Colorado regulator's slammed in damning audit report

The Colorado Division of Gaming has been severely criticized in a new report into its licensing process and the collection of taxes from sports betting operators.

The report, published by the Colorado Office of the State Auditor (OSA), found that more than 90% (35) of the state’s 39 temporary sports betting licenses had been issued on the basis of “limited background investigations” conducted by the division.

“While a temporary license allows operators the same privileges as a permanent license, the division’s background investigations may not have provided assurance that the operators were suitable for licensure,” the Colorado OSA wrote.

“The division did not complete minimum background investigative procedures for the five licensed operators we sampled, and the procedures that were completed may not have provided relevant information needed to fully inform the division’s licensing recommendations to the Commission [Colorado Limited Gaming Control Commission],” it added.

In addition to examining operator licensing by the division, the Colorado OSA’s report has revealed a significant number of disparities in the reporting of wagering, in respect of bets, free bets and payments to players.

These included variances in the amounts reported after each gaming day compared to totals in reporting operators’ monthly tax filings.

This ranges from an operator reporting $1.4m more in net sports betting proceeds in its daily wager reports than it reported in its monthly tax filing, to an operation that reported $1m less in net sports betting proceeds in its daily wager reports compared to its monthly tax filing.

Comparison of Daily Wager Reports Versus Monthly Tax Filings
Source: Office of the State Auditor analysis of 22 sampled sports betting tax filings that seven operations
submitted from May 2020 through April 2021.

While the report acknowledged the need for some variation due to changes in bets, investigators found that operators did not submit supporting documentation to substantiate those changes, leading the division to report inaccurate data.

“The General Assembly may want to consider the effects of a commission rule that allows sports betting operations to deduct and carry forward monthly operating losses, thereby reducing their sports betting tax liability, and whether that practice aligns with voters’ and legislative intent,” the Colorado OSA said.

Between May 2020 and April 2021, the state collected $6.6m in sports betting taxation however, according to the OSA, this figure could have risen to $7.3m had the ability to deduct and carry forward operating losses been removed.

In addition to recommending the removal of the carry forward rule, the report makes recommendations in seven areas including the development of more established policies on the investigation of sports betting operators.

Other areas include the adoption of a risk-based approach, clear parameters on the quality and quantity of evidence needed, and the establishment of a supervisory process to govern the scrutiny of division activities by the Commission.

In response, the division has agreed to make the required seven changes to its procedures, with a timeline for implementation of February 2023.