Knowledge

The Case of the Lucky Lottery Ticket

Rehana MoosaBy Rehana Moosa

Most people have dreamed about what they would do if they won the lottery.  Despite knowing the odds are not in their favour, people love to buy lottery tickets, and hope that they will be lucky enough to win big.

 

One family, in the case of R. v. Chung (2018 ONSC 2177 and 2021 ONCA 188), tried to skew the odds in their favour by taking lottery tickets from their customers, one of which happened to be a jackpot winner.  Their good luck, though, didn’t last long.

 

Background

 

Kenneth Chung operated a convenience store in Burlington called Variety Plus.  Both he and his father, Jun-Chul Chung, worked in the store.  The store sold lottery tickets through a lottery terminal that was connected to the Ontario Lottery and Gaming Corporation (“OLG”) central system.  The system also scanned lottery tickets to determine if the customer won any money.

 

The Super 7 lottery offers prizes that include free tickets.  There are two types of free tickets – ones that include Encore (a bonus game) and ones that do not.  Using an internal control weakness in the lottery terminal’s system, the Chungs were able to misappropriate free play tickets.

 

If a customer won a free ticket with Encore, the lottery terminal would print the ticket automatically.  If a customer won a free play ticket without Encore, the lottery terminal required the operator to enter whether the customer wanted to pay an extra fee to include Encore on the ticket.  The ticket would not print until the operator entered the customer’s response. 

 

If a customer won two free tickets, one with Encore and one without, the lottery terminal would print the first ticket with Encore automatically, and then wait for the operator to enter whether the second ticket should also include Encore.  However, the lottery terminal would not show the customer how many free play tickets were won.

 

The Chung family was accused of stealing free play tickets from customers.  When a customer won two free tickets, the customer was given one ticket and the Chungs pocketed the second one.  This was done 31 times, and one of the misappropriated tickets won the grand prize of $12.5 million in December 2003.

 

The grand prize was claimed by Kenneth’s sister Kathleen.  Although the OLG had its suspicions about the validity of the claim (based on inconsistencies in Kathleen’s explanations regarding how and where the ticket was purchased), the grand prize was paid out to her in December 2004.

 

Around this time, issues were raised regarding how the OLG administered the lottery games.  After one case where a ticket holder proved his winning ticket had been stolen by a store clerk, a review was undertaken and several suspicious wins were identified, including the prize claimed by the Chungs. 

 

The Ontario Provincial Police were asked to investigate, and eventually, Jun-Chul, Kenneth and Kathleen were charged with theft under $5,000 (for the 30 tickets that did not win) and theft over $5,000 (for the ticket that won the grand prize).  The legitimate winner of the ticket was eventually identified and the OLG paid out the grand prize of $12.5 million to this individual.

 

The defendants were found guilty of some of the charges and acquitted on others, and were sentenced to the following prison terms:

 

  • Jun-Chul – 7 years
  • Kathleen – 4 years
  • Kenneth – 10 months

Lessons Learned

 

This case highlights the importance of performing a risk assessment to understand where the risk of fraud may exist within the operations of a business, and implementing strong internal controls to prevent fraud from occurring in areas that are considered vulnerable.

 

As illustrated in the above case, fraud often occurs when weaknesses in a business’ systems and processes are exploited.  The Chungs’ knowledge of the lottery terminal system provided the opportunity to misappropriate tickets over an extended period.  A report authored after this case came to light by the Ombudsman of Ontario found several weaknesses in the OLG’s processes, specifically with respect to prizes that are claimed by individuals who also sell lottery tickets (known as “insider wins”).  Those who sell tickets understand how controls can be circumvented or where controls may be weak or non-existent.

 

A risk assessment can help business owners understand where those weaknesses exist, how likely it is that a fraud may occur in those areas, and ways to mitigate the risk where possible.  A risk assessment should include performing a detailed walkthrough of the business’ processes to consider how a fraud could be committed, either internally or externally.

 

When internal controls are implemented to reduce the risk of fraud, the controls should be regularly updated and monitored to ensure they continue to be effective.

 

Contact us to learn more.   647-426-0146  |  rehana@rmforensics.ca

Communications are intended for informational purposes only and do not constitute legal advice or an opinion on any issue. For permission to republish this content, please contact Rehana Moosa Forensic Accounting Professional Corporation.

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