A performance audit of the Arizona Racing Commission

              STATE OF ARIZONA

OFFICE OF THE

AUDITOR GENERAL

A PERFORMANCE AUDIT

OF THE

ARIZONA RACING COMMISSION

APRIL 1981

A REPORT TO THE

ARIZONA STATE LEGISLATURE

REPORT 81- 5

DOUGLAS R. NORTON. CPA

AUDITOR GENERAL

STATE OF ARIZONA

OFFICE OF THE

AUDITOR GENERAL

April 3, 1981

Members of the Arizona L e g i s l a t u r e

The Honorable Bruce Babbitt, Governor

Members of the Arizona Racing Commission

Ladies and Gentlemen:

Transmitted herewith is a report of the Auditor General, A Performance

Audit of the Arizona Racing Commission. This r e p o r t is i n response to a

September 11, 1980, r e s o l u t i o n of t h e J o i n t L e g i s l a t i v e Budget Committee.

The blue pages present a summary of the r e p o r t ; a response from the

Commission is found on the yellow pages preceding the appendices.

My s t a f f and I w i l l be pleased t o discuss o r c l a r i f y items i n the r e p o r t .

Respectfully submitted,

~ o u ~ l Ra. s N orton

Auditor General

S t a f f : Gerald A. S i l v a

William Thomson

Robert T. Back

Dawn S i n c l a i r

S y l v i a F o r t e '

Michael T. Murphy

Gloria G. Glover

Samuel L. Harris

Enclosure

LEGISLATIVE SERVICES WING SUITE 200 STATE CAPITOL PHOENIX. ARIZONA 85007 255- 4385

OFFICE OF THE AUDITOR GENERAL

A PERFORMANCE AUDIT OF THE

ARIZONA RACING COMMISSION

A REPORT TO THE

ARIZONA STATE LEGISLATURE

REPORT 81- 5

TABLE OF CONTENTS

SUMMARY

INTRODUCTION AND BACKGROUND

FINDINGS

FINDING I

The Arizona Racing Commission is not f u l f i l l i n g

its s t a t u t o r y r e s p o n s i b i l i t y to regulate racing

p a r t i c i p a n t s through the l i c e n s i n g process.

CONCLUSION

RECOMMENDATIONS

FINDING I1

Changes a r e needed i n the Arizona Racing Commission's

a d m i n i s t r a t i o n of c a p i t a l improvement funds a t racing

f a c i l i t i e s .

CONCLUSIONS

RECOMMENDATIONS

FINDING I11

Procedures used by the Arizona Racing Commission t o

s e l e c t and evaluate the contract chemist a r e inadequate.

CONCLUSIONS

FINDING I V

- Page

1

7

The a b i l i t y of the Arizona Racing Commission t o prevent

the use of prohibited drugs i n r a c i n g h a s been impaired

because c e r t a i n s t a f f members have n o t p r o p e r l y discharged

t h e i r r e s p o n s i b i l i t i e s .

CONCLUSIONS 6 5

RECOMMENDATIONS 65

FINDING V

Page

67

The Arizona Racing Commission is not complying with the

Open Meeting Law and the Workmen's Compensation Law

CONCLUSIONS

RECOMMENDATIONS

FINDING V I

I l l e g a l loans have been made from the Race Track

Benevolent Fund and the Greyhound Benevolent fund

CONCLUSION

OTHER PERTINENT INFORMATION

Arizona Racing Commission implementation of

new drug usage r u l e s

WRITTEN RESPONSE TO THE AUDITOR GENERAL'S REPORT

APPENDICES

APPENDIX I Sample l i c e n s e a p p l i c a t i o n s

APPENDIX I1 Arizona Revised S t a t u t e s $ 5- 111.02

APPENDIX I11 Financial Accounting Standards Board

Pronouncement 34

APPENDIX I V L e g i s l a t i v e Council Opinion 0- 81- 5 February 13, 1981

APPENDIX V L e g i s l a t i v e Council Opinion 0- 80- 62 December 5, 1980

APPENDIX V I L e g i s l a t i v e Council Opinion 0- 80- 63 December 12, 1980

APPEKDIX V I I L e g i s l a t i v e Council Opinion 0- 80- 65 December 22, 1980

LIST OF TABLES

TABLE 1

TABLE 2

TABLE 7

TABLE 4

TABLE 5

TABLE 6

TABLE 7

TABLE 8

TABLE 9

TABLE 10

D i s t r i b u t i o n of revenues c o l l e c t e d by the

Arizona Racing Commission f o r f i s c a l years

1976- 77 through 1979- 80

Expenditures f o r Arizona Racing Commission

f o r f i s c a l years 1976- 77 through 1980- 81 ( estimated)

Totals withheld by r a c i n g p e r m i t t e e s f o r c a p i t a l

improvements as authorized by A. R. S. $ 5- 111.02 from

July 1, 1978 to December 31, 1980

Summary of c a p i t a l improvement p r o j e c t s a t

Turf Paradise as of February 24, 1981

Approved c a p i t a l improvements a t Presco tt Downs

as of December 31, 1980

Summary of Racing Commission c a p i t a l improvement

funds paid t o counties from f i s c a l year 1975- 76

through 1979- 80 and the period from July 1980

through December 1980

Page

8

Percentage of races f o r which a d d i t i o n a l samples 64

were drawn from July 1, 1980 to February 15, 1981

Types of medication r u l e s adopted by other s t a t e s 7 4

Summary of e f f e c t i v e dates f o r new medication r u l e s 77

and days between date of o r i g i n a l adoption and

e f f e c t i v e date

Summary of s t a t e s adopting NASRC g u i d e l i n e s , e f f e c t i v e 78

dates of new medication r u l e , and days between date

the r u l e w a s adopted and its e f f e c t i v e date

SUMMARY

The Office o f t h e Auditor General has conducted a performance a u d i t of the

Arizona Racing Commission i n response t o a September 11, 1980, r e s o l u t i o n

of the J o i n t L e g i s l a t i v e Budget Committee, i n accordance with the

provisions of Arizona Revised S t a t u t e s ( A. R. s.) 541- 1279.

The Arizona Racing Commission was created by the L e g i s l a t u r e i n 1949. The

Commission is comprised of f i v e Commissioners who serve without pay.

Commissioners a r e appointed by the Governor and serve six- year terms.

Our review of the Arizona Racing Commission revealed t h a t :

- The Arizona Racing Commission is not f u l f i l l i n g its s t a t u t o r y

r e s p o n s i b i l i t y t o r e g u l a t e racing p a r t i c i p a n t s through the

l i c e n s i n g process. ( page 11)

- Changes a r e needed i n t h e Arizona Racing Commission's

administ r a t i o n of c a p i t a l improvement funds at racing

f a c i l i t i e s . ( page 27)

- Procedures used by the Arizona Racing Commission t o s e l e c t and

evaluate the contract chemist a r e inadequate. ( page 49)

- The a b i l i t y o f t h e Arizona Racing Commission t o prevent the use

o f p r o h i b i t e d drugs i n r a c i n g h a s been impaired because c e r t a i n

s t a f f members have not properly discharged t h e i r

r e s p o n s i b i l i t i e s . ( page 57)

- The Arizona Racing Commission is not complying with the Open

Meeting Law and the Workmen's Compensation Law. ( page 67)

- I l l e g a l loans have been made t o l i c e n s e e s from the Race Track

Benevolent Fund and the Greyhound Benevolent Fund. co age 71)

It is recommended t h a t :

- The Commission obtain and process f i n g e r p r i n t s of a l l a p p l i c a n t s f o r

l i c e n s u r e by:

e seeking funding from the L e g i s l a t u r e f o r seasonal, c l e r i c a l

p o s i t i o n s t o assist during peak workload periods, or

a adopting the system used by the S t a t e Real E s t a t e Department by

arranging f o r a p r i v a t e company t o be present a t Commission

o f f i c e s f o r o p t i o n o f o b t a i n i n g f i n g e r p r i n t s from l o c a l law

enforcement agencies.

- The Commission adopt a r u l e requiring stewards t o enforce its policy

t o r e f e r a p p l i c a t i o n s involving derogatory information t o

i n v e s t i g a t o r s f o r n o t i f i c a t i o n and/ or follow- up. I n a d d i t i o n , a l l

instances of a p p l i c a t i o n f a l s i f i c a t i o n should be reviewed by a

i n v e s t i g a t o r s t o determine i f l i c e n s e revocation is i n order.

- Permittees and Commission s t a f f implement procedures r e a d i l y a v a i l a b l e

t o c o n t r o l unlicensed a c t i v i t y , including increased v i s u a l checks of

l i c e n s e s and comparisons of racing programs t o l i c e n s e f i l e s .

- The Commission provide f o r d i s c i p l i n a r y a c t i o n , i n c l u d i n g c r i m i n a l

prosecutions a g a i n s t i n d i v i d u a l s found to be unlicensed and against

permittees and S t a t e stewards who f a i l t o prevent such a c t i v i t y .

- The Commission ensure t h a t a p p l i c a t i o n s a r e c o r r e c t l y prepared and

complete, and t h a t a l l a p p l i c a t i o n s a r e reviewed and signed. I n •

a d d i t i o n , the Commission should d i s c i p l i n e stewards f a i l i n g t o

properly review a p p l i c a t i o n s .

- The Commission e s t a b l i s h i n d i v i d u a l f i l e s f o r each l i c e n s e e and

consolidate information about each i n t o these f i l e s .

- The Commission strengthen c o n t r o l s over e x i s t i n g records and f i l e s by

locking f i l e s containing s e n s i t i v e data and by implementing sign- out

procedures f o r f i l e s .

- The Commission accounting u n i t v e r i f y t h a t the proper f e e is assessed

f o r each l i c e n s e category by r e c o n c i l i n g the l i c e n s i n g category on the

l e f t s i d e of t h e a u d i t copy of the f e e r e c e i p t with the amount charged

l i s t e d on the r i g h t s i d e of the r e c e i p t .

- Proper accounting c o n t r o l s f o r cash, i n c l u d i n g s e g r e g a t i o n of d u t i e s ,

preparation of r e c e i p t s , increased s e c u r i t y and prompt d e p o s i t s be

established.

- The Commission require l i c e n s u r e of the o f f i c e r s and d i r e c t o r s of

permittees.

- The o f f i c e r s and d i r e c t o r s thus licensed be f i n g e r p r i n t e d and

subjected t o the same background i n v e s t i g a t i o n as other l i c e n s e e s .

- The Commission not approve the withholding of i n t e r e s t expense

associated with the a c q u i s i t i o n of improvements i n Turf Paradise

P r o j e c t s TP- 1 through TP- 5.

- The Commission rescind its approval of r o l l i n g stock purchased as

c a p i t a l improvements a t Turf Paradise and Presco tt Downs. Further,

the Commission should d i r e c t Turf Paradise not t o withhold the funds

f o r Turf Paradise P r o j e c t TP- 5 and should d i r e c t P r e s c o t t Downs t o

repay $ 23,953.61, which already has been withheld.

- The Commission request an opinion from the Attorney General t o

determine i f P r e s c o t t Downs should be required to repay the e n t i r e

$ 85,974.55 withheld f o r c a p i t a l improvements.

- The Commission determine i f expenses f o r a manager- supervisor a r e

necessary f o r t h e promotion and betterment of county racing meets.

- The Commission require its s t a f f t o conduct d e t a i l e d reviews of

f i n a n c i a l r e p o r t s f i l e d by the counties to v e r i f y t h a t a l l reporting

requirements have been met.

- The Commission encourage competitive bidding f o r the o f f i c i a l chemist

c o n t r a c t by a d v e r t i s i n g i n n a t i o n a l p u b l i c a t i o n s and contacting

chemists within the S t a t e .

- The Commission revise the q u a l i f i c a t i o n s t o bid t o include current

a n a l y t i c a l chemistry standards.

- The Commission use o u t s i d e p r o f e s s i o n a l s e r v i c e s t o evaluate the

q u a l i f i c a t i o n s of competing bidders, based on c r i t e r i a developed by

the Commission.

- The Commission e s t a b l i s h procedures f o r evaluating the performance of

the o f f i c i a l chemist, i n c l u d i n g u s e of s p l i t samples.

- The Commission t a k e a p p r o p r i a t e c o r r e c t i v e a c t i o n with the present

o f f i c i a l chemist by executing a probationary contract and enforcing

compliance with its terms.

- The Commission study the f e a s i b i l i t y of developing in- house f a c i l i t i e s

f o r chemical a n a l y s i s .

- Commission v e t e r i n a r i a n s discontinue the use of Lasix as a means of

c o l l e c t i n g urine samples.

- Blood samples be t e s t e d f o r a l l animals which die immediately before,

during or a f t e r a r a c e .

- Greater use be made of the p r a c t i c e of t e s t i n g a d d i t i o n a l samples from

r a c e s , i n c l u d i n g - a l l major races.

- Commission s t a f f submit monthly r e p o r t s to each Commissioner which

include the following information:

Number and type of samples submitted t o the o f f i c i a l chemist.

Results of t e s t s i n d i c a t i n g the presence of prohibited substances.

Animal deaths, causes of death and r e s u l t s of blood t e s t s .

- Stewards' hearings be held i n compliance with the provisions of the

Open Meeting Law.

- The Commission comply with the provisions of A. C. R. R. R4- 27- 104.0

r e l a t i n g t o the Workmen's Compensation Law.

- The m a t t e r o f i l l e g a l loans made from the Race Track Benevolent Fund

and the Greyhound Benevolent Fund be r e f e r r e d t o t h e Attorney

General's o f f i c e t o determine whether any l i a b i l i t y e x i s t s e i t h e r on

the p a r t of the Commissioners or t h e i r employees.

- A review be made t o determine whether it is f e a s i b l e to c o l l e c t t h e

unpaid loans.

INTRODUCTION AND BACKGROUND

The Office of the Auditor General has conducted a performance a u d i t of the

Arizona Racing Commission, i n response to a September 11, 1980, r e s o l u t i o n

of t h e J o i n t L e g i s l a t i v e Budget Committee, and i n accordance with the

p r o v i s i o n s o f Arizona Revised S t a t u t e s ( A. R. s.) $ 41- 1279.

The Arizona Racing Commission was created by the L e g i s l a t u r e i n 1949. The

Commission is comprised of f i v e Commissioners who serve without pay.

@ Commissioners a r e appointed by the Governor and serve six- year terms.

The p r i n c i p a l functions of the Commission include the l i c e n s i n g of racing

personnel, the granting of racing permits t o commercial greyhound and

h o r s e r a c e meets and the granting of horse racing permits to county racing

a s s o c i a t i o n s .

During f i s c a l year 1979- 80, t h e r e were four commercial h o r s e r a c i n g meets

and seven commercial greyhound meets, which r e s u l t e d i n revenues t o the

S t a t e of $ 9,573,411. Revenues from l i c e n s i n g f e e s , f i n e s and o t h e r

sources t o t a l e d $ 55,791. During f i s c a l year 1979- 80, the Commission

granted permits t o hold h o r s e r a c i n g meets t o 13 counties. The S t a t e

provides purse monies and promotional funds t o each county. The S t a t e

receives no revenues from the county meets.

A. R. S. $ 5- 113 requires t h a t the Commission transmit a l l monies received as

revenues t o t h e S t a t e Treasurer, who a l l o c a t e s such revenues to r e c i p i e n t s

a s follows:

1. Five percent f o r c a p i t a l outlay t o the Arizona

Coliseum and Exposition Center Fund.

2. Seven and one h a l f percent t o the Arizona County

F a i r s and Breeders' Award Fund.

3. Ten percent t o the Livestock, Agriculture and

Breeders ' Award Fund.

4. Seventy- seven and one h a l f percent to the S t a t e

General Fund.

Table 1 i l l u s t r a t e s the d i s t r i b u t i o n of the revenues collected by the

Commission f o r f i s c a l years 1976- 77 through 1979- 80.

TABLE 1

DISTRIBUTION OF REVENUES COLLECTED BY THE

ARIZONA RACING COMMISSION FOR FISCAL YEARS

1976- 77 THROUGH 1979- 80

Recipient 1976- 77 1977- 78 1978- 79 1979- 80

General Fund $ 5,951,150 $ 6,500,102 $ 6,729,265 $ 7,464,358

Livestock, Agriculture a

and Breeders' Award Fund 758,176 838,723 867,734 962,071

Arizona County F a i r s and

Breeders ' Award Fund 568,858 629,042 651,129 721 , 737

Arizona Coliseum and •

Exposition Center Fund 379,088 419,361 433,867 481,036

During the same period, the t o t a l pari- mutuel handled i n the S t a t e was as ( I

follows :

F i s c a l Year

1976- 77

1977- 78

1978- 79

1979- 80

Total Pari- mutuel* Handled

The Commission is funded by appropriations from the Legislature.

Expenditures f o r f i s c a l years 1976- 77 through 1980- 81 a r e shown i n Table 2.

* Webster's I n t e r n a t i o n a l Dictionary defines pari- mutuel as a form of

b e t t i n g i n which those who bet on the winning animal share the t o t a l

s t a k e s , l e s s a percentage to the t r a c k and t o the S t a t e .

TABLE 2

EXPENDITURES FOR ARIZONA RACING COMMISSION FOR

FISCAL YEARS 1976- 77 THROUGH 1980- 81 ( ESTIMATED)

( Es timated)

1976- 77 1977- 78 1978- 79 1979- 80 1980- 81

Full- time equivalent

positions 16.5 17.5 20.0 20.0 20.0

Personal services $ 356,175 $ 377,810 $ 434,175 $ 461,315 $ 551,100

Employee- related 49,491 62,541 71,388 71,726 99,200

Professional & outside

services 91,630 104,636 105,956 140,684 143,600

Travel - in- State 59,340 63,719 56,602 72,098 74,300

Travel - out- of- State 1,700 4,607 5 , 500 4,822 5,500

Other operating expenses 26,127 36,420 35,938 40,890 46,700

Equipment 600 5,185 1,364 199

Total $ 585.063 $ 654,918 $ 710,923 $ 791,734 $ 920,400

This is the f i r s t of two reports on the Arizona Racing Commission and

covers the following areas:

1. Licensing procedures used by the Commission,

2. Capital improvements a t commercial and county racing

f a c i l i t i e s ,

3. Procedures used i n contracting f o r drug t e s t i n g ,

4. A b i l i t y of the Commission to prevent the use of prohibited

drugs i n racing,

5. Review f o r compliance with s t a t u t e s and a d m i n i s t r a t i v e r u l e s

and r e g u l a t i o n s , and

6. Improper loans of s t a t e funds.

Work on the second repokt w i l l commence as audit s t a f f resources become

a v a i l a b l e .

We express our g r a t i t u d e t o the Arizona Racing Commission and its s t a f f

f o r t h e i r cooperation, a s s i s t a n c e and consideration during the course of

the audit .

FINDING I

THE ARIZONA RACING COMMISSION IS NOT FULFILLING ITS STATUTORY

RESPONSIBILITY TO REGULATE RACING PARTICIPANTS THROUGH THE LICENSING

PROCESS.

State s t a t u t e s require the Arizona Racing Commission to thoroughly

investigate license applicants and to exercise discretion i n granting

licenses. The Commission annually licenses more than 10,000 persons to

p a r t i c i p a t e i n racing as owners, t r a i n e r s , jockeys, mutuel employees,

exercise boys, jockeys' agents, s t a b l e foremen, grooms, v a l e t s ,

veterinarians, horseshoers, concessionaires and o f f i c i a l s . Our review of

the manner i n which the Commission i s s u e s l i c e n s e s revealed t h a t :

- The Commission is not conducting required investigations of

license applicants. As a r e s u l t , license applicants who f a l s i f y

information on t h e i r applications regarding criminal convictions

or rulings by other racing j u r i s d i c t i o n s go undetected.

- Racing stewards are not forwarding derogatory information about

licensees to Commission investigators.

- Commission employees and permittees are not adequately reviewing

racing p a r t i c i p a n t s . A s a r e s u l t , unlicensed persons p a r t i c i p a t e

i n racing.

- Racing stewards are not imposing s u f f i c i e n t l y s t r i n g e n t penalties

against persons found to be p a r t i c i p a t i n g i n racing without a

license.

- Commission employees are not following established procedures i n

i s s u i n g l i c e n s e s , and Commission f i l e s are incomplete and

disorganized.

- The Commission has not eskablished an adequate system of c o n t r o l

over the c o l l e c t i o n , recording and handling of license fees.

- The Commission's a b i l i t y t o r e g u l a t e r a c i n g is impaired because

it does not l i c e n s e o f f i c e r s and d i r e c t o r s of racing- permittee

organizations.

The Commission Is Not Conducting

Reauired I n v e s t i g a t i o n s of A ~ ~ l i c a n t s

Arizona Revised S t a t u t e s ( A. R. s.) $ 5- 108.~ requires the Commission t o

"... conduct a thorough i n v e s t i g a t i o n concerning the a p p l i c a t i o n f o r •

a . . . l i c e n s e . . .." The s t a t u t e s f u r t h e r specify t h a t l i c e n s e s may be denied

for: 1) r u l i n g s of or suspensions by other j u r i s d i c t i o n s , 2) v i o l a t i o n s

of the racing laws and r e g u l a t i o n s of Arizona or o t h e r s t a t e s ,

3) convictions of f e l o n i e s o r any crime involving moral t u r p i t u d e ,

4) c o n v i c t i o n s o f bookmaking, and 5) a p p l i c a n t s not being of good repute

and moral c h a r a c t e r . ( ~ m ~ h a saidsd ed)

I n s p i t e of the above s t a t u t o r y requirements, the Commission is not

thoroughly i n v e s t i g a t i n g l i c e n s e a p p l i c a n t s . A s a r e s u l t : 1) a p p l i c a n t s

who f a l s i f y information on t h e i r a p p l i c a t i o n s regarding criminal

convictions or r u l i n g s by other racing j u r i s d i c t i o n s go undetected, and

2) the Commission h a s i s s u e d l i c e n s e s to some persons who not only pose a

t h r e a t t o the i n t e g r i t y of racing, but t o other racing p a r t i c i p a n t s a s

well.

Applicants f o r l i c e n s e a r e required t o complete a n a p p l i c a t i o n form giving

such general information as name, date of b i r t h , S o c i a l S e c u r i t y number,

c i t i z e n s h i p s t a t u s and physical d e s c r i p t i o n . Applicants a l s o a r e required

t o provide information about any criminal h i s t o r y , p r i o r r u l i n g s by other

racing j u r i s d i c t i o n s , i n t e r e s t or ownership i n race animals and the names

of t h e i r previous employers."

* Appendix I is a sample of a l i c e n s e a p p l i c a t i o n .

In order f o r the Commission t o properly exercise its d i s c r e t i o n a r y

a u t h o r i t y regarding the issuance of l i c e n s e s it is e s s e n t i a l t h a t the

information on the l i c e n s e a p p l i c a t i o n be t r u t h f u l and accurate and t h a t

the Commission r o u t i n e l y v e r i f y the information on l i c e n s e a p p l i c a t i o n s .

Our review of the Commission's l i c e n s i n g process revealed t h a t such

v e r i f i c a t i o n s e i t h e r a r e not made i n a timely manner o r a r e not made a t

a l l .

License Application Information Is Not Adequately Verified

Administrative r e g u l a t i o n s f o r l i c e n s u r e s t a t e t h a t " each applicant s h a l l

submit t o being f i n g e r p r i n t e d . " ( ~ 4 - 2 7 - 1 0 4 . ~ ) I n p r i o r y e a r s a p p l i c a n t s

were f i n g e r p r i n t e d and processed through the Federal Bureau of

I n v e s t i g a t i o n of the Department of J u s t i c e . However, t h i s procedure was

c u r t a i l e d i n r e c e n t y e a r s and v i r t u a l l y abandoned i n 1980- 81.

The Commission a l s o has immediate access t o the National Association of

S t a t e Racing Information System ( NASRIS), which maintains a computer f i l e

of r u l i n g s and suspensions issued by racing j u r i s d i c t i o n s i n the United

S t a t e s , Nexico and Canada. However, the Commission o f t e n does not process

l i c e n s e a p p l i c a t i o n s through NASRIS u n t i l t h r e e t o four weeks a f t e r an

a p p l i c a n t h a s been licensed. Thus, a p p l i c a n t s can be licensed f o r up to

four weeks without previous v i o l a t i o n s and r u l i n g s coming t o l i g h t .

A s a r e s u l t of the Commission's f a i l u r e t o adequately i n v e s t i g a t e l i c e n s e

a p p l i c a n t s , we estimate t h a t a t l e a s t seven* percent of t h e persons

licensed by the Commission during f i s c a l year 1979- 80 f a l s i f i e d

information on t h e i r l i c e n s e a p p l i c a t i o n s regarding criminal convictions

or rulings by other racing j u r i s d i c t i o n s .

* An a d d i t i o n a l seven percent of the a p p l i c a n t s had a r r e s t records, but

e i t h e r had no convictions or e l s e the d i s p o s i t i o n of the cases could

not be determined. Disclosure of a r r e s t data was n o t r e q u i r e d on the

1979- 80 a p p l i c a t i o n .

F a l s i f i e d License Applications

P a r t of our review of the Commission's l i c e n s i n g process was t o s e l e c t a

s t a t i s t i c a l sample of persons licensed by the Commission during f i s c a l

year 1979- 80, and t o process those persons through the S t a t e ' s Department

of Public Safety, the Federal Bureau of I n v e s t i g a t i o n and NASRIS. A

finding of t h i s procedure was t h a t seven percent of those persons

processed f a i l e d t o d i s c l o s e , o r only p a r t i a l l y d i s c l o s e d , criminal

convictions and/ or r u l i n g s a g a i n s t them by o t h e r r a c i n g j u r i s d i c t i o n s .

The unreported criminal convictions included those f o r aggravated b a t t e r y ,

possession and s a l e of heroin, grand t h e f t , white s l a v e r y , rape, robbery,

breaking and e n t e r i n g , and possession of marijuana. I n our opinion, some

of the persons licensed by the Commission i n f i s c a l year 1979- 80 pose a

t h r e a t n o t o n l y t o the i n t e g r i t y of racing but t o o t h e r racing

p a r t i c i p a n t s a s well, as the following cases i l l u s t r a t e .

CASE I

The Commission licensed t o work on the s t a r t i n g gate an applicant who had

been a r r e s t e d four times and convicted t h r e e times f o r possession with

i n t e n t t o d i s t r i b u t e heroin, aggravated b a t t e r y and leaving the scene of

a n a c c i d e n t .

CASE I1

The Commission licensed an applicant t o work as a t r a i n e r . The l i c e n s e e ' s

a p p l i c a t i o n s t a t e d t h a t he had been convicted f o r " marijuana pro.""

Commission employees did not f i n g e r p r i n t t h e applicant o r conduct f u r t h e r

i n v e s t i g a t i o n . A s of January 24, 1981, t h i s licensee i n a c t u a l i t y had the

following criminal h i s t o r y :

- two sexual- assault and rape charges,

- four robbery and breaking- and- entering convictions,

- two white- slavery convictions,

- two a s s a u l t charges,

- s e v e r a l attempted j a i l escapes, and

- one conviction f o r t r a n s p o r t i n g a truckload of marijuana.

By the time the Commission i n v e s t i g a t o r s became aware of h i s background,

there was a l s o an outstand. ing warrant f o r attempted sexual a s s a u l t .

* Assumed to mean procurement.

14

Causes of Inadequate License Application V e r i f i c a t i o n

According t o the Executive Secretary of the Commission, f i n g e r p r i n t i n g was

discontinued because of workload and budget c o n s t r a i n t s . Since f i s c a l

year 1977- 78, the number of l i c e n s e s i s s u e d h a s i n c r e a s e d by 13 percent

while Commission s t a f f has remained constant. I n a d d i t i o n , the l i c e n s i n g

workload is primarily seasonal, having two peak periods i n July and August

and between October 1 and December 15," when approximately 70 percent of

a l l l i c e n s e a p p l i c a t i o n s a r e received. Existing s t a f f is not adequate t o

handle the workload a t these times and backlogs of t h r e e t o four weeks i n

l i c e n s e processing occur.

The following t h r e e options appear t o be a v a i l a b l e t o allow the Commission

t o resume the p r a c t i c e of f i n g e r p r i n t i n g l i c e n s e a p p l i c a n t s :

- Provide the Commission with a d d i t i o n a l funds t o pay f o r seasonal

employees ( t o t a l i n g 1.5 f u l l - t i m e equivalent p o s i t i o n s ) t o

process f i n g e r p r i n t s through the Federal Bureau of I n v e s t i g a t i o n

and t o do o t h e r l i c e n s i n g processing t o reduce backlogs. We

estimate t h e c o s t a s s o c i a t e d w i t h t h i s option t o be $ 21,000 a

year.

- Use the s e r v i c e s of p r i v a t e f i n g e r p r i n t i n g companies i n the same

manner as does t h e S t a t e Real E s t a t e Department, which

f i n g e r p r i n t s and processes more than 24,000 a p p l i c a n t s a year.

The S t a t e Real E s t a t e Department o f f e r s a p p l i c a n t s two methods of

supplying t h e i r f i n g e r p r i n t s : 1) a p p l i c a n t s may obtain

f i n g e r p r i n t s at no charge a t t h e i r l o c a l law enforcement agency,

or 2) t h e a p p l i c a n t s may use the s e r v i c e s of a p r i v a t e company

which the Department arranges t o have a t its o f f i c e s . Those

a p p l i c a n t s using the p r i v a t e companies pay $ 3 f o r the s e r v i c e .

T h i s o p t i o n would not require a d d i t i o n a l funding f o r the

Commission, but would not reduce backlogs.

* Currently, a l l l i c e n s e s a r e v a l i d from July 1 to June 30. The

Commission plans t o change l i c e n s i n g dates t o have h o r s e r a c i n g

l i c e n s e s v a l i d from January 1 t o December 31 and dog racing l i c e n s e s

from July 1 t o June 30. Our a n a l y s i s i n d i c a t e s t h i s may change the

timing of the peak periods, but t h a t peak periods s t i l l w i l l occur.

- Provide the Commission with a d d i t i o n a l funds t o pay f o r seasonal

employees and use t h e s e r v i c e s of p r i v a t e f i n g e r p r i n t i n g

companies. We estimate the c o s t a s s o c i a t e d with t h i s option to

be $ 14,000 a year.

Racim Stewards Are Not Forwarding Derogatorv

Information About Licensees To Commission I n v e s t i g a t o r s

Racing stewards a r e responsible f o r reviewing and approving license

a p p l i c a t i o n s . A s such, stewards have access to information regarding

criminal convictions and/ or r u l i n g s by other racing j u r i s d i c t i o n s against

l i c e n s e a p p l i c a n t s when such information is shown on the a p p l i c a t i o n . We

determined t h a t only one steward r e f e r s such information t o i n v e s t i g a t o r s

f o r follow- up or n o t i f i c a t i o n purposes, and t h a t he does not make such

r e f e r r a l s i n a l l cases.

The need t o r e f e r such a p p l i c a t i o n information t o i n v e s t i g a t o r s is

evidenced by the case d e t a i l e d on page 14. 1n t h a t case, the license

a p p l i c a t i o n did contain information regarding a p r i o r drug conviction.

The steward who approved the a p p l i c a t i o n did not forward the license

information t o Commission i n v e s t i g a t o r s . A s a r e s u l t , the i n d i v i d u a l ' s

e n t i r e criminal record, involving more than 27 criminal charges and 10

c o n v i c t i o n s , d i d not come t o l i g h t u n t i l the i n v e s t i g a t o r s heard about it

from " backside" t r a c k sources -- t h r e e months a f t e r the l i c e n s e was

granted.

The f a i l u r e of stewards to forward criminal h i s t o r y information t o

i n v e s t i g a t o r s is i n sharp c o n t r a s t t o procedures followed by the

Department of Insurance, which has its i n v e s t i g a t o r s follow- up a l l l i c e n s e

a p p l i c a n t s f o r whom t h e r e is evidence of p r i o r wrongdoing.

Current Commission r u l e s and r e g u l a t i o n s give stewards broad d i s c r e t i o n a r y

a u t h o r i t y i n reviewing and approving l i c e n s e s . I n our opinion, the

Commission should adopt a r u l e t o require stewards t o forward derogatory

information about l i c e n s e e s t o Commission i n v e s t i g a t o r s f o r n o t i f i c a t i o n

and/ or follow- up.

Commission Em~ lovees and Permittees Are Not

Adequately Reviewing Racing P a r t i c i p a n t s

A. R. S. $ 5- 107.01 s p e c i f i c a l l y requires a l l persons p a r t i c i p a t i n g i n racing

i n Arizona t o obtain l i c e n s e s and permits. Additionally, a d m i n i s t r a t i v e

r e g u l a t i o n R4- 27- 104. E s p e c i f i e s " if a licensee is employed i n more than

one category, or changes from one t o another, he must be licensed i n each

category."

Our review of racing p a r t i c i p a n t s revealed t h a t unlicensed i n d i v i d u a l s a r e

p a r t i c i p a t i n g i n racing i n s p i t e of a d m i n i s t r a t i v e requirements t h a t

permittees ensure compliance with the above s t a t u t e and r u l e .

Arizona Racing Commission Administrative Regulation R4- 27- 104. K s t a t e s :

" It s h a l l be t h e r e s p o n s i b i l i t y of the permittee t o

prevent any person n o t l i c e n s e d by the Commission from

doing o r performing any a c t or a c t s at its t r a c k which

requires a l i c e n s e under A. R. S. Chapter 1, T i t l e 5, or

these regulations." ( ~ m ~ h a saidsd ed)

A s a means t o determine i f permittees a r e preventing unlicensed persons

from p a r t i c i p a t i n g i n racing i n Arizona we: 1) s e l e c t e d a sample of

persons and corporations l i s t e d i n the d a i l y racing programs during

calendar year 1980 and the month of January 1981, and 2) checked t o see

if those persons were, i n f a c t , licensed. Our sample included persons and

corporations l i s t e d a s owners, t r a i n e r s , jockeys and kennels. Five

percent of the persons and corporations we checked were not properly

licensed as required by s t a t u t e s and/ or regulation.

Some of the i n d i v i d u a l s i n our sample had been unlicensed f o r as long as a

year and were p a r t i c i p a t i n g a s jockeys, owners, permittee o f f i c i a l s and

stewards. The following cases i l l u s t r a t e some of the unlicensed a c t i v i t y

we documented.

CASE I

The p a r t i c i p a n t was l i s t e d i n the November 1, 1980, R i l l i t o Downs program

as a jockey and participated i n each racing day during the meet. The

individual did not obtain a license u n t i l January 27, 1981.

CASE I1

The p a r t i c i p a n t was l i s t e d as an owner on the Greenlee County Fair racing

meet program on April 5, 1980. A t t h a t time, the p a r t i c i p a n t was not

licensed. The p a r t i c i p a n t subsequently was issued a jockey's license on

May 10, 1980.

CASE I11

A company or corporate name appears under kennel name on the Phoenix

Greyhound Park racing program of March 1, 1980. The company did not have

a kennel license and no licensed owner could be found who was d i r e c t l y

connected with the kennel.

It appears that permittees could prevent unlicensed persons from

p a r t i c i p a t i n g i n racing more e f f e c t i v e l y i f they made b e t t e r use of

enforcement methods c u r r e n t l y a v a i l a b l e . For example, permittees could

require individuals to show t h e i r licenses ( which are photo- identification

licenses similar to d r i v e r s ' l i c e n s e s ) before performing a c t i v i t i e s such

as r e g i s t e r i n g race animals, collecting purse money or entering the jockey

room. This would be consistent with administrative regulation

R4- 27- 103.1, which s t a t e s that the permittees s h a l l :

"... furnish an o f f i c e r to be on duty a t the s t a b l e or

kennel area entrance and it s h a l l be the duty of said

o f f i c e r t o deny entrance to a l l persons not holding a

license o r c r e d e n t i a l s issued by the Commission or a

pass issued by the permittee. "

Another enforcement method would be f o r the permittees and Commission

employees t o r e g u l a r l y and p e r i o d i c a l l y check the names appearing i n the

d a i l y racing programs against persons licensed by the Commission. This is

the method a u d i t s t a f f used t o determine unlicensed a c t i v i t y and is

sometimes used by Commission l i c e n s i n g c l e r k s t o i d e n t i f y uniicensed

p a r t i c i p a n t s .

Racing Stewards Are Not Imposing S u f f i c i e n t l y

Stringent P e n a l t i e s Against Unlicensed Persons

Arizona s t a t u t e s provide f o r criminal p e n a l t i e s i f persons p a r t i c i p a t e i n

racing without f i r s t obtaining a l i c e n s e . However, stewards r a r e l y impose

sanctions against persons found to be p a r t i c i p a t i n g i n racing without a

l i c e n s e .

A. R. S. $ 5- 115.~ s t a t e s :

" Any person who holds or conducts a n y racing meeting

without f i r s t complying with the provisions of t h i s

a r t i c l e , or any person who v i o l a t e s any provision of

t h i s a r t i c l e f o r which no other penalty is prescribed,

is g u i l t y of a c l a s s 2 misdemeanor."

A. R. S. $ 5- 115. C is a general s e c t i o n p r e s c r i b i n g p e n a l t i e s f o r v i o l a t i o n s

of racing s t a t u t o r y requirements. The maximum penalty f o r a Class 2

misdemeanor is a f i n e of $ 750 and four months imprisonment.

A. R. S. $ 5- 115 . C notwithstanding, when stewards i d e n t i f y unlicensed racing

p a r t i c i p a n t s , d i s c i p l i n a r y sanctions r a r e l y a r e imposed. The s i n g l e most

common d i s c i p l i n a r y a c t i o n taken is t o " make them get a l i c e n s e . " Such an

a c t i o n appears t o provide l i t t l e incentive f o r i n d i v i d u a l s t o get licensed

or f o r permittees t o ensure t h a t unlicensed a c t i v i t y does not occur.

S i m i l a r i l y , the Commission does not appear t o take a c t i o n against stewards

when unlicensed a c t i v i t y is found a t a race meeting under t h e i r

supervision. Inasmuch a s the steward is responsible f o r ensuring

compliance with a l l laws and r e g u l a t i o n s during a race meeting, the

occurrence of unlicensed a c t i v i t y r e f l e c t s upon the performance of the

steward and may warrant d i s c i p l i n a r y a c t i o n by the Commission a g a i n s t the

steward.

Commission Emolovees Are Not Following Established

Procedures i n I s s u i n g Licenses and Commission

F i l e s Are Incomplete and Disorganized

Commission l i c e n s i n g procedures require t h a t l i c e n s e a p p l i c a n t s s i g n t h e i r

a p p l i c a t i o n s i n the presence of a Commission o f f i c i a l o r notary and t h a t

Commission o f f i c i a l s and stewards review the a p p l i c a t i o n s . Further,

Administrative Rule R4- 27- 104 requires stewards t o review license

a p p l i c a t i o n s t o ensure t h a t the i n t e g r i t y and a b i l i t y of an applicant is

c l e a r l y shown on h i s a p p l i c a t i o n . These procedures a r e not followed i n

most cases. I n a d d i t i o n , Commission l i c e n s i n g f i l e s a r e incomplete and

disorganized.

A s p a r t of our review of t h e l i c e n s i n g procedures of the Commission, we

selected a sample of f i s c a l year 1979- 80 l i c e n s e a p p l i c a t i o n s and tested

f o r compliance with e s t a b l i s h e d Commission l i c e n s i n g procedures and

r u l e s . The findings of our review were:

- Sixty- nine percent of t h e l i c e n s e a p p l i c a t i o n s were not reviewed

by a steward, and

- F i f t y - t h r e e percent of the l i c e n s e a p p l i c a t i o n s were not signed

i n the presence of a Commission o f f i c i a l o r notarized.

I n a d d i t i o n , many incomplete a p p l i c a t i o n s a r e accepted. We observed

a p p l i c a t i o n s lacking such information as dates of b i r t h , employers, names

of animals, a p p l i c a n t s ' s i g n a t u r e s , and d e t a i l s of p r i o r r u l i n g s and

criminal h i s t o r i e s .

This observed f a i l u r e t o comply with e s t a b l i s h e d procedures not only could

r e s u l t i n unqualified persons being l i c e n s e d , but impairs the Commission'

a b i l i t y t o regulate p a r t i c i p a n t s as w e l l . For example, information on the

ownership of animals is used i n r e g u l a t i n g hidden ownership, and

a p p l i c a n t ' s d a t e of b i r t h is used i n conducting background i n v e s t i g a t i o n s .

Our review a l s o revealed t h a t Commission f i l e s a r e incomplete and

disorganized. For example, f i l e s a r e not maintained by i n d i v i d u a l

l i c e n s e e s . Instead, data on a p a r t i c u l a r l i c e n s e e may be i n any of four

o r f i v e d i f f e r e n t f i l e s .

Licensing records a l s o appear to be incomplete. We found t h a t no records

e x i s t i n the Commissions f i l e s f o r 20 percent of the persons who reported

on t h e i r l i c e n s e a p p l i c a t i o n s t h a t previous r u l i n g s and criminal records

were " on f i l e " with the Commission. S i m i l a r i l y , we found t h a t

f i n g e r p r i n t s do not e x i s t f o r 68 percent of the persons who reported on

t h e i r l i c e n s e a p p l i c a t i o n s t h a t they had been f i n g e r p r i n t e d previously by

the Commission.

I n a d d i t i o n , the Commission has not e s t a b l i s h e d " sign- out" procedures f o r

f i l e s . I n v e s t i g a t o r s and other Commission personnel often take f i l e s

without i n d i c a t i n g where the f i l e w i l l be i n the event somebody needs t o

l o c a t e it.

F i n a l l y , we noted t h a t c o n t r o l s over the f i l e s and records a r e weak. For

example, although f i n g e r p r i n t cards can contain s e n s i t i v e information, we

noted t h a t f i n g e r p r i n t cards were l e f t lying about on desk tops and t h a t

the f i n g e r p r i n t f i l e s were not locked.

The Commission Has Not Established An Adequate

System of Control over the Collection.

Recording and Handling of License Fees

Control over the c o l l e c t i o n , recording and handling of l i c e n s e f e e s is

weak i n the Commission l i c e n s i n g o f f i c e s . A s a r e s u l t , t h e r e is an

unaccountable d i f f e r e n c e of $ 3,969 i n l i c e n s e f e e s during f i s c a l year

1979- 80.

During our review of the Commission l i o e n s i n g function, we noted the

following weaknesses i n c o n t r o l over l i c e n s e fees.

- There is incomplete v e r i f i c a t i o n of f e e r e c e i p t s . The l i c e n s e

c a t e g o r i e s l i s t e d on one p a r t of t h e l i c e n s e f e e r e c e i p t s do not

a g r e e w i t h t h e f e e s assessed l i s t e d on the same r e c e i p t s .

- There is no segregation of d u t i e s among those Commission

employees who c o l l e c t f e e s , prepare r e c e i p t s and prepare d a i l y

a u d i t s h e e t s .

- Commission o f f i c e s located a t commercial greyhound and horse

racing f a c i l i t i e s and a t county racing meets do not use cash

r e g i s t e r s or other s e c u r i t y devices. It was noted t h a t c i g a r

boxes a r e used to secure cash and checks a t t r a c k f a c i l i t i e s , and

t h a t these c i g a r boxes a r e not safeguarded when Commission

employees leave the o f f i c e .

- Access t o the Commission o f f i c e is not limited t o Commission

employees. Frequently, the permittee and other i n d i v i d u a l s have

access t o the Commission o f f i c e , because duplicate keys have been

provided by stewards t o non- State employees.

- Commission employees do not deposit cash on a timely basis.

During peak l i c e n s i n g periods, Commission employees do make

deposits d a i l y . However, a t other times, deposits a r e made only

every two weeks t o a month, and at any one time the Commission

o f f i c e may have a s i g n i f i c a n t amount of cash on hand.

A s a r e s u l t of the above weaknesses, t h e r e was a $ 3,969 d i f f e r e n c e between

l i c e n s e fees t h a t should have been c o l l e c t e d , based upon the reported

number of l i c e n s e s issued, and f e e s a c t u a l l y c o l l e c t e d during f i s c a l year

1979- 80. The reported numbers and types of l i c e n s e s issued by the

Commission during f i s c a l year 1979- 80 i n d i c a t e t h e t o t a l f e e s should have

been $ 51,279. However, t h e a c t u a l l i c e n s e f e e s f o r f i s c a l year 1979- 80

were only $ 47,710.

Neither the Commission accountant nor the l i c e n s i n g u n i t supervisor was

able t o explain the $ 3,969 d i f f e r e n c e . The Commission accountant

suggested t h e d i f f e r e n c e might be a t t r i b u t e d t o persons being charged the

wrong fees f o r l i c e n s e s . We found, however, t h a t improper assessments can

account f o r only a small p o r t i o n of the $ 3,969 d i f f e r e n c e . Another

explanation might be t h a t the number of l i c e n s e s issued as reported by the

Commission's l i c e n s i n g supervisor, and which we used i n c a l c u l a t i n g t h e

$ 51,279 shown above, is i n c o r r e c t . I n t h a t case, it is n o t p o s s i b l e ,

given t h e c u r r e n t condition of the Commission's l i c e n s i n g records, to

determine the amount of l i c e n s i n g f e e s t h a t should have been c o l l e c t e d .

Commission A b i l i t y t o Regulate Racing Is

Impaired Because It Does Not License Officers

and Directors of Racing Permittees

The Commission does not require t h a t i n d i v i d u a l o f f i c e r s and d i r e c t o r s of

racing permittees be licensed. Consequently, the Commission has no means

t o d i s c i p l i n e those i n d i v i d u a l o f f i c e r s or d i r e c t o r s who v i o l a t e

Commission r u l e s and regulations.

The Commission has the s t a t u t o r y a u t h o r i t y t o require t h a t i n d i v i d u a l

o f f i c e r s and d i r e c t o r s of permittees be licensed. A. R. S. $ 5- 107.01. B

requires l i c e n s u r e of occupations involved i n racing and ". . . any other

person or o f f i c i a l the Commission deems proper." However, the Commission

has not chosen t o require l i c e n s u r e f o r o f f i c e r s and d i r e c t o r s of

permittees. Such l i c e n s u r e is not uncommon i n t h a t 15 other s t a t e racing

j u r i s d i c t i o n s require permittee o f f i c e r s t o be l i c e n s e d , and 12 r e q u i r e

permittee d i r e c t o r s to be licensed.

Because the Commission does not l i c e n s e t h e o f f i c e r s and d i r e c t o r s of

permittees, it cannot take a c t i o n against those i n d i v i d u a l s who v i o l a t e

the Commission's r u l e s and r e g u l a t i o n s . Currently, the Commission can

take a c t i o n only against the permittee and can revoke or suspend the

permit. However, it may not be d e s i r a b l e , f e a s i b l e o r equitable t o revoke

the permit f o r an e n t i r e race meet because of the a c t i o n s of an i n d i v i d u a l

o f f i c e r o r d i r e c t o r .

I n a d d i t i o n , the l i c e n s i n g of o f f i c e r s and d i r e c t o r s of permittees would

allow the Commission t o obtain f i n g e r p r i n t s and background data needed t o

allow f o r a complete i n v e s t i g a t i o n of t h e s e i n d i v i d u a l s .

CONCLUSION

The Commission is not f u l f i l l i n g its s t a t u t o r y r e s p o n s i b i l i t y t o regulate

racing p a r t i c i p a n t s through the l i c e n s i n g process. A s a r e s u l t ,

i n d i v i d u a l s a r e p a r t i c i p a t i n g i n racing who pose a t h r e a t t o the i n t e g r i t y

of racing and otiier rricilig participan~ s, lict? nse fees tire unnecc3sscl~ ily

exposed t o l o s s through t h e f t or d e f a l c a t i o n and the Commission's a b i l i t y

t o regulate racing is impaired.

It is recommended t h a t :

- The Commission obtain and process f i n g e r p r i n t s of a l l a p p l i c a n t s

f o r l i c e n s u r e by:

e seeking funding from the L e g i s l a t u r e f o r seasonal, c l e r i c a l

p o s i t i o n s t o a s s i s t during peak workload periods, or

a adopting the system used by the S t a t e Real E s t a t e Department

by arranging f o r a p r i v a t e company t o be present a t

Commission o f f i c e s f o r applicant f i n g e r p r i n t i n g , or giving

the a p p l i c a n t s the option of obtaining f i n g e r p r i n t s from

l o c a l law enforcement agencies.

- The Commission adopt a rule requiring stewards to enforce its

policy to r e f e r applications involving derogatory information to

investigators f o r n o t i f i c a t i o n and/ or follow- up. In addition,

a l l instances of application f a l s i f i c a t i o n should be reviewed by

i n v e s t i g a t o r s to determine i f license revocation is i n order.

- Permittees and Commission s t a f f implement procedures readily

available to control unlicensed a c t i v i t y , including increased

visual checks of licenses and comparisons of racing programs to

license f i l e s .

- The Commission provide f o r d i s c i p l i n a r y a c t i o n , including

criminal prosecutions against individuals found to be unlicensed

and against permittees and State stewards who f a i l to prevent

such a c t i v i t y .

- The Commission ensure t h a t applications are correctly prepared

and complete, and t h a t a l l applications are reviewed and signed.

I n addition, the Commission should d i s c i p l i n e stewards f a i l i n g to

properly review applications.

- The Commission establish individual f i l e s f o r each licensee and

consolidate information about each i n t o these f i l e s .

- The Commission strengthen controls over e x i s t i n g records and

f i l e s by locking f i l e s containing sensitive data and by

implementing sign- out procedures f o r f i l e s .

- The Commission accounting unit verify that the proper fee is

assessed for each license category by reconciling the licensing

category on the l e f t side of t h e a u d i t copy of the fee receipt

with the amount charged l i s t e d on the r i g h t side of t h e r e c e i p t .

- Proper accounting controls for cash, including segregation of

duties, preparation of r e c e i p t s , increased security and prompt

deposits be established.

- The Commission require licensure of the officers and directors of

permittees.

- The o f f i c e r s and directors thus licensed be fingerprinted and

subjected to the same background i n v e s t i g a t i o n as other licensees.

FINDING I1

CHANGES ARE NEEDED I N THE ARIZONA RACING COMMISSION'S ADMINISTRATION OF

CAPITAL IMPROVEMENT FUNDS AT RACING FACILITIES.

A s of January 1, 1981, ten s t a t e s had l e g i s l a t i o n which assisted

commercial horse racing associations i n making capital improvements to

t h e i r f a c i l i t i e s ; nine s t a t e s provided capital. improvement funds t o t h e i r

county racing commissions; and two s t a t e s had l e g i s l a t i o n whicn assis- ced

commercial greyhound f a c i l i t i e s i n making capital improvements.

A s a part of our performance audit of the Commission, we reviewed the

administration and allocation of capital improvement funds to commercial

horse racing f a c i l i t i e s and counties in Arizona. Our review revealed that:

- A s of December 31, 1980, the $ 1,505,011 withheld f o r projects a t

Turf Paradise are within the provisions of A. R. S. $ 5- 111.02. In

addition, some allegations regarding capital improvement funds

used a t Turf Paradise appear to be true while others appear to be

untrue.

- The Commission improperly approved $ 229,044 i n capital

improvement funds for Turf Paradise and Prescott Downs for the

purchase of rolling stock.

- Prescott Downs may owe the State $ 85,974.55 i f its purchases do

not qualify a s c a p i t a l improvements.

- Capital improvement projects a t R i l l i t o Downs are within the

provisions of A. R. S. $ 5- 111.02.

- Financial improprieties have occurred i n a t l e a s t two counties.

- The Commission has not adequately and consistently reviewed the

distribution and expenditure of capital improvement funds awarded

to the counties.

Arizona has no provision for financial assistance to commercial greyhound

f a c i l i t i e s f o r capital improvements.

A. R. S. $ 5- 111.02" provides f o r the S t a t e t o subsidize c a p i t a l improvements

a t commercial horse racing f a c i l i t i e s . The s e c t i o n was adopted t o

encourage the improvement of racing f a c i l i t i e s f o r t h e b e n e f i t of the

public, breeders and horse owners, and to increase the revenues to the

S t a t e from the increase i n pari- mutuel wagering r e s u l t i n g from such

improvements. Commercial horse- racing permittees who receive approval f o r

c a p i t a l improvements are allowed to reduce the percentage paid t o the

S t a t e by one percent of the t o t a l amount wagered.

A. R. S. $ 5- 111.02. B s t a t e s :

" In order to q u a l i f y f o r the reduction i n percentage, a

permittee s h a l l first apply to the commission i n such

form as the commission s h a l l require. The a p p l i c a t i o n

s h a l l c o n t a i n , b u t is not limited t o , f u l l d e t a i l s of

the proposed c a p i t a l improvement and the cost and

expenses t o be incurred. A f t e r r e c e i p t of the

a p p l i c a t i o n the commission may t e n t a t i v e l y approve or

may disapprove such a p p l i c a t i o n and s h a l l , within ten

days of such t e n t a t i v e approval or disapproval,

transmit a copy of t h e a p p l i c a t i o n and . n o t i f i c a t i o n of

t e n t a t i v e approval or disapproval t o the president of

the Arizona senate and speaker of the Arizona house of

representatives. I f the commission t e n t a t i v e l y

approves an a p p l i c a t i o n i t s h a l l c o ~ a u c t periodic

inspection of at l e a s t one per month during the

construction period of the c a p i t a l improvement i n order

to a s c e r t a i n compliance with the p e r m i t t e e ' s

a p p l i c a t i o n . Upon completion of the construction of

the c a p i t a l improvement, the permittee s h a l l n o t i f y t h e

commission and may seek f i n a l approval of its

a p p l i c a t i o n by the commission. When t h e c o n s t r u c t i o n

cost has been c e r t i f i e d by the commission pursuant t o

subsection E and the commission has determined the

p e r m i t t e e ' s compliance o r noncompliance with its

a p p l i c a t i o n , the commission s h a l l grant f i n a l approval

of such a p p l i c a t i o n o r s h a l l disapprove such

application. The commission s h a l l not approve an

a p p l i c a t i o n unless it determines t h a t the c a p i t a l

improvement w i l l promote the s a f e t y of horses, the

s a f e t y , convenience and comfort of the people and is i n

the best i n t e r e s t of racing and the S t a t e of Arizona

generally. I f the commission g r a n t s f i n a l approval of

the a p p l i c a t i o n t h e permittee s h a l l qualify f o r the

reduction i n percentage."

* See Appendix 2 f o r the t e x t of A. R. S. $ 5- 111.02.

28

A s of February 28, 1981, f i v e horse- racing permittees a t three racing

f a c i l i t i e s are withholding funds f o r c a p i t a l improvements. Table 3 lists

each permittee along with the t o t a l amount withheld at each f a c i l i t y from

July 1, 1978, through December 31, 1980.

TABLE 3

TOTALS WITHHELD BY RACING PERMITTEES FOR CAPITAL

IMPROVEMENTS AS AUTHORIZED BY A. R. S. 55- 111.02

FROM JULY 1, 1978, TO DECEMBER 31, 1980

Turf Paradise, Inc. *

Turf Paradise

Arizona Downs

Desert Downs

Prescott Downs

R i l l i t o Downs

Turf Paradise

Turf Paradise has been the primary r e c i p i e n t of c a p i t a l improvement

funds. A s of February 24, 1981, a t o t a l of e i g h t p r o j e c t s costing

$ 9,653,298 have received t e n t a t i v e Commission approval, of which three

p r o j e c t s costing $ 4,270,375 have received f i n a l Commission approval.

Table 4 summarizes the proposed c a p i t a l improvement p r o j e c t s a t Turf

Paradise a s of February 24, 1981, and includes a d e s c r i p t i o n of each

p r o j e c t , its estimated c o s t and t h e d a t e on which t e n t a t i v e approval was

given. For those p r o j e c t s which have received f i n a l approval, the date of

f i n a l approval is noted along with the f i n a l cost of the p r o j e c t and the

amount withheld by Turf Paradise to recoup those c o s t s .

* Funds are being withheld by the three permittees a t Turf Paradise.

A. R. S. $ 5- 111.02 d i r e c t s permittees who l e a s e racing f a c i l i t i e s t o

pass the c a p i t a l improvement funds withheld on t o the owner of the

f a c i l i t y . A s such, Turf Paradise, Arizona Downs and Desert Downs pass

the c a p i t a l improvement funds to Turf Paradise, Inc.

TABLE 4

SUMMARY OF CAPITAL IMPROVEMENT PROJECTS AT

TURF PARADISE AS OF FEBRUARY 24, 1981

I n i t i a l Date of Revised Cost Total Amount

Pro j e r t Estimated Tentative Per Report of I f Given, Date Actual Withheld as of

Number Description Cost Approval March 24, 1980 of Final Approval Cost December 31, 1480

TP- 1 Paving of parking l o t , s t a b l e $ 490,000 June 20, 1978 $ 469,918 September 26, 1978 $ 485,018 $ 485,018

areas and drainage system

TP- 2 Machine shop, warehouse and 235,000 June 20, 1978 396,837

hay barns

TP- 3 Grandstand a l t e r d t i o n s , 2,300,000 June 20, 1978 7,595,235 January 30, 1979 3,595,235

Phase I

TP- 4 Horse barns 882,000 * June 20, 1978 1,092,614

TP- 5 Race track and s t a b l e area

maintenance vehicles 188,298 September 26, 1978 175,413 December 28, 1978

TP- 6 Grandstand a l t e r a t i o n s , 4,450,000 February 7, 1979 5,702,812

Phase I1

TP- 7 Renovation of ground f l o o r t o 472,000 February 23, 1979 1,272,014

accommodate new pari- mutuel

equipment

TP- 8 I n s t a l l a t i o n of t u r f track 636,000 February 23, 1979 1,032,606

* Tk, e o r i g i n a l request f o r TP- 4, dated June 20, 1978, was f o r $ 432,000.

On December 28, 1978, the Commission granted t e n t a t i v e approval t o an

increased project amount of $ 882,000.

Our review of the u s e o f c a p i t a l improvement funds a t Turf Paradise

revealed t h a t : 1) as of December 31, 1980, the $ 1,505,011 withheld by

Turf Paradise, Inc. is f o r p r o j e c t s t h a t a r e within the provisions of

A. R. S. $ 5- 111.02, and 2) some a l l e g a t i o n s regarding c a p i t a l improvement

funds appear to be t r u e while others appear t o be untrue.

Funds Withheld A s Of December 31, 1980

A s a p a r t of our review of the use of c a p i t a l improvement funds at Turf

Paradise, we reviewed a l l documents which have been f i l e d at the

Commission o f f i c e by Turf Paradise, Inc. Additionally, we reviewed the

accounting records of Turf Paradise, Inc., v e r i f i e d the existence of

claimed improvements, and reviewed t h e a u d i t workpapers prepared by the

a u d i t o r s f o r Turf P a r a d i s e , I n c . t o support a u d i t r e p o r t s which have been

f i l e d by Turf Paradise, Inc. with the Commission. Based upon these

procedures, we have determined t h a t , as of December 31, 1980, the

$ 1,505,011 withheld by Turf Paradise, Arizona Downs and Desert Downs f o r

c a p i t a l improvements at Turf Paradise a r e w i t h i n t h e provisions of A. R. S.

$ 5- 111.02.

Allegations Regarding Capital Improvements

During o u r p r e l i m i n a r y review of the Commission we became aware of s e v e r a l

a l l e g a t i o n s regarding c a p i t a l improvements at Turf Paradise. We

subsequently researched Commission f i l e s , reviewed t r a n s c r i p t s of

Commission meetings and interviewed Commission members and s t a f f t o

compile a list of a l l a l l e g a t i o n s concerning c a p i t a l improvements at Turf

Paradise.

During January and February 1981, Auditor General s t a f f i n v e s t i g a t e d each

a l l e g a t i o n . These a l l e g a t i o n s a r e d e t a i l e d below.

Allegation

The president and general manager of Turf Paradise used Turf Paradise

employees and equipment t o work a t h i s residence and t h a t of h i s

b r o t h e r . Allegedly, the employees ' time and equipment charges were

charged t o t h e c a p i t a l improvement account.

Review Results

Labor and equipment charges f o r work at l o c a t i o n s o t h e r than Turf

Paradise a r e not included i n the c o s t of c a p i t a l improvements a t Turf

Paradise. Further we did not see records o r documents r e l a t i n g t o

work done a t t h e residence of t h e resident's brother. However, we

determined t h a t Turf Paradise employees and equipment were used a t the

residence of the president and general manager of Turf Paradise.

The following is a chronology of the events surrounding t h i s a l l e g a t i o n .

March 1979 t o November 1979 - Employees of Turf Paradise and the

c o n s t r u c t i o n company under c o n t r a c t t o construct improvements a t Turf

Paradise b u i l t a r e t a i n i n g w a l l and made other improvements a t the

residence of the president.

March 1979 t o February 1980 - A c o n s t r u c t i o n company owned l a r g e l y by

the president provided heavy equipment used i n the c o n s t r u c t i o n of

improvements at Turf Paradise without charge t o Turf Paradise.

January t o Nay 1980 - S t a f f from the Commission questioned the

president and other o f f i c i a l s regarding the use of Turf Paradise

employees and equipment at h i s residence.

February 1980 - The president c o n t r a c t e d w i t h an independent

accounting firm t o examine the cost summary report.

April 1980 - The president submitted a cost summary report t o the

Commission t o support h i s contention t h a t t h e c o s t of equipment

donated to Turf Paradise ' by h i s company o f f s e t t h e cost of the labor

and equipment used on h i s residence. According t o the cost summary,

t h e c o s t of the equipment donated to Turf Paradise was $ 54,408 and the

cost of t h e l a b o r and equipment used on the p r e s i d e n t ' s residence was

$ 51,231

April 3, 1980 - S p e c i f i c a l l e g a t i o n s of impropriety were r a i s e d at a

meeting of the Commission. O f f i c i a l s of Arizona Downs questioned

whether c a p i t a l improvement funds a t Turf Paradise a r e being managed

properly.

April 28, 1980 - I n a report submitted t o the Commission the

accounting firm concluded t h a t the cost of labor and equipment used a t

the p r e s i d e n t ' s residence exceeded the cost of the equipment donated

t o Turf Paradise by $ 7,352. According t o the accounting firm, the

cost of the l a b o r , m a t e r i a l and equipment used on the p r e s i d e n t ' s

residence was $ 216,126 and t h e c o s t of the equipment donated to Turf

Paradise was $ 208,772. It was noted on the r e p o r t t h a t the president

had paid the $ 7,352 d i f f e r e n c e on April 21, 1980.

It should be noted t h a t Auditor General s t a f f reviewed the work by Turf

P a r a d i s e ' s a u d i t o r s i n examining t h e cost summary report. Our review

determined t h a t time cards were not prepared by employees of Turf Paradise

nor were they prepared by employees of t h e g e n e r a l c o n t r a c t o r . Time cards

were prepared i n December 1980 f o r work at the residence of the p r e s i d e n t ,

and were used t o support the labor charges shown i n the cost summary

prepared by the president. However, these time cards were prepared up t o

nine months a f t e r t h e a c t u a l work. The a u d i t o r s who examined the cost

summary d i d n o t r e l y on those time cards t o determine a p p r o p r i a t e l a b o r

expenses. I n s t e a d , they used labor r e p o r t s which were prepared on a

weekly b a s i s by job superintendents t o determine appropriate l a b o r c o s t s .

I n our opinion, t h e i r examination was adequate and t h e i r conclusions

reasonable and supportable. Therefore, as of February 24, 1981, it

appears t h a t labor and equipment charges f o r work a t l o c a t i o n s o t h e r than

Turf Paradise a r e not included i n t h e cost of c a p i t a l improvements a t Turf

Paradise.

Allegation

Turf Paradise did not s o l i c i t bids on c a p i t a l p r o j e c t s i n s p i t e of

Commission orders t o do so.

Review Results

On June 20, 1978, the president submitted a request f o r preliminary

approval f o r TP- 1 through TP- 4 ( s e e . Table 4). These requests

received t e n t a t i v e approval from the Commission on June 20, 1978.

Immediately t h e r e a f t e r , t h e Commission requested t h a t Turf Paradise

s o l i c i t bids f o r f u t u r e requests f o r t e n t a t i v e Commission approval.

Turf Paradise did s o l i c i t bids f o r t h e vehicles obtained as TP- 5;

however, no bids were s o l i c i t e d f o r TP- 6, TP- 7 o r TP- 8 ( see

Table 4). These a r e major c o n s t r u c t i o n p r o j e c t s , and Turf Paradise

intends t o use the same general c o n t r a c t o r f o r a l l c o n s t r u c t i o n work.

A review of t h e t r a n s c r i p t of an April 3, 1980, meeting of the

Commission revealed t h a t the Commissioners were aware of the f a c t t h a t

bids had not been s o l i c i t e d f o r TP- 6, TP- 7 and TP- 8. The t r a n s c r i p t

s t a t e s , i n p a r t :

( ~ e ~ r e s e n t a t i voef Turf paradise) :

" We d i d n o t go out f o r competitive bids. There is no

way we could have taken competitive bids on t h a t

p r o j e c t and do it i n the time frame.. . We got

competitive bids on the equipment purchases, but t h e r e

was no way, under the time elements t h a t were involved,

t h a t we could have gotten competitive bids..."

, ( commissioner) :

" As I remember, t h a t was done with a concurrence of the

Commission. I know we discussed it, at t h e time. .. but

we did okay not g e t t i n g competitive bids on the general

c o n t r a c t o r because we f e l t t h a t he was the best man t o

get it done."

Members of t h e a u d i t s t a f f met with the Commission to d i s c u s s t h i s

a l l e g a t i o n . The Commissioners s t a t e d t h a t while they expect competitive

bids to be s o l i c i t e d whenever possible, they a l s o recognize t h a t it may

not be possible to s o l i c i t bids i n every instance.

Allegation

Turf Paradise received t e n t a t i v e Commission approval f o r c a p i t a l

p r o j e c t s estimated t o c o s t $ 9.2 million. However, cost information

submitted by Turf Paradise on March 19, 1980, showed t h a t c o s t s had

r i s e n t o more than $ 13.7 m i l l i o n . Allegations have been made t h a t the

increase i n c o s t s f o r c a p i t a l improvements is not f u l l y j u s t i f i e d .

Review Results

Costs t o modify and expand the grandstands a t Turf Paradise were

s i g n i f i c a n t l y h i g h e r t h a n expected i n i t i a l l y because, before the new

s t r u c t u r e could be attached to the o r i g i n a l s t r u c t u r e , unexpected and

e x t e n s i v e m o d i f i c a t i o n s had to be made t o the o r i g i n a l s t r u c t u r e .

These modifications were required because the o r i g i n a l s t r u c t u r e did

not meet c u r r e n t building s a f e t y codes. There a r e change orders to

the o r i g i n a l contract to support these c o s t s .

We reviewed t h e o r i g i n a l contract f o r c a p i t a l improvements a t Turf

Paradise, each c o n t r a c t change order and s a f e t y code compliance orders.

We a l s o inspected the s t r u c t u r e s i n question. A l l of the c o n t r a c t change

orders did involve c a p i t a l improvements and, as such, should be c l a s s i f i e d

as c a p i t a l improvements i n accordance with the provisions of A. R. S.

$ 5 - 111.02.

Allegation

Despite the payment of c a p i t a l improvements funds t o Turf Paradise,

the general c o n t r a c t o r f o r Turf P a r a d i s e h a s not been paid about

$ 300,000 f o r work already completed.

Review Results

Our review revealed t h a t the a l l e g a t i o n stems from a problem which

developed over a c o n t r a c t o r ' s r e f u s a l t o make c o n t r a c t u a r i l y required

r e p a i r s to improvements u n t i l he was paid the $ 295,000 by Turf

Paradise. S i m i l a r l y , Turf Paradise refused t o pay the c o n t r a c t o r

u n t i l the work was completed.

Attorneys f o r both p a r t i e s met and t h e d i s p u t e was s e t t l e d . The work

has been completed and Turf Paradise has paid the $ 295,000 t o the

c o n t r a c t o r .

Allegation

Capital improvement funds were used t o build o f f i c e space f o r a

p r i v a t e company owned l a r g e l y by the president of Turf Paradise. The

o f f i c e f a c i l i t i e s a r e located a t Turf Paradise.

Review Results

During the course of our review, we did not discover information which

would support t h i s a l l e g a t i o n .

Allegation

Capital improvement funds were used t o acquire antiques and other

expensive furnishings f o r the " board rooms" a t Turf Paradise.

Review Results

Our review of t h e a u d i t workpapers prepared by t h e a u d i t o r s f o r Turf

Paradise, the accounting records a t Turf Paradise and a l l a v a i l a b l e

documents on f i l e with the Commission revealed t h a t Turf Paradise has

not purchased f u r n i t u r e or antiques as c a p i t a l improvements.

Allegation

Turf Paradise had added c o s t s t o the c a p i t a l improvement accounts

beyond those charged by the contractor. Turf Paradise received a

permit from the c i t y to remove sand from two l o c a t i o n s . It was

alleged t h a t Turf Paradise charged more than $ 100,000 f o r the cost of

the sand t o the c a p i t a l improvements account.

Review Results

A s of February 28, 1981, the a l l e g a t i o n cannot be confirmed or

refuted. During 1979, Turf Paradise had s e v e r a l tons of d i r t removed

from two r i v e r bottoms i n the Valley area f o r use on the t r a c k and i n

the c o n s t r u c t i o n of its new t u r f course. According to the president

and h i s l e g a l counsel, t h e c o s t s of labor and t r a n s p o r t a t i o n required

to move the sand to the t u r f course a r e the only c o s t s associated with

the sand t h a t w i l l be included i n TP- 8.

The t u r f course is TP- 8 ( see Table 4). Tentative approval f o r t h i s

p r o j e c t was given by the Commission on February 23, 1979. Turf

Paradise h a s n o t submitted the a u d i t report f o r TP- 8 as of

February 28, 1981. Therefore, it is not possible t o confirm o r r e f u t e

t h e a l l e g a t i o n .

Allegation

Turf Paradise intends not only t o withhold funds t o o f f s e t t h e cost of

c a p i t a l improvements, but a l s o t o withhold the i n t e r e s t expense

associated with loans Turf Paradise entered i n t o i n order t o finance

improvements .

Review Results

According t o the p r e s i d e n t , he intends to request permission t o

withhold funds t o cover the i n t e r e s t expense a s s o c i a t e d w i t h the cost

of financing improvements at Turf Paradise. He s t a t e d t h a t withheld

funds first would be used t o recoup t h e cost of the improvements and

then withheld t o recoup the i n t e r e s t expense a s s o c i a t e d w i t h loans

Turf P a r a d i s e e n t e r e d i n t o i n order to finance the improvements. Our

review of the accounting records r e l a t i n g t o the c o n s t r u c t i o n and

a c q u i s i t i o n of c a p i t a l improvements at Turf Paradise revealed t h a t the

t o t a l i n t e r e s t expense a s s o c i a t e d w i t h those a c q u i s i t i o n s is

approximately $ 3,750,000.

T r a n s c r i p t s of Commission meetings reveal t h a t the Commission had

i n t e r p r e t e d A. R. S. $ 5- 111.02 t o allow Turf Paradise t o recoup the

i n t e r e s t expense associated with t h e a c q u i s i t i o n of c a p i t a l

improvements. That i n t e r p r e t a t i o n appears t o be i n c o r r e c t .

According t o Financial Accounting Standards Board ( FASB)- 34," i n t e r e s t

expense associated with t h e a c q u i s i t i o n of an a s s e t may be c a p i t a l i z e d

only during t h e period t h e a s s e t is being acquired or made ready f o r

use. Once the a s s e t is i n place and ready f o r use, a d d i t i o n a l

i n t e r e s t expense should not be c a p i t a l i z e d . Accordingly, we estimate

the maximum i n t e r e s t expense t h a t Turf Paradise may c a p i t a l i z e is

$ 376,000, r a t h e r than t o t a l i n t e r e s t expense of $ 3,750,000. However,

it should be noted t h a t FASB- 34 s t a t e s t h a t i n t e r e s t t h a t has been

c a p i t a l i z e d must be disclosed i n f i n a n c i a l statements as a note or

footnote. Such a d i s c l o s u r e h a s - n o t been made i n r e p o r t s f i l e d by

Turf Paradise with the Commission f o r TP- 1 through TP- 5. Therefore,

Turf Paradise may not be able t o c a p i t a l i z e and/ or recoup - any i n t e r e s t

expense associated with TP- 1 through TP- 5.

Allegation

Turf Paradise purchased equipment a s c a p i t a l improvements and

subsequently sold the equipment.

Review Results

OUT review did not i n d i c a t e t h a t the cost of t h e ' e l e c t r i c a l items had

been claimed a s p a r t of c a p i t a l improvements. Turf Paradise acquired

e l e c t r i c a l items t o be used i n the , c o n s t r u c t i o n of the grandstand. a

The items subsequently were not required and they were s o l d , a t cost,

t o an outside party.

* See Appendix 3 f o r the major provisions of FASB- 34.

The Comrnission Improperly Approved $ 229,044 i n

Capital Improvements To Turf Paradise And

Prescott Downs f o r the Purchase o f R o l l i n g Stock

Our review of reports f i l e d with the Commission revealed t h a t the

Comrnission approved requests from Turf Paradise and P r e s c o t t Downs t o use

c a p i t a l improvement funds t o purchase t r a c t o r s , trucks and equipment. The

cost of these items purchased by Turf Paradise and Prescott Downs was

$ 190,122 . OO and $ 38,921.64, respectively. These a c q u i s i t i o n s do not

appear to qualify a s c a p i t a l improvements under the provisions of A. R. S.

$ 5- 111.02 . D.

I n a February 13, 1981, o p i n i o n , t h e L e g i s l a t i v e Council s t a t e d :

" The S t a t e accounting manual c l a s s i f i e s the purchase of

automobiles and trucks as a c a p i t a l outlay

expenditure. However, i n the s i t u a t i o n described, a

s p e c i a l more limited l e g i s l a t i v e d e f i n i t i o n of c a p i t a l

improvement c o n t r o l s .

" To q u a l i f y f o r approval, a c a p i t a l improvement, under

the d e f i n i t i o n prescribed by AeR. S. Section 5- 111.02,

Subsection D, must be a t l e a s t a $ 100,000 a d d i t i o n ,

replacement or remodeling of a race t r a c k f a c i l i t y and

must a l s o f a l l w i t h i n t h e standard prescribed by

Subsection B of t h a t Section i n t h a t it must:

" Promote the s a f e t y of horses, the s a f e t y ,

convenience and comfort of the people and is i n

t h e b e s t i n t e r e s t s of racing and the S t a t e of

Arizona generally.

" The purchase of automobiles or trucks c l e a r l y would

not comply with ' t h e s e standards. "*

Based upon the above i n t e r p r e t a t i o n , the Commission should not have

approved t h e a c q u i s i t i o n of r o l l i n g stock as a c a p i t a l improvement, and

Turf Paradise and Prescott Downs should not be allowed t o withhold funds

t o cover t h e c o s t s of tho, se vehicles.

* See Appendix 4 f o r the f u l l t e x t of t h i s opinion.

Prescott Downs May Owe the S t a t e $ 85,974.55

If Its Purchases Do Not Qualify

A s Capital Improvements

On August 17, 1978, the Commission granted f i n a l approval t o Prescott

Downs to withhold $ 100,943 to cover the cost of b u i l d i n g h o r s e s t a l l s and

acquiring a t r a c t o r and a water t r u c k . I f the t r a c t o r and water truck do

not q u a l i f y a s a c a p i t a l improvement ( see page 391, then: 1) the

remaining cost f o r horse s t a l l s a t Prescott Downs w i l l not q u a l i f y as a

c a p i t a l improvement because it is l e s s than $ 100,000, and 2) Prescott

Downs w i l l have to repay the S t a t e the $ 85,974.55 it had withheld as of

December 31, 1980, to cover t h e c o s t of the horse s t a l l s , t r a c t o r s and

water truck.

On June 20, 1978, o f f i c i a l s f o r Prescott Downs appeared before the

Commission to present a proposed program of c a p i t a l improvements. The

proposal estimated t h a t the cost of the project would be $ 103,850.

The Commission granted t e n t a t i v e approval t o the project on June 20,

1978. On August 17 of the same year the Commission was n o t i f i e d t h a t the

improvements had been completed a t a t o t a l cost of $ 100,943. The

Commission granted f i n a l approval to the project on the same day. On

August 19, Prescott Downs began withholding one percent of t o t a l wagers as

provided f o r by A. R. S. 55- 111.02. A s of December 31, 1980, Prescott Downs

had withheld a t o t a l of $ 85,974.55.

Table 5 summarizes the c a p i t a l improvements project f o r P r e s c o t t Downs as

approved by the Commission as of December 31, 1980.

TABLE 5

Description

APPROVED CAPITAL IMPROVEMENTS AT PRESCOTT

DOWNS AS OF DECEMBER 31, 1980

Tentatively F i n a l l y

Approved Approved Amount

Amount Amount Withheld

55 horse s t a l l s $ 65,450.00 $ 62,020.94 $ 62,020.94

Diesel t r a c t o r and equipment 15,000.00 20 , 914 79 20 914 79

Water truck 23,400.00 18,006.85 3,038.82

$ lOg, 850.00 $ 100,942.58 $ 85,974.55

Our review revealed t h a t the Commission apparently approved improperly

$ 38,921.64 i n c a p i t a l improvements f o r the purchase of the d i e s e l t r a c t o r

and water truck ( see page 39). Additionally, i f the $ 38,921.64 f o r

vehicles a t Prescott Downs is disallowed, the e n t i r e $ 100,942.58 approved

f o r P r e s c o t t Downs may be i n v a l i d .

A. R. S. $ 5- 111.02.~ s t a t e s :

" The term ' c a p i t a l improvement' means an a d d i t i o n ,

replacement, or remodeling of a race t r a c k f a c i l i t y

involving an expenditure of at l e a s t one hundred

thousand d o l l a r s . Capital improvement does not include

the cost of ordinary r e p a i r s and maintenance required

t o keep a race t r a c k f a c i l i t y i n o r d i n a r y o p e r a t i n g

condition. " ( ~ m p h a s i s added)

The t o t a l cost of the 55 horse s t a l l s does not comply w i t h t h e p r o v i s i o n s

of A. R. S. $ 5- 111.02. D i n t h a t it does not involve an expenditure of at

l e a s t $ 100,000. A s a r e s u l t , P r e s c o t t Downs may not have been e n t i t l e d t o

withhold t h e c o s t of the horse s t a l l s and may be required t o repay the

$ 85,974.55 withheld a s of December 31, 1980.

Capital Improvements A t R i l l i t o Downs

R i l l i t o Downs has reported c a p i t a l improvements of $ 242,427.07 f o r

enclosing a p o r t i o n of the grandstand and improvements t o t h e clubhouse.

On November 16, 1978, the Commission received a f i n a n c i a l a u d i t report f o r

R i l l i t o Downs. After the Commission granted f i n a l approval f o r the

improvements, R i l l i t o Downs began withholding funds on November 24, 1978.

A s of December 31, 1980, R i l l i t o Downs had withheld $ 107,248.94.

During the course of our performance a u d i t of the Commission, we reviewed

a l l records r e l a t i n g t o the c a p i t a l improvement p r o j e c t s a t R i l l i t o

Downs. In our opinion, c a p i t a l improvement p r o j e c t s a t R i l l i t o Downs a r e

within t h e provisions of A. R. S. $ 5- 111.02.

Allocation of Capital Improvement Funds to Counties

A. R. S. $ 5- 113 . B s t a t e s :

" The Arizona county f a i r s racing and . breedersf award

fund s h a l l be under t h e j u r i s d i c t i o n of the commission

and, subject to the provisions of subsection D of t h i s

s e c t i o n , s h a l l be d i s t r i b u t e d by the commission t o the

county f a i r a s s o c i a t i o n or county f a i r racing

a s s o c i a t i o n of each county conducting a county f a i r

racing meeting i n such proportion as the commission

deems necessary f o r the promotion and betterment of

county f a i r racing meets. A l l expenditures from the

Arizona county f a i r s racing and breeders' award fund

s h a l l be made upon claims approved by the commission."

It should be noted t h a t the a l l o c a t i o n of these funds t o the counties is

a t the d i s c r e t i o n of the Commission. There is no s t a t u t o r y requirement

regarding county uses of these funds.

From July 1, 1975, t o December 31, 1980, the Commission d i s t r i b u t e d a

t o t a l of $ 1,282,300 f o r c a p i t a l improvements t o the 14 Arizona counties.

Table 6 summarizes the d i s t r i b u t i o n of c a p i t a l improvement funds t o the

counties f o r f i s c a l years 1975- 76 through 1979- 80 and the period from July

1980 through December 1980.

I n order t o q u a l i f y f o r c a p i t a l improvement funds, a county must:

1. F i l e an a p p l i c a t i o n t o conduct a r a c i n g meeting,

2. Submit a c e r t i f i e d a u d i t of the p r i o r y e a r ' s racing meet, and

3. Submit a c e r t i f i e d a u d i t of the p r i o r y e a r ' s use of c a p i t a l

improvement funds.

If the county f a i l s t o submit the required i n f o r n a t i o n , the Commission has

the d i s c r e t i o n a r y a u t h o r i t y t o refuse a l l o c a t i o n of c a p i t a l improvement

funds t o the county.

Our review of county uses of c a p i t a l improvement funds included: examining

a l l documents f i l e d by the 14 counties with t h e Commission; reviewing a l l

Commission i n v e s t i g a t o r r e p o r t s , stewards r e p o r t s and correspondence

f i l e s ; meeting with r e p r e s e n t a t i v e s of the county racing commissions t o

d i s c u s s u s e s of c a p i t a l improvement funds provided by the Commission;

reviewing i n d e t a i l the accounting records of seven of the counties; and

v i s i t i n g seven of the county racing f a c i l i t i e s t o v e r i f y the existence of

reported improvements.

The findings of the above review of County uses of c a p i t a l improvement

funds a r e t h a t : 1 ) f i n a n c i a l i m p r o p r i e t i e s have occurred i n a t l e a s t two

c o u n t i e s , and 2) the Commission has not adequately o r c o n s i s t e n t l y

reviewed county uses of c a p i t a l improvement funds.

Financial Improprieties I n A t Least Two Counties

Our review of the f i l e s of the Commission disclosed i n d i c a t i o n s of

f i n a n c i a l i m p r o p r i e t i e s i n four counties. A f u r t h e r review of the

accounting records and o t h e r documents f o r these counties produced

s u f f i c i e n t evidence t o conclude t h a t : 1) i m p r o p r i e t i e s s u r e l y have

occurred i n two counties, and 2) i m p r o p r i e t i e s have not occurred i n a

t h i r d county. We were unable t o e i t h e r confirm or r e f u t e i n d i c a t i o n s of

improprieties i n the f o u r t h county because of s t a t u t o r y vagueness

regarding county uses of c a p i t a l improvement funds.

Apache County

Our review revealed t h a t Apache County had reported t h a t c a p i t a l

improvements p r o j e c t s were completed when, i n f a c t , the p r o j e c t s had not

been b u i l t . A d d i t i o n a l l y , t h e a u d i t o r f o r Apache County prepared a

f i n a n c i a l a u d i t report based on estimates of proposed c a p i t a l p r o j e c t s .

F u r t h e r , t h e a u d i t o r did not a c t u a l l y inspect purported p r o j e c t s t o

determine i f they a c t u a l l y e x i s t e d .

Navajo County

For f i s c a l year 1979- 80, Navajo County received $ 18,700 f o r c a p i t a l

improvements. A review by the Commission's i n v e s t i g a t o r s revealed t h a t

the County has no invoices or other documentation t o support the

expenditure of $ 2,952.60 f o r labor expenses and $ 1,756.42 f o r improvements.

I n a d d i t i o n , the c e r t i f i e d public accountant who prepared the a u d i t r e p o r t

f o r Navajo County refused t o express an opinion on t h e f i n a n c i a l

statements because of material weaknesses i n the county racing

commission's i n t e r n a l accounting c o n t r o l s i n t h a t records of cash r e c e i p t s

and disbursements " have been l o s t or were never kept."

Mohave County

The Mohave County Racing Commission erected a new concrete grandstand a t

the racing f a c i l i t y during f i s c a l year 1976- 77 a t a cost of $ 31,206.02.

Our review revealed t h a t , while the County Racing Commission had f a i l e d t o

report the expenditure t o the Arizona Racing Commission, it had applied

the c a p i t a l improvement funds i n a proper manner.

Cochise County

Our review of the expenditures of Cochise County revealed t h a t the county

had spent: 1 ) $ 5,750 from the c a p i t a l improvements funds t o pay the

s a l a r y of a manager- supervisor, and 2) $ 4,340 f o r v e h i c l e s .

I n an opini0. n dated December 5, 1980, t h e L e g i s l a t i v e Council s t a t e d :

" The use of the county f a i r s and r a c i n g b r e e d e r s ' award

fund is not limited t o c a p i t a l improvements under the

terms of A. R. S. s e c t i o n 5- 113, subsection B.

Expenditures do not have t o come from c a p i t a l

improvement funds nor must they be f o r c a p i t a l

improvements. The Commission has complete d i s c r e t i o n

i n the a l l o c a t i o n of monies from the award fund so long

as the use of the monies is deemed ' necessary f o r t h e

promotion and betterment of county f a i r racing meetsq."*

Our review of t h e t r a n s c r i p t s of the meetings of the Commission revealed

t h a t it has determined t h a t t h e a c q u i s i t i o n of vehicles by the county

racing commissions was necessary f o r t h e promotion and betterment of

county f a i r racing meets. The Commission has not made a s i m i l a r

determination regarding the manager- supervisor s a l a r y .

The Commission Has Not Consistentlv and Adeauatelv

Reviewed t h e D i s t r i b u t i o n and Expenditure of Capital

Improvement Funds Awarded t o Counties

Our review of County c a p i t a l improvement funds revealed t h a t t h e

Commission has been i n c o n s i s t e n t i n its review and f i n a l determination of

fund a l l o c a t i o n . For f i s c a l year 1979- 80, the Commission d i s t r i b u t e d

$ 18,700 t o each of 11 counties. The Commission did not a l l o c a t e c a p i t a l

improvement funds t o the remaining three counties f o r the following

reasons :

- Maricopa County f a i l e d to provide a breakdown of the p r i o r y e a r ' s

expenditures of c a p i t a l improvement funds**.

- Apache County had supposedly misstated its handling of t h e p r i o r

y e a r ' s funds ( see page 45).

- Final County had f a i l e d t o submit a c e r t i f i e d f i n a n c i a l a u d i t of

t h e p r i o r y e a r ' s expenditures.

. * See Appendix 5 f o r the f u l l t e x t of t h i s opinion.

On May 21, 1980, the Maricopa County F a i r , I n c . returned $ 34,070 i n

c a p i t a l improvement funds i n accordance with the d i r e c t i o n of the

Commission.

The Commission was i n c o n s i s t e n t i n its treatment of t h e t h r e e counties

because it did approve c a p i t a l improvement funds f o r : 1 ) t h r e e counties

accused of f i n a n c i a l i m p r o p r i e t i e s i n t h e i r handling of c a p i t a l

improvement funds, and 2) seven counties t h a t had not submitted audited

f i n a n c i a l statements as required. As a r e s u l t , the Commission approved

funds f o r t h r e e counties whose c e r t i f i e d f i n a n c i a l statements included an

a u d i t o r s ' opinion s e c t i o n t h a t s p e c i f i c a l l y disclaimed an opinion as t o

whether c a p i t a l improvement funds were f a i r l y s t a t e d and seven counties

whose f i n a n c i a l statements had not been audited.

A review of the t r a n s c r i p t s of Commission meetings and interviews with

Commission s t a f f revealed t h a t it is the s t a f f members who determine if

each county has complied with the reporting requirements of the

Commission. However, Commission s t a f f members do not d i f f e r e n t i a t e

between c e r t i f i e d f i n a n c i a l statements or unaudited f i n a n c i a l statements

i n making t h a t determination. A s a r e s u l t , t h e Commission frequently

a l l o c a t e s c a p i t a l improvement funds t o a county on the assumption t h a t

reporting requirements have been met when, i n f a c t , they have not.

CONCLUSIONS

Our review revealed t h a t some a l l e g a t i o n s of impropriety regarding c a p i t a l

improvement funds used a t Turf Paradise appear t o be t r u e while others

appear to be untrue. We a l s o determined t h a t the Commission improperly

approved $ 229,044 i n c a p i t a l improvements to Turf Paradise and Prescott

Downs f o r the purchase of r o l l i n g stock. Further, we determined t h a t

Prescott Downs may owe t h e S t a t e $ 85,974.55 i f the a c q u i s i t i o n of r o l l i n g

stock does not q u a l i f y a s c a p i t a l improvements. Additionally, we

determined t h a t f i n a n c i a l i m p r o p r i e t i e s have occurred i n at l e a s t two

counties and t h a t the Commission has not adequately and c o n s i s t e n t l y

reviewed the d i s t r i b u t i o n and expenditures of c a p i t a l improvement funds

awarded t o the counties. F i n a l l y , we determined t h a t c a p i t a l improvements

a t R i l l i t o Downs a r e within the provisions of A. R. S. $ 5- 111.02.

RECOMMENATIONS

It is recommended t h a t :

1. The Commission not approve the withholding of i n t e r e s t expense

associated with t h e a c q u i s i t i o n of improvements i n Turf Paradise

Projects TP- 1 through TP- 5.

2. The Commission rescind its approval of r o l l i n g stock purchased as

c a p i t a l improvements at Turf Paradise and P r e s c o t t Downs.

Further, the Commission should d i r e c t Turf Paradise not to

withhold funds f o r Turf Paradise Project TP- 5 and should d i r e c t

P r e s c o t t Downs t o repay $ 23,953.61, which a l r e a d y h a s been

withheld.

3. The Commission request an opinion from the Attorney GeneraL +?

determine i f Prescott Downs should be required t o repay the

e n t i r e $ 85,974.55 withheld f o r c a p i t a l improvements.

4. The Commission determine i f expenses f o r a manager- supervisor a r e

necessary f o r the promotion and betterment of county racing meets.

5. The Commission require its s t a f f t o conduct d e t a i l e d reviews of

f i n a n c i a l r e p o r t s f i l e d by the counties to v e r i f y t h a t a l l

reporting requirements have been met.

FINDING I11

PROCEDURES USED BY THE ARIZONA RACING COMMISSION TO SELECT AND EVALUATE

THE CONTRACT CHEMIST ARE INADEQUATE.

Arizona Revised Statutes ( A. R. s.) $ 5- 105 authorizes the Commission to

employ a racing chemist or to contract with outside chemical laboratories

for analysis of s a l i v a , urine and blood samples of horses and greyhounds.

The Commission r e l i e s on t h e e x p e r t i s e of a chemist and the accuracy of

h i s a n a l y t i c a l t e s t i n g to control and regulate the usage of drugs i n

racing animals i n the S t a t e of Arizona. To t h i s end the Commission spent

more than $ 130,000 i n f i s c a l year 1979- 80 for analyses of samples from

race animals.

Our review of the procedures used by the Commission to s o l i c i t bids for a

contract chemist has revealed that the procedures are not i n compliance

with the guidelines s e t f o r t h i n Arizona Revised Statutes and

administrative rules and regulations. Our review also revealed t h a t the

Commission has not made a consistent e f f o r t to evaluate the performance of

the current contract chemist. Further, our review revealed that the

Commission f a i l e d t o take corrective action i n a timely manner when it was

learned that the contract chemist had f a i l e d to detect prohibited drugs i n

urine samples. Finally, our review of the f i l e s r e l a t i n g to the contract

chemist revealed that the Commission has f a i l e d t o obtain a valid written

contract with the contract chemist.

A s a r e s u l t , the Commission may have no recourse a g a i n s t t h e c o n t r a c t

chemist for substandard performance.

Procedures Used t o S o l i c i t Rids Are Not i n

Comaliance with Guidelines Set Forth i n Arizona

Revised S t a t u t e s and Administrative Rules and Regulations

Since 1949," the Commission has awarded the contract f o r blood, s a l i v a and

urine t e s t i n g t o the same chemical laboratory. During t h a t time, s e v e r a l

other chemical l a b o r a t o r i e s have expressed an i n t e r e s t i n p a r t i c i p a t i n g i n

the bidding f o r t h e c o n t r a c t with the Commission. However, the Commission

has discouraged the e f f o r t s of these chemical l a b o r a t o r i e s .

The Commission Has Discouraged Comaetitive

Bids From Qualifed Laboratories

I n 1969, an Arizona- based chemical laboratory requested permission to

appear before the Commission. The laboratory s t a t e d t h a t it wished to

p r e s e n t a list of its q u a l i f i c a t i o n s and to request an opportunity to bid

f o r the contract with the Commission. The r e p r e s e n t a t i v e of the

laboratory was informed t h a t the bidding f o r the contract was closed and

t h a t the contract always w a s awarded t o the same laboratory.

I n May 1969, the chemical company fi; sd a p r o t e s t with s e v e r a l S t a t e

agencies. A s a r e s u l t of t h e s e p r o t e s t s , t h e Purchasing Division of the

Department of Finance recommended t h a t the Commission e s t a b l i s h c r i t e r i a

as to competence and r e l i a b i l i t y , and contact a l l chemists i n the S t a t e

p r i o r t o the issuance of an i n v i t a t i o n t o bid. The Purchasing Division

a l s o recommended t h a t the ". . . present contract f o r chemical t e s t i n g be

extended no longer than 120 days, and t h a t immediate s t e p s be taken t o

s e c u r e a contract f o r t h i s s e r v i c e under a competitive sealed bid

procedure. "

Our review revealed t h a t t h e Commission and the Association of O f f i c i a l

Racing Chemists ( AORC) j o i n t l y developed a list of minimum q u a l i f i c a t i o n s

f o r the bidding l a b o r a t o r i e s . However, the Commission did not follow the

other recommendations of the Purchasing Division and the contract was not

put out f o r rebid.

* The laboratory changed ownership i n 1971, when it was purchased by one

of the employees of the laboratory. The Commission has contracted

with t h e c u r r e n t owner since t h a t time.

A. R. S. $$ 41- 1051 through 41- 1056, e f f e c t i v e i n August 1973, s p e c i f y

requirements f o r s o l i c i t i n g bids and awarding c o n t r a c t s f o r outside

professional s e r v i c e s . The s t a t u t o r y requirements a r e s i m i l a r t o the

recommendations made by the Purchasing Division, and s t a t e i n p a r t :

" A S t a t e budget u n i t d e s i r i n g t o contract f o r

s e r v i c e s . . . s h a l l i s s u e a r e q u e s t f o r proposals

containing but not limited to:

1. The c r i t e r i a f o r q u a l i f i c a t i o n s required of

persons to be selected to perform outside

p r o f e s s i o n a l services." ( A. R. s. 541- 1052)

"... a S t a t e budget u n i t s h a l l encourage persons engaged

i n the lawful p r a c t i c e of t h e i r profession t o submit

annually a statement of q u a l i f i c a t i o n s and performance

data." ( A. R. s. 541- 1053)

Our review revealed t h a t t h e Commission has not adequately s o l i c i t e d bids

from q u a l i f i e d chemical l a b o r a t o r i e s . Although the major racing

l a b o r a t o r i e s a r e located outside of Arizona, the Commission places

notices i n Phoenix and Tucson newspapers s t a t i n g t h a t i n t e r e s t e d p a r t i e s

wishing to bid on the c o n t r a c t should n o t i f y the Commission o f f i c e . No

advertisements a r e placed i n national t r a d e j o u r n a l s , nor a r e p a r t i e s who

previously have submitted bids contacted. Further, while the notices

s t a t e t h a t " . . . s p e c i f i c a t i o n s t o bid a r e a v a i l a b l e at t h e Commission

office..'.", Commission s t a f f members a r e not aware of t h e e x i s t e n c e of

t h e s e s p e c i f i c a t i o n s and, t h e r e f o r e , could not provide them t o i n t e r e s t e d

p a r t i e s .

During an u n r e l a t e d s e a r c h of Commission f i l e s , members of the Auditor

General s t a f f did l o c a t e a l i s t i n g , " Q u a l i f i c a t i o n s t o Bid." It was noted

t h a t the q u a l i f i c a t i o n s , developed i n 1970, never had been updated, and

may now be obsolete because of technological changes i n the industry.

I n 1975, the Commission received a bid from an out- of- State chemical

company. Nonetheless, the Commission elected to renew the c o n t r a c t of the

same chemist because it f e l t the chemist had done a good job. Our review

of the bids from the two companies revealed t h a t the out- of- State chemist

had a l a r g e r s t a f f , was involved i n a s i g n i f i c a n t l y l a r g e r research

program and provided s e r v i c e s t o s e v e r a l racing commissions i n other

s t a t e s . The out- of- State company a l s o reported t h a t required t e s t

equipment was located i n Phoenix and t h a t a branch laboratory already was

e s t a b l i s h e d i n the Valley. The out- of- State company bid $ 10 a sample --

exactly the bid of the i n - S t a t e company. We were unable t o locate

documentation t o show t h a t the Commission made an e f f o r t t o evaluate the

two bids adequately p r i o r t o the awarding of the contract.

It should be noted t h a t we were unable t o determine i f other chemical

companies contacted the Commission with regard t o the blood, s a l i v a and

urine t e s t i n g c o n t r a c t . A s previously noted, one of the two chemical

l a b o r a t o r i e s c i t e d above s t a t e d t h a t it d i d n o t attempt t o submit

a d d i t i o n a l bids t o the Commission because they f e l t t h a t the Commission

would not consider any bid other than t h a t of the c u r r e n t c o n t r a c t

chemist. A s a r e s u l t , the Commission may have f a i l e d t o contract with the

most q u a l i f i e d laboratory t h a t o f f e r e d t h e most competitive p r i c e .

The Commission Has Not Adequately Evaluated

the Performance of the Contract Chemist

E f f e c t i v e l a b o r a t o r y analyses a r e the keystones of e f f e c t i v e c o n t r o l and

r e g u l a t i o n of drug usage i n racing animals. However, based on

documentation i n f i l e a t the Commission o f f i c e , the Commission i n s t i t u t e d

no procedures t o evaluate the e f f e c t i v e n e s s and accuracy of the contract

chemist u n t i l February 1980. Further, the t e s t s conducted i n February

1980 did n o t e v a l u a t e t h e l a b o r a t o r y ' s e f f e c t i v e n e s s i n d e t e c t i n g

prohibited drugs.

Between February and April 1980, the Commission's v e t e r i n a r i a n a t Turf

Paradise i n j e c t e d s e v e r a l animals with Lasix* t o determine i f the chemist

could i d e n t i f y the drug i n urine samples. The c o n t r a c t chemist did

c o r r e c t l y i d e n t i f y the Lasix i n the samples. The r e s u l t of t h i s review,

then, was v e r i f i c a t i o n t h a t the contract chemist could i d e n t i f y

permissible medications i n urine samples i n racing animals. The

Commission d i d n o t , however, attempt t o t e s t the chemist's a b i l i t y to

i d e n t i f y prohibited substances.**

Immediately a f t e r these t e s t s , the Commission was informed of a l l e g a t i o n s

of substandard work by the contract chemist. During August, September and

October, 1980, on the recommendation of the Commission's i n v e s t i g a t o r s ,

the Commission authorized urine samples to be " s p l i t . " S p l i t t i n g means

dividing a s i n g l e sample i n t o two or more containers. One container was

sent to a chemical laboratory i n Colorado. A second container was s e n t to

the contract chemist i n the usual manner. It should be noted t h a t t h e

out- of- State l a b o r a t o r y s e r v e s a s o f f i c i a l chemical laboratory f o r other

s t a t e racing commissions. The out- of- State laboratory i d e n t i f i e d the

presence o f p r o h i b i t e d s u b s t a n c e s i n - four samples***. The Commission's

contract chemist did not r e p o r t t h e presence of prohibited substances i n

any samples. One of the substances which the contract chemist f a i l e d t o

i d e n t i f y was Nubain, a s y n t h e t i c morphine. Our review revealed t h a t t h e

contract chemist, almost a year e a r l i e r , had n o t i f i e d t h e Commission t h a t

he had developed procedures which enabled him to t e s t f o r the presence of

Nuhain.

Because he f a i l e d t o i d e n t i f y any prohibited substances i n the p o s i t i v e

samples, t h e performance of the contract chemist appears t o be inadequate.

* Lasix is a medication t h a t may be used i n racing animals, providing

use of the substance is reported t o the Commission p r i o r t o entering

an animal i n a race.

** It should be noted t h a t Lasix masks the presence of p r o h i b i t e d d r u g s

i n u r i n e samples. Thus, by i n j e c t i n g horses with Lasix, the

Commission's v e t e r i n a r i a n s destroyed the i n t e g r i t y of the sampling

process ( see page 59).

*** Prohibited substances were i d e n t i f i e d by the Colorado laboratory on

two occasions. On the f i r s t occasion, the Colorado laboratory

" r e - s p l i t " its sample and sent it t o a University laboratory i n New

York. This l a b o r a t o r y , which a l s o serves as an o f f i c i a l chemist f o r

other s t a t e s , confirmed the r e s u l t s found by the Colorado laboratory.

Although the last s p l i t sample conducted i n October 1980 showed the

chemist f a i l e d t o i d e n t i f y p o s i t i v e samples, the Commission did not s p l i t

a d d i t i o n a l samples u n t i l March 15, 1981. Thus, the Commission was

precluded from f u r t h e r assessing the e f f e c t i v e n e s s of the laboratory. The

reason the p r a c t i c e of s p l i t t i n g samples was discontinued was a lack of

funds, according t o the Executive Secretary.

Corrective Action

I n a d d i t i o n t o the s p l i t sample r e s u l t s , the Commission has had other

evidence t h a t the contract chemist was not performing e f f e c t i v e l y . For

example, i n September 1980, the Commission was urged by a r e p r e s e n t a t i v e

of a racing i n d u s t r y a s s o c i a t i o n t o upgrade t h e performance of the

contract chemist. However, the Commission d i d n o t i n i t i a t e c o r r e c t i v e

a c t i o n f o r almost t h r e e months, and has taken very few s t e p s to ensure

t h a t any c o r r e c t i v e a c t i o n which has been taken is e f f e c t i v e .

Our review of the minutes of the Commission's meeting of November 25,

1980, revealed t h a t the Commission directed the contract chemist be placed

on a three- month probationary c o n t r a c t . The terms of the probationary

contract were: 1) t o include the use of adequate t e s t equipment and t e s t

procedures, 2) p a r t i c i p a t i o n i n a continuing education program, and

3) the posting of a performance bond. However, as of March 4, 1981, the

probationary contract h a s n o t been prepared, the performance bond has not

been posted and the Commission has not determined i f adequate t e s t i n g

procedures a r e used.

Commission May Have No Recourse Against the

Contract Chemist f o r Substandard Performance

Our review of the c o n t r a c t between the Commission and the contract chemist

revealed t h a t the c o n t r a c t : 1) does not contain a performance clause

which s p e c i f i e s the procedures t o be used i n t e s t i n g s a l i v a , urine and

blood samples f o r prohibited substances, 2 ) contains no provision f o r

Commission recourse i n the event of substandard performance on t h e p a r t of

t h e c o n t r a c t chemist, and 3) has remained v i r t u a l l y unchanged from at

l e a s t 1975 t o the p r e s e n t . A d d i t i o n a l l y , the Assistant Attorney General

assigned t o the Commission recently determined t h a t the present c o n t r a c t

may not be v a l i d , i n t h a t proper notice of c o n t r a c t i n g procedures was not

given, the contract does not comply with s t a t u t o r y requirements a s t o form

and content, and the contract does not contain a termination clause as

required by A. R. S. $ 38- 511. Therefore, the Commission has operated

without an e f f e c t i v e contract f o r s a l i v a , urine and blood t e s t i n g f o r a t

l e a s t f i v e years.

F i n a l l y , because the Commission may have no l e g a l recourse a g a i n s t the

contract chemist, payments t o him f o r substandard work may not be

recoverable. From July 1, 1980, t o February 28, 1981, the Commission paid

t h e contract chemist approximately $ 83,000. During t h a t period, the

Commission had reason t o believe t h a t some of the work of the c o n t r a c t

chemist was substandard.

CONCLUSIONS

Procedures used by the Commission t o s e l e c t and evaluate a c o n t r a c t

chemist are inadequate t o ensure the s e r v i c e s of the most q u a l i f i e d

laboratory. Further, the Commission f a i l e d t o take c o r r e c t i v e a c t i o n i n a

timely manner when it determined t h a t the c u r r e n t c o n t r a c t chemist f a i l e d

t o d e t e c t prohibited drugs i n urine samples. F i n a l l y , the Commission may

not have a v a l i d w r i t t e n contract with the c o n t r a c t chemist.

RECOMMENDATIONS

It is recommended t h a t the Commission:

- Encourage competitive bidding f o r the o f f i c i a l chemist contract

by a d v e r t i s i n g i n n a t i o n a l p u b l i c a t i o n s and contacting chemists

within the S t a t e .

- Revise the q u a l i f i c a t i o n s t o bid t o include current a n a l y t i c a l

chemistry standards.

- Use o u t s i d e p r o f e s s i o n a l s e r v i c e s t o evaluate t h e q u a l i f i c a t i o n s

of competing bidders, based on c r i t e r i a developed by the

Commission.

- Establish procedures f o r evaluating the performance of the

contract chemist, including use of s p l i t samples.

- Take appropriate c o r r e c t i v e a c t i o n with the present contract

chemist by executing a probationary c o n t r a c t and enforcing

compliance with its terms.

- Study the f e a s i b i l i t y of developing in- house f a c i l i t i e s f o r

chemical a n a l y s i s .

FINDING I V

THE ABILITY OF THE ARIZONA RACING COMMISSION TO PREVENT THE USE OF

PROHIBITED DRUGS I N RACING HAS BEEN IMPAIRED BECAUSE CERTAIN STAFF MEMBERS

HAVE NOT PROPERLY DISCHARGED THEIR RESPONSIBILITIES.

Arizona s t a t u t e s p r o h i b i t the use of c e r t a i n drugs i n racing, and r e q u i r e

t h a t the Arizona Racing Commission promulgate r u l e s and r e g u l a t i o n s t o

promote the proper conduct of racing, obtain t h e s e r v i c e s of a duly

q u a l i f i e d chemical laboratory and appoint as many employees as may be

necessary f o r the enforcement of racing s t a t u t e s , r u l e s and r e g u l a t i o n s .

Our review of the Commission revealed t h a t its a b i l i t y t o prevent the use

of prohibited drugs i n racing is impaired i n t h a t :

- Certain Commission v e t e r i n a r i a n s have n o t p r o p e r l y discharged

t h e i r d u t i e s .

- Recent trends i n t e s t i n g procedures a r e counterproductive t o

Commission e f f o r t s t o c o n t r o l drug usage.

- The Commission is not receiving complete or accurate information

from its s t a f f .

S t a t u t o r y Requirements

Arizona Revised S t a t u t e s $ 5- 115 makes it a c l a s s 4 felony f o r persons t o

administer "... a drug, n a r c o t i c or hypnotic t o a horse or dog with the

i n t e n t t o a f f e c t the r e s u l t of a horse, harness or dog race."

The Commission is the regulatory body primarily responsible f o r enforcing

the above s t a t u t e s . Arizona Revised S t a t u t e s $ 5- 104. B s t a t e s :

" The commission s h a l l prepare and promulgate such

complete r u l e s and r e g u l a t i o n s to govern the racing

meetings a s may be required t o protect and promote the

s a f e t y and welfare of the animals p a r t i c i p a t i n g i n such

racing meetings, t o p r o t e c t and promote public h e a l t h ,

s a f e t y and the proper conduct of racing and pari- mutuel

wagering and any other m a t t e r p e r t a i n i n g t o the proper

conduct of r a c i n g w i t h i n t h i s s t a t e . The commission

may delegate to stewards such of its powers and d u t i e s

as a r e necessary t o f u l l y c a r r y out and e f f e c t u a t e the

purposes of t h i s a r t i c l e . "

Arizona Revised S t a t u t e s $ 5- 105 s t a t e s i n p a r t :

" The commission s h a l l employ a chemist or contract with

a duly q u a l i f i e d chemical laboratory to determine by

chemical t e s t i n g and a n a l y s i s of s a l i v a , urine, blood

o r o t h e r excretions or body f l u i d s whether or not any

substance or drug has been introduced which would

a f f e c t the outcome of any race or whether o r not any

a c t i o n has been taken or any substance or drug has been

introduced which may i n t e r f e r e with the t e s t i n g

procedure. . . "

And Arizona Revised S t a t u t e s $ 5- 106. A s t a t e s i n p a r t :

" The commission s h a l l appoint. .. as many other employees

as may be necessary f o r the enforcement of the laws of

t h i s s t a t e and the r u l e s and r e g u l a t i o n s r e l a t i n g t o

racing."

Accordingly, the Commission has promulgated r u l e s regarding the use of

drugs, t e s t i n g procedures t o d e t e c t drugs and reporting and follow- up

procedures i n the event of drug d e t e c t i o n .

During our review we noted numerous instances of noncompliance by

Commission v e t e r i n a r i a n s with the Commission's r u l e s regarding drugs.

Commission Veterinarians Have Not

Properly Discharged t h e i r Duties

Our review revealed t h a t Commission v e t e r i n a r i a n s have adopted procedures

f o r use a t horse- race f a c i l i t i e s which 1 ) frequently i n t e r f e r e with the

chemical i n t e g r i t y of the samples, 2) c o n s t i t u t e a v i o l a t i o n of the

Commission's own r u l e s and 3) may cause i n d i v i d u a l s who u s e p r o h i b i t e d

drugs t o remain undetected. In a d d i t i o n Commission v e t e r i n a r i a n s a r e not

taking blood samples from a l l deceased animals t o determine i f the use of

prohibited drugs was a c o n t r i b u t i n g f a c t o r t o the animal's death.

Procedures Used i n the Test Barns Freauentlv I n t e r f e r e

with the Chemical I n t e g r i t y of the Test Samples

A t the end of each h o r s e r a c e , the winning horse* is immediately

transported to the t e s t barn f o r a blood, urine or s a l i v a t e s t . The

sample is then s e n t to the contract chemist f o r a n a l y t i c a l t e s t i n g . The

purpose of t h i s t e s t is t o v e r i f y t h a t the horse was not administered a

prohibited substance which could have affected ' the outcome of t h e race.

I f t h e a n a l y s i s of the sample taken is reported as a " negative", t h a t is,

no prohibited substances were detected, the winning purses a r e

d i s t r i b u t e d . I f the sample taken is reported as a " positive" the purse

money is ordered held, and the Board of Stewards holds a hearing t o

c o l l e c t evidence. If the Board determines appropriate, it d i s c i p l i n e s the

t r a i n e r and the persons administering a prohibited substance to the

horse. The stewards then r e s t r u c t u r e t h e f i n i s h p o s i t i o n of t h e o t h e r

horses and d i s t r i b u t e the purse money accordingly.

During the course of our review, we noted t h a t the majority of samples

taken from horses were urine samples ( more than 90 ~ e r c e n t ) . A s a p a r t of

our a u d i t , we reviewed the s p e c i f i c procedures used t o c o l l e c t urine

samples. We noted t h a t the procedures manual s p e c i f i e s the s t e p s to be

taken if a horse cannot produce a urine sample within a s p e c i f i e d time

( usually 90 minutes). The manual i n s t r u c t s t e s t barn personnel t o request

the permission of the owner or t r a i n e r t o i n j e c t the h o r s e w i t h a drug

t h a t w i l l force the horse t o u r i n a t e . If approved by the owner or

t r a i n e r , t e s t barn personnel w i l l d i r e c t a v e t e r i n a r i a n t o i n j e c t the race

horse with the drug Lasix, a d i u r e t i c .

* Winning horses are not the only horses t e s t e d . ( see page 63)

59

Our review revealed t h a t t h e use of Lasix i n j e c t i o n s to obtain a urine

sample destroys the i n t e g r i t y of sample t e s t i n g ( s e e page 79). According

to the o f f i c i a l chemists f o r s e v e r a l o t h e r racing j u r i s d i c t i o n s Lasix

masks t h e presence o f p r o h i b i t e d substances. These chemists claim t h a t

Lasix takes e f f e c t within minutes and masks v i r t u a l l y a l l known substances

which a r e used i n racing animals. Therefore, Lasix never should be used

p r i o r t o the c o l l e c t i o n of a sample because of its masking e f f e c t .

Administrative r e g u l a t i o n R4- 27- 107 R s t a t e s :

" Samples of s a l i v a , u r i n e o r any other t e s t substance

s h a l l be taken by persons appointed by the Arizona

Racing Commission, under the supervision of the

Commission v e t e r i n a r i a n . During the taking and s e a l i n g

of such t e s t s the owner, t r a i n e r , o r t h e i r authorized

agent may be present a t a l l times. The sample s h a l l be

immediately sealed i n a container and the evidence of

such procedure witnessed by the signature of the owner,

or t r a i n e r , o r t h e i r r e p r e s e n t a t i v e . The sample s h a l l

thereupon be forwarded with dispatch t o t h e O f f i c i a l

Racing Commission Laboratory f o r chemical a n a l y s i s and

report t o the Arizona Racing Commission. No person

s h a l l i n t e r f e r e i n an" v manner with the t e s t i n g -

procedures under t h i s Rule. ( Ephasis Added)

A s a r e s u l t , by i n j e c t i n g horses with Lasix the Commission v e t e r i n a r i a n

violated the above r u l e regarding i n t e r f e r i n g with the t e s t i n g procedures.

We found t h a t from October 1, 1980 through March 8, 1981, 36 horses at

Turf Paradise* had been i n j e c t e d with Lasix by t e s t barn personnel p r i o r

t o c o l l e c t i o n of a sample. When we reviewed the names of t h e t r a i n e r s f o r

those 36 horses, we found one t r a i n e r who had been suspended f o r one year

f o r u s i n g p r o h i b i t e d substances i n h i s racing horses. During the period

under review, t h i s same t r a i n e r had four winning horses whose samples

possibly were masked by Lasix.

* The Commission v e t e r i n a r i a n s t a t e d t h a t the use of Lasix t o a s s i s t i n

t h e c o l l e c t i o n of urine samples is a common p r a c t i c e a t a l l horse

racing f a c i l i t i e s i n the S t a t e .

Further, we i d e n t i f i e d seven o t h e r instances of the Commission

v e t e r i n a r i a n i n j e c t i n g winning horses with Lasix as a means t o evaluate

the e f f e c t i v e n e s s of the c o n t r a c t chemist ( see page 52). Not only did

t h i s procedure i n t e r f e r e with t e s t i n g procedures and v i o l a t e Commission

r u l e s but it was unnecessary as well, because the Commission maintains two

horses a t a cost of $ 500 a year f o r such t e s t i n g purposes.

Blood Samples from Deceased Horses

Blood samples a r e n o t t a k e n from a l l deceased horses. During f i s c a l years

1979- 80 and 1980- 81, a t l e a s t 65 race horses died at racing f a c i l i t i e s , of

which 36 died immediately b e f o r e , d u r i n g or a f t e r a race. The Commission

granted the v e t e r i n a r i a n s d i s c r e t i o n i n determining which animals were t o

be t e s t e d . An August 1979 memorandum from the Executive S e c r e t a r y to the

v e t e r i n a r i a n s s t a t e d :

" Effective immediately, upon the death of a racing

animal on the racetrack i n which t h e r e is any concern

or suspicion a s t o the cause of death, the S t a t e

Veterinarian w i l l take a blood sample and send it t o

the l a b f o r examination." ( ~ m ~ h a s~ i sd d e d )

Since the memorandum was i s s u e d , blood samples have - not been taken f o r a l l

deceased horses, and no autopsies performed. Blood samples were not taken

f o r any of e i g h t horses known to have died at R i l l i t o Downs between

November 1, 1980, and February 15, 1981. Further, blood samples have been

taken f o r only h a l f t h e horses t h a t died immediately before, during o r

a f t e r a race a t Turf Paradise from July 1, 1980 to February 28, 1981.

The following incident i l l u s t r a t e s t h e need f o r blood sampling of deceased

horses and autopsies.

During the Graham County F a i r i n April 1979, f o r no apparent reason a

horse turned abruptly and ran through a three- inch s t e e l r a i l a f t e r

crossing the f i n i s h l i n e . The horse was p r a c t i c a l l y c u t i n two and died

instantaneously . The jockey was h o s p i t a l i z e d with s e r i o u s i n j u r i e s ,

including "... a broken w r i s t , some broken r i b s and possibly a broken

neck ..." One observer, who was a Commission employee at the time of the

i n c i d e n t , t o l d a u d i t s t a f f t h a t he believes the horse was drugged, and

t h a t t h e f a c t the horse was drugged had been discussed openly on the

backside ( s t a b l e a r e a ) a f t e r the i n c i d e n t .

A blood sample was n o t t a k e n and the cause of death was not i n v e s t i g a t e d .

The v e t e r i n a r i a n reported the i n c i d e n t t o the Commission as follows:

" Fourth Race

( ~ a m e of t h e h o r s e ) , No. 2. Over the i n s i d e rail - expired."

The Commission v e t e r i n a r i a n who was a t t h e t r a c k at the time of the

incident claimed blood samples were not taken at t h a t time because

adequate t e s t i n g equipment was not a v a i l a b l e . However, our review

revealed t h a t the equipment required f o r blood t e s t i n g - was a v a i l a b l e a t

the time of the i n c i d e n t .

It should be noted t h a t the t r a i n e r of the horse i n the above incident

recently was suspended and fined by the Commission f o r using a prohibited

substance on one of h i s horses.

Recent Trends i n Testing Procedures are

Counterproductive to Commission E f f o r t s

to Control Drug Usage

Sampling procedures used t o d e t e c t the presence of prohibited substances

do not support the Commission's i n t e n t t o i n c r e a s e enforcement of

medication r u l e s . I n a d d i t i o n t o u r i n e , blood o r s a l i v a samples from

winning horses, samples may be obtained from other horses as well. These

a d d i t i o n a l samples a r e taken a t t h e d i s c r e t i o n of the stewards and a r e

u s u a l l y taken from horses t h a t perform d i f f e r e n t l y than expected. Our

review revealed t h a t the p r a c t i c e of taking a d d i t i o n a l samples 1 ) is not

c o n s i s t e n t among t r a c k s and 2) has decreased since the Commission adopted

s t r i c t e r drug rules". Table 7 shows the percentage of races f o r which

a d d i t i o n a l samples were drawn from July 1, 1980, to February 15, 1981.

* I n l a t e 1980 the Commission adopted r u l e s p r o h i b i t i n g the use of

phenylbutazone except i n t r a i n i n g , and Lasix. These medications

previously were allowed i f Commission approval were obtained p r i o r t o

usage. For d e t a i l s of t h e new medication r u l e s , see page 73.

TABLE 7

PERCENTAGE OF RACES FOR WHICH ADDITIONAL SAMPLES WERE DRAWN

FROM JULY 1, 1980, TO FEBRUARY 15, 1981

PERCENTAGE OF RACES

July 1, 1980,

t o September 1, December 18, 1980*** January 1, 1981""""

1980 t o December 31, 1980 to February 15, 1981

Prescot t

Downs*

R i l l i t o

Downs

( ~ u c s o n )

Turf

Paradise

( phoenix)**

A s shown above t h e p r a c t i c e of taking a d d i t i o n a l samples a t R i l l i t o Downs

ceased when the new medication r u l e s became e f f e c t i v e .

It should be noted t h a t other s t a t e s make g r e a t e r use of a d d i t i o n a l

samples ( t h e term used f o r d i s c r e t i o n a r y steward t e s t i n g ) than Arizona

does. Thirteen of the 30 s t a t e s t h a t allow r a c i n g t a k e a d d i t i o n a l samples

and seven o f t h e s e s t a t e s take a d d i t i o n a l samples i n every r a c e .

The Commission Is Not Receiving Complete

or Accurate Information from its S t a f f

The information provided t o the Commission by t r a c k personnel is

incomplete. A s a r e s u l t , the Commission lacks s u f f i c i e n t information

regarding d e t e c t i o n a c t i v i t i e s t o monitor proper conduct.

3c Meet ended August 24, 1980. Included Yavapai County F a i r held

August 30, 1980, through September 1, 1980.

w Includes Arizona Downs, Desert Downs and Turf Paradise meets held

a t Turf Paradise f a c i l i t y .

3cw Date of Commission adoption of new r u l e s .

**** Effective date.

The Commission's v e t e r i n a r i a n s submit bimonthly r e p o r t s t o the Commission

which include the number of samples submitted t o the o f f i c i a l chemist and

number of i n j u r i e s and deaths of horses on the t r a c k . Our review of these

reports revealed the following d e f i c i e n c i e s :

1. The r e p o r t s submitted by v e t e r i n a r i a n s a t R i l l i t o Downs do not

i n d i c a t e the number of a d d i t i o n a l u r i n e or blood samples taken.

2. The number of blood samples reported by t h e v e t e r i n a r i a n a t Turf

Paradise does not agree t o the number of blood samples received by the

o f f i c i a l chemist.

3. Reports of injured or deceased animals prepared by the Commission

v e t e r i n a r i a n a t R i l l i t o Downs do not c l e a r l y i n d i c a t e i f an animal

died on t h e r a c e t r a c k or was euthanised i f injured.

4. The deceased animal lists f o r Turf Paradise and P r e s c o t t Downs do not

i n d i c a t e the causes of death f o r a l l animals.

CONCLUSIONS

Our review revealed t h a t c e r t a i n Commission v e t e r i n a r i a n s have not

properly discharged t h e i r d u t i e s , t h a t recent trends i n t e s t i n g procedures

are counterproductive t o Commission e f f o r t s t o c o n t r o l drug usage and t h a t

the Commission is n o t r e c e i v i n g complete or accurate information from its

s t a f f .

RECOMMENDATIONS

It is recommended t h a t :

- Commission v e t e r i n a r i a n s d i s c o n t i n u e u s i n g Lasix t o c o l l e c t urine

samples.

- Blood samples be t e s t e d f o r a l l animals which d i e immediately before,

during or a f t e r a race.

- Additional t e s t samples be taken more o f t e n and f o r a l l major races.

- Commission s t a f f submit monthly r e p o r t s t o each Commissioner which

include the following information:

Number and type of samples submitted t o the o f f i c i a l chemist.

Results of t e s t s i n d i c a t i n g the presence of prohibited substances.

Animal deaths, causes of death and r e s u l t s of blood t e s t s and

autopsies.

FINDING V

THE ARIZONA RACING COMMISSION IS NOT COMPLYING WITH THE OPEN MEETING LAW

AND THE WORKMEN'S COMPENSATION LAW.

A s a p a r t of our a u d i t of the Arizona Racing Commission, we made a review

to determine i f the Commission is i n compliance with s t a t u t o r y and

administrative requirements. We determined t h a t stewards ' hearings did

not comply with the Open Meeting Law and t h a t t h e Commission's enforcement

of an administrative r u l e requiring compliance with the Workmen's

Compensation Law was untimely and inadequate.

Stewards' Hearings Did Not Com~ lv

With The Open Meeting Law

During the course of our a u d i t , we noted t h a t two stewards employed by a

permittee and one steward employed by the Commission j o i n t l y decide the

outcome of contested races and hold hear