VICTORIA — A plan by the B.C. Lottery Corporation to save millions in staffing costs backfired and cost the corporation $25 million, a government audit has found.

Finance Minister Mike de Jong said the audit, released Wednesday, flagged several troubling human resource issues, including a plan to save $20 million by eliminating 68 staff this year that led to a rush of 142 early retirements and severance packages that cost the Crown lottery corporation $25 million.

“Not a particularly shining example of effective execution of what was, by any measure, an appropriate response to mounting cost pressures,” said de Jong. “This requires additional attention to ensure that it never happens again.”

BCLC chairman Bud Smith said the botched buyouts came after the lottery corporation missed some revenue projections and was pressured by the government’s treasury branch to cut costs. “The execution wasn’t good,” he said.

The cost-saving program offered 18 months severance, regardless of length of service, for employees 50 years or older in order to reduce the impact of layoffs, according to the audit.

Other problematic costs highlighted in the review included $1.2 million in “constructive dismissal” packages for four senior employees who balked at governmentwide changes to eliminate bonuses and freeze salaries at Crown corporations.

Not only did the four employees get 18 months of severance pay each, they were also paid nine months “working notice,” according to the audit.

“No one here is going to excuse that or try to defend that,” said de Jong.

“That was improper, it was counter to what the policy and the objective of the policy were, and counter to what I think the board expected to happen.”

Despite the botched HR practices, de Jong said the audit concluded overall that the lottery corporation does an acceptable job as the Crown gambling corporation.

The lottery corporation pulls in $2.1 billion annually through 3,800 lottery retail locations, 17 casinos, 18 community gambling centres and seven bingo halls. Of that, approximately $1.1 billion goes to government services.

The government audit, which began in January, came after Premier Christy Clark promised a “hard look at all Crown corporations” in her 2011 throne speech. BCLC is the fourth corporation to go under the microscope, but previous audits at the Insurance Corp. of B.C., Community Living B.C. and B.C. Hydro have provided scathing examples of misspending.

A separate audit earlier this year looked into the sudden departure of lottery CEO Michael Graydon and concluded he broke conflict-of-interest rules by jumping to a private competitor, an affiliate company of Paragon Gaming. Graydon subsequently repaid $55,171 in disputed salary and holdback pay.

Overall, de Jong said it is “troubling” that the corporation’s net revenue has stayed relatively flat in the last five years, even though salaries, benefits and operating expenses have risen.

As well, de Jong said it’s clear that demographics are shifting and younger residents are not as interested in traditional gambling offered by BCLC.

“The number of people drawn to the bingo hall is not what it once was,” he said.

While online electronic gambling revenue has risen over the last five years from $14.7 million to $59 million, lottery officials remain unable to accurately project revenues for future years, he said.

The government audit contained 25 recommendations for BCLC, ranging from procurement to technological issues. The corporation accepted all of the recommendations.

NDP critic David Eby said the report highlighted serious problems in the gambling agency, including lax internal controls on purchasing and contracts, as well as inadequate enforcement.

“This audit was put in the kindest terms possible, but what it shows is a government agency that is significantly out of control,” he said.

The audit also said 86,000 large cash transactions and 1,000 “unusual or suspicious financial transactions” reported by BCLC to a federal watchdog in 2013/14 was a “significant increase” over previous years and raised concern about money laundering inside B.C. gambling facilities.

The lottery corporation said it has moved to improve its financial reporting and tracking system for suspicious transactions.

rshaw@vancouversun.com

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