Senator Warren Limmer (32),
Representative Kurt Zellers (32B), House Minority Leader,
Minnesota Revenue, Special Taxes Division,
Warren Walberg, Charitable Gambling Compliance Specialist,
King Wilson, Executive Director, Allied Charities of Minnesota,
I am the licensed charitable gambling manager for the Osseo Fire Department Relief Association.
I write to you today to express my bitter disappointment and profound concern over the state of charitable gambling in Minnesota.
The event that precipitated my correspondence to you today is the fact that myself and two of my fellow paid-on-call / volunteer firefighters spent seven hours this past New Year’s Day holiday performing the newly-required Annual Physical Inventory and Cash Count, instead of enjoying the much-needed holiday with family and friends.
As you may know, the state legislature passed a few bills this past session effecting the besieged charitable gambling industry. One change eliminated the annual financial review for organizations with gross receipts between $150,000 and $300,000 and raised the threshhold for organizations required to complete an annual financial audit from those with gross receipts over $300,000 to those with gross receipts over $500,000.
In light of these eased requirements, the government — in a feat of linguistic torture — “compromised,” as only governments can, by instead requiring EVERY organization to conduct a Certified Physical Inventory and Cash Count. This internal audit must be completed after close of business on the last day of the organization’s fiscal year and before the start of business on the first day of the organization’s subsequent fiscal year. For many organizations, including ours, this means that it must be completed in the middle of the night on New Year’s Eve and/or early in the morning on New Year’s Day. This is of course assuming that the organization can arrange access to their leased spaces at these inconvenient hours, or be forced to alter their hours of operation, frustrating and inconveniencing their employees and faithful customers.
So, diligent and dutiful serfs that we are, we complied. We dotted every “i” and crossed every “t.” As gambling manager, I imposed upon two smart, hard-working, over-worked, loyal, generous firefighters to do the menial, tedious bidding of the state — on a holiday. We filled out each row and totaled every column to prove that we are innocent of any fraud or theft — because in the charitable gambling industry, everyone is always guilty until proven innocent and is incessantly harassed to prove otherwise.
Not surprisingly, this internal audit was utterly superfluous. We are required to report on every detail of our operation every month. Every game is uniquely-identified, barcoded, and tracked from manufacturer, to the distributor, to the organization, in to play, out of play, into the bank, and into long-term storage. Deposits are required to be in the bank within 4 days of the close of a game. Our bank statements, our checkbook registers, our payroll, our donations — every dime coming and going — are all subject to scrutiny at all times. Discrepancies are scrutinized down to fractions of a percent.
Under the new “compromise,” all organizations are required to complete this onerous, arbitrary, inconvenient internal audit. But what about those mega-operations grossing over $500,000 a year? They are still required to pay for and conduct the independent financial audit, just as they have in the past. But surely, this can’t be difficult for those huge, full-time, mega-operations.
Of course, these numbers are quite misleading. For years we have run one modest pull-tab booth out of a family bar-restaurant in the quiet, small town of Osseo. We regularly gross over $1,000,000 per year. On a good month, we can gross over $200,000 — in just one month. This sounds like an obscene amount of money for one little charity. But this is, of course, just the money passing one way over the counter. Over 80% of that is immediately paid out back over the counter in prizes to the players who, most often, simply recycle much of it back into play. The state takes its (apparently small) cut of taxes from this (apparently large) number. So, after prizes and taxes, we are left to pay for wages ($10,000/month), inventory ($2,000/month), rent ($1,750/month), more taxes, and other miscellaneous expenses — usually leaving us with only a couple thousand dollars a month (if that) for our charity.
So, for many years, with our one little booth, we have been more than three-fold — now still more than two-fold — over the threshhold requiring an independent annual financial audit. And, as always, we dutifully comply with every little order uttered at the whim of our masters. This audit costs us almost $3,000 a year and untold hours of work on my part to gather the necessary documents, meet with the auditor, and see the audit through. This of course is not compensated above my regular, flat wage. Year after year, this audit shows that we are running an honest and efficient charitable gambling operation.
As luck would have it, we were also fortunate enough to have our number drawn this year for a Compliance Review, conducted by a Compliance Specialist from the Gambling Control Board. This required many rounds of correspondence, many rounds of collecting and submitting documents, a midday workday meeting and site inspection, and a written response to the findings of the review. You’ll be surprised to learn that, apart from the requisite trivial nit-picking, it was discovered that our organization is not, in fact, committing fraud and theft. Our cash shortages were found to be vanishingly small, our processes are efficient, and our people are honest. In many areas, we have actually gone over and above the requirements of the state and developed improved forms and processes (as any good business would do anyway).
So this is all well and good, right? Since we are not doing anything untoward, why should we object to having the opportunity to prove it? There are a number of things wrong with it.
First, none of these three audits were conducted because we were suspected of, accused of, or convicted of doing anything wrong. They are all just a part of the standard, guilty-until-proven-innocent modus operandi of the state. If I read it correctly, the Fourth and Fifth Amendments to my copy of the US Constitution say that: “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized,” and “[No person shall] be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.” This language is also contained in Article I, Sections 7 and 10 of the Constitution of the State of Minnesota.
But of course, this can’t possibly apply here, since the state has assumed to itself the unquestionable authority to rule over every aspect of charitable gambling. But where do they get this authority? Nowhere. It is a complete violation of the rights of free individuals. The individual has an unlimited right to contract, as guaranteed by Article 1 Section 10 of the US Constitution and upheld by the Supreme Court’s decision in Hale v. Henkel, which read: “The individual may stand upon his constitutional rights as a citizen. He is entitled to carry on his private business in his own way. His power to contract is unlimited. He owes no such duty [to submit his books and papers for an examination] to the State, since he receives nothing therefrom, beyond the protection of his life and property. His rights are such as existed by the law of the land [Common Law] long antecedent to the organization of the State, and can only be taken from him by due process of law, and in accordance with the Constitution. Among his rights are a refusal to incriminate himself, and the immunity of himself and his property from arrest or seizure except under a warrant of the law. He owes nothing to the public so long as he does not trespass upon their rights.”
But what of all of the laws passed over the years detailing every which way the state intends to go about violating our rights? Happily, in Marbury v. Madison, the court took up this issue and correctly stated that “a legislative act contrary to the constitution is not law.” It is null and void. It never was a valid law to begin with.
Does this mean that I’m going to buck the system and start running a rogue gambling operation, ignore all the so-called laws, and shirk all the so-called taxes? I have every right to. But, no, I’m not that foolish (or masochistic). The entire system is rotten from top to bottom. There is not an officer, bureaucrat, legislator, judge, or jury that would hesitate to wholeheartedly enforce the government’s many unconstitutional laws.
I will continue to dot my “i”s and cross my “t”s, but I will not do so quietly. I want you to know that what you are doing is wrong. It is wrong to the core. It violates every principle of a free and civilized society.
But, legal issues aside, I want you to understand, as Bastiat so eloquently explained, and as Hazlitt articulately popularized, the problem is not just in that which is seen, but also that which is not seen. Sure, we spend a few thousand dollars here and a couple hundred hours of labor there, but it’s surely a small price to pay for ensuring the honesty and integrity of a billion dollar industry. But what is never seen are the things that money could have been spent on, the tasks that labor could have been directed to. And what of the legislators, the regulators, the bureaucrats? They produce nothing of value and extract their pay from those who do. What could that money have been spent on? What productive things could they be doing? What of the accountant? If he weren’t doing audits required of us by the state, what other productive work could he be doing? Where could that money have been spent?
Our economy is spiraling down the drain at the local, state, national, and even global levels. People are suffering dearly under a dysfunctional economic system. The problem is that the system has long been cannibalizing itself for “the greater good.” The only economic prosperity to be had is that which people produce and freely exchange. There is no other. Extracting value from the productive people adds nothing to the available prosperity. Hindering the free exchange of goods and services only serves to distort and misdirect the productive efforts. Restricting the free operation of productive enterprises only serves to further misdirect and waste valuable resources.
This will not last forever. It can not last forever. The productive people contributing to the available prosperity will not forever continue spending their time and treasure only so that misguided, unproductive people can parasitically draw upon it for their own benefit or for the supposed benefit of “the greater good.” Eventually, Atlas will shrug.
You came harassing our small little charity three times this year looking for any traces of fraud and theft. You didn’t find it. I could have saved you the trouble. If you wanted to find fraud and theft, you would find it on a massive, institutionalized scale if only you would look to the government itself.
(I was unable to locate email addresses for Tom Barrett, Executive Director of the Gambling Control Board or for any of the other members of that board. I would be much obliged if one of you would be so kind as to forward this on to them.)
Updated January 13, 2010:
On Monday, I hand-delivered our response to the report from the Compliance Review. Today I wrote and delivered the memo to update our sellers on areas for improvement. We have yet to finish making the required minor corrections and implementing all the suggested changes.
Having acquired the necessary signatures, I just stuffed and stamped the envelope to send off the paperwork for our New Year’s Day audit. It is sitting on my desk.
And today I received the beginning paperwork for our first audit of 2010. In addition to the “Standard Form to Confirm Account Balance Information with Financial Institutions” so that they can access our bank account, a questionnaire for me, and a questionnaire for the CEO, here is the list of initial things we need to provide them:
January 7, 2010
Mr. Mike Phenow, Gambling Manager Osseo Firemens Relief Association
The following is a list of the items we would like you to provide to us in order for us to begin the audit of the Osseo Firemens Relief Association Lawful Gambling Fund for the year ended December 31, 2009.
- Bank statements and bank reconciliation at 12-31-09 and 1-31-10
- Cash receipts and cash disbursements summary (revenue and expense summary)
- Balance sheet, income statements and general ledger, if any
- Copies of all monthly gambling reports for the year including January and February 2010 (when available)
- Schedule of ending inventory at 12-31-09 (LG844 Forms), Form G1Inv, Annual Certified Physical Inventory, Form G1CC, Annual Certified Cash Count for Games in Play, and Form G1CI, Summary
- Copies of all purchase of games invoices for year
- Copy of cash shortage worksheet
- Copies of payroll tax reports for all quarters of 2009 (941′s, MW-1′s, MN UC, Fed. UC)
- Yearly payroll summary
- Board minutes to date
- Copy of current Form LG201 (Internal Controls) Worksheet
- Copy of current charitable gambling license and premises permits, and lease agreement
- Cash in game banks balances at 12-31-09
- List of gambling manager/officers
- Copies of any correspondence from the MN Department of Revenue or the Gambling Control Board
After I have had an opportunity to review the Schedule B-2′s, I will then let you know which games I would like you to pull for our test of games.
And remember, this is not the result of any suspected, accused, or convicted wrongdoing. This is a “routine” audit required by the state because they think it is their money and we are guilty of fraud and theft until we repeatedly prove otherwise.