DiNapoli: Western Regional OTB Must Strengthen Financial Operations and Oversight

An audit released today by New York State Comptroller Thomas P. DiNapoli of the Western Regional Off-Track Betting Corp. (WROTB) found poor oversight of operations by the board of directors, cost overruns and significant estimation errors. The audit found WROTB's failure to take action to address the declining handle, the total amount wagered on horse races and other gaming activities, adjust to changes in the gambling industry, and control costs limited the amount of revenues provided to participating municipalities.

DiNapoli offered 16 recommendations to help the organization improve its financial operations, which WROTB officials said they were acting on. The audit covered the period from January 2021 through December 2024 and some contracts going back to 2020, with nearly all the period being before significant changes in WROTB board and leadership occurred.

"The Western Regional Off-Track Betting Corporation is under pressure as revenues decline from its horse racing and wagering operations, and it must rein in costs and strengthen its financial operations," DiNapoli said. "The corporation is supposed to benefit local participating municipalities and taxpayers, and even as the gambling industry changes, the board can adapt without losing that mission. I'm encouraged by steps the current board and new management have taken, and urge continued progress."

WROTB was formed in 1973 and is owned by 15 participating counties and the cities of Buffalo and Rochester. It offers off-track pari-mutuel wagering on horse racing at Batavia Downs Gaming and other locations. A portion of the revenues generated are distributed to the participating municipalities. The board is comprised of representatives from the 15 participating counties and two cities. WROTB management changed significantly in October 2024, when the former CEO resigned and the board appointed a replacement.

Lack of Oversight, Documentation and Transparency

Auditors found the board essentially relinquished its oversight responsibilities and allowed corporation management to monitor its own financial operations and spending. Auditors determined that board members did not receive financial reports to discuss in a timely manner and never received cash flow and other critical statements necessary to monitor spending and adjust budget lines that were overspent.

When the board made changes to annual operating plans, they were done during workshops, which were not documented and included in meeting minutes. Holding discussions where important decisions are made essentially behind closed doors limits the transparency that is expected of a public entity.

The board also did not authorize all procurements of goods and services over $15,000, as required by its own policy. Instead, the board again relied on WROTB management to monitor costs and present resolutions to amend the authorized costs when needed.

Declining Handle

While increased wagering in its video gaming operations improved WROTB's overall financial condition, its horse racing and wagering operations deteriorated at a steady pace over the audit period. During the four-year period, WROTB's handle declined 34% ($23.5 million), resulting in in less statutory distributions to the horse racing industry, the New York State Gaming Commission, as well as allocations to local governments. In 2024, WROTB distributed $6.7 million to participating governments, over $3 million (31%) less than the previous calendar year.

Increasing Expenses

WROTB's revenue increased approximately $3.7 million (7%) while operating expenses grew by more than $8.4 million (22%), over the audit period. The most significant expense increases included:

• Salaries, which increased by 38% since 2021 and accounted for more than $16.8 million (40%) of WROTB operating expenses in 2024 and exceeded the 2024 operating plan by $400,000.
• Professional services, which increased by 23% and accounted for more than $2.5 million of the 2024 operating expenses.
• The board allowed management to enter into contracts for legal services and consultants without proper board approval and exceeded the approved spending amounts by over $1 million. WROTB only received reports detailing the consultants' work for which WROTB was billed from eight of the 17 consultants it had approved contracts with, four of which were only verbal, including three from lobbyists. The board did not receive any reports from nine of the 17 consultants it had approved contracts with detailing the consultants' work for which WROTB was billed for and paid.

For example, management paid legal firms $844,954 in excess of board-approved amounts. In one case, management paid a firm $247,969 for work unrelated to a contract and without receiving detailed invoices. Management also paid over $400,000 to two other law firms for general counsel duties and work on a lawsuit without receiving any board approval for their services. Similarly, management paid $168,040 to eight consultants without board approval.

Incomplete Implementation of Prior Audit Recommendations

Two audits, released by DiNapoli in September 2021, found WROTB spent at least $121,000 on tickets to sporting events, concerts, food and alcohol for board members, employees and other individuals without the oversight required by state rules, and that WROTB's CEO did not reimburse the organization for his personal use of an official vehicle in a timely manner. He later reimbursed WROTB $3,484 after an internal auditor found that he was not following WROTB's policy.

Auditors found that in response to this previous audit, WROTB improved its records on who was given promotional tickets to an event, whether they were comps, giveaways or purchased by an employee, and the host of the event. However, in several instances, the host name could not be identified because only the first name was listed. WROTB also updated its take-home vehicle policy and restricted its use of take-home vehicles, as recommended in the second prior audit.

DiNapoli's audit includes 16 recommendations.

Key recommendations to the board include:

• Actively monitor the operating plan and control costs by periodically comparing actual expenses to the operating plan and require management to provide the financial reports needed to monitor actual spending.
• Work with management to find opportunities to increase revenues and stabilize the continuing decline in the handle.
• Review contracts for legal services and consultants to determine whether the services are still needed and approve authorized amounts before management incurs costs and makes payments.
• Require itemized invoices to support payments made to attorneys and law firms and reports from consultants.
• Establish spending controls, such as a purchase order system, to prevent management from making payments that exceed board-authorized spending limits or without board approval.

Key recommendations to management include:

• Present procurements exceeding $15,000 and payments in excess of board-approved amounts to the board prior to incurring costs.
• Require the full name of the host to be recorded when distributing marketing and promotional tickets.
• Ensure the director of buildings and grounds completes a mileage log.

Current WROTB officials generally agreed with the auditors' recommendations and indicated that they have initiated corrective action, and that they expect distributions to participating local governments to increase in 2025, largely as a result of changes to state tax law.

Audit

Western Regional Off-Track Betting Corp. - Financial Management

Related Audits

Western Regional Off-Track Betting Corp. - Marketing and Promotion Western Regional Off-Track Betting Corp. - Oversight of Take-Home Vehicles