Battling Lottery Theft in Store

Lottery brings customers through the door. It’s a competitive necessity for most convenience stores. It’s also a major source of theft—often, internal theft. How can retailers avoid it or how do they recover?

Theft of tickets occurs more often than retailers may realize. Scratcher tickets are the most common target, and thieves typically are insiders. Due to slim margins on lottery sales—generally about 5%—and the increasing variety of scratch-off tickets costing as much as $50 each, ticket theft can be a major blow to a store’s bottom line. Without careful and often tedious accounting practices, a retailer will bear the loss.

Fidaa Mohrez, director of operational systems at H&S Oil Co. in Orange, California, came to grips with the issue when he acquired new sites that sold tickets over the counter rather than from a kiosk. “The stores had a manual process, spreadsheets and hand-written lists, and the manager had to keep records several times a day. It required a lot of labor,” he told CSP Daily News. The effort included recording pack numbers, ticket numbers and sales. It required several hours of clerk time per day, per site, he said. When the audit team discovered missing packs of tickets, Mohrez determined the manual process was a problem.

“Lottery shrinkage has been growing in the past few years,” said Barrett Crook, president of Quantum Services. “And the dollars are bigger, with scratcher tickets ranging from $1 to $50.” Quantum Services of Columbus, Ohio, provides physical inventory services exclusively for c-stores, counting everything in a store, including lottery tickets, comparing the count to the back-office bookkeeping and identifying what’s missing.

Crook said many retailers, especially small chains or single-store operators, record manual counts of lottery tickets, and others scan them through the chain’s point-of-sale system. He advises retailers to make lottery its own category to track sales by shift and by cashier. “Treat lottery like cash,” he said, “because it is.”

His team also spots red flags. He said scratcher tickets in the trash behind the counter is a sign, as well as shavings from tickets in the back room. Harder to spot are missing tickets from a pack, where remaining tickets are taped together out of sequence.

In the usual course of business, inactive or “dead” packs of scratchers are delivered from a state lottery, usually via UPS or FedEx. The pack is scanned to acknowledge receipt, but tickets are not activated until they are ready to be sold. An internal thief could activate a pack and steal the whole thing. “When it goes bad in lottery theft, it can go really bad,” Crook said, with tickets worth thousands of dollars disappearing. Without careful accounting, such a loss may not be discovered for several days, giving a thief time to redeem winning tickets.

Although most thefts—up to 95% by some estimates—happen internally, customer thefts do occur.

“A customer may ask for a couple of scratchers, and the clerk sets them on the counter. Then the customer says, ‘Oh, and I want a pack of cigarettes.’ As the clerk turns to get the cigarettes, the customer grabs the tickets and walks out,” David McLaughlin, sales expansion manager for the Missouri Lottery, said.

Investigating stolen tickets, he said, is a key role of the agency and can take days if a retailer does not have needed information. “Vital information includes the pack number, the game number and the ticket number. Sometimes a retailer has the game and ticket number, but not the pack number,” McLaughlin said. If a stolen ticket has been redeemed, the agency cannot recover the money and the retailer cannot be reimbursed.

After studying the ticket-theft issue, Mohrez of H&S Oil sought out assistance and contacted LottoShield.

• H&S Energy ranked No. 51 on CSP's 2023 Top 202 list of the largest convenience-store chains in the country.

Founded in San Ramon, California, LottoShield came to market two years ago, according to Mehdi Mahmoodi, cofounder and chief operating officer. It is a lottery-tracking software system that integrates with lottery agencies and automates and monitors ticket transactions, from delivery to activation, sales to settlement.

LottoShield works with many POS systems and includes a scanner to track scratcher inventory throughout the day without the need for manual tracking. Per its website, scratcher packs in backstock are monitored to ensure they are not improperly activated. While scratcher tickets are the target, draw tickets such as Lotto and Powerball may also be reconciled between a retailer’s POS and the state’s lottery records.

Mahmoodi said retailers—not state lottery agencies—pay for its services. Pricing varies based on the chain size and the level of automation the customer wants but is typically less than $1,000 per year per site, he said. LottoShield estimates a single store loses $5,000 annually to lottery theft.

McLaughlin said LottoShield saves time for retailers, as well as for Missouri Lottery investigators. “We have the information we need within minutes,” of a reported theft, he said.

In Arizona, Todd Terrell, deputy director of the security and regulatory division at the Arizona Lottery, said ticket theft in the state mainly occurs in the major metropolitan areas, Phoenix and Tucson. And, he said, theft seems to be seasonal. “Comparing trends year-over-year, we see a spike starting in October-November, and it stays up until about March. Maybe it’s the temperatures, or holidays,” he said.

In his nearly 10 years as an investigator, Terrell said, outsiders—not store insiders—are responsible for most thefts. “We see groups of three to five people who hit stores and move from store to store,” he said, adding internal theft is generally not discovered until the money is significant. “It usually becomes more frequent before someone notices,” he said.

Arizona Lottery has about 3,300 sites selling tickets and only seven investigators. Timing and accurate inventory are key to retailer reimbursement for theft, he said. Retailers must call within an hour of becoming aware of a theft, and they must have a police report number in addition to the pack, game and ticket numbers. While the biggest solution to ticket theft is a vending kiosk provided by the agency, he said, not all retailers qualify based on sales volume.