In 2007, a Jacksonville, Fla., police detective, Elizabeth Sutherland, was eating lunch at a Red Lobster when a waitress handed her a note written on the back of a receipt: “Lunch on me, Dante Sumlar. Mrs. Sutherland, have a nice day.” When she looked around, the man was gone.
She knew the name, though. Now retired, Sutherland investigated fraud for the sheriff department for 16 years. “As long as I’ve been in the Economics Crime Unit I’ve been dealing with Dante Sumlar,” she recalled. “He’s been doing counterfeiting as long as I can remember.” At the time he scribbled the lunch note, Sumlar was wanted for orchestrating fake check-cashing scams in three states, stealing hundreds of thousands of dollars, much of it from government accounts.
Months later, Sumlar moved to the Houston area and set up what police described as his signature scam, recruiting homeless men to cash fake checks written on accounts he’d targeted for raiding. In October 2007, he began targeting a bank account registered to the taxpayers of the state of Texas. The Texas Lottery Prize Payment account is a revolving account, where the state treasury sends money to pay lottery winners. Over the next several months, Sumlar worked his con there.
Sumlar’s is a tale of criminal persistence. “I can’t count the number of times I’ve arrested him,” Sutherland said.
But his exploits also illuminate a story of government mismanagement that has cost Texas taxpayers tens of thousands of dollars, possibly more.
Overseen properly, bank accounts are supposed to be reconciled, or balanced, regularly to make sure the money flowing in and out equals zero. This basic accounting practice also catches irregularities early, identifying math errors and potential fraud before it gets out of hand.
Despite the millions of dollars of taxpayer money flowing through the Prize Payment account, however, agency audits show the Texas Lottery Commission didn’t perform this elementary task for years. The agency continued turning a blind eye even after being warned that it was potentially leaving itself open to fraud.
By the time law enforcement finally caught on to Sumlar, he and other con artists had looted the Texas lottery account for nearly $100,000. Because the agency wasn’t minding its accounting, many of the normal bank protections against fraud had expired. As a result, late last year the Texas Lottery Commission quietly wrote off just over $50,000 as lost money — the price of its own negligence.
Meanwhile, an internal audit of the same prize account Sumlar raided has raised the possibility that even more money could be missing. Last year, the Lottery Commission acknowledged it couldn’t account for a large discrepancy in the prize account: It appeared to hold $600,000 less than expected.
An uncommon loss
The Texas Lottery Commission admitted writing off the $50,000 loss to Sumlar and others who raided the account as unrecoverable. But a spokeswoman downplayed the loss, stressing that the events occurred years ago and it was a small amount of money compared against the agency’s total revenue and contributions to public education.
During the time Sumlar and others were draining its account, “the agency generated $6.5 billion in sales, transferred $1.7 billion to the Foundation School Fund and processed approximately 150,000 prize check transactions,” spokeswoman Kelly Cripe wrote in a statement. “As with any personal or business bank account, our account is not immune to the possibilities of bank fraud and it is unfortunate that we are not the only business or state agency to have fraudulent activity perpetrated against our account.”
Government regularly writes off bad debt. Last year, for example, the University of Texas System declared about $2.7 million noncollectable, most of it from unpaid student loans.
None of the agencies that watch over the state’s money adds up how much the government loses annually to fraud or how often it occurs. But spokesmen for the comptroller’s office, the Legislative Budget Board and the State Auditor’s Office said it is a rare occurrence.
Even more uncommon, they said, was for an agency to have to write off a loss because the fraud — “unauthorized activity” in accounting lingo — isn’t caught in time.
“The state treasury has internal controls in place to prevent financial theft or fraud,” said R.J. DeSilva, spokesman for Comptroller Susan Combs’ office.
“This sounds like an outlier,” said John Barton, a Legislative Budget Board spokesman. “The state generally has very robust protections in place.”
A $622,000 gap
The Texas Lottery Commission opened its Prize Payment account in the late 1990s. It’s unclear when state accountants stopped reconciling it regularly. Kathy Pyka, who as the agency’s controller is in charge of its accounting and financial reporting, said she noticed soon after taking the position in 2005 that the Prize Payment account hadn’t been regularly balanced for some time, according to discussions of the account at public commission meetings.
It was not for lack of rules, Pyka added; staffers just weren’t following them: “Procedure and following the procedure were two different things.”
Pyka said that she began trying to retrace the account activity soon after she discovered the irregularities in late 2005. “It was not a situation that anybody that’s over a financial operation wants to encounter,” she told the governor-appointed lottery commissioners during a meeting last November.
Yet her investigation proceeded slowly. And despite the fact that managers knew the account had major problems, they continued to keep it operating with minimal accounting protections. In 2007, when the Lottery Commission had its books examined by an outside accounting firm, the accountants warned that the Prize Payment account had a “significant deficiency” in the safeguards typically put into place to prevent fraud.
The controller’s attempt to unravel the account’s history ended up stretching out nearly five years. As investigators went through the records, the deficit of money that couldn’t be accounted for bounced up and down, from a reported high of $1.89 million, in 2007, to a low of $145,000 in 2008.
In the end, the lottery’s chief account acknowledged she would never be able to account for all of the money that had flowed in and out of the Prize Payment account in recent years because many historical records had been purged. “Without having those historical records … we just don’t know,” she said to the commissioners last year.
The final tally of the gap between what the state’s books said was in the account, and what could be found was $622,103.40. (Lotto Report, a blog that covers the Texas lottery, has reported on the gap.) Last year, the amount was written off against the Lottery Commission’s unclaimed prizes account.
In public comments, lottery commissioners have dismissed the gap as a possible bookkeeping variance. “So we might have just had a mistake on our records?” Commissioner J. Winston Krause asked last November.
“Correct,” Pyka said.
Not everyone has been so reassured.
Soon after Pyka wrapped up her investigation, the Office of the State Auditor, which is responsible for keeping an eye on the state’s finances, received a tip on its fraud hotline.
“I have been told by staff in the Office of the Controller at the Lottery that they have lost $600,000,” the tipster said in November 2010, according to records. The state auditor turned the complaint over to the Lottery Commission’s own Internal Audit Division, the in-house unit that keeps an eye on the agency’s performance and answers directly to its commissioners. According to meeting transcripts, it was the first time the unit had heard of the problems with the account.
The Internal Auditor’s report, which came out late last year, was unsparing. It confirmed the prize account hadn’t been reconciled “at least” as far back as 2007, and, thus, auditors couldn’t vouch for any of the numbers or explain the more than $600,000 gap.
Worse, the examination also found that even after the lottery’s executives learned the prize account wasn’t being managed properly, they still didn’t adequately protect it. For example, a feature known as “positive pay,” an elementary safeguard in which the bank compares a check being cashed on an account against a list of checks written on it before clearing it, wasn’t installed until late 2010. That was the same year agency executives finally shut down the defective Prize Payment account and opened a new one with better protections.
That meant the account continued to be vulnerable to scammers for years after the agency knew it was unsafe, the audit said. In accounting lingo, “Adequate and effective internal controls were not in place during the period audited to ensure the Prize Payment account was adequately safeguarded against unauthorized activity,” the internal auditors concluded.
The in-house audit identified three separate schemes in which outsiders, unbeknownst to the Lottery Commission, had targeted the account for fraud, taking a total of $97,000 through the middle of 2009.
Terms of the account, which was with Bank of America, were that if the unauthorized transactions were reported within two months, the bank would credit the account. But because the Lottery Commission wasn’t watching, more than half of the stolen money was discovered too late for the refund.
A Robin Hood figure
By the time he arrived in Texas, Sumlar was already well-known to local and federal law enforcement in a dozen counties in several states, though by different names. Missouri police knew him as Micah. He also went by the names George Marshall and Rick. Court records show a long series of arrests, but Sumlar never seemed to spend much time in prison before being released and starting up his operation again.
Money was the main draw, but Sumlar appeared to like the cat-and-mouse game, as well. “It had become a joke to him,” Sutherland said. In late 2007, records show Sumlar called the Houston field office of the U.S. Secret Service, which investigates counterfeiting, and left a message for the agent assigned to his case, Joseph Benningfield, “and wished him luck catching him.” (Benningfield declined comment.)
Although he worked across the country, Sumlar’s operation was similar each time, court documents and interviews show. He would find accomplices at day labor sites or homeless shelters, the main criterion for his employment being a valid identification. Sumlar would then use stolen account numbers he lifted off existing checks to forge checks made out to the men.
For their assistance, the homeless men earned $100 to $200. Among those he came into contact with, the charismatic Sumlar, who sported eight gold teeth, was considered a Robin Hood figure because of the government accounts he ripped off.
Internal Lottery Commission investigative reports show the agency began tracking Sumlar in mid-2008. Though it isn’t clear exactly how he first stole the lottery’s Prize Payment account number, it appears he copied it from a jackpot check cashed by a homeless Houston man in November 2007.
Sumlar, who among his Texas accomplices was known as Rick, later teamed up with a bondsman who’d bailed him out of Harris County jail in the summer of 2007, investigative documents state. Together, they rounded up several local homeless men, paying them to cash forged payroll checks from a fake employment agency, and drawn on the lottery’s Prize Payment account.
The Harris County district attorney’s office indicted Sumlar in absentia in December 2009 for writing more than $16,000 of fake checks on the lottery account. He was finally arrested nearly a year later, in a suburb of St. Louis.
In September 2011, Sumlar was sentenced to 70 months in federal prison on federal fraud charges from cases against him in several states. Four months later, he was brought back to Houston, where he pleaded guilty and was sentenced to three years in Texas prison. Currently serving his time in federal prison in El Paso, Sumlar didn’t respond to a letter requesting an interview.
The Lottery Commission said additional criminal cases are pending, or continuing to be built, against several others it suspects of looting the Prize Payment account. Meanwhile, state financial reports show that, as of this year, the agency has written off $50,906 as unrecoverable.
Eric Dexheimer is part of the Statesman’s investigative team focusing on government accountability. In previous stories he has written about how the IRS ignored rampant fraud, analyzed the link between Travis County’s gun deaths and mental health, and revealed how local governments have profited from illegal gambling.
Texas Lottery Prize Payment account by the numbers
- $622,103.40: Difference between what the Texas Lottery Commission thought it had in the bank account and what it could actually account for.
- $96,971.28: Value of “unauthorized transactions” that occurred against the account.
- $50,906: Amount of money the agency had to write off as bad debt because it didn’t catch fake checks in time due to poor oversight of the account.
- $16,011: Amount of money attributable to Dante Sumlar’s fake check scheme.