Best Practices for Lottery Accounting

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Lottery accounting sometimes seems complex because of the constant EFT’s into and out of your account. This guide aims to simplify the process and provide you with best practices to effectively manage and track lottery transactions.

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Online Lotto - Draw Games

Managing online lotto (draw games) accounting correctly is crucial. Here’s a step-by-step guide to keep you on track:

1. Commission Earnings: Online lotto is sold on behalf of the state, and you earn a commission for these sales.
2. Weekly Invoicing: States typically invoice you weekly for online lotto. Download these reports from your lottery terminal or state portal. Ensure these invoices match your register sales—if discrepancies arise, investigate immediately.
3. Department Tracking: Track online lotto sales in a dedicated department on your register and include it on your Profit & Loss (P&L) statement.
4. COGS Category: Create a separate category for online lotto under Cost of Goods Sold (COGS) in your P&L. Use the weekly state reports to generate invoices for your accounting.
5. Commission Breakdown: The weekly report will include your commission breakdown. Track this separately.
6. Consistency Check: By tracking COGS and sales separately, you can easily identify issues. The COGS and sales for online lotto should always match.

Following these steps will help you manage your lottery accounting efficiently and ensure your store remains financially healthy.

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Scratch-off Sales (scratchers)

Scratch-off tickets or instant ticket sales follow a different process.

1. Tracking Sales: Track scratch-off sales in their own department on your register and include them on your Profit & Loss (P&L) statement.
2. Weekly Charges: Settled packs are charged weekly. Packs settle in various ways depending on the state, such as sitting in activated status for an extended period or having a certain percentage of winning tickets cashed.
3. Draft Report: Retrieve the draft report from your lottery terminal or state portal and use it to generate invoices for the settled packs.
4. COGS Category: Create a separate category for scratch-off tickets under Cost of Goods Sold (COGS) in your P&L. By tracking COGS and sales separately, you can identify discrepancies. The COGS and sales for scratch-offs do not always equal each other, but the difference should not trend upwards over time.

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Payouts - Customer Winnings

Track lottery payouts (winnings claimed by customers) as follows:

1. Register Tracking: Record these payouts in a separate payout category on your register.
2. Accounts Receivable: In your accounting software, book these payouts as accounts receivable, representing money the state owes you for payouts made on their behalf.
3. Invoice Reconciliation: The state will either provide a separate invoice or combine it with other invoices as line items. Reconcile these against your accounts receivable. Ideally, accounts receivable should always be close to zero.

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Commissions

Lottery commissions should be managed as follows:

1. Weekly Report: Find your commissions on the weekly invoice report from the state, available from your lottery terminal or state portal.
2. Income Booking: Record commissions as income under a category called “lottery commissions.” Ensure this number divided by your total lottery sales equals the commission rate for that state.

One alternative to this accounting is to subtract the commissions from the invoices and do the invoicing that way.  This allows for you to calculate your lottery margin by subtracting the invoices from sales and the difference should be your commission or profit.  You can also verify your lottery margin is 5 or 6 percent depending on your state.

Sample Report

Below is a sample report from a California store to illustrate these concepts. I have highlighted the different sections with different colors. The positive numbers are charges and the negative numbers are credits or income.

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Regular Monitoring and Lottery Inventory Tracking

By following these practices, you can monitor the health of your lottery department on a weekly basis. However, this does not replace the need for an inventory tracking system, especially for scratch-off games. Significant losses can occur if packs are stolen, with incidents of losses exceeding $7,000 in just a week due to employee theft.

Implementing these best practices will ensure you have a robust lottery accounting system, helping you minimize losses and maximize efficiency.

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