How the Montana Lottery misreported millions of dollars

The Montana Lottery miscalculated its finances by $18.5 million over the last several years, according to a recent report from the state’s Legislative Audit Division. That doesn’t mean $18.5 million is missing, but that the agency overstated and understated its accounts by that amount, the report found. The routine audit identified accounting errors and failures of internal controls, but did not allege fraud.

“The Montana State Lottery needs to consider and implement solutions to address a variety of internal control weaknesses related to complete and accurate financial reporting,” auditors wrote.

The Montana Lottery Commission declined to answer questions from Montana Free Press about how the agency mismanaged its finances and how it plans to improve its procedures.

But public commission meetings, along with the Legislative Audit Division’s report, paint a picture.

The audit division’s 2025 audit, which looked at 2023 finances, revealed delayed financial transfers. The lottery makes money by keeping the amount of ticket sales and wager revenue that isn’t spent on prizes, vendors or other expenses. By state statute, the lottery is supposed to transfer that revenue to a scholarship fund and the General Fund, an all-purpose pool of state money, four times each year. The lottery made only three transfers in fiscal year 2023.

“Lottery personnel explained that the third quarter transfer was delayed because the Financial Services director was unavailable to calculate the net revenues and provide the quarterly financial statements to the commission for approval,” auditors wrote.

Then, in March last year, the lottery’s director of financial services, Armond Sergeant, died unexpectedly. Sergeant had been in the role since 2017.

The most recent audit found even more accounting errors in 2024, including inaccuracies in the lottery’s ledger entries that had been compounding for years. The auditors also noted that Sergeant’s absence generally hamstrung the agency’s accounting processes.

“After the loss of the financial services director, [the] lottery struggled to complete its financial statements, explain accounting balances, support certain records, and make required transfers of lottery revenue on time,” auditors wrote.

The lottery asked Chet McLean, an accountant in the governor’s budget office, to take a look at the agency’s finances in March, months before state auditors released their report in June. Speaking to the Lottery Commission in March, McLean described what he found as “one of the more complicated accounting questions I’ve dealt with in my career.”

“I really had to dig, because I would get into one layer and then realize that there was another layer below it,” McLean said.

State auditors noted that the lottery had poor internal controls to detect errors.

“The lottery relied on control procedures developed several years ago and on the institutional knowledge of its long-serving financial services director,” auditors wrote.

For instance, three of five lottery agency accounting staff could both log and approve accounting entries. That degree of staff access was excessive, according to the audit.

“Such access does not provide the proper segregation of duties, as required by state policy,” auditors wrote. “It also increases the risk that material misstatements could occur and go undetected, since users can post directly to the accounting records without oversight.”

The auditors also noted “significant delays” in receiving the financial statements from lottery officials, material that was necessary to complete the audit. In addition, auditors issued a “disclaimer of opinion,” which means they were not confident their audit offered a comprehensive picture of the lottery’s financial situation because lottery management “could not provide representations over the completeness and accuracy of the financial reporting package.”

The Legislative Audit Committee, which reviews reports from the audit division, will meet next week to discuss the findings. Committee member Sen. Emma Kerr-Carpenter, D-Billings, said the audit doesn’t shock her.

“Every year there’s a financial audit where there are big things that need to be addressed,” Kerr-Carpenter told MTFP.

She also said that the legislative committee has limited options.

“Formally, we can tell them we want them to come back and report their progress with remedying the issues,” Kerr-Carpenter said. “I wouldn’t be surprised if that’s something we decide to do as a committee.”

The audit recommended that the agency address the issues revealed in the audit, and the lottery concurred with the recommendation.

The Montana Lottery Commission is an executive agency, which means the governor has the authority to appoint or remove its members. Charlie Roth, a spokesperson for the governor’s office, told MTFP that “the governor’s office is reviewing the report and supports the department’s corrective actions.”

Legislative Audit Committee Chair Rep. Jerry Schillinger, R-Circle, told MTFP that he expects “some robust discussion” at the committee’s meeting next week.