCIAL STATEMENTS
Pension plan fiduciary net position: Detailed information about the pension plan’s fiduciary net position
is available in the separately issued WRS financial report available from the Wyoming Retirement
System, 6101 Yellowstone Road, Cheyenne, Wyoming 82002 or at http://retirement.state.wy.us/
home/index.html.

Note 7.

Line of Credit

The Lottery entered into a revolving line of credit in August 2013 for $1,000,000 to fund its start-up
costs. The line increased to $3,000,000 in April 2014, bore interest at 1.750%, and was due April 2015.
In March 2015, the Lottery extended the due date to June 2016. As part of the change in terms of
agreement, the line decreased to $2,500,000 and bore interest at 2.00%. In accordance with the terms of
the agreement, the Lottery was prohibited from remitting any net proceeds from ticket sales to the State of
Wyoming (as discussed in Note 8) until the principal balance plus accrued interest has been paid in full.
The line was secured by the assignment of Lottery proceeds. The line was paid in full as of January 30,
2016, expired on June 30, 2016, and was not subsequently renewed. The following is a summary of
changes in the Lottery’s liability for the line of credit during the years ended June 30, 2016 and 2015:

Note 8.

Balance
June 30, 2015

Additions

Deletions

$ 1,426,325

$ 1,076,603

$ (2,502,928)

Balance
June 30, 2016
$

-

Balance
June 30, 2014

Additions

Deletions

Balance
June 30, 2015

$ 1,430,020

$ 1,519,277

$ (1,522,972)

$ 1,426,325

Disposition of Lottery Proceeds

In accordance with the Act, all net proceeds minus prizes of the Lottery are to be transferred to the State
of Wyoming on a quarterly basis for deposit into the Lottery account. Until June 30, 2022, the first six
million dollars ($6,000,000) in each fiscal year of these monies shall be paid by the Treasurer as they
accrue to the treasurers of the counties, cities, and towns for payment into their respective general funds.
The percentage of the balance that will be distributed to each county and its cities and towns will be
determined by computing the percentage that net sales taxes collected attributable to vendors. This
percentage of the monies shall be distributed within each county as follows:
To each county in the proportion that the population of the county situated outside the corporate
limits of its cities and towns bears to the total population of the county including cities and
towns; and
To each city and town within the county in the proportion the population of the city or town
bears to the population of the county.

23

 WYOMING LOTTERY CORPORATION

NOTES TO FINANCIAL STATEMENTS
Until June 30, 2022, after six million dollars ($6,000,000) is distributed in each fiscal year, as discussed
above, any remaining monies deposited to the Lottery account which are attributable to that fiscal year
shall be paid by the Treasurer to the Common School Account within the Permanent Land Fund.
The Lottery incurred $2,035,751 in transfer expense for the year ended June 30, 2016, of which
$915,751 was due to the State of Wyoming at year-end for the quarter ending June 30, 2016. No
amount was available for transfer to the State of Wyoming during the year ended June 30, 2015 through
the quarter ending December 31, 2015, as the line of credit was not paid in full until January 2016, as
discussed in Note 7.

Note 9.

Contingencies

The Lottery is subject to litigation in the ordinary course of its operations. In the opinion of the Lottery’s
management and its legal counsel, the outcome of such litigation will not have a material impact on the
financial position or cash flows of the Lottery for the years ended June 30, 2016 and 2015.

Note 10.

Contractual Arrangements, Commitments, and Subsequent Events

Gaming operations commitments: The Lottery entered into a long-term contract with a gaming vendor to
provide an on-line lottery gaming system and related products and services. The initial revenue portion of
the contract commenced at system start-up (go-live) in August 2014 and will expire in August 2019;
however, the contract may be extended for additional periods of time upon mutual agreement, not to
exceed three five-year extensions, unless authorized by the Lottery. Under the terms of the contract, the
Lottery pays the gaming vendor a fee of 11.89% based on a percentage of the Lottery’s sales. The
contract was amended in November 2014 to incorporate additional products and services.
The Lottery entered into contracts with gaming vendors to provide gaming system and administrative
system testing services, as well as software licensing and support. The gaming system agreement expires
in June 2024 and may be extended by one ten-year extension. The Lottery shall compensate the gaming
vendor for hours worked on a graduated hourly basis over the life of the contract. The software licensing
agreement expires in August 2029 and requires a monthly payment over the life of the contract. The
Lottery has the unconditional right to terminate the software licensing agreement by providing 60 days’
written notice.
The Lottery entered into an agreement with the Multi-State Lottery Association (“MUSL”) on July 1,
2014, to become a member and participate in Powerball® and Mega Millions® games. As a member, the
Lottery agrees to abide by the terms of the Multi-State Agreement and to any amendments to that
agreement duly made by the board. The Lottery will remain a member indefinitely. Pursuant to this
agreement, the Lottery must remit to MUSL the Lottery’s share of the prize pool. The amount remitted to
MUSL will be equivalent to approximately 50% of its Powerball® and Mega Millions® ticket sales, which
covers the high-tier prizes.

24

 WYOMING LOTTERY CORPORATION

NOTES TO FINANCIAL STATEMENTS
Marketing commitments: The Lottery entered into a long-term contract with an advertising agency to
provide marketing services and projects to promote the Lottery’s products. The contract was amended
and restated in August 2014, expires June 30, 2019, and may be extended up to three times for a period of
time not exceeding June 30, 2034. In the event the contract is terminated for convenience by the Lottery,
the advertising agency is entitled to liquidated damages in the amount of 10% of the remaining balance
due for the remaining term of the contract. Under the terms of the contract, the Lottery shall compensate
the advertising agency on a project basis, but no less than $1.5 million annually. Subsequent to year-end
in October 2016, the contract was amended and restated to reduce the annual commitment to $850,000.
Subsequent to year-end in July 2016, the Lottery entered into a long-term marketing and sponsorship
agreement to promote the Lottery at specific events. The agreement expires June 30, 2020 and requires
an annual payment of approximately $91,000 over the life of the agreement.

Note 11.

Employee Benefit Plan

Effective July 1, 2015, the Lottery established a safe harbor defined contribution plan under Section
401(k) of the Internal Revenue Code covering all employees of the Lottery who have completed one year
of service and are over the age of 21. A year of service is defined as completing 1,000 hours in a 12month period. The plan’s provisions and contribution requirements are established, and are subject to
amendment, by the Lottery’s Board of Directors. The Lottery has elected to fund the plan investments
through a group deferred variable annuity contract issued by AXA Equitable Life Insurance Company.
The Lottery makes a safe harbor matching contribution in an amount equal to 100% of the first 3% plus
50% of the next 2% of a participant’s eligible compensation. On an annual basis, the Lottery can also
elect to make a discretionary employer contributions equal to a percentage of the amount the employee
elects to defer. Additional nonelective contributions may also be made at the option of the Lottery’s
management. For Plan year 2015, no discretionary or nonelective contributions were made. The Lottery
contributed $20,929 to the plan for the year ended June 30, 2016.

25

  

REQUIRED SUPPLEMENTARY INFORMATION
The Lottery’s required supplementary information includes the Schedule of the Lottery’s
Proportionate Share of the Net Pension Liability and Schedule of the Lottery’s
Contributions followed by Note to Required Supplementary Information.

 WYOMING LOTTERY CORPORATION
SCHEDULE OF THE LOTTERY'S PROPORTIONATE SHARE
OF THE NET PENSION LIABILITY
Public Employee Pension Plan
Last 3 Fiscal Years*

Lottery's
proportionate share Plan fiduciary
Lottery's
of the net pension net position as a
proportionate
Lottery's
percentage of the
liability as a
proportion of the share of the net
total pension
pension liability Lottery's covered percentage of its
net pension
liability
covered payroll
(asset)
payroll
liability (asset)
2014
2015
2016

0.004166214%
0.033920917%
0.036435586%

$

63,343
598,600
848,712

$

69,745
587,486
650,031

90.82%
101.89%
130.56%

81.10%
79.08%
73.40%

* The amounts presented for each fiscal year were determined as of the calendar year-end that
occurred within the fiscal year.

See Note to Required Supplementary Information.

26

 WYOMING LOTTERY CORPORATION
SCHEDULE OF THE LOTTERY'S CONTRIBUTIONS
Public Employee Pension Plan
Last 3 Fiscal Years

Statutorily
required
contribution
2014
2015
2016

$

23,867
48,542
53,631

Contributions in
relation to the
statutorily
required
contribution

Contribution
deficiency
(excess)

$

$

23,867
48,542
53,631

See Note to Required Supplementary Information.

27

Covered
payroll
-

$

335,215
637,037
640,750

Contributions as
a percentage of
covered payroll
7.12%
7.62%
8.37%

 WYOMING LOTTERY CORPORATION

NOTE TO REQUIRED SUPPLEMENTARY INFORMATION
Year Ended June 30, 2016
Note 1.

Retirement Commitment – Wyoming Retirement System

Changes in benefit terms: There were no changes in benefit terms between the December 31, 2014
measurement date and the December 31, 2015 measurement date.
Changes in assumptions: There were no changes in assumptions between the December 31, 2014
measurement date and the December 31, 2015 measurement date.

28

 INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING AND ON COMPLIANCE AND
OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL
STATEMENTS PERFORMED IN ACCORDANCE WITH
GOVERNMENT AUDITING STANDARDS

To the Board of Directors
Wyoming Lottery Corporation
Cheyenne, Wyoming
We have audited, in accordance with the auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards
issued by the Comptroller General of the United States, the financial statements of the business–type
activities of the Wyoming Lottery Corporation (the “Lottery”) as of and for the year ended June 30, 2016,
and the related notes to the financial statements, which comprise the Lottery’s basic financial statements,
and have issued our report thereon dated November 16, 2016.
Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Lottery’s internal
control over financial reporting (internal control) to determine the audit procedures that are appropriate in
the circumstances for the purpose of expressing our opinion on the financial statements, but not for the
purpose of expressing an opinion on the effectiveness of the Lottery’s internal control. Accordingly, we
do not express an opinion on the effectiveness of the Lottery’s internal control.
Our consideration of internal control was for the limited purpose described in the preceding paragraph
and was not designed to identify all deficiencies in internal control that might be material weaknesses or
significant deficiencies and, therefore, material weaknesses or significant deficiencies may exist that were
not identified. However, as described on the following pages, we identified certain deficiencies in
internal control that we consider to be a material weakness and a significant deficiency.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a
combination of deficiencies, in internal control such that there is a reasonable possibility that a material
misstatement of the Lottery’s financial statements will not be prevented, or detected and corrected, on a
timely basis. We consider the deficiency described below as item 2016-001 to be a material weakness.
2016-001: Segregation of Duties and Record Retention Over Journal Entries
Criteria: Internal controls are designed to safeguard assets and help prevent loss from employee
dishonesty or error. A fundamental concept in an adequate system of internal control is the segregation of
duties and retention of supporting accounting records.
Condition/Context: The Lottery did not provide for an adequate segregation of duties for an effective
system of internal accounting control in relation to journal entries. During the year ended June 30, 2016,
there was limited independent review of journal entries posted to the Lottery’s accounting system, and the
Lottery did not consistently retain accounting records substantiating all journal entries posted.
29

 Effect: Without properly designed internal control systems, the Lottery could be susceptible to
misappropriation of assets and/or inaccurate financial reporting.
Cause: Effective in July 2015, an internal control was established whereby the Lottery’s Senior Research
Analyst was to review and approve the accuracy of all adjusting journal entries prepared by the Chief
Financial Officer (CFO). The Lottery’s internal control was not properly designed in that it failed to a)
require formal documentation of the review and b) include all types of journal entries in the review and
approval process, as it focused primarily on journal entries directly related to lottery transactional activity.
In addition, due to turnover in the CFO position subsequent to year end, the Lottery was unable to provide
documentation supporting the rationale behind, and calculation, of journal entries that had been selected
for testing.
Recommendation: We recommend that at month end, all journal entries prepared and posted to the
Lottery’s general ledger be independently reviewed for propriety to ensure the transactions are properly
supported and are reported in accordance with U.S. GAAP. In order to allow for an adequate audit trail
that this control is functioning as designed, we recommend the CFO provide the reviewer with a summary
cover sheet in conjunction with the listing of monthly journal entries, and that the reviewer sign off on the
cover sheet indicating that (s)he has reviewed and approved the journal entries. In addition, we
recommend the Lottery retain all supporting accounting records used to substantiate the journal entries, as
well as the executed cover sheet.
Views of Responsible Officials and Planned Corrective Actions: Due to turnover in the CFO position
over the past year, the review process over journal entries initiated in July 2015 did not function as
expected. Effective in November 2016, the Chief Administrative Officer (CAO) will review and approve
the accuracy of all adjusting entries prepared by the CFO during the month-end close process. This
review will entail the CAO reviewing all entries, in conjunction with any summary reports/accounting
records accompanying such entries, and then documenting such review. In addition, the Lottery will
retroactively implement this control to all journal entries posted from July 1 through October 31, 2016 to
ensure all such journal entries are also adequately supported and reviewed to ensure the propriety of the
transactions posted.
The Lottery will also take measures to ensure that, if employee titles are changed or duties of a particular
employee are altered during any upcoming fiscal year, the review of journal entries will be conducted by
an alternative employee within the Lottery to ensure a consistent practice and application of the
established internal control process.
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less
severe than a material weakness, yet important enough to merit attention by those charged with
governance. We consider the deficiency described below as item 2016-002 to be a significant deficiency.
2016-002: Audit Adjustment to Prizes Payable
Criteria: Under professional standards, the control deficiency exists as the Lottery personnel did not
identify the adjusting journal entry, which was necessary in order to properly state the Lottery’s financial
statements in accordance with accounting principles generally accepted in the United States of America
(U.S. GAAP).
Condition/Context: As part of our audit, an adjustment was proposed and recorded to reduce the prizes
payable liability and associated Cowboy DrawTM prize expense by $250,000.
Effect: Prior to the audit adjustment, the financial statements were not properly stated in accordance with
U.S. GAAP.

30

 Cause: There was not a control system in place to ensure appropriate accounting treatment of the
Lottery’s prizes payable liability. The adjustment related to a unique circumstance whereby the Cowboy
DrawTM jackpot was hit on June 30, 2016. As a result, the Lottery personnel reestablished the prize
liability the same business day. However, in accordance with U.S. GAAP, the prize liability should only
be recorded when prize expense is recognized, which occurs as drawings are held. As the next Cowboy
DrawTM draw was not until subsequent to year-end, the prizes payable liability should not have been
reestablished until the draw date.
Recommendation: The Lottery should establish policies and procedures to ensure appropriate
accounting treatment of all prize liability accounts, specifically on or around month- or year-end, in order
to properly record transactions in accordance with U.S. GAAP.
Views of Responsible Officials and Planned Corrective Actions: The Lottery did not have an
established procedure on how to account for the prizes payable liability at the end of a fiscal reporting
period. The Lottery has implemented the following control system to ensure that the prizes payable
liability will be accounted for properly, specifically at the end of a fiscal reporting period.
Effective July 1, 2016, any increase to the Cowboy DrawTM prize payable liability will not be recognized
until the date of the next draw, consistent with the Lottery’s accounting policy. Additionally, at the end
of a fiscal reporting period, the Lottery’s Chief Financial Officer (CFO) will review the transaction with
the Chief Administrative Officer (CAO) to confirm any such accounting entries are handled in accordance
with this policy. After confirmation, the Lottery’s CFO and CAO shall confirm policy compliance by
written memorandum. The CAO and/or CFO will then deliver the written memorandum of confirmation
to the Chief Executive Officer (CEO) for final compliance confirmation review.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Lottery’s financial statements are free from
material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on compliance with those
provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The
results of our tests disclosed no instances of noncompliance or other matters that are required to be
reported under Government Auditing Standards.
The Lottery’s Responses to Findings
The Lottery’s responses to the findings identified in our audit are described above. The Lottery’s
responses were not subjected to the auditing procedures applied in the audit of the financial statements
and, accordingly, we express no opinion on them.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance
and the results of that testing, and not to provide an opinion on the effectiveness of the Lottery’s internal
control or on compliance. This report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the Lottery’s internal control and compliance.
Accordingly, this communication is not suitable for any other purpose.

Cheyenne, Wyoming
November 16, 2016

31