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Electronic draw systems based on RNG

have become an integral part of the lottery

industry and require utmost security to re-

duce exposure to potential fraud. Insider

fraud, where an employee of the lottery, an

operator, or vendor, takes advantage of their

system knowledge and access to the system

to fix a draw outcome, is the most danger-

ous and difficult to detect. There are existing security methods that

can protect lotteries against such fraud.


Lottery drawings using electronic random number generators are

integral to the future of modern lotteries. Lottery industry leaders

have recognized that they must embrace electronic drawings: while

offering potential for growth, electronic drawings also offer major

cost savings to lotteries.

However, lotteries worry about potential fraud with the shift

from mechanical to electronic drawings. In a recent lottery fraud in

the US, the perpetrator was seized by coincidence, which raises the

question of how many other fraud cases were not detected.

In this article we discuss the costs of fraud and the probability

of RNG fraud in the US, and we provide some guidelines for

RNG security. 


At the recent Public Gaming conference, we approached top-

level lottery management to obtain their perceptions of fraud in the

lottery industry

(see Table 1)

. The survey results suggest that fraud

would be damaging to lotteries by reducing their customers, restrict-

ing lottery’s freedoms to introduce new products, and through im-

posing large monetary costs on lotteries in the short and medium-

run. The average estimates of fraud cost to their lottery provided

by lottery leaders was $283 Million, for the first year, and $1.31

Billion, for years 2 to 5 after the fraud occurred. The survey did not

take into account other potential impact such as increased financial

risk of liability through class action, so the numbers may be under-

stated. These numbers are also based on a survey rather than actual

costs that were measured, so they are only suggestive. However, they

highlight that lottery managements believe fraud could severely af-

fect their institutions in many ways. To avoid this impact, the best

safety and security procedures should be introduced to protect lot-

tery systems and particularly electronic draw systems.


With large potential winnings, insider fraud is a true threat to

the lottery industry. In the US, many lotteries have been victims of

fraud in the electronic drawings for games played within or across


Currently we can estimate that over the last 5 to 10 years elec-

tronic draw fraud has occurred in games played across 13 states. If all

50 states used electronic draw systems, this would put the probability

of electronic draw fraud at 26%.

This underestimates the amount of

fraud, because some states do not take part in electronic draws, and

we can only report the amount of fraud that has been discovered

and reported.


Misconception 1:

Mechanical drawing machines are more secure.


With high potential costs and prevalence of fraud,

one approach would be to return to mechanical machines. However,

when the security measures are correctly implemented, an electronic

draw system allows the lottery to control and protect the gaming

environment better than with a mechanical system, making the elec-

tronic draw system also more secure than a mechanical system. Ad-

The Importance of Security and Fraud Detection

for Electronic Drawings

By Helena Pereira, PhD, Marketing Director, Szrek2Solutions


In a survey of 9 lottery directors, 2 former directors, 1 CFO,

1 COO, and 6 other top level management (n=19):

• On average, respondents thought that over half of their custom-

ers may stop purchasing lottery tickets or buy fewer tickets if they

discovered that lottery fraud had been committed in that state.

• Lottery’s legislative and regulatory powers, including the

lotteries ability to develop new games, would be impacted by

the discovery of lottery fraud—95% agreed.

• The total short-run costs estimated were, on average, $283

Million for the first year in which lottery fraud was detected.

Total costs include reputational costs, legal fees, political costs,

losses in ticket sales, etc.

• The total medium-run costs estimated were, on average, 1.31

Billion for the first 5 years in which lottery fraud was detected.

Total costs include reputational costs, legal fees, political costs,

losses in ticket sales, etc.