HANSARD

NOVA SCOTIA HOUSE OF ASSEMBLY

COMMITTEE

ON

PUBLIC ACCOUNTS

Wednesday, November 14, 2007

LEGISLATIVE CHAMBER

Atlantic Lottery Corporation

Printed and Published by Nova Scotia Hansard Reporting Services

PUBLIC ACCOUNTS COMMITTEE

Ms. Maureen MacDonald (Chair)

Mr.Chuck Porter (Vice-Chairman)

Mr. Pat Dunn

Mr. Keith Bain

Mr. Graham Steele

Mr. David Wilson (Sackville-Cobequid)

Mr. Keith Colwell

Mr. Leo Glavine

Ms. Diana Whalen

WITNESSES

Atlantic Lottery Corporation

Ms. Michelle Carinci

President and CEO

Mr. Patrick Daigle

Vice-President of Finance

Mr. Larry Doherty

Vice-President of Risk Management and Assurance

Mr. Mike Randall

Vice-President of Social Responsibility and Communications

In Attendance:

Ms. Charlene Rice

Legislative Committee Clerk

Mr. Alan Horgan

Deputy Auditor General

[Page 1]

HALIFAX, WEDNESDAY, NOVEMBER 14, 2007

STANDING COMMITTEE ON PUBLIC ACCOUNTS

9:00 A.M.

CHAIR

Ms. Maureen MacDonald

VICE-CHAIRMAN

Mr. Chuck Porter

MADAM CHAIR: Order, please. I'd like to call the committee to order. Good morning, today we have with us officials from the Atlantic Lottery Corporation. Today's meeting of the Public Accounts Committee has been extended by one hour, so we will be meeting until 12:00 noon. Roughly halfway through the proceedings we will take a recess of 10 minutes or so to give members an opportunity to stretch their legs and maybe get a drink of water.

We will proceed in the usual fashion with members introducing themselves to our guests, officials from the Auditor General's Office introducing themselves and our witnesses. I would ask that each of you introduce yourselves. Would you watch for the red light on the microphone before you speak, which indicates that your microphone is on, and on behalf of Legislative TV that the microphones not be adjusted, because they have done that in advance and the microphones are quite sensitive. We will begin now with introductions.

[The committee members, witnesses and staff introduced themselves.]

MADAM CHAIR: Thank you very much. I would invite Ms. Carinci to make some opening comments before we open the floor to questions.

1

[Page 2]

MS. MICHELLE CARINCI: Thank you, good morning. I want to thank this committee for extending an opportunity for us to go formally on record with regard to procurement of Internet games and what ALC has been doing over the past number of months to address the issues facing the lottery industry here in Atlantic Canada.

Let me start by saying the last year in the lottery industry has been a transformational one. In October 2006, the industry worldwide received a wake-up call when a media organization released a story about an elderly Ontario lottery player who had his winnings stolen by a lottery retail clerk. This sparked a worldwide focus on player security and has led all lotteries in this country, and indeed many around the world, to change the way they conduct their business.

As I stated in May of this year, upon the release of the KPMG forensic review that had been commissioned by our provincial board members, and I quote from that time:

"The findings are clear. There are problems with investigations, customer complaints and record keeping. The KPMG Forensic report highlights serious issues for ALC and our business. It clearly shows where there are problems and what we need to do to fix them. Let me say this . . . As President and CEO, I am sorry these problems happened. I take responsibility for what took place. And I take responsibility . . . To put in place the solutions to fix the problems."

Today I'm proud to tell the members of this committee that those solutions have been implemented.

Let's go back to October 2006 and outline the steps that ALC followed until today. As part of the preparatory material we sent this committee, a timeline was included that shows the course of action that ALC has taken over the past 12 months to get to a point today where I can tell you that I am confident we have the right tools in place that players can use to ensure they get the prizes they are entitled to receive.

As that timeline we provided you in advance shows, ALC took and continues to take proactive steps to communicate to all Atlantic Canadians the information we had and the steps we were taking to fix any problems. In fact, ALC has now received confirmation from KPMG Forensic that all 23 recommendations contained within their forensic report have been met or exceeded. I am proud of the work our organization has done in a very short period of time.

Earlier this week, ALC released its response to the recently released ministerial review from the Minister of Environment and Labour here in Nova Scotia. Our response is contained within the package brought to you this morning. What it says is that of the 26 recommendations contained within that report, 12 were able to be directly effected by ALC.

[Page 3]

Of those, nine have already been completed and the other three are underway. It's important to remember that the panel was tasked with reviewing procedures and internal control systems within a specific point in time.

While there were a number of internal problems identified with the way we managed files and complaints, there was never any attempt to hide the issues. ALC prides itself on openness and transparency, and has a proven track record of being open and accountable to Atlantic Canadians. Our commitment to our core values of integrity and responsibility are hallmarks of our day-to-day operations. That is why a recent issue regarding our procurement policy came as such a surprise.

As many of you are aware, a public campaign was launched against ALC in early October questioning our transparency and our procurement policies. This campaign was launched by a company based out of Barbados and Oakville, Ontario called Parlay Entertainment. ALC has responded publicly to these allegations made through Parlay's PR campaign; however, the message may not have been clear.

Let me first state that there was no other agenda here but to provide the best result for the four provinces that own ALC. ALC had two mandatory requirements as they related to this research:

• A platform that supported multiple interactive products; and
• That the product be offered successfully in another government-regulated World Lottery Association (WLA) jurisdiction. This was a requirement added to contracts that represent new fields of delivery and risk.

ALC followed its procurement policy and that of the Atlantic Canadian policy throughout the process. The final result - the best deal for Atlantic Canadians. This was a single-source procurement, an alternative which is provided for in the policy. This does not mean an absence of due diligence; in fact, quite the contrary.

In 2005, ALC commenced research on the feasibility of acquiring and offering interactive products to Atlantic Canadians through its PlaySphere Web site, to offer Atlantic Canadians a government-regulated and controlled alternative to the offerings of the unregulated offshore Internet gambling industry. We also undertook extensive research to identify potential suppliers for this type of product.

As this was a very new type of product, it was important to ensure that ALC meet the standards of the WLA to mitigate the risk to players in the four provinces by partnering with a supplier that meets the standards of government controlled lotteries, while ensuring fun and entertaining products for Atlantic Canadians. That is a commitment by the supplier to

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responsible gambling and social responsibility, specifically age and residency restrictions and the highest standards and controls around security and integrity.

A quick note on the World Lottery Association. The WLA is comprised of 140 state and provincially owned lotteries around the world and provides the standards for integrity, responsibility and security by which we all operate. In fact, the ministerial review released here last week also references the WLA, including a recommendation that ALC comply with the WLA security standards, something we've been working on and are working on currently and expect to conclude by Fall 2008.

Following our extensive research for a company with these qualifications, Boss Media of Sweden was the only supplier that met all of ALC's requirements. Parlay Entertainment did not have a platform at that time that ran multiple interactive products and was not operating in a regulated WLA government lottery jurisdiction.

I want to remind you that ALC has clear published procurement policies in accordance with the Atlantic Procurement Agreement. These policies, which are published on our Web site, provide for single-sourcing when a strong business case is made. That business case was part of the preparatory material we sent you for today.

ALC has never made it a practice to send news releases when we sign contracts with suppliers. The contract for on-line interactive games was not treated any differently from any other contract. That said, there's no reason not to begin that practice and ALC now posts notice of award of any contract for goods and services over $25,000 and $50,000 respectively.

It's important to note that there are thousands of unregulated on-line gaming sites operating within Atlantic Canada, and the reality is that ALC does operate in a competitive environment. For that reason we use the same business acumen as any corporation in terms of protecting our competitive intelligence and business planning. Parlay has tried to represent itself as acting on behalf of all suppliers; however, we have not received one complaint or even one inquiry from any other supplier.

Finally, I want to quickly address the issue of leadership. I'm aware of a call in Nova Scotia for my resignation surrounding the issues I have just outlined. In my 30-year career I have never walked away from a difficult situation. Organizations make mistakes. I believe the public accepts that mistakes happen. What they don't accept is blame-shifting, denial or cover-up. KPMG Forensic confirmed in their review that did not occur at ALC.

What is important is how organizations respond. This is an industry issue worldwide. ALC acknowledged and attacked this issue head-on right from the point of discovering it and has taken all the steps necessary to put the tools in place to allow players to protect themselves. In addition, we have ensured that our business processes internally are such that

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should a player choose not to use these tools and fall victim to fraud, the corporation will know and act accordingly. ALC responded quickly, transparently and effectively.

I can assure this committee that our board of directors has unanimously reconfirmed its confidence in the leadership team at ALC. I am proud of the talented people who work for this company which belongs to all Atlantic Canadians, and Atlantic Canadians can play with confidence because of the integrity, safeguards and measures that we have put in place provide. I am proud, and I hope you are too, of the 30-year record we have in giving back to Atlantic Canadians, in all communities and all provinces in our region, responsibly and with integrity. I look forward to continuing this great record and moving forward. Thank you.

MADAM CHAIR: Thank you very much. The opening round of questions will be 20 minutes per caucus. The first caucus will be the NDP and I recognize Mr. Wilson.

MR. DAVID WILSON (Sackville-Cobequid): Madam Chair, sorry for my tardiness, it was a little heavy in traffic today for some reason. I appreciate and thank you for coming forward today before our Public Accounts Committee. I think it was close to a year ago, I believe, when you were here. I think at that time it was just starting to generate a lot of concerns around lotteries, not only across the country but here in Nova Scotia.

[9:15 a.m.]

I think most Nova Scotians are aware of the situation in Ontario where the elderly man was, for all purposes, ripped off of his lotto winnings. It received a great amount of attention after CBC's "the fifth estate" aired their investigation. Then, of course, that led to many questions throughout the country but here in Atlantic Canada and especially here in Nova Scotia, especially for a Public Accounts Committee like ourselves who try to make sure that government agencies - and I understand that the ALC is a different make-up than normal government agencies that we can have some control over here in Nova Scotia because of the Atlantic Provinces all having a part in it.

So the questions are, after we saw that situation in Ontario, how safe is it here in Atlantic Canada, and especially here in Nova Scotia? Are consumers protected? Are there enough safeguards in place to protect those who buy lottery tickets and, for that matter, for those who sell lottery tickets? One of the sad things I think we've seen from all this is that I think many of the retailers have been painted with the same brush and many of them are small-business owners who are struggling to make a living, especially where there are changes in the environment, especially with Sunday shopping now in Nova Scotia.

I think one thing that I have seen by many of them that I've talked to is that they're willing to put up the safeguards. They're willing to do whatever they can to make sure that they have the confidence of their customers. I think that's one of the saddest parts, that they are all painted with the same brush.

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When we're talking about the amount of money that we see generated from the ALC, it's a lot of money. I mean Nova Scotia's take, I believe, was about $47 million last year that the province received. So when you deal with that kind of money, there have to be safeguards and protection for not only the retailers but, most importantly, I think the consumers and those who buy lottery tickets.

I must admit I'm not a continuous or a constant buyer of lottery tickets. Every now and then I do buy a lottery ticket when you see that the jackpot is up there. It concerns me that potentially there's someone here in our province who could have won a large amount of money and never knew about it. I know that the Province of Nova Scotia asked for the review to be done and those findings were released yesterday. The report was very critical of the ALC, and I would have to concur with that after reading through some of it.

As we know, it was a three-member panel that reviewed ticket lottery and they couldn't understand why officials with the Atlantic Lottery Corporation and the Nova Scotia Gaming Corporation didn't make player protection more of a concern before "the fifth estate" report last year of the gentleman I mentioned, the elderly gentleman who was ripped off. I would like to quote a little bit from the report and then ask a few questions around that. The report stated:

"However, the Panel was struck by the absence of attention to protection of players . . . The risk of inappropriate behaviour by retailers and their employees should have been apparent when the games were designed and during any risk assessment process. Even if the risk escaped attention at those stages, there was sufficient information available from customer complaints and investigations carried out by the ALC to demonstrate that real problems existed. Yet no corrective action was planned or implemented."

So I guess with that, my first question is, was there any risk assessment done over the years to evaluate and try to capture some of the concerns that we have now with fraudulent claims through lottery wins?

MADAM CHAIR: Ms. Carinci.

MS. CARINCI: There were several questions, but let me try to address all of them. The most recently released report from the ministerial review addressed similar issues to the KPMG Forensic report that was issued in May. In particular what was highlighted was the lack of due diligence around customer complaints and how they were dealt with. So let me start sort of at the beginning of how those have been addressed.

As I mentioned in my speech, there were 23 recommendations in the KPMG Forensic report. They have now confirmed that all of those recommendations have been met, or have

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been exceeded. There were 12 in the recent ministerial review in Nova Scotia that apply to ALC. Nine of those have already been met, as they were also part of the KPMG report, and three are underway; I'll address those three as well.

You asked the question about risk to players and are they safe today? Well, certainly as a result - that was a wake-up call for the industry, what happened in Ontario, and there's no doubt about it. ALC responded very, very quickly to address those issues by bringing in the forensic report and by doing its own internal investigations.

What has been done since that point in time is - I'll address the internal issues first. We have now - and Larry is beside me and you missed the introduction, but Larry is the vice-president responsible for risk assurance, management and security within the organization, as well as legal and internal audit. He was put into his position in a vice-president role to tackle these issues and tackle them quickly.

I can tell you now that things that were pointed out, such as segregation of duties in terms of investigating customer complaints now occur. There is a 1-800 hotline specifically for players who feel that they may have been dealing with a dishonest retailer. That goes directly to security and compliance and is dealt with.

There is an escalation process now where customer complaints of this nature are brought to the attention of the vice-president responsible, and ultimately to the senior management team and to the CEO. The other things that were done internally: when a player now comes in to claim a prize, there is a very rigorous interview process; we have a non-arm's-length policy so that if, in fact, you identify yourself as a retailer, an employee of a retailer or any other non-arm's-length individual, there is a very rigorous investigation process and a 30-day cooling-off period, if you will, put in place so that automatically we have 30 days to investigate that particular win to ensure that, in fact, you as the ticket holder are also the rightful owner of the ticket.

That's at the back end. That's sort of after the fact. What's really important is the protection that we've put in place at retail. We now have a number of tools in place so that the player can identify whether or not their ticket is a winner prior to ever giving it to the retailer to be claimed. There are ticket checkers in place so that they can verify what the amount of that win is.

Once they've done that, then they hand it to the retailer. There's also a T-bar sign that faces the player so that when that ticket is validated, the signage will indicate the level of that prize. Now if it is a major prize, in order to protect the player, it tells the player to contact ALC as opposed to putting it's a $10 million winner on the sign. There's also now a double validation slip that's given, so the player gets their ticket back with the validation slip that matches that ticket.

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The other and probably most important single thing that the player now really needs to do, what we did was move the signature line on our on-line tickets from the back of the ticket to the front of the ticket, to ensure that the player would be reminded to sign that ticket, because that's the single most important thing a player can do in validating their prize.

If I could take just one more minute to address something else, and those are captured in two of the three recommendations in the ministerial review that I said were underway. All of the things I talked about, at the front end the player has the tools to use, if they choose to. If, for whatever reason, they don't - at the back end within the organization and if a retailer has attempted fraud, that will be detected and we will act accordingly. However, that does not solve the systemic problem of human behaviour. So what we have been doing since last Spring, and will continue to do so, is looking at enabling technology at the point of sale, at retail, that will allow the player to keep control of their ticket at all times. We see that as being probably 12 to 18 months away before it can be implemented, but that ultimately is the solution, that the player will never have to give up control of their ticket.

MR. DAVID WILSON (Sackville-Cobequid): Thank you, I think that's great. I think everybody realizes that over the last year there have been things implemented to help stem the possibility of dishonest retailers. That's great. But what I'm trying to find out is, if it wasn't for "the fifth estate", if it wasn't for this older gentleman in Ontario being ripped off, we wouldn't be sitting here interviewing you, we wouldn't be wondering if there are people in Nova Scotia who might have won, so that was kind of my first question. When these games are - and I know there is a lot of information and studies are done to provide gaming services, and I know you just recently announced the iBingo, but there must have been some risk management, risk analyses done at the time prior to all of this.

So my question - a very short answer, hopefully - is, were you aware prior to "the fifth estate" investigation that there was a potential for retailers to be dishonest and for those lotto users to be, I think, fraudulently taken advantage of?

MS. CARINCI: The Atlantic Lottery Corporation, along with most lottery corporations worldwide - which doesn't excuse it, by the way, I just point out that it was an industry miss - did not put the diligence behind protecting the player that it should have, there's no question about that. Once we discovered the problem we did correct it, as I mentioned.

What we were doing - we were so diligent over the years in ensuring that our internal systems, our central system and our games had the integrity that they needed. We had all of the risk management around protecting the games and our systems from hackers on the outside. That clearly was where our focus was.

Back in 1975 - and I won't give you a 40-year history - when the bearer ticket, as we know it today, was introduced, meaning that it could be cash or worth something, or not,

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there were massive campaigns back then to educate the players. It was such a difference from the registered ticket that went in the drum, et cetera, and we drew it and called the player. After several years of educating, it became considered to be sort of mainstream knowledge or information of the player and it wasn't something that the lottery industry kept up from an education perspective. So, yes, it was a miss. Did we correct it quickly once we discovered we needed to do more education? Yes, we did.

MR. DAVID WILSON (Sackville-Cobequid): We all know - I think you mentioned 1975, I thought it was 1976. Is that when the Atlantic Lottery Corporation . . .

MS. CARINCI: Yes, 1976 was when the ALC was formed; 1975 was when I became involved somewhere else.

MR. DAVID WILSON (Sackville-Cobequid): Okay. So since then - I mean, you must have records, and maybe I'll get to that a little later, because the report has mentioned the keeping of some records and not others. How many complaints has the security and compliance division received from consumers worried about being ripped off since then? Have you kept records of that, of the complaints you received since the start of the corporation?

MS. CARINCI: Since 1976? I'm going to hand that over to Larry. I can speak to the last four or five years.

MADAM CHAIR: Mr. Doherty.

MR. LARRY DOHERTY: Certainly. Acknowledging the KPMG report, which you referenced, the quality of the complaints was not suffice to where it needed to be. In doing a review, I believe we came up with 58 complaints from a five-year period. It was examined, being the most recent area that we could go back for records. That's an area that we have tremendously invested in and I believe strengthened considerably since the recommendations from KPMG came out.

Today I could tell you that since May, with a new system that we put in place for tracking, we've had 212 complaints since that time period. The system and the process behind that has been completely overhauled since the recommendations were brought forth in May.

MR. DAVID WILSON (Sackville-Cobequid): Is it correct, prior to last year, that those complaints would just be dealt with by sales representatives, I understand, from the report? Is that correct?

[Page 10]

MR. DOHERTY: Not in all cases. Certainly the segregation of duties issue was recognized. There were cases where the security and compliance department of the day did have direct involvement in customer complaints.

[9:30 a.m.]

MR. DAVID WILSON (Sackville-Cobequid): There was an article done by CBC news with Mr. Randall, I believe, who is Vice-President of Social Responsibility and Communications with the ALC, last October. Mr. Randall stated at the time that ALC games were foolproof and that the corporation may now consider keeping track of many retailer wins. He was quoted in that as saying, "After today, especially with so many requests, I might just start tracking it just to be able to answer the question for reporters."

I would like to ask, was that the position of the ALC at the time, that we had to make sure we had an answer for reporters, and is that why you started to track the number of retailers who were winning at the time?

MADAM CHAIR: Ms. Carinci.

MS. CARINCI: I believe, in reference to the games, there was a misunderstanding around the incident that happened at retail in Ontario; that this, in fact, meant that the retailers could somehow impact the outcome of a game and the integrity of the game was in question. So it was very important to us to clarify exactly what the issue was. It was not about the integrity of the games that are in the marketplace, but rather about the integrity of the individuals at retail - some individuals, as you point out, certainly not all.

The position of this corporation right from the outset when we saw "the fifth estate" program was manyfold, actually. It was to determine whether or not there had ever been a case such as the Robert Edmonds case in Ontario. I can confirm that there wasn't. The next set of duties was really to determine, did we have an issue of retailers winning a disproportionate number of prizes in the marketplace compared to the public, which was one of the suggestions. The third thing was to look at turning our minds to our customer complaint files, which as Larry pointed out, had been dealt with in security and compliance, as well as with the sales folks in the fields. So those were the three areas that we took very seriously.

Now, I should point out, there was quite a period of time, from the end of October when we started looking at this to the time when we actually were able to identify the number of complaints that we ultimately ended up handing over to the RCMP in all four provinces. That was because our systems also were not integrated, which is also something that Larry has been responsible for fixing so that this information is easily accessible. It was a very labour-intensive and manual process for us at the time.

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MR. DAVID WILSON (Sackville-Cobequid): So when you started to track these complaints, how many investigations were conducted? Like, how deep did you look into this when you started to realize that we do have complaints here in Nova Scotia, but in Atlantic Canada? How many investigations were conducted?

MR. DOHERTY: With respect to that five-year period, which is where we had the information that we could go back and review with the people of the current securities department, we went through every complaint file, every piece of documentation that we could and tried to do an assessment of where we felt the deeper issues were. To that, to be absolutely certain, we referred every one of those in total in Atlantic, 123, and 58 in Nova Scotia to every policing jurisdiction and turned it over to them with all the evidence that we had, all of the review, and waited for their decision in terms of further action that could be pursued.

MR. DAVID WILSON (Sackville-Cobequid): So you handed over 58 for Nova Scotia?

MR. DOHERTY: Yes, 58 for Nova Scotia.

MR. DAVID WILSON (Sackville-Cobequid): Have any of the retailers been sanctioned or penalized by the ALC because of these investigations?

MR. DOHERTY: They are currently under investigation by the RCMP and I don't know where they are in their status with respect to the ALC. We have not had enough evidence at this point.

MR. DAVID WILSON (Sackville-Cobequid): One of the things in the review, or what the review found, was that several retailers were dropped by the corporation because of suspected cheating but were then allowed to start selling again. Are you aware of those cases that the review is talking about, or do you know how many of those retailers were suspended in the past and now are allowed to continue to sell lottery tickets for the ALC?

MR. DOHERTY: I believe it was four, in total.

MADAM CHAIR: Order. The time has now expired for the NDP caucus. I recognize Mr. Glavine for the Liberal caucus, you have 20 minutes.

MR. LEO GLAVINE: Thank you very much, Madam Chair, and thank you to the officials from ALC for appearing before the committee today. I guess maybe we can call this our annual checkup since this is year two and, who knows, next year there could be another round. I would like to start off questioning Ms. Carinci surrounding the iBingo contract. Since hearing the request for yourself and other ALC representatives to appear before the

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Public Accounts Committee today, who and when did you meet with or discuss the potential issues which may arise here today?

MS. CARINCI: Could you just repeat the question? I'm sorry, Mr. Glavine, I don't . . .

MR. GLAVINE: Yes, who and when did you meet with or discuss the potential issues which may be raised here today, in preparation for coming to a three-hour questioning period?

MS. CARINCI: Oh, you mean who did we consult with and meet with?

MR. GLAVINE: Yes.

MS. CARINCI: We met definitely as a group with each other and we met with the CEO of the Nova Scotia Gaming Corporation, as well as with some of our communication consultants.

MR. GLAVINE: Did you speak to anyone at Boss Media and when, if so, and to what extent was that conversation?

MS. CARINCI: I did not speak to anyone at Boss Media about this issue at all.

MR. GLAVINE: Before we go any further, can you please disclose to us any relationship that you have with any individual at Boss Media or on the Boss Media board?

MS. CARINCI: I have a business relationship with Boss Media. I met with the president once the procurement was signed or the contract was signed. I did meet with the new president at the time of Boss Media, actually here in Halifax. I am very familiar with one of the board members of Boss Media who was formerly the CEO of Svenska Spel, which is the Swedish regulated lottery. I know her, as well as I do many of the other CEOs within the WLA association.

MR. GLAVINE: In terms of the iBingo contract, when was the first time you contacted or were contacted by Boss Media?

MADAM CHAIR: Mr. Daigle.

MR. PATRICK DAIGLE: I'm sorry, can you repeat the question?

MR. GLAVINE: Yes, I was wondering when was the first time that you contacted or Boss Media contacted you regarding a potential iBingo contract?

[Page 13]

MR. DAIGLE: That would have been during the period of 2005, when we were investigating the marketplace.

MR. GLAVINE: Was the contract discussed at that time during the very first contact?

MR. DAIGLE: No, it wasn't.

MR. GLAVINE: I know there were confidentiality and disclosure agreements signed on September 19, 2005. Can you tell the committee some of the detail surrounding that agreement?

MR. DAIGLE: Those would be normal business practice agreements. Any time we enter into discussions with potential vendors, non-disclosure confidentiality agreements, the timeline as it relates to the interactive games contract, the original business case was prepared in January 2006 and it was approved. We went forward with a single-source justification, which is an alternative procurement approach, in February 2006. In August 2006, we entered into a consulting agreement with Boss Media to further define our requirements. I'm not familiar with the September 2005 non-disclosure agreement.

MR. GLAVINE: It was on September 19^th. Would you please provide the committee with a copy of that document?

MR. DAIGLE: Absolutely.

MR. GLAVINE: After the September 2005 agreement there was a February 2006 document discussing single-sourcing to Boss Media. When was the decision made to single-source a contract to Boss Media?

MR. DAIGLE: The decision would have been made in February 2006.

MR. GLAVINE: Who initially made that decision?

MR. DAIGLE: That would have been the recommendation of the director of a business unit we would refer to as eGaming, and that decision would have been made in consultation with a number of individuals at the Atlantic Lottery Corporation, including representatives from our internal audit department, in consultation with myself and Michelle as President and CEO.

MR. GLAVINE: So this is a pretty significant contract. Does the board have to be apprised that you're going to move to this type of contract?

MR. DAIGLE: In this particular instance, yes, they were.

[Page 14]

MR. GLAVINE: So from a February 2006 memo outlining a case for single-sourcing to Boss Media, to a full year later when the contract was signed in February 2007, what discussions went on with Boss Media?

MR. DAIGLE: Well, it would have been during that time that we were defining our user requirements and trying to come to an agreement, acceptable terms of a contract, for launching a suite of interactive products.

MR. GLAVINE: So why did the process take 16 months to finally get the contract signed?

MR. DAIGLE: The process actually didn't really begin as a procurement process, it actually began as market research. The environment that ALC is operating in right now in terms of the Internet is a very competitive environment. As a matter of fact, there are over 2,000 Internet gaming sites right now.

When we began this process it began as just competitive intelligence, scanning the marketplace, trying to find new products for Atlantic Canadians, trying to find an opportunity for ALC to compete with other operators. It was through that process that we defined what requirements we would have and it was through that process that we determined a proper business case to proceed. Once we defined those requirements, it became very evident that there was only one vendor that was able to meet those requirements. It was at that point in time where we chose to proceed on a single-source basis.

MR. GLAVINE: In Ms. Carinci's opening comments she talked about the best deal for Atlantic Canadians here. I'm just wondering, how much time and money was spent during the 16 months of getting the contract signed and identifying Boss Media as your supplier for the iBingo contract?

MR. DAIGLE: I would suggest that would have cost perhaps between $10,000 and $15,000. I don't have the exact numbers in terms of the cost, but it would have essentially been internal time, people costs, salaries.

MR. GLAVINE: So the contract was signed, but when was the iBingo first announced by ALC?

MADAM CHAIR: Mr. Randall.

MR. MIKE RANDALL: We launched a television campaign on May 29, 2007, the day that iBingo launched on our PlaySphere Web site.

MR. GLAVINE: No, the question I asked was, when was the iBingo first announced by ALC?

[Page 15]

MR. RANDALL: On that day, sir.

MR. GLAVINE: So in other words, the announcement at a gaming conference in January 2007 by Boss Media, while it involved you, was in no way reflecting your own announcement?

MADAM CHAIR: Ms. Carinci.

MS. CARINCI: I'll answer that question. I think that the contract wasn't signed until February 2006, so we were not part of any announcement in January at a conference.

MR. GLAVINE: It was actually February 2007. Boss Media sent out a press release in Swedish on May 29, 2007, announcing the contract. Why did the ALC not announce the awarding of the contract?

MS. CARINCI: We treated this contract like all of our other contracts. We have never formally put out press releases or announced the award of our contracts. However, having said that, as I mentioned earlier, there's no reason for us not to and we now are placing all awards on our Web site.

MR. GLAVINE: So basically then, was it ALC's policy or a board policy that a foreign release by a foreign company in a foreign country is satisfactory disclosure to your four shareholders in Atlantic Canada?

MS. CARINCI: The partnership with Boss was raised with the board and discussed on several occasions, so they were well aware as a board and did approve us moving forward with the partnership with Boss Media.

[9:45 a.m.]

MR. GLAVINE: Certainly with so little information to Atlantic Canadians, it really does smack of a secret search, secret criteria, secret negotiations and then a secret contract.

MS. CARINCI: Let me address that. There was no other agenda on this contract than to secure the best contract and the best company to provide highly controlled and regulated interactive games on our Internet site. That was the intent from the beginning and that was the outcome of this. Having said that, as you've said, we're now being more transparent in terms of contracts being awarded and we will put those on our Web site. We are also under discussions on other areas where we can be more transparent in our practices.

We followed the procurement policy, the Atlantic Canada procurement policy, as well as the ALC procurement policy, but we know our practices within that policy can be

[Page 16]

improved from a transparency perspective and we are making all the necessary moves to do so.

MR. GLAVINE: In February 2006, the Manager of Corporate Services in a memo called Boss Media a single-source and he outlined the ALC's justification for single-sourcing the iBingo contract. To quote the document, "The process that has lead [sic] ALC to single sourcing to Boss Media contains many of the same steps that would have been followed in a competitive Request for Proposal process . . .", except that in a competitive process other companies would have known and would have been able to put forward a proposal. Do you agree with that?

MADAM CHAIR: Mr. Daigle.

MR. DAIGLE: When we set about this purchase, the purchase was based on preset criteria and the process was consistent with ALC's procurement policies which are in line with the Atlantic Procurement Agreement, so we proceeded on a single-source basis and it was based on preset requirements.

The mandatory requirements were that the potential supplier have a platform that offered multiple interactive games and that those games were operating in a government-regulated and controlled environment. When mandatory requirements like this are established up front in the process, proceeding on a single-source basis is an acceptable alternative to other procurement sourcing means. In this instance we didn't see a benefit of proceeding through a competitive process because there was truly a lack of qualified and competing suppliers.

MR. GLAVINE: Did you ever publish or announce that you were looking for an iBingo supplier?

MR. DAIGLE: No.

MR. GLAVINE: Why not?

MR. DAIGLE: Well again, we weren't actually looking for an iBingo supplier; in fact, we were looking for a supplier that could offer a suite of interactive games. We had set out our requirement and we had done our research and our homework, we did our due diligence, we followed our policies. We did have a strong business case to proceed, and essentially the decision that we made is in line with our policies in the Atlantic Procurement Agreement.

In 2007, single-source procurements at the Atlantic Lottery Corporation represent about 2 per cent of our total spend, so from our perspective it is an alternative means on an exception basis to pursue from a procurement perspective.

[Page 17]

MR. GLAVINE: On October 2^nd Lotto Fairness launched a campaign with a press conference. Did you ever anywhere publish or announce that you had found an iBingo supplier before then?

MR. DAIGLE: No.

MADAM CHAIR: Ms. Carinci.

MS. CARINCI: The first public announcement, as I said earlier, was when we launched the product at the end of May. It wasn't our practice, as I said earlier, to post or put releases out when we award contracts, and we've changed that practice.

MR. GLAVINE: So that's why then, on November 5^th, ALC sent out a release announcing a contract to a company called Time & Space Limited, and the news release said that the announcement was in accordance with ALC's freedom of information policy. Now, this is the only news release announcing the contract on the Web site. So in other words, dramatically and quickly, like after the KPMG report, you're being pushed to make change.

MS. CARINCI: We responded, there was no reason not to respond. It hadn't been - well, we, as Patrick said, always followed our policies and our processes and did our due diligence. Some of the practices could be improved and certainly that was one of them. Yes, since then we have posted contracts that have been awarded publicly.

MR. GLAVINE: So that's a shift in policy, because you never really did announce the contract as such.

MS. CARINCI: It's a shift in our practices.

MR. GLAVINE: Okay. So is this the only time to date that you've applied this policy?

MS. CARINCI: Which policy, I'm sorry.

MR. GLAVINE: The one of announcing the contract and posting it on a Web site.

MS. CARINCI: We've said that from this day forward, or from that particular day forward, we would be posting on our Web all contracts that are awarded and that's what we're doing.

MR. GLAVINE: So was this a board decision or an administrative, ALC decision? When, officially, did that become policy? Could you provide a copy of the new policy to this committee?

[Page 18]

MS. CARINCI: It's not a policy, sir, it's a practice from within our policy that we are now undertaking and it was a decision of ALC to do that. Actually, I believe it was Patrick's decision.

MR. GLAVINE: How much time do I have?

MADAM CHAIR: You have until 9:55 a.m.

MR. GLAVINE: Okay, great, thank you. So I'll move back to the Atlantic Procurement Agreement, because I think there are still some unanswered questions and misunderstandings, perhaps, around that. The APA states that all goods over $25,000, services over $50,000, are to go to a public tendering process.

Just last January, Ms. Carinci, you said here at the Public Accounts Committee, "Any contract that has the potential to be over the amount of $50,000 goes to a formal request for proposal and then goes through a very, very rigorous process . . .". Patrick Daigle at the committee, January 2006, "Every contract for service that is in excess of $50,000 is publicly tendered, and that's in accordance with the Atlantic Procurement Agreement. We do adhere to that agreement."

Now these statements, they're pretty absolute to me - any, all, every. So we don't really follow APA to the letter of the law, is that what you're telling this committee?

MADAM CHAIR: Mr. Daigle.

MR. DAIGLE: No, that's not what we're telling the committee. In fact, a couple of points I'd like to make about that. First and foremost, that exchange was really within the context of the Atlantic Procurement Agreement. It is within that agreement that there are alternative means of procurement that are acceptable, and one of them happens to be single-sourcing. Our policies are consistent and very clear about that as well.

Now during that exchange I tried to take an opportunity to clarify at the end of that exchange that virtually every opportunity, as opposed to absolutely, are tendered. So we do follow the Atlantic Procurement Agreement, which references an agreement on internal trade. It's in that agreement that lays out the specific provisions for public procurement.

MR. GLAVINE: So who decides when you're going to make exceptions to the public tendering process?

MR. DAIGLE: Well, our policy lays out exactly what approvals are necessary and which form of procurement we would pursue.

[Page 19]

MR. GLAVINE: So in the October 3, 2007 news article, the Vice-President of Social Responsibility and Communications at ALC stated that the ALC followed the intent of the Atlantic Procurement Agreement. So I'm confused, which is it? Do you follow it completely or simply its intent?

MR. DAIGLE: That's actually a good question. We're actually not named under the Atlantic Procurement Agreement and why that is, I'm not entirely sure, but I can tell you that we do follow the Atlantic Procurement Agreement. So it's possible that we weren't named within that agreement because we are a regional co-operative organization. We're an agent of the Crown of all four Crowns, as opposed to just one. So I'm really not sure exactly why we're not named, but we do follow the agreement.

MR. GLAVINE: I know we'll have more time to explore this, but what assurance do Atlantic Canadians have that we got the best deal on the iBingo?

MADAM CHAIR: Order, the time has now expired for the Liberal caucus. I recognize Mr. Bain for the PC caucus. You have until 10:15 a.m.

MR. KEITH BAIN: Thank you, Madam Chair. Good morning and thank you all for appearing before the committee this morning. I'd like to spend some time on the iBingo contract as well. With respect to the single-source contract ALC awarded for the on-line bingo, a spokesperson for the corporation is quoted in the media as saying the tendering process would cost probably over $1 million.

I think in our binder, the November 9^th letter says $900,000. Were there unusual costs that would have been associated with this particular process?

MADAM CHAIR: Mr. Daigle.

MR. DAIGLE: Well, obviously a cost of procurement doesn't cost that much, the process isn't $1 million. The statement was really about the benefits to Atlantic Canadians and so what the statement was referencing was the potential delay in the launch of the product. Because all of our profits go back to the four Atlantic Provinces, going through an RFP process for a complex gaming system like this could take between 14 and 16 weeks. That's just based on our experience with other central gaming systems that we've implemented in the past.

So a competitive process in this instance would have cost Atlantic Canadians in the range of $900,000, plus some costs. The costs internally really aren't that material, but it was really more about, I guess, a deferred profit if you will.

The business case in the game indicates that the game will generate approximately $3 million in gross profit, so the deferral of the product launch would have meant a deferred

[Page 20]

profit for the provinces. So at the end of the day, the lack of qualified and competing suppliers indicated to ALC that there wouldn't be a benefit derived in going through a competitive process which means, again, that proceeding on a single-source basis is an acceptable alternative and happened to have been in the best interests of Atlantic Canadians.

MR. BAIN: It seems to me that the tendering process was developed to ensure taxpayers and citizens get the best value for their tax dollars and that there are costs associated with the process to protect taxpayers. What was it about this particular contract that was so different that the Atlantic Lottery Corporation felt those protections were too expensive?

MR. DAIGLE: This is a very new area for the Atlantic Lottery Corporation to be entering into, the area of Internet gaming. The reason why it's different for the Atlantic Lottery Corporation is because it's a very competitive environment. We have what some people refer to as jurisdictional monopoly inside our boundaries, inside the jurisdiction of Atlantic Canada, to sell traditional lottery and video lottery products.

Unfortunately, because of the way the Internet operates, we don't enjoy that same competitive advantage. In fact, last year it's estimated that there was $40 million wagered over the Internet in Atlantic Canada, and unfortunately 84 per cent of that leaves Atlantic Canada and goes to offshore islands like Malta and Gibraltar. So this was a very different line of business for us to enter into, with a whole new set of risks. So we had to do a great deal of due diligence, understanding the marketplace, suppliers, consumer needs and what alternatives, what other lotteries were using.

MR. BAIN: How often does the Atlantic Lottery Corporation decide to forgo tendering because of expense, or other reasons, and favour single-source?

MR. DAIGLE: Well, last year, for the year ended March 31, 2007, that would have been approximately 2 per cent of the time. So we would have . . .

MR. BAIN: Could you tell the committee how much the iBingo contract was worth to the winner of the contract?

MR. DAIGLE: The iBingo contract had a couple of different components to it. The first one was an up-front capital for the licence fee and that cost was $900,000. Then beyond that we entered into a revenue share for 7 per cent of the revenue of the game. So this year the revenue of the game is estimated to be between $3 million and $4 million, so our expectation is that will be between $300,000 and $400,000 in addition this year.

MR. BAIN: Do the member provinces of the Atlantic Lottery Corporation have an opportunity to voice their opinions on subjects such as how contracts are awarded? Or is it just the corporation itself that decides how it's going to be done?

[Page 21]

MADAM CHAIR: Ms. Carinci.

MS. CARINCI: Could you repeat the question for me?

MR. BAIN: The member provinces, the Atlantic Provinces, do they have any opportunity to voice opinions to the corporation on how they feel contracts should be awarded?

[10:00 a.m.]

MS. CARINCI: Absolutely. The board of representatives for the Atlantic Lottery Corporation is made up of two representatives from each province and they represent the government or the shareholder from each province, as well as being the directors for corporate oversight as well. Absolutely, they do certainly have an interest from, I would say, an audit perspective to ensure that the corporation follows the Atlantic Procurement Agreement and the policies therein, and that our practices also serve all four provinces as well. So there is oversight in governance on an ongoing basis from the internal audit committee of the board as well as the board itself.

MR. BAIN: So have you received any feedback as a result of the awarding of the iBingo contract from any of the Atlantic Provinces?

MS. CARINCI: If you mean have I received feedback from the board, has it been discussed, is that the question?

MR. BAIN: From the participating provinces.

MS. CARINCI: At the time the board had all the information and approved the ALC entering into a partnership with Boss Media and they're aware, certainly, of the public relations campaign from Parlay Entertainment and aware of the situation, but they're also very aware of the due diligence that went around this procurement and are satisfied that, in fact, we did follow our procurement policies and did our due diligence before making this decision. This was the best decision for Atlantic Canadians.

MR. BAIN: Am I correct in assuming that you said the Atlantic Lottery Corporation's normal practice is not to advertise contract awards? Am I right?

MS. CARINCI: That's right, it hasn't been.

MR. BAIN: Would you concede that your practice of not tendering contracts and then not announcing the awarding wouldn't be considered normal or accountable?

[Page 22]

MS. CARINCI: Yes, I would think that it's not as transparent as it should be and that's why we've immediately corrected that and all contracts will be posted on our Web site in the future.

MR. BAIN: Last week New Brunswick announced a gaming policy and that has already been done, of course, here in this province. What's new in the gaming policy of New Brunswick and how has gaming changed in the last five years, the types of players that are playing and what or how they like to play?

MS. CARINCI: Those are two different questions, so I'll take the first one first if that's okay. The New Brunswick gaming policy that was announced last week is really a transformation for gaming in the Province of New Brunswick, and as you mentioned, Nova Scotia had undertaken a strategy and a policy several years ago. In this particular policy, what's new is there will be a reduction of access in sites of 50 per cent or over 50 per cent. There will be a reduction in the number of VLTs in the market, as well, a significant reduction. There will also be a provision for one destination gaming centre casino within the province at this time, and at the time an RFP was released at the time of the announcement. Also, beyond the reduction in access and the sites that will continue to have video lottery gaming, they will have to adhere to very rigid site standards that are under development.

Then to get into the second part of your question, our customers today are very different and have evolved over our customers from five to 10 years ago, and that is they're looking for more of an experience, they're looking for entertainment.

It is not sufficient for our players any longer to buy a ticket and wait three days for a draw, particularly in the younger demographics of 25 years plus. They're looking for a different experience and this will give us the opportunity to create a different experience within those sites, with better site standards and more control around responsible gaming as well, or gambling as well, to be able to offer up a different experience to our players.

To go back to the policy, the other thing that I think is worthy of mention is that it addresses the charitable gaming opportunity. As we know, in all four provinces there are unregulated Texas Hold'em poker games going on off-site, in bars and elsewhere. Some are licensed, but many, many are not and therefore they're not controlled or regulated, but also the charities are not benefiting from this particular activity. So New Brunswick has made provision to allow charitable organizations to be able to benefit from a regulated, controlled Texas Hold'em activity at a very high level - I don't have the details on that, but that's at a high level - which is another significant move that they've made.

MR. BAIN: When the Atlantic Lottery Corporation receives a complaint from a customer related to disputed winnings, what steps are taken by the corporation at that point?

[Page 23]

MS. CARINCI: I'm going to ask Larry to answer that since he's responsible for having put all the rigour in place around that.

MADAM CHAIR: Mr. Doherty.

MR. DOHERTY: With respect, every complaint by a customer is logged, each and every complaint is given the same amount of rigour in terms of reviewing the nature of the complaint, getting the associated facts around the complaint, and then proceeding to move forward to do an investigation. No investigation is closed until we're absolutely sure that we've been able to substantiate whether or not there is a true issue or whether or not we can bring closure to the issue based on the facts that we've been able to derive through our process, which includes things like looking at the history.

If it's certainly a complaint about a retailer, we would look at the history of that retailer and we would look at things like previous complaints, we would look at things along the lines of previous win history from that retailer, we would look at previous credit history. We would take a complete global approach and use that as the key input into making a decision as to whether or not we decide to close that complaint.

MR. BAIN: Did you say that your records indicated you have received 57 or 58 complaints?

MR. DOHERTY: From the period of 2001 to 2006, yes.

MR. BAIN: And how often is the customer satisfied that they've gotten what they believe is owed to them?

MR. DOHERTY: Certainly, with the advent of the new discipline and the processes that we put in place as a result of the KPMG recommendations, the customer has to completely understand the rationale in terms of whether we're closing the complaint or if we're moving forward with the complaint. That might be a decision of referring the matter to the policing authority, depending upon the facts that are involved. In any event, the customer has a complete reporting process that they understand what the criteria are in terms of how their complaint was dispositioned.

MR. BAIN: So are there currently any disputed claims before the courts at this time?

MR. DOHERTY: There are no complaints at this point in time that are in dispute, in terms of payment into the courts or along those lines.

MR. BAIN: As far as retailers, what percentage of retailer - or retainer wins, I should say, not retailer - retainer wins do you believe is statistically a problem?

[Page 24]

MR. DOHERTY: Could you repeat the question again, please?

MR. BAIN: What percentage of retailer wins do you believe is statistically possible? For retailers, what's probable? What's the fair percentage?

MR. DOHERTY: I'm trying to think of the win rate. Certainly the expected win rate, the play rate was above normal. What the actual expected win rate is, I think it's in the vicinity of two to three a year across the Atlantic.

MR. BAIN: So how would you explain that a retailer win percentage is 10 times higher than what would normally be expected?

MR. DOHERTY: Certainly we've reviewed every past win and we're trying to understand all the variables involved in that, any characteristics unique to those retailers who have made wins, which would include things like rate of play and certainly would include factors involved in the retailer's previous history. To date, I think we're still in the process of trying to understand all the dynamics around the statistics.

MADAM CHAIR: Ms. Carinci.

MS. CARINCI: As Larry mentioned, we're trying to understand all the variables and one of those variables is the amount of play or the rate of play of retailers, which we're undertaking now to see whether, in fact, it is significantly different than that of the general public. Again, that's self-reported, but we're undergoing that research now.

MR. BAIN: So I guess, in dealing with security and accountability, in the past year or so, how many times has the Atlantic Lottery Corporation removed lottery terminals from retailers?

MS. CARINCI: We have not removed any terminals. If you are relating it to this particular issue - just in general?

MR. BAIN: Yes.

MS. CARINCI: Well, of course, we remove terminals if a location closes, but apart from that - I'm assuming you don't mean that - we have not removed terminals for any disciplinary or compliance issues at this time. However, I should say that under Larry's watch there is now a very rigorous monitoring, because it's not just important that we've put these things in place, but that the retailers are adhering to the training that they've got and the different policies that are now in place.

As it was pointed out earlier, retailers actually welcome the rigour that we've put in place, because it protects them as much as it protects the player from an integrity perspective.

[Page 25]

So now that the important piece is to monitor, to ensure that this is happening - and you can understand what a task that is with over - what? - 36,000 retail employees that we have in the network. That is a challenge, but it's something that we are now doing rigorously.

There is a process in place should a retailer not be complying. Again, it would depend on the area that they are not complying with. Certainly, if it has anything to do with fraud, termination would happen immediately, should we know that. If it's other areas of compliance, it may be suspension, maybe a warning letter, and ultimately termination if the retailer doesn't continue to comply. But for the most part, our retailers want to comply because it protects them as much as it does the player.

MR. BAIN: I understand that something like this would be welcomed by the retailers, in reference to Mr. Wilson's . . .

MS. CARINCI: Absolutely.

MR. BAIN: They've all been painted with the same brush.

MADAM CHAIR: Mr. Doherty.

MR. DOHERTY: I just wanted to add one small point to Michelle's comments which reflect the program that's in place. In fact, our compliance program has gone into place in the past couple of months. We have issued 58 letters, 30 of which have gone to Nova Scotia as warning letters.

MADAM CHAIR: Mr. Bain.

MR. BAIN: Is there something in the system overall that now automatically flags a winner if he or she is also a retailer? What's there now that says, whoops, this retailer is winning a lot more?

MR. DOHERTY: Absolutely. As part of the win process, anybody over $1,000 is reviewed from an interview process, coming into the Atlantic Lottery Corporation to pick up their prize. That interview process includes reviewing the history of where the ticket was purchased on-line, reviewing the actual name of the claimant to the retailer database so that we can establish by other means in terms of whether or not the person is a retailer or a non-arm's-length party. In addition to that, there is also a sworn affidavit that is requested of the claimant coming in. One of the statements is an attestment as to whether or not they are a retailer or immediate family.

MR. BAIN: So in the case that there is something unusual happening, an investigation would be automatically launched at this point?

[Page 26]

MR. DOHERTY: Absolutely.

MR. BAIN: What would be the process?

MR. DOHERTY: Well, that is standard process. Then we have a number of layers of investigation. Certainly, when you look at $10,000 and above, again, our security department is the primary party in taking the lead in conducting the authenticity of the claimant that's coming forth.

One other thing I should mention too is that for every win that comes in over $10,000, we actually make a phone call to the selling and the validation retailer to, in fact, validate that the person coming in is or is not an employee of the retailer. In addition, as I say, going through our own database, is to do any correlation if we have name relationships or that type of thing.

MADAM CHAIR: Order. The time has now expired for the first round. We will recess for 15 minutes and resume at 10:30 a.m. with our questioning. We'll start with the NDP caucus and we'll have another round of 20 minutes per caucus. Thank you.

[10:15 a.m. The committee recessed.]

[10:30 a.m. The committee reconvened.]

MADAM CHAIR: I'd like to call the committee back to order, please.

The next round of questions will be 20 minutes per caucus. I recognize Mr. Wilson with the NDP caucus, you have until 10:50 a.m.

MR. DAVID WILSON (Sackville-Cobequid): Thank you, Madam Chair. To get back to some of the questioning I have, I know a lot of your answers are stemming from "the fifth estate" report of last October. Some of the things I want to ask right now deal with prior to that and the relationship between ALC and the Gaming Corporation here in Nova Scotia, because ultimately they are overseers of what you do.

One quick question is, is it true that retailers must identify themselves as retailers to collect their win?

MADAM CHAIR: Sorry, your microphone isn't on.

MR. DAVID WILSON (Sackville-Cobequid): And that was prior to all this investigation and "the fifth estate" report - is that true?

[Page 27]

MS. CARINCI: Excuse me, I just wanted to verify that it was part of our interview process when winners came in.

MR. DAVID WILSON (Sackville-Cobequid): Jeffrey Rosenthal, the statistician from the University of Toronto, he was the one who analyzed the lottery winners between April 2001 and June 2007, in the report that was just released last week, I believe. It showed that 29 out of 455 wins over $25,000 were by retail owners. He stated that's 19 times what the norm should be. Actually one store owner accounted for seven of those wins between 2001 and 2002. Was this reported to the Nova Scotia Gaming Corporation at the time?

MS. CARINCI: I'm sorry, could you repeat the last bit for me.

MR. DAVID WILSON (Sackville-Cobequid): One store owner accounted for seven of those wins over $25,000 between 2001 and 2002. Was this reported to the Nova Scotia Gaming Corporation at the time, when that retailer collected their winnings?

MS. CARINCI: I don't know specifically.

MR. DAVID WILSON (Sackville-Cobequid): Is it not true . . .

MS. CARINCI: We probably didn't have a formal process at the time to report to the Nova Scotia Gaming Corporation on the multiple wins.

MR. DAVID WILSON (Sackville-Cobequid): But isn't it true, according to Clause 3.03 of the Agencies Agreement between the Nova Scotia Government and the ALC, that the ALC was required to report forthwith to the NSGC any defect, abuse, illegality or criminal activity known or suspected by ALC in relation to Nova Scotia lottery sales. So that was the agreement that you had between yourself and the Nova Scotia Gaming Corporation.

My understanding is that there's an annual report that is given to them that wasn't part of the report, to look at potential questions around the winnings and retailers winning seven times. That, in my mind, if one person - not even a retailer - wins seven times in one year, bells should be going off.

MS. CARINCI: Actually a report on those types of activities that you just described to the NSGC is probably in a real-time basis. I think, Larry, it's not on an annual basis, it's on an as-they-happen basis, but I'll let Larry maybe address those multiple wins.

At the time, I don't believe that this particular individual or individuals were identified as being involved in anything that was untoward.

[Page 28]

MR. DAVID WILSON (Sackville-Cobequid): I'm not questioning the number of wins. What I'm questioning is on your part, did you pass that information on to the Nova Scotia Gaming Corporation?

MADAM CHAIR: Mr. Doherty.

MR. DOHERTY: To be absolutely clear on that, going back to that point in time, I'd like to refer to the documentation. I believe we would have, but without absolution I'd like to see the documentation.

MR. DAVID WILSON (Sackville-Cobequid): Okay, if you could get that for us, because that's important. I mean here we have a minister who oversees alcohol and gaming, who gives direction to the Nova Scotia Gaming Corporation, in hopes to secure and protect our interests in the Atlantic lottery, so I would appreciate that. Is it true that an annual report does go to the Nova Scotia Gaming Corporation on a yearly basis?

MR. DOHERTY: We report on an incident-by-incident basis. As far as a formal year-end report, I don't think there is a formal document per se, but with respect to singular incidents that contravene Section 24, absolutely, they are reported on an incident-by-incident basis.

MR. DAVID WILSON (Sackville-Cobequid): So prior to "the fifth estate" report last October, have you documented or passed on information to the Nova Scotia Gaming Corporation about problems, issues or things that concern you?

MR. DOHERTY: Yes.

MADAM CHAIR: Ms. Carinci.

MS. CARINCI: Yes, as I said, almost in real time. We have incident reporting on any and all activities no later than 48 hours, reporting to the Nova Scotia Gaming Corporation.

I also might add, from an accountability perspective, when you talked about an annual, we committed, last May, to publishing an annual accountability report, not just specifically on the retailer win, but disclosing all of the number of complaints, the number of investigations, and those that are outstanding and the nature of those, insofar as we can. We will be making those public on an annual basis, not just NSGC, but to the public in general.

MR. DAVID WILSON (Sackville-Cobequid): And those incident reports, or whatever you call them, that you pass on the Nova Scotia Gaming Corporation, they are supposed to be passed on to the minister who is in charge of alcohol and gaming here in the province. I guess it's a division of the Environment and Labour Department.

[Page 29]

The minister, at that time, is supposed to make recommendations to the Gaming Control Act to correct any defect, abuse, illegality or criminal activities, just like according to the clause, that you have to report to the Nova Scotia Gaming Corporation. Could you tell us if you've received any changes to the Act that would affect the operations of the Atlantic Lottery Corporation prior to the investigation of "the fifth estate" last October?

MS. CARINCI: No, we have not.

MR. DAVID WILSON (Sackville-Cobequid): So you've received no request to change the Act, to change the agreement to make sure that Nova Scotia's best interests are protected, is that correct?

MS. CARINCI: We have not received anything that formal from the regulator or from the minister through NSGC. But again - and I know it was a long-winded answer - what we were directed to do by our shareholders was to ensure that we fix the problem, both internally and externally, and that's what we did do.

MR. DAVID WILSON (Sackville-Cobequid): Okay, I appreciate that. I will pass the remainder of my time to my colleague.

MADAM CHAIR: Thank you. Mr. Steele, you have until 10:50 a.m.

MR. GRAHAM STEELE: Thank you very much. I do believe that my colleague has been touching on the most significant issue facing the Atlantic Lottery Corporation. There is a very serious issue with the integrity of the games, a very serious issue. I think that there is a profound loss of public confidence in the security and integrity of the games. Those have been identified, first in "the fifth estate" and then in the KPMG report, now in the ministerial review report. It is astonishing to us that the problems, frankly, were not spotted earlier.

On the subject of public confidence, am I correct that the ALC is currently engaging in public opinion, polling about the level of trust in the ALC?

MS. CARINCI: Yes. We do on an ongoing basis - we were doing that prior to this issue and then we have continued to do that since.

MR. STEELE: Okay. Is there any reason why the report from the public opinion polling, which, to my knowledge, is going on right now over the last few days, can't be released to the public?

MS. CARINCI: No, there's no reason why not.

[Page 30]

MR. STEELE: Okay, then, I would like to ask you that when the ALC receives that report - I believe it's the Bristol Group that's doing that - that it be submitted to the clerk of this committee so that we can see what it is, whether the results are good, bad or indifferent?

MS. CARINCI: Yes. Actually, I'll go a step further, Mr. Steele. I think it would be relevant, too, to see what public opinion was like prior to - with regard to public confidence, I think it's important to see what it was prior to the issue being raised, what happened during it and then what happened since, from a public confidence and trust issue. I think that would make the information far more relevant. We'll ensure that you get all of that.

MR. STEELE: Thank you. I do agree that it would be helpful to have that as well. I believe that's the most important issue facing the ALC today, but my colleague has certainly well covered that in the time that he had, so I'm going to turn to this issue of the contract with Boss Media, the procurement issue. Now some people may say well why does this matter? I mean the whole point of following a procurement process is two things: one is to let the public know - and it is their money - to let the public know that their money is being spent in the most effective and efficient way possible. The other reason is in order to let suppliers know whether they have won or lost a bid, that they have been dealt with fairly. Both of those are fundamentally important.

The problems with the way that ALC handled the Boss Media contract are so numerous that it is difficult for me to understand why this particular process was followed. There was no competitive tender. There was no public acknowledgment that the contract had been awarded. When challenged, ALC offered a variety of shifting explanations, most of which on close examination didn't make any sense.

Up until this week when we received documents for this hearing today, it still wasn't clear when the contract was awarded or how much it was worth. I must say that the documents produced by the ALC for this hearing - the internal documents - don't match the public explanations that were being given by ALC. All of this when the well-known method of procurement was available to ALC at all times and wasn't followed, but would have completely avoided all these allegations and suspicions that are now swirling around this particular contract.

It seems clear that what ALC should have done is take their time to develop their criteria. That's fine; that can take up to a year, maybe even longer. Then you put out a request for proposals and see what comes back. Then you spend the time that you need to evaluate those proposals, eliminating anybody who doesn't meet the criteria, and then you award the contract. If that had been done - which is the common, everyday tendering process - we wouldn't be sitting here today asking you about this. But because of all of the problems together, it is no wonder that some people are suspicious about the ALC's motives or make allegations about sort of what may or may not be going on in the background.

[Page 31]

I regret that I don't hear from ALC today any acknowledgment that anything was wrong with what happened. It seems to me that what might be the best way to deal with it is for the ALC just to say yes, we made a mistake, it shouldn't have happened this way, we'll make sure it never happens again, and then move on. But I'm not even hearing that.

So let me start, and unfortunately, because of the relatively limited time available, I'm going to be constrained more to making comments than asking questions, although I will ask a few questions. The first problem is that ALC is not subject to the Atlantic Procurement Policy and, as Mr. Daigle has pointed out, it's not actually listed in the appendix as one of the agencies subject to that policy, and it should be. So I'd like to suggest to the ALC that your board should recommend to the Council of Atlantic Premiers that you be added to the Atlantic Procurement Policy so that it is explicitly clear that you are bound to follow it.

Now ALC says that it followed the spirit of the policy but I beg to differ with that - I don't believe that's the case. One of the features of an open procurement policy, for example, is getting arm's length authorizations for things like single-sourcing. Single-sourcing is a fancy term for just handing the contract to somebody; instead of having a competition, you just hand it to somebody. That's known as single-sourcing or sometimes sole-sourcing.

In this case the document produced by the ALC to justify the single-sourcing - the internal document - I've read it and I am thoroughly unconvinced by it. If I had been on your board and received this document, I would not have said that it made a good case for single-sourcing this particular contract. What it describes is the process by which Boss Media was given the contract but what it doesn't say, really, is why everybody else was eliminated.

Now in this document, this internal document from February 2006, a reason is given for doing things this way that has not been stated publicly anywhere else, in any of ALC's public statements around this issue. That is, ALC immediately eliminated from any consideration for this contract, anyone who was connected to the unregulated, on-line gaming industry, right from the beginning - the memo says that, those are practically the words of the memo itself. Now that's different from what ALC has said and, of course, I believe I'm right in saying that that criterion all by itself would have eliminated Parlay Entertainment from being considered. Why was it considered, right from the very beginning, that anyone with any connection with unregulated gaming would not be considered for this contract?

[10:45 a.m.]

MADAM CHAIR: Mr. Daigle.

MR. DAIGLE: First I would just like to address the mandatory requirements that were laid out for this procurement. Once we had gone through a whole series of examination of the worldwide marketplace, the products that are offered and the organizations that offer

[Page 32]

them, the criteria were very clear up front that the supplier have a suite of multiple interactive games and that that suite of games were offered in a government regulated and controlled environment. The reason why we wanted to ensure that those games were offered in a government-controlled environment is because the environment is a little bit different when it is a government-controlled gaming environment. I can give you a few examples of how it is different.

In Atlantic Canada, I referenced earlier our jurisdictional monopoly. We're bound to only sell our products within our jurisdiction, so that's a little bit different. Some of the processes that we have to go through in order to sell our products are to verify the age of people who want to play and also their residency. Obviously, this isn't something we take lightly, so when we went through this procurement process it was incredibly important for us to make sure that we aligned ourselves with somebody who could demonstrate that they had a product operating in an environment that was similar to ours. This is a new area for us and there are a number of risks associated with it. We just simply weren't willing to engage in business with an organization who couldn't demonstrate an ability to integrate into that kind of a controlled environment.

MR. STEELE: That's fine, but my point here, of course, is not should Boss have gotten the contract, should Parlay have gotten the contract - I don't know and it doesn't much matter to me. What matters to me is a good, sound, transparent procurement process and what I see in the documents is a criterion laid out, namely that anyone with any connection to unregulated on-line gaming would be eliminated from consideration from the beginning. You say, Mr. Daigle, that may be clear, but it was clear internally to the ALC. It wasn't clear to anybody else because nobody knew you were looking. Nobody outside the ALC even knew you were looking and that is the core of Parlay's complaint.

I'm not going to ask you any more questions because I'm almost out of time and I can't afford to have you give me an answer that is several minutes long, so I'm just going to state my views on this. The criteria offered by the ALC have shifted over time. It has been stated as being, they have to be a member of the World Lottery Association, they have to be a supplier to a member of the World Lottery Association. We see from the internal memo that the actual criteria was that they couldn't have any connection to the unregulated gaming industry.

It was suggested that it would be too expensive to run a proper procurement process when really what ALC meant by that was there would be a loss of profits with the time that it would take to run through a proper procurement process, but that's only because you've been running through an improper procurement process that has taken two years and therefore would take longer to go through a proper process, so you see how the improper process becomes a justification for not following the proper process.

[Page 33]

Then there is the question of authorizations. Who authorized the single-sourcing? I ask that rhetorically because I know the answer and that was that it was authorized internally. This kind of thing, I assume, is supposed to go to the board of directors and you've given us the board of director's minutes, but you know what? They don't authorize single-sourcing. There is not one thing in the board minutes ALC has produced where the board considers whether this is an appropriate situation for single-sourcing and if they did that, it must be in a different minute than the one that you produced to us.

Unlike a proper procurement policy there is no external reporting. Under the Atlantic Procurement Agreement, you have to report to the other governments that there has been single-sourcing. Of course, ALC didn't do that and so, rapidly running out of time, I will just say, you have to fix this problem and don't do it again.

MADAM CHAIR: Order. The time has expired for the NDP caucus. I now recognize Mr. Glavine, you have until 11:10 a.m.

MR. GLAVINE: I'll probably go back to a little bit more questioning on the contract here. In many ways, I see these two frightening problems facing ALC, really systemic and truly about the leadership of ALC. More and more ALC activities are under suspicion. There is no sour grapes with Parlay - I met with one of their people back a couple of months ago. They're just concerned, as my colleague has pointed out, about the process and then when it's talked about to the public, Mr. Randall misled the public of Atlantic Canada when he talked about the tendering process and without explanation. Mr. Daigle has provided some explanation today, but for the general public it simply looks like boy, if we put out this iBingo to a tendering process it's going to cost $1 million more, some of which is from your pockets, obviously, Atlantic Canadians, that can't go back into prizes. Could you please provide a common sense explanation as to why the tendering process would have cost more than the 18-month ordeal the ALC and Boss went through with several trips to Sweden?

MADAM CHAIR: Ms. Carinci.

MS. CARINCI: I'm sorry, what's the question?

MR. GLAVINE: The question is simply, how would the tendering process cost more than the 18-month ordeal that ALC put itself through and ended up with Boss Media.

MS. CARINCI: I think Patrick has already referenced the costs were mainly internal and yes, there was some travel to Sweden which was done by our security and compliance and internal audit folks to ensure that they had done their due diligence around the company we were looking at doing business with, so there were those internal expenses. The reference to the costs of procurement, as Patrick cleared up, there was no procurement process, at least not at ALC that was going to cost $1 million. What that was in reference to was the lost opportunity or revenue that we would lose during the time it would take to go to a public

[Page 34]

tendering process or a formal RFP, when we had felt through the business case, the due diligence and the research that we'd done that there would be no advantage to Atlantic Canadians if we did that.

MR. GLAVINE: That's fine for us to hear, but that's not what the public heard by way of explanation when it was explained. What are the differences between a public tender and the process? What are the differences?

MS. CARINCI: I think as Mr. Steele pointed out and, as I had pointed out, we recognize that within our practices we can improve definitely in terms of our transparency and we have taken some steps to do so and will continue to do that. The recommendation that ALC be named in the Atlantic Procurement Agreement is something that we've already taken into consideration and will be moving on. We really don't know why we aren't named in it - we think it's probably because we're an agent for four shareholders, but nevertheless, we should be and that will be changed. So there are a number of practices that we realize that we absolutely must change from within the procurement policy that we follow.

MR. GLAVINE: But on this one, really, the public of Atlantic Canada - there was no disclosure and no transparency and no accountability. Do you agree?

MS. CARINCI: No, I would agree on the disclosure, absolutely - that was not our practice and we've changed that. We should disclose contracts that we award, absolutely. The accountability that the senior team has is to our board of directors and also through the board of directors to the Internal Audit Committee. We are accountable both to the board and to the Audit Committee on this issue and on all issues.

I should add something I haven't mentioned, that there is a shareholder review that was announced to all four shareholders, reviewing not just around the retailer wins for points in time, but all of our practices and policies and processes within the organization and all of our activities. That has been underway throughout the Fall and procurement is one of those areas that they've also made us part of their review.

MR. GLAVINE: Thank you. Just to go back again to what seems to me the creation of criteria to make sure that Boss Media was the only player in the field. In February, it says the ALC first stated as justification for the awarding of the contract to go to Boss Media that the supplier had to be a supplier of a WLA member, February 2007. Then in June 2007, the ALC stated that the supplier either had to be a supplier to a WLA member or be a WLA member. Then in October of this year, the ALC stated that to be a supplier, a company would have to be a WLA member. To me, that looks like policy on the fly. How do you explain?

MS. CARINCI: I can understand why you would view it that way - the mandatory requirements were very clear to us, but obviously we didn't make them as clear as they could have been, publicly. It was that they had to be operating in a WLA government-controlled

[Page 35]

lottery for all the reasons that Patrick had expressed earlier. That was the criteria, not that they simply could be a member. We wanted to have a supplier that had demonstrated that they could deliver multi-interactive games in a government-regulated control.

I apologize for the confusion but that, in fact, was the requirement. To simply be a member would not have been sufficient. In addition to that, they had to be able to offer multi- interactive games and that is . . .

MR. GLAVINE: That's a better explanation but certainly a series of poor communications.

MS. CARINCI: I would agree with you, I have agreed with you.

MR. GLAVINE: How many suppliers are members of the WLA.

MS. CARINCI: There are 140 lottery organizations from 80 countries that are members of the association. I don't know off the top of my head but certainly that's public information that I can get you, how many suppliers there are actually. There are numerous suppliers that are members of the association.

MR. GLAVINE: If you could provide that . . .

MS. CARINCI: I will, absolutely.

MR. GLAVINE: How many Canadian businesses are members of WLA?

MS. CARINCI: Canadian suppliers or . . .

MR. GLAVINE: Canadian suppliers.

MS. CARINCI: I don't know. There are some major ones that are, but I couldn't tell you off the top of my head.

MR. GLAVINE: I think there are about five but anyway, there is a company now operating as GTECH, which is also a member of WLA. Where are they located?

MS. CARINCI: Their head office is located in Rhode Island and they have a number of offices around the world, but their head office is in Rhode Island.

MR. GLAVINE: And they do have an office in New Brunswick?

MS. CARINCI: Yes, they do, they have purchased a company, Spielo, which is now a GTECH company that has been operating in Moncton for over 12 or 13 years.

[Page 36]

MR. GLAVINE: And doesn't GTECH provide Internet bingo to Tennessee, for example, which is a good-sized state?

MS. CARINCI: Their legislation in the U.S. does not allow for interactive gaming on the Internet. There may be a form which some states use where you would purchase a product at retail and they might have something on that product - I'm guessing here - that you could validate and automatically win something. Under the U.S. legislation there is no interactive Internet gaming in any state lottery, certainly not that I'm aware of today.

MR. GLAVINE: Just probably one other question here. Where in your mandate is it set forth by the four shareholders of ACL - where does it state that to be a supplier to ALC, you must be a member of WLA?

MS. CARINCI: Nowhere, it is - we have a number of criteria going through procurement. This, by the way, wouldn't necessarily show up on many other procurement areas. In this particular instance, this is a new area, a new frontier for us. As you know, gaming on the Internet has expanded enormously over the past decade. As Patrick said, there are thousands of sites but that doesn't mean that they are all controlled, reliable and regulated. So this adds some risk to it for us because we are in a new frontier. We do offer products over the Internet but they are existing retail products. When you start to get into things like interactive gaming - which is what players want to play on the Internet and we've seen that because of the popularity of the unregulated sites - we are into new territory. So that particular criteria became an important criteria for this particular procurement. I would not sit here and tell you that that is a criteria for all procurement, no.

[11:00 a.m.]

MR. GLAVINE: I guess I'll just end off with a comment as my colleague wanted to ask a few questions as well around the contract and hopefully we'll get a little time to deal with the retail dealers.

Here is how I see it. First of all, in terms of looking at a new area and not going to a tendering process really flies in the face of best practices of companies, businesses and certainly a large multinational. I checked with my brother, who is in management with one of the world's largest multinationals and he said when there is cutting edge technology, new software, new programs, that's the time you get out there and tender and get the best information from everybody available in the business.

Here is how I see it happened: Good friends of the CEO of Svenska Spiel, the Swedish largest lottery organization, you asked them on a little bit of a mini consult, from what I can see from your own document, who would make the supplier? Obviously, they are going to say the Swedish company, Boss Media. This in my view, when we take a look at the use of taxpayer dollars - Schedule F here. When you're looking at over $1 million in the first

[Page 37]

year, $30,000, $870,000 $186,000 on recurring costs, revenue sharing - this is not pittance. This is a big dollar that goes out of Atlantic Canada for iBingo. This is a sweetheart deal. This is exactly what this smacks of and is all about. Thank you.

MADAM CHAIR: I now recognize Mr. Colwell for the Liberal caucus, you have until 11:10 a.m.

MR. COLWELL: My questions again are going to be around Boss Media. When did the Atlantic Lottery Corporation decide they were going to go into the iBingo business? When was that decision made and taken to the board?

MADAM CHAIR: Mr. Daigle.

MR. DAIGLE: The original business case was approved in January 2006. The board of directors' approval to enter into a partnership with Boss Media and subsequently launch iBingo was in October 2006.

MR. COLWELL: When was the first contact made with Boss Media?

MR. DAIGLE: Again, I think I answered that earlier and I believe it was sometime in 2005, when we were doing a scan of the marketplace.

MR. COLWELL: And who made the first contact?

MR. DAIGLE: Those would have been members of our e-gaming division - marketing analysts.

MR. COLWELL: Were other companies contacted at that time?

MR. DAIGLE: Yes, as a matter of fact, to understand the market we did preliminary searches of other 100 companies and in fact it became fairly clear when we went through that process that the majority of the companies that we were able to identify in this market research project were not operating sites on behalf of government-controlled gaming jurisdictions.

We ultimately ended up meeting with a number of lotteries. We met with lotteries from the U.K., Iceland, Sweden, France, Finland and each of these lotteries all offered interactive games and unfortunately, most of them built these games internally. They built their gaming platforms internally and they developed their software content internally and they didn't have the capacity or the expertise to export that and to share with sister lotteries. Two regulated lotteries, however, did use an external supplier and those two external suppliers were brought in for presentations. Ultimately, Boss Media was the one that we

[Page 38]

chose because they happened to be the supplier that met both of our requirements. The other vendor didn't meet both of our requirements.

MR. COLWELL: So there were two potential suppliers?

MR. DAIGLE: Yes, there were a lot more than two potential suppliers, but when we ultimately got down to evaluating the marketplace really what we concluded was there was only one supplier that was able to meet the mandatory requirements that we set up.

MR. COLWELL: Who set the mandatory requirements?

MR. DAIGLE: Our director of e-gaming would have ultimately signed off on those.

MR. COLWELL: How many trips were taken to Sweden?

MADAM CHAIR: Mr. Doherty.

MR. DOHERTY: Certainly, I can answer from the compliance and due diligence point of view. There was one trip to Sweden by our group and I'd also like to point out too, with respect to the costs, when we do due diligence we do require the vendors to put a deposit up, so in fact whether or not we do business with them or not the cost is absorbed by the vendor and paid for by them.

MR. COLWELL: I just heard you right, that the vendor puts up the money for you to travel?

MR. DOHERTY: It's part of a qualification, it's an industry standard, it is not unique to ALC. When deciding to do business unless the vendor meets all the requirements of the due diligence, we may or may not contract business with them. From a risk mitigation point of view, it is common in the profession that the vendor would put a deposit up to absorb the costs of the due diligence - the travel, lodging, any other kind of research information that we would have to procure is absorbed by the vendor.

MR. COLWELL: Is the Atlantic Lottery Corporation willing to provide us with all the expense accounts associated with this transaction?

MR. DOHERTY: Certainly.

MR. COLWELL: All travel?

MR. DOHERTY: Certainly.

MR. COLWELL: Thank you. We'd expect that, how long would it take to get that?

[Page 39]

MR. DOHERTY: A week, less.

MR. COLWELL: Thank you. It sounds to me like this whole process was written around one supplier. I was in business for a long time before I got into government and many times as a supplier, I ran into contracts that were written to provide services by a certain supplier and no matter what you did you couldn't get the contract. It didn't matter, even though you were more qualified in some cases than the people who actually did supply the stuff. It sounds like this might be the case in this case. Is there any truth in that?

MADAM CHAIR: Ms. Carinci.

MS. CARINCI: Absolutely not. As you pointed out, one of the more common methods - and I also have been in the private sector - when you want to select a supplier deliberately would be to write the RFP so that it would ensure that that supplier would get that contract. That is certainly not the case here. Any implication otherwise is completely false. We have oversight from our board, we have oversight from our Audit Committee, we have oversight from our own internal auditors. We did the due diligence around this and based on the research that we did, we felt it was not in the best interests of our shareholders to invest any time or money and also end up with lost opportunity by going through an RFP process where we felt there was only one supplier that could meet our requirements.

MR. COLWELL: If you had it to do all over again, would you change considering the controversy this created?

MS. CARINCI: I think the suggestion from Mr. Steele is an interesting one and should be given serious consideration, yes.

MR. COLWELL: Would you answer my question directly?

MS. CARINCI: And your question was, would we change things?

MR. COLWELL: Yes, would you have changed it? Would you have gone through a procurement process knowing what you know now and all the controversy this has created?

MS. CARINCI: I believe what we would do differently is, we would be much more transparent about the process and certainly from the award process, but you also have to have some consideration for the fact that we are in a competitive environment. But given that, I believe that in our practices, as I said earlier, we can be much more transparent about that process. Within the policy, there are opportunities for us to do that much better. Would I go back and spend time and money and effort on a procurement process that ultimately we felt would be a charade because we felt there was only one vendor and one supplier who could supply us with what we require? No, I wouldn't do that.

[Page 40]

MR. COLWELL: In the future, do you plan on going to a tendering process on all contracts of this size?

MS. CARINCI: Again, I think the alternative of single or sole source is an alternative, but it's something you really use on an exception basis. I believe the corporation has to ensure that it goes through the rigour to ensure that there really is merit in looking at those alternatives in the future.

MADAM CHAIR: Thank you. Order, the time has expired for the Liberal caucus. I now recognize Mr. Porter from the PC caucus. You have until 11:30 a.m.

MR. CHUCK PORTER: Thank you, Madam Chair, and thank you to the witnesses for being here today - just a few questions. All the lotto wins are subject to review but the retailers who win - I know you spoke to this a little bit - they undergo more scrutiny. What's the process? You talked about a letter you get them to sign off - I guess maybe I missed a part of that or I could have been out.

MS. CARINCI: That's okay. Again I'll ask our vice-president who is responsible for those processes and creating those processes, to respond to that question.

MADAM CHAIR: Mr. Doherty.

MR. DOHERTY: Certainly. With respect to the letters, I'll kind of back up the context a bit and speak to what leads to that. As a result, going back in May, when you consider the KPMG report which identified we were deficient in a number of areas, including how we documented complaints, how we documented trends and how we translated that information into monitoring. Consequently we've overhauled our processes. Included in that are procedures, systems that we use to track where retailers have a problem with complying to our contract and we use the output of that essentially as through a monitoring program, to decide when we would issue letters or warning letters based on a progressive discipline. We would start with warnings and depending on the nature of the compliance issue, could lead to suspension, could lead to immediate termination. So all of that is a result of the process that we put in place back in May 2007.

MR. PORTER: So that's to advise them - just so that I'm clear - that advises them after they've won or this is something you've put in place proactively, I guess?

MR. DOHERTY: Sorry, I was referring to the complaints piece. With respect to the retailer wins, what we do is at the time that the win comes in, we are aware from our - in most cases we can determine on our system but there's a lot of times that the retailer has to make the declaration. At the point of the retailer coming forth with the prize is when we would undergo our investigation and that can take some period of time.

[Page 41]

One of the things that we have introduced is a 30-day mandatory wait period, of which 14 of those have been put in place and I believe two in Nova Scotia have been put in place since May 2007. That's to allow us ample and sufficient time to ensure that we put the rigour around establishing ownership and identity of that ticket, particularly with respect to retailer wins.

MR. PORTER: And not to paint them all with the same brush but I heard that phrase mentioned here earlier and I certainly don't mean to stereotype or paint anyone with the same brush. I remember seeing a gentleman who was a retailer, and it could have been in New Brunswick that he won, and I was watching the news one evening - I think it was his third time - and he commented about how lucky he was and he thanked God and he said God is on my side.

What does the lottery corporation think - I mean, three times this guy wins, and the prizes were significant. At the end of the day you go through the same processes that you're talking about, is it because they play more that they're winning more? That would make sense to some degree. I do know from being in places where lottery terminals are and the machines - and I'm not a big lottery player and I don't know a lot about it - but I do know the retailers, the store owners, they play a lot, some of them play extensively.

MR. DOHERTY: In this case, the particular situation you're referring to is a retailer employee. Certainly, as Michelle alluded to earlier, trying to get accuracy around self disclosure on expenditures is very difficult. It's a thing that a lot of people are sometimes uncomfortable divulging and that continues to be an area that we're trying to get better information on.

Certainly with respect to using that example as a metaphor, as I mentioned earlier, from the global perspective, we would look at the previous win history of that retailer and that is a major input, along with the complaints that would have been associated with that retail location are two major determinants in giving us a risk profile on that retailer, and determining whether or not we do have clear grounds for payment. If we don't, we have the option as indicated in the KPMG report, where we have some ambiguity about entitlement, to pay that prize into the courts.

MR. PORTER: Should the retailers, in their own stores, be allowed to play in their own stores, or should they have to go somewhere else?

MADAM CHAIR: Ms. Carinci.

MS. CARINCI: I know it's time. It's an interesting question, it's one that we're examining. As you're probably aware, some jurisdictions are looking at restricting them to playing only in their store and they must register. Other jurisdictions are saying well, they can play anywhere but in their store.

[Page 42]

I would like to go back to my earlier statement that certainly those are things that we can consider and we are reviewing those and that's part of one of the 12 recommendations that came out of the most recent ministerial review, that is to look at a retailer card or registration. That isn't the ultimate solution. The ultimate solution really is having the technology that will allow the player to keep the ticket in their hands at all times, including the validation process.

[11:15 a.m.]

That technology exists. We have a request for information out right now looking at the opportunities, not just within the gaming industry supply system but also outside of the gaming industry to see what technology could be brought to bear at retail to really solve that situation. So to answer your question, we could put those things in place but the ultimate solution is not that far away, but that doesn't mean we wouldn't look at a combination of both.

MR. PORTER: It's interesting the amount of technology involved in all this and I realize there are so many different games and the Internet and lotto machines and so on. I guess this is where I may disagree just a little bit with one of the statements my colleague over there made with regard to technology. It is new every day, it is always on the horizon, you know there is more in development. I come from a bit of a background with technology where we worked on some high tech equipment and we were always of the opinion that you are not on the bleeding edge - you may be on the leading edge but not the bleeding edge. There is a careful, very fine line there - you don't just go out tomorrow because something new has developed and say oh, I think this will work. I'd like to hear your comments on that, whether you agree with that statement.

MS. CARINCI: Oh, absolutely. In this industry where it is tightly regulated, public trust is so important, you have to be absolutely - 100 per cent, I guess would be the ideal - sure and certain that your systems have all of the integrity necessary behind them to ensure that you are protecting the games and that of our players and the public.

We would never take great satisfaction in bragging about being on the bleeding edge of any technology, ever. Even the leading edge isn't necessarily a goal for us. The goal for us is to make sure that we've got the technology that can deliver what we need to do with all the integrity that's necessary.

MR. PORTER: Thank you for that. Having said that, how often would Atlantic Lottery Corporation look at new technology? Maybe you go out and tender it and you can talk about that if you want - you know, the process for the next version? Is that an annual, like every year, you'll go out, or every couple of years, and look at new technologies, and maybe there are many within all the different games that you have, I'm not sure.

[Page 43]

MS. CARINCI: Well, there is a multitude of technology, although the ideal is that it all eventually will integrate. You don't really want to have different pieces in the different channels. You would like to ultimately have that look seamless to the player, whether they're playing in a casino or whether they're playing at retail or whether they're playing on the Internet or in a bar. So ultimately that's where you'd like to go.

To answer your question, it's not an annual event, it's an ongoing event. We have actually a vice-president responsible for new business development and where we are always scanning the globe looking for - not just within the gaming industry, but at what others are doing in the entertainment industry as well, which also is gaming. When you look at things like Sony, Xbox and Microsoft and Nintendo and those types of games, which are not just for young people, we know that, the average age is in the mid 30's of people who are actually playing those games. So we're very interested in what that experience is all about so we're constantly looking at what's coming into the new market - how that might apply to make us more efficient, more effective and more entertaining.

MR. PORTER: Thank you. I would think as well, whoever does your IT support and so on, would want some consistent applications that were integrateable and easily managed, no matter what they were, it would be . . .

MS. CARINCI: Absolutely.

MADAM CHAIR: Mr. Daigle.

MR. DAIGLE: Any time you have an organization that has such a large capital investment in IT infrastructure, one of the challenges is life cycle management of all of the different IT assets that we have working. Obviously, we want to make sure that we get a good return on investment, but on the other hand we want to make sure that our assets don't become obsolete, so there is a balance there that we're always trying to achieve.

MR. PORTER: And I can understand that as well, the turnover in the life cycle is very important.

Just a little bit on the tickets themselves. Can you go into a little bit of detail on the benefit really of signing the ticket? That's question one and to go along with that, what if I win and I say I'm not going to sign the ticket, but yet I've won, I have all the numbers or whatever?

MADAM CHAIR: Ms. Carinci.

MS. CARINCI: The benefit of signing the ticket is that then that ticket cannot be altered, tampered with and when you are presenting it and it is your signature, if somebody has tried to alter or change that we will know. Our processes during the claiming would

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identify that that ticket may have been tampered with. So the benefit of signing the ticket is that first of all it is your ticket and if anybody picked it up off the street or took it from you or whatever, they would have to prove that they were you. It's one step, it's not the ultimate step, that's very important. If you refused to sign it - basically, as I've said earlier, we have put information and education and tools out there so that the players can protect themselves from those few individuals who might be dishonest. Ultimately, it's the player's choice as to whether they want to use those tools, so if you chose not to sign it, hopefully our retailers wouldn't accept it because that's part of the policy.

MR. PORTER: That's what I was going to ask you, just to see if that came into that. So they're really bound to sign it, although it appears to be something beneficial to the player and the winner.

MS. CARINCI: Yes, it's beneficial and to the retailer, very much so.

MR. PORTER: I used to notice and I don't know because I haven't watched a lot in the stores recently - if I were the lucky winner of a figure, maybe it was over $5,000 or certainly the big million dollar winners and so on, you always see so and so bought their ticket at this store and there's a picture of them posted there. Why do we post the picture?

MS. CARINCI: Why do we post the picture?

MR. PORTER: Yes. I know it's probably part of the advertising and so on, but I'm just thinking about the Privacy Act and all of this. Is there anything that says, hey, probably you shouldn't do that or you can't do that?

MS. CARINCI: It's part of actually, if you will, the contract with the player that we would be able to take your picture and also put a release out that you indeed are the winner. To come back to, I guess, the conversation about openness and transparency and trust and integrity and confidence, we haven't evolved at this point in the industry where the public would accept the fact that we said, we have had winners, trust us, but they've been claimed and it's done anonymously or in trust and we want to protect the privacy. That, by the way, is the practice of many lottery organizations in Europe that have been around for decades and decades - that trust is there and in some cases, that's how they began. We've made the call that we don't believe that's transparent enough. Having said that, the other thing that it does do, particularly for the larger winners, is all of the attention happens all at once and then it's gone. Whereas if there was an attempt to hide that then that, of course, piques the interest, so it's really also for the protection of the player.

MR. PORTER: So somewhere in the fine print perhaps on the back of the ticket it explains all this out, so when I play probably I should read the rules and if I win, expect my face to be plastered somewhere?

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MS. CARINCI: Under special circumstances, if there was something special we might not plaster it, but we do invite the media in if it's a major winner to come and meet you and that is part of the contract.

MR. PORTER: The reason I ask that is I've known people who have won and some of them not huge figures. Earlier on when Atlantic Lottery started and they used to have the weekly draws or whatever they were, I remember a friend of our family winning $10,000. That family had 10,000 letters of requests - can you support this organization or that organization? So I can just imagine what it must be like for the $30, $35, $37 million winner the other night, it has to be life changing. I was just wondered how that impacted if, hey, here I am, I'm the winner, please write me sort of thing and promoting it?

MS. CARINCI: It's interesting you say that. We do follow up with our winners - they don't always stay where they were living when they won, but a lot do and we do follow up just to see how they're doing. We haven't come across a lot of unpleasant experiences, contrary to popular belief - most of them are pleasant. When you look at a winner's experience, it hasn't really been a worrisome one. We also provide advice to the winners - not advice on what they should do with their money or how they should spend it - but we provide advice on where to get advice and what they can expect and what they should do to help them along the way.

MR. PORTER: So with regard to financial advisors, perhaps your advice would be, you should seek out a financial advisor to help you with these winnings?

MS. CARINCI: Yes and not just do a one-stop shop, but to take a look across the board. We're not specific as to where they should do it, but we give them general advice that they should shop around a little.

MR. PORTER: Just another question with regard to the tickets. We've seen many times there are groups who win prizes. What happens to the ticket then, does everyone in the group sign the ticket to lay claim or is the policy different then?

MS. CARINCI: In some cases the group may have - it depends on the size of the group, certainly we've seen more than one signature or name on a ticket, but there is - a group-buying contract and anybody who is entering into a purchase with a group is well advised to ensure that they have a group-buying contract. That sheet of paper, if you will, would name the 10 folks who would be splitting the prize, for instance, if you won. In some cases, the entire group comes in to claim and in other cases it might be somebody coming in trust, so the cheque would be made out in trust as per the group-buying contract.

MR. PORTER: Have you ever run into issues there with groups that have come in, members who have laid claim to said prize as part of group and really not been the case or has lost out?

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MS. CARINCI: Not that I'm aware of, no.

MR. PORTER: You've covered a fair bit of things here in the last couple of hours or so today. I would touch on one more thing, perhaps. What were the major changes that you initiated to protect the consumer?

MS. CARINCI: The most significant changes we made at retail, I'll start there, is that we installed point of sale devices, they're electronic signs that are hooked up to the terminal and as soon as a ticket is validated, the amount of the winning ticket is put on that sign up to a certain point and then we would ask them to call ALC centrally, so as not to expose a major winner to a lineup behind them, for instance, so that's very significant. The signature on the ticket and the mandatory requirement that the policies that we put around the retailer and we've also put ticket checkers into each retail outlet so that you, as a player, would be able to determine what your winning ticket is worth prior to going to the retailer's counter. That's the most significant thing at retail.

Internally, the most significant thing we did was certainly try to integrate our systems so that we were able to flag, as you pointed out, a retailer when they were claiming, segregation of duties, the 1-800 line for any players whatsoever who have any complaints in this area and we actually put in restructured - the department that Larry leads, around risk assurance and risk management and two directors we hired in that area, whom are here today. We really beefed up the complement of staff in the area of risk management as well to protect the player at the back end should they not use the tools that we give them at retail.

MR. PORTER: I know I'm running out of time, just a very quick point of clarity. So when you talk the terminals, you're talking about the actual terminal that the ticket is generated from at the store?

MS. CARINCI: That's right.

MR. PORTER: So when they go in and put the ticket in, it comes back and does its beep or whatever it does to say you're a winner or a loser. Something is verified right at that time?

MS. CARINCI: As soon as that ticket is put into the terminal what happens is that it's validated, it talks to the central system and the central system says, okay, that's worth $10. That automatically then is posted on the sign that is also facing the customer at retailer that says $10. In addition to that, the player could also know that ahead of time. Had they used the ticket checker, they would be able to verify that as well.

[11:30 a.m.]

MR. PORTER Thank you.

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MADAM CHAIR: Order. The time has now expired for the questioning portion of today's committee meeting. I would like to thank our guests and I would like to offer an opportunity to Ms. Carinci to make some concluding comments.

MS. CARINCI: Sure, thank you very much. First of all, I would like to say that I really and truly appreciate the opportunity to formally bring the facts to this committee this morning. I would like to also state that, certainly, around the procurement there is no question that we can improve, that we can be far more transparent in the process.

I would also like to state unequivocally that nobody was handed a contract because of any reason other than they qualified to win that contract. It had nothing to do with anything other than good, sound business reasons and business case. What was missing was transparency around that process and I think the suggestions here today, and others that we have, will be very helpful to ensure that that happens on a go-forward basis.

I would also like to say that our business has changed dramatically. We are in a very competitive environment. There are thousands of unregulated Internet sites out there where the revenue isn't staying in the Province of Nova Scotia. The controls, the responsible gambling pieces are not in place. That is a real concern for us and that was one of the reasons for us to get into the research that we did. The procurement that we did with Boss Media was to offer a regulated, safe alternative to the citizens of Nova Scotia.

I think that ALC has - I know that ALC has - successfully delivered value, not only to the government, its shareholders, over the last 30 years but also the communities throughout Atlantic Canada, its retailers and its public. While we are certainly in a changing environment, I know that we are ready, also, to continue to deliver that value in the future. Thank you.

MADAM CHAIR: Thank you very much. I just want to mention, once again, that there were a number of documents that were requested throughout the meeting this morning and our clerk will follow up with you to ensure that we get those documents and circulate them to the members. For Mr. Glavine, I know you asked about a confidentiality and non-disclosure agreement. In fact, I think that was in our package of pre-materials, but I have a copy here which was provided by one of our witnesses during the break. So that concludes this portion of our meeting. Again, thank you.

I want, before we adjourn, to report to the committee that the subcommittee met this morning with respect to the scheduling of witnesses around the Provincial Nominee Program in the Office of Immigration. What we are recommending to the committee, given the large number of documents that were only provided on Friday, and with the situation that there are still a large number of documents to come in preparation for those meetings, and additionally, the request from the office that many of those documents be dealt with in camera due to privacy or proprietary reasons - what we are recommending to the committee

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is that our scheduled meeting for November 21^st, next Wednesday morning, be postponed by one week, that it be rescheduled for the November 28^th with the officials from the Office of Immigration, and that next week the subcommittee will meet during this time with officials from the office.

We will go through all of the documents that have been requested to be kept in confidence and we will hear from officials from the office, why it is that those documents should be dealt with in camera. We want some clarification of some legal concerns as well with Legislative Counsel and we will be reviewing those documents.

In the meantime, all of the materials that we have will be distributed to the caucus offices so that people will be able to prepare for the meeting on November 28th. So Mr. Colwell has moved the adoption of that report. If there's any discussion of that recommendation, now would be the time. Mr. Steele.

MR. STEELE: I don't know if what I'm about to say is exactly on the recommendation but it's in the same general area so I thought I would make the comment now. We all received a copy of the letter from Rosalind Penfound who is the Deputy Minister responsible for the Office of Immigration. This was a letter, I take it, that was a covering letter essentially for the documents that were released to the committee. I have to say that after reading it, I'm really, really concerned because I think it shows a profound misunderstanding of what this committee is and our rights to see documents.

There appears to be, for example, the idea put forward that they don't have to give us Cabinet documents and the Legislative Counsel - who is the lawyer for the Legislature - has said before and I am sure if we asked him that he will say again, that is absolutely not the law. There is no such thing as Cabinet privilege - it does not exist, it is something that the government is making up. There is public interest immunity, which is a different thing entirely, but it is our decision about whether to accord public interest immunity on a given document. It is not the government's prerogative to assert it and then not show us the documents over which they assert public interest immunity. That's the first thing.

The second thing is, the last paragraph of the letter appears to indicate that they will refuse to answer some questions on the grounds that the matter is before the court. Now, Madam Chair, that is complete hogwash. There is no basis on which any witness coming before us can refuse to answer a question on the basis that a matter is before the court. First of all, everything said in here is absolutely privileged and cannot be used against the witness in any other proceeding. Second of all, there just isn't a before-the-court rule anyway, and the Legislative Counsel is aware of the precedence on that.

The tone of the letter - not the tone of the letter, but the letter suggested there are a number of ways and reasons why documents are going to be withheld from this committee. I just think it is important for us, as a committee, to assert quickly and fully our rights to see

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all the documents. Now if they have something they wish to say about the documents, that's fine, but they must not be permitted to withhold documents from us in the first place.

It seems to me that it would be useful if we, as a committee, sought an opinion from the Legislative Counsel to say again that that is the law and the Office of Immigration will darn well turn over all the documents we've asked for.

MADAM CHAIR: A point of information to the member, the committee also agreed this morning that we would be asking for a full listing of what documents are being withheld, so that we start from a basis of knowing what it is they are withholding and then we will have the conversation with them about why they are withholding that information.

We're very aware of the issues you raise and we're trying to proceed in a systematic way to acquire as much information as we can. We've already received quite a bit, but this is going to take some time, I would suggest to you. Mr. Colwell.

MR. COLWELL: Thank you, Madam Chair. We did discuss this morning, in camera of course, some of the items that my honourable colleague has brought up and I, too, want to have it on the record that our caucus wants to make sure that every possible document that the government has, that we get copies of it. I don't want to see a repeat of Magic Valley and S and J Potatoes again - that was a fiasco. This time, hopefully, it will be different and if not, we fully intend to take the government to task, as I know you do.

I'm sure our colleagues, too, here from the Progressive Conservative Party feel the same way, as we want to make sure that this is fully disclosed to the public and anything, if there was any wrongdoing, that it was done and it is over with and that the people who were affected by it aren't harmed any further.

MADAM CHAIR: Thank you. Is there any further discussion on the motion to adopt the recommendations of the subcommittee? Hearing none, I call the question.

Would all those in favour of the motion please say Aye. Contrary mined, Nay.

The motion is carried.

We stand adjourned until November 28^th. Thank you.

[The committee adjourned at 11:40 a.m.]