Summary of Balance Sheets _part5 docx

Finding
2009-1
Kansas Lottery
(A
Component
Unit
of
the State
of
Kansas)
Schedule
of
Prior
Year Findings and Responses
Year Ended
June
30, 2010
Condition - The prior auditors' identified adjustments
to
the trial balance that were not initially identified by the
Lottery's
internal control structure.
Recommendation - The prior auditors' recommended that the lottery review its trial balance at year end to
ensure that
all
adjustments have been made.
Current Status - Significant adjustment were made during the current year's audit. This finding
is
repeated
in
the current year as

is
included with finding 2010-1.
Finding 2009-2
Condition - The Lottery was not able to reconcile the accounts receivable balance per the general ledger to
the
actual accounts receivable balance at year end.
Recommendation - The prior auditors' recommended that the lottery reconcile its accounts receivable
balance monthly
to underlying support
to
ensure that the balance is appropriate and reflects the true balance
of accounts receivable. -
Current Status - This finding
is
repeated
in
the current year and
is
included with finding 2010-1.
40
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KANSAS LOTTERY
(A COMPONENT UNIT OF THE STATE OF KANSAS)
REQUIRED COMMUNICATIONS
For the Year Ended June 30, 2010
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Required Communications
Kansas Lottery

Required Communications
For the Year Ended June
30, 2010
Table
of
Contents
Listing
of
Uncorrected Misstatements
Page
Number
1-4
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COCHRAN HEAD
VICK
& CO., P.A.
& Co
1333
Meadowlark
Lane
Kansas City,
KS 66102
(913) 287-4433
(913)
287-0010 FAX
Other
Offices
1251 NW

Briarcliff
Pkwy
Suite 125
Kansas City.
MO
64116
(816) 453-7014
(816) 453-7016 FAX
400
Jules
Street
Suite 415
St. Joseph.
MO
64501
(816) 364-1118
(816) 364-6144 FAX
6700
Antioch
Rd. Suite 460
Merriam. Kansas 66204
(913) 378-1100
(913) 378-1177 FAX
Certified Public Accountants
December 27,2010
Legislative Post Audit Committee
Kansas State Legislature:
We have audited the financial statements of the Kansas Lottery (the Lottery), a component
unit of the State
of

Kansas, as
of
and
for the year ended June
30,
2010. Professional
standards require that we provide you with information about our responsibilities under
generally accepted auditing standards
and
Government Auditing Standards,
as
well
as
certain information related to the planned scope
and
timing
of
our audit. We have
communicated such information
in
our engagement letter to you dated March
13,
2010.
Professional standards also require that we communicate to you the following information
related to our audit.
Significant Audit Findings
Qualitative Aspects
of
Accounting Practices
Management is responsible for the selection

and
use
of
appropriate accounting policies.
The significant accounting policies used by the Lottery are described
in
Note 1 to the
financial statements. No new accounting policies were adopted and the application of
existing policies was not changed during 2010. However, Lottery operations
and
financial
reporting changed as a result
of
inclusion
of
Expanded Lottery activities which began
in
December 2009. We noted
no
transactions entered into by the Lottery during the year for
which there
is
a lack
of
authoritative guidance or consensus. All significant transactions
have been recognized
in
the financial statements
in
the proper period.

Accounting estimates are an integral part of the financial statements prepared by
management and are based
on
management's knowledge and experience about past and
current events and assumptions about future events. Certain accounting estimates are
particularly sensitive because of their significance to the financial statements and because
of the possibility that future events affecting them may differ significantly from those
expected. The most sensitive estimates affecting the Lottery's financial statements were
the actuarial assumptions and methods used
by
the actuary to prepare the annual actuarial
valuation report related to the other postemployment healthcare benefits
plan,
the
allowance for doubtful accounts, the estimate useful lives
of
capital assets,
and
prize
liabilities.
Difficulties Encountered in Performing the Audit
We experienced some difficulties
in
dealing with management during the performance
and
completion of our audit. Specifically, we did not obtain full cooperation and support from
the Lottery's management regarding our requests for information required to conduct our
audit. The request included information which was directly related to the Expanded Lottery
operations including oversight and monitoring of internal controls by the Kansas Racing
and Gaming Commission (KRGC). We were informed by KRGC personnel that certain

areas of concern
in
internal control were noted
in
connection with their monitoring activities.
Accordingly, we believe that our requests for the above information were both ordinary
and
necessary. However, we were informed by Lottery management that the information
requested was not required to conduct our audit.
In
addition, we view this information
fundamental to subsequent audit periods as the Expanded Lottery continues to open new
facilities. Lack of full cooperation from management of the Lottery led to increased difficulty
in
the completion and conduct
of
our engagement.
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Corrected and Uncorrected Misstatements
Professional standards require
us
to accumulate
all
known and likely misstatements identified during
the audit, other than those that are
trivial, and communicate them
to
the appropriate level of

management. The attached
schedule summarizes uncorrected misstatements of the financial
statements. Management has determined that their effects are immaterial, both individually
and
in
the
aggregate,
to
the financial statements taken
as
a whole. The following material misstatements
detected
as
a result of auditing procedures were corrected by management:
~
An
adjustment was required to record electronic gaming machines contributed
to
the Expanded
Lottery for the Boot
Hill Casino & Resort operations totaling $9,115,652. The related accumulated
depreciation of the machines totaling $1,226,562 was also required.
~
An
adjustment was required
to
write-off certain capital assets no longer
in
use
and

agree amounts
recorded
on
the Lottery's books of account to physical inventory records
as
of June
30,
2010. The
reduction
to
gross capital assets was $2,873,628, offset by
an
adjustment
to
reduce accumulated
depreciation of $2,735,872, with the difference of $137,756 reflected
as
a decrease of operating
income.
~
Adjustments were required to account for Expanded Lottery activities including adjustments to cash,
accounts
receivable and accounts payable to correct accounting errors. The net impact of these
entries was
an
increase to liabilities by $436,719,
an
increase to revenues of $183,309,
and
an

increase to expenses of $620,028.
~
An
adjustment was made
to
correct year-end accounts payable which resulted
in
an
increase
to
accounts payable of $376,834,
an
increase
in
retailer fees of $39,883, and
an
increase
in
expenses
totaling $416,716.
~
An
adjustment was made to record
an
additional prize liability primarily related to unpaid taxes
resulting
in
an
increase to liabilities and game prize expense of $497,158.
~

An
adjustment was made
to
capital assets to expense items erroneously capitalized resulting
in
a
decrease
in
capital assets of $220,746, a decrease
in
depreciation expense of $27,302,
and
an
increase
in
supplies expense of $248,048.
~
An
Adjustment was made to correct
an
error
in
operating cash balance resulting
in
an
increase
in
cash
and
income of $196,386.

~
An
adjustment was made to the instant ticket inventory to correct year-end purchase cutoff. The net
impact of this entry
resulted
in
an
increase to instant ticket inventory and accounts payable of
$166,130.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management
as
a financial
accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could
be
significant
to
the financial statements or the auditors' report. See previous comment noted
in
connection with "Difficulties
Encountered
in
Performing the Audit"

Management Representations
We have requested certain representations from management that are included
in
the management
representation
letter dated December 27, 2010.

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Management Consultations with Other Independent Accountants
In
some cases, management may decide to consult with other accountants about auditing and accounting
matters, similar to obtaining a "second opinion"
on
certain situations. If a consultation involves application of
an accounting principle to the governmental unit's financial statements or a determination of the type
of
auditor's opinion that may be expressed
on
those statements, our professional standards require the
consulting accountant to check with us to determine that the consultant has all the relevant facts. To our
knowledge, there were
no
such consultations with other accountants.
Other Audit Findings
or
Issues
We generally discuss a variety
of
matters, including the application of accounting principles
and
auditing
standards, with management each year prior to retention
as
the governmental unit's auditors. However, these
discussions occurred

in
the normal course of our professional relationship and our responses were not a
condition
to
our retention.
In
planning
and
performing our audit
of
the financial statements
of
the Kansas Lottery
as
of
and
for the year
ended June
30,
2010,
in
accordance with auditing standards generally accepted
in
the United States of
America,
we
considered the Lottery's internal control over financial reporting (internal control)
as
a basis for
designing our auditing procedures for the purpose of expressing our opinion

on
the financial statements, but
not for the purpose
of
expressing
an
opinion
on
the effectiveness of the Lottery's internal control. Accordingly,
we do not express
an
opinion
on
the effectiveness of the Lottery's internal control.
Our consideration
of
internal control was for the limited purpose described
in
the preceding paragraph
and
was not designed to identify
all
deficiencies
in
internal control that might be significant deficiencies or material
weaknesses
and
therefore there can
be
no

assurance that all such deficiencies have been identified.
However,
as
discussed below, we identified certain deficiencies
in
internal control that we consider to
be
material weaknesses
and
other deficiencies that we consider to
be
significant deficiencies.
A deficiency in internal control exists when the design or operation
of
a control does not allow management or
employees,
in
the normal course
of
performing their assigned functions, to prevent, or detect
and
correct
misstatements
on
a timely basis. A material weakness
is
a deficiency or combination of deficiencies
in
internal
control, such that there

is
a reasonable possibility that a material misstatement
of
the entity's financial
statements will not be prevented, or detected
and
corrected
on
a timely basis. We consider the deficiencies
described
in
our Report
on
Internal Control over Financial Reporting and
on
Compliance
and
Other Matters
Based
on
an
Audit of Financial Statements Performed
in
Accordance with Government Auditing Standards
and the related Schedule
of
Findings and Responses
as
item
2010-1

included at pages 37-38
in
the Lottery's
Financial Compliance and Audit Report for the Years Ended June 30, 2010 and 2009
to
be
a material
weakness.
A significant deficiency
is
a deficiency, or a combination of deficiencies,
in
internal control that
is
less severe
than a material weakness, yet important enough to merit attention by those charged with governance. We
consider the deficiencies described
in
our Report
on
Internal Control over Financial Reporting
and
on
Compliance
and
Other Matters Based
on
an
Audit
of

Financial Statements Performed
in
Accordance with
Government Auditing Standards and the related Schedule of Findings and Responses
as
items 2010-2
and
2010-3 included at pages 38-39
in
the Lottery's Financial Compliance and Audit Report for the Years ended
June 30, 2010
and
2009 to
be
Significant deficiencies.
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CONCLUSION
Our audit procedures required us to obtain
an
understanding of controls over primary systems affecting the
financial statement amounts. The Lottery may be able to benefit from additional, in-depth reviews of internal
controls
in
other areas. We look forward to discussing opportunities to continue to assist the Lottery.
This information
is
intended solely for the use of the Legislative Post Audit Committee, Kansas Lottery
Commission

and
management
of
the Kansas Lottery and is not intended to be and should not
be
used by
anyone other than these specified parties.
December 27,2010
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LISTING OF UNCORRECTED MISSTATEMENTS
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Kansas
Lottery
Listing of Uncorrected Misstatements
June
30,
2010
Accounts
and
Description
Accounts
Receivable,
net
Net
game
revenues
Adjust

accounts
receivable
to
reconciled
balance
5
Amount
DR.
CR.
$
105,761
$
105,761
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