Audit finds gaps in Gaming Department oversight of event-wagering audits and complaint handling; committee keeps department under two-year review

The Joint Legislative Audit Committee directed the Arizona Department of Gaming to implement audit recommendations and continued oversight of the agency for two years after auditors identified gaps in financial oversight and complaint handling.

Liam Van Pelt of the Arizona Auditor General’s Office told lawmakers the department failed in calendar year 2023 to obtain and review independent audit reports from most event-wagering and fantasy-sports operators, increasing the risk that operators underpaid privilege fees owed to the state. He cited a specific example: a fantasy sports operator reported $13 million in monthly awards in 2023, while its independent audit reported about $10 million in total awards for all of 2023 — a discrepancy the department had not reconciled, the auditor said.

Department director Jackie Johnson acknowledged the finding and said the department is conducting a historical lookback and validation of reporting, has issued updated guidance to operators about required CPA attestations, and has assigned additional compliance and finance staff. “Any overpayments or underpayments will be rectified,” Johnson said.

Auditors also identified conflict-of-interest compliance gaps across the department and commissions, shortcomings in complaint-handling processes (making it difficult to demonstrate timely investigations), late distributions from the Compact Trust Fund to some beneficiary tribes, and IT-security and licensing controls needing improvement. The report included 16 recommendations to the department, five to the racing commission, and nine to the boxing and MMA commission.

Lawmakers pressed the department on whether reviews for 2024 and 2025 had been completed; Van Pelt said his review covered 2023 audits and the Auditor General’s Office did not analyze 2024–25 audit compliance in that report. Johnson said the department is reviewing prior years and outreach to stakeholders is underway to obtain missing audit reports and attestations. She also said the department is investigating whether underpayments occurred and will pursue penalties and reconciliation as appropriate.

Committee members expressed concern about the pace at which Compact Trust Fund distributions to category‑3 tribes have been resolved; Johnson said the department administers the fund but cannot unilaterally decide disbursements — the beneficiary tribes must agree to a baseline revenue formula, a process complicated by COVID-era closures.

The committee retained the Department of Gaming for two years (until 07/01/2028) to allow earlier follow-up on implementation of recommendations and directed the Auditor General’s Office to assess progress.