3.2.1 GAMES PROHIBITED BY THE CRIMINAL CODE (CANADA)

The Criminal Code (Canada) prohibits the following lottery schemes:

Three-Card Monte

In Three-Card Monte, the dealer shows three cards (usually aces), two red and one black, then shuffles them face down. The player tries to guess the location of the black ace. A variation of the game is played with three cups or walnut shells and a pea.

Coin table

A coin table is enclosed by a rail and has a highly polished square surface, with many small, coloured circles. The players toss pennies or other coins from outside the rail onto the layout and receive a prize if the coin lands inside the circle.

Punchboard

A punchboard is made of pressed paper full of holes each containing a printed slip. Players pay to punch out a slip, and win a prize if the slip has a lucky word or number.

3.2.2. GAMES FOR WHICH A LICENCE IS NOT AVAILABLE

The Registrar will not issue licences for the following lottery schemes. This is not an exhaustive list; any new lottery schemes should be proposed to the Registrar for review before any further action is taken.

• Razzle dazzle—This game is also known as razzle, bolero, football game, hundred yards or roll down. It can be played two ways: with darts or with a roll board. The object of the game is to score points.
• Swinger game—A bowling ball is suspended from an overhead board by a hook and chain. Beneath and slightly to one side of the suspended ball, a bowling pin is placed on a table. The object of the game is to knock over the pin on the return swing of the suspended ball.
• Pea wheel—A pea wheel is a type of wheel of fortune that has not been approved.
• Dice games—Dice games are illegal at carnivals, designated fairs or exhibitions and are prohibited as lottery schemes for charitable licensing purposes under the Criminal Code (Canada). The Criminal Code (Canada) does allow dice games to be played in casinos under provincial licensing authority.
• Lottery schemes in public places of amusement—Any lottery schemes proposed to be conducted and managed at public places of amusement will not be licensed.

For details on specific circumstances and any applicable taxes, please contact the appropriate financial authority.

For pooling bingo halls, please see also “10.11.1. Application of Harmonized Sales Tax (HST)”.

3.4.3. REGISTRATION

3.4.3 (A) Classes of registration

Licensees may employ Gaming-Related Suppliers and Gaming Assistants to provide the goods and services and professional assistance necessary for the conduct and management of lottery schemes.

The Gaming Control Act, 1992 and its Regulations govern the commercial sector that supplies the charitable gaming industry. Gaming-Related Suppliers and Gaming Assistants must be registered under the Act. Sections 2–10 of Regulation 78/12 define classes of Gaming-Related Suppliers and Gaming Assistants that require registration. These include:

Category 1 Gaming Assistant—An individual who is employed in the conduct, management or operation of a lottery scheme or in the operation of a charitable gaming site and who, in the opinion of the Registrar, exercises a significant level of decision-making authority or has significant supervisory or training responsibilities with respect to the lottery scheme or the site.

Category 2 Gaming Assistant—An individual who is employed in the conduct, management or operation of a lottery scheme or in the operation of a gaming site and who, in the opinion of the Registrar, does not exercise a significant level of decision-making authority or have significant supervisory or training responsibilities with respect to the lottery scheme or the site.

Gaming-Related Supplier—A person who manufactures, provides, installs, tests, maintains or repairs gaming equipment or who provides consulting or similar services directly related to the playing of a lottery scheme or the operation of a gaming site.

The licensed organization must perform the following general administrative functions:

1. filing applications;
2. placing and paying for any advertisements;
3. setting up and maintaining the lottery trust account(s) and separately distributing the proceeds for approved purposes;
4. reconciling all receipts, providing a float for making change, and depositing all receipts into the designated lottery trust account;
5. keeping all necessary records;
6. preparing the financial report and submitting it to the licensing authority; and
7. communicating with the licensing authority.

3.5.2 BONA FIDE MEMBERS

According to the terms and conditions for lottery licences, bona fide members of the eligible charitable organizations must conduct and manage the licensed lottery scheme. This is a legal requirement. Without the participation of bona fide members, as set out in the licence, the lottery becomes illegal. In such a case, the licensing authority may suspend licences for future lottery events. A bona fide member for the purposes of lottery licensing is an individual who:

• meets the membership criteria set out in the constituting documents for the organization;
• has been admitted as a member in accordance with the requirements set out in the constituting documents;
• remains a member in good standing in accordance with the constituting documents; and
• participates in the activities of the organization.

A bona fide member cannot be a member of convenience. That is, he or she cannot have been admitted to the organization solely to assist in the operation of the lottery scheme.

A bona fide member of an organization that is a member of a Hall Charities Association cannot be a bona fide member of another member organization of the Hall Charities Association, unless that individual meets the membership requirements for the other organization as well.

A licensed organization must open and maintain a separate lottery trust account, designated as a trust account by the branch of a recognized financial institution, in the Province of Ontario. The designated lottery trust account must be in Canadian funds. If the licensee (except for a Hall Charities Association in a non-pooling bingo hall) conducts more than one type of lottery event, it may hold either one designated lottery trust account for all lottery proceeds or a separate designated lottery trust account for each type of lottery.

A Hall Charities Association in a non-pooling bingo hall may hold either a separate designated lottery trust account for each type of lottery event to account for all lottery proceeds or a minimum of two (2) designated lottery trust accounts as permitted under the Financial Management and Administration of Non-Pooling Bingo Halls Terms and Conditions.

Licensees that are permitted to accept American currency must also maintain a trust account in American funds, as set out in Section 3.6.5, “Lottery trust accounts for American currency.”

If the licensee maintains only one lottery trust account, the licensee must keep a separate ledger for each type of lottery event and for each licence issued. The bookkeeping and accounting requirements for each type of lottery are covered in detail in the licence terms and conditions.

The trust account(s) must:

• be a chequing account;
• require at least two (2) authorizing signatures;
• be held in the name of the licensee, in trust;
• have duplicate deposit slips, with one copy kept for the licensee’s records;
• provide monthly statements; and
• include either the return of all cheques with the monthly statements or the return of electronically scanned images of the front and back of each cancelled cheque with the monthly statements.

The fact that it is a trust account must be stated on the face of the cheques. If a licensee’s cheques do not currently state this fact, the licensee should ensure that the information is added when cheques are reordered.

The licensee must keep all records for a minimum of four (4) years. In addition to the account information, the licensee must keep a general ledger of all expenses supported by receipts and/or original invoices.

1. The licensee must pay all eligible expenses and disbursements for approved uses of proceeds (except bona fide member expenses) by cheque, or by electronic funds transfer (EFT), where permitted. All expenses must be supported by a receipt and cancelled cheque or EFT report. See also “3.6.10. Electronic funds transfer (EFT)”.
2. The licensee must keep all deposit slips; bank receipts from automatic tellers are not acceptable.
3. The licensee cannot make cash withdrawals.
4. The licensee may pay the bona fide member expenses in cash. The bona fide member must acknowledge in writing that he or she received the reimbursement in cash.
5. The licensee may only make cheques payable to cash when it requires a float for the purposes of conducting and managing lottery schemes, including payments to reimburse bona fide member expenses, prizes or making change.
6. Any interest earned on the trust account must be treated as proceeds of the lottery scheme.
7. The licensee must disburse lottery proceeds by cheque or EFT where approved by the licensing authority.
8. Organizations are not permitted to move funds by any means from the designated lottery trust account(s) into their operating or general account(s).
9. All expenses (except bona fide member expenses) must be paid directly by cheque or EFT from the lottery trust account(s). The movement of funds to another account(s), such as the licensee’s general operating account(s), or a head office’s bank account(s), would create a loss of accountability for those lottery proceeds and is not permitted.
10. The licensee may make temporary investments in instruments insured by the Canada Deposit Insurance Corporation (CDIC) if it receives prior approval from the licensing authority and maintains a careful audit trail. All principal and interest earned on the investment must be returned to the lottery trust account(s) and used for the licensee’s approved charitable purposes. These investments cannot exceed the maximum insured by the CDIC.

See “9.12.1. Lottery trust accounts for bingo events” for further information. For pooling bingo halls, please see “10.8.1. Lottery trust accounts”.

3.6.2. START-UP COSTS FOR LOTTERY EVENTS

The licensee must pay start-up costs, also commonly known as “seed money,” for the conduct and management of a licensed lottery event from the designated lottery trust account. However, if there are no funds or insufficient funds in the designated lottery trust account the licensee may write a cheque or make an electronic transfer from its general operating account to its lottery trust account to pay for the start-up costs.

3.6.3. INDEMNITIES AND LIABILITY INSURANCE

Licensing authorities may approve a portion of lottery proceeds to be used to pay for insurance premiums or the indemnification of officers, directors or trustees in some circumstances. Approval must be received prior to making the expenditure. The licensing authority must review each request on a case-by-case basis. To be an eligible use of proceeds, the charitable organization must demonstrate that this expense is necessary to advance its objects and purposes and is in compliance with the Charities Accounting Act. Hall Charities Associations must show that this expense is necessary in relation to the conduct and management of their licensed lottery events. If approved, the insurance or indemnity can be paid for within the maximum allowable administrative expenses set out by the Registrar.

3.6.4. ACCUMULATING LOTTERY PROCEEDS

In general, lottery proceeds cannot be accumulated. They are intended to provide a public benefit and must be used to do so in a timely manner. However, with the prior approval of the licensing authority, an eligible organization may accumulate lottery proceeds, subject to the terms and conditions  imposed by the licensing authority.

To ensure compliance with lottery licensing policy and the terms and conditions of lottery licences, the licensing authority must monitor the use of revenues and the level of funds in the lottery trust account(s).

When an organization wishes to accumulate lottery proceeds it must apply to the licensing authority and demonstrate that:

• the charitable activities of the organization justify the accumulation of funds
  • (for example, certain activities are seasonal and an organization may be required to accumulate funds when the activity, such as the operation of a youth hockey association, does not take place.)
• the accumulation of funds would be allowed under the Trustee Act;
• if the funds are transferred out of the lottery trust account(s) while accumulating:
  • they will be placed only in instruments that are insured by the Canada Deposit Insurance Corporation (CDIC),
  • all principal and interest earned on the investment will be returned to the lottery trust account(s) and used for the licensee’s approved charitable purposes,
  • these investments will not exceed the maximum insured by the CDIC, the licensee will maintain a careful audit trail, and revenue generated will only be used for purposes approved by the licensing authority.

3.6.5. LOTTERY TRUST ACCOUNTS FOR AMERICAN CURRENCY

Eligible organizations conducting bingo events in communities that border the United States may accept American currency during the conduct of bingo events, which may include break open ticket sales.

If a patron purchases bingo paper in American funds, any prizes won must be paid out in American funds. If the paper is purchased in Canadian funds, the prizes must be paid out in Canadian funds. House rules may be applied that may or may not require patrons to buy all bingo paper, including specials, in the same currency. These rules must be clearly displayed.

Eligible organizations that accept American currency must keep separate Canadian and American lottery trust accounts that have been designated as trust accounts by the branch of a recognized financial institution in Ontario, and must deposit the funds into the corresponding account. Hall Charities Associations in non-pooling bingo halls must maintain a separate American trust account for each type of licensed event.

All lottery expenses and eligible uses of proceeds must be paid from the Canadian account. The American account may only be used to deposit the American currency collected during the event, with the exception of withdrawals for a cash float for the conduct of a bingo event. Expenses, donations or any other withdrawals cannot be made from this account unless the licensing authority grants permission.

The maximum amount that may be accumulated in this account must not exceed the total value of the estimated prize board. When accumulated funds in the American account exceed the estimated prize board, they must be transferred to the Canadian lottery trust account. The date of the transfer, the exchange rate, and the premium or loss (at buying rate), as well as any eligible expenses (uses of proceeds) made from the Canadian account, must be recorded in the Bingo Hall Charity Association Report and in the financial ledgers.

Funds may be transferred from the American account to the Canadian account without the preapproval of the licensing authority but must be moved if the licensing authority requires them to be moved.

3.6.6 (A) Annual financial statements

The terms and conditions of lottery licences require organizations to provide the licensing authorities with a verified financial statement within 180 days of the organization’s year-end. The type of financial review required depends upon the licensee’s gross annual revenues from all sources. Licensees that receive less than $250,000 in gross annual revenues must prepare financial statements in accordance with the standards set out in the CPA Canada Handbook. Licensees that receive $250,000 or more in gross annual revenues must prepare financial statements in accordance with the standards set out in the CPA Canada Handbook and which have been audited by a public accountant.

The licensing authority may require an audited financial statement to be prepared at the licensee’s expense at any time.

Organizations that already obtain audited financial statements from an independent accounting firm may submit these statements. In addition, the organization must provide a Review Engagement Report or an Auditor’s Report addressing compliance with the terms and conditions and regulations of their lottery licence(s). A public accountant must prepare the audited compliance report in accordance with Section 5815 of the CPA Canada Handbook.

Organizations that realize less than $250,000 from all sources during their fiscal year must provide an annual financial statement verified by the two signing officers of the lottery trust account(s) and the organization’s Board of Directors. At its discretion, the licensing authority may also request a compliance report. The compliance report must be verified by the licensee’s Board of Directors.

For pooling bingo halls operating under the Bingo Revenue Model, see Section “10.7.1. Reporting requirements” for further information.

3.6.6 (B) Audited financial statements on request

The licensing authority may require a complete financial picture of a licensee’s gaming operations before the expected delivery of an annual financial statement, or the licensing authority may require a thorough review by a third party. The licensing authority may require a licensee to provide an audited financial statement within the time period set out in the licence, or as specified by the licensing authority.

In order to safeguard the interests of both the public and the licensee, and to ensure that all prizes can be awarded, the licensing authority may require that an organization submit a financial guarantee covering the total value of prizes.

The licensing authority must require a financial guarantee for lotteries with a total fixed prize value of $10,000 or more, including taxes. When the total fixed-prize value is $10,000 or more, the licensing authority requires an irrevocable standby letter of credit as the form of financial guarantee. (See 3.6.8, “Letters of credit” for further information.)

Where deemed appropriate, the licensing authority may also require a financial guarantee for lotteries with a fixed prize amount below $10,000 where the prize is a percentage of the gross ticket sales.

Acceptable forms of financial guarantees are:

• an irrevocable standby letter of credit from a recognized financial institution acceptable to the licensing authority;
• a bank draft or money order.

The Registrar may specify the form of financial guarantee that must be provided.

Guarantees for municipally issued licences must be made payable to the municipality and guarantees for provincially issued licences must be made payable to the Minister of Finance. A guarantee must begin on the date of the licence application and expire no sooner than 45 days after the licence expiry date. The financial guarantee must indicate the purpose for which it was issued and must be in a form acceptable to the licensing authority.

If a licensee is unable to award the prizes approved by the licence, the licensing authority may draw upon the financial guarantee to ensure that the prizes are awarded.

The licensing authority will return the financial guarantee to the organization as soon as the organization has distributed all prizes and submitted the list of winners and the required financial reports. Therefore, it is in an organization’s best interest to fulfil these obligations as soon as possible.

In the case of municipal licences, the municipality must inform the Registrar if the licensee is unable to award the prizes as approved in the licence. This information may have implications for future applications from the licensee.

With the exception of 50/50 draws, licensing authorities must obtain irrevocable standby letters of credit for lottery licences with a total prize value of $10,000 or greater, including taxes. A licensing authority may also require a letter of credit for a lower prize amount. A letter of credit or other financial guarantee may be required for 50/50 draws where deemed appropriate.

The letter of credit must:

• be issued by a recognized financial institution,
• be made payable on presentation of the original letter of credit at the issuing financial institution,
• cover the full value of all prizes offered, including any bonus prize,
• permit partial draws (that is, can be cashed in part),
• be valid for a minimum of 45 days after the licence expiry date, and
• indicate the purpose for which it was issued.

The licensing authority may accept a letter of credit set up and paid for by a third party that permits draws to secure the licensee’s obligations.

A letter of guarantee is not an acceptable financial guarantee. A letter of credit must be made payable independent of any occurrence of default on any obligation by the licensee.

Payment under a letter of credit must not require the Minister of Finance or municipal licensing authority to provide a statement that amounts paid will be retained or used in connection with any obligation or pursuant to any agreement between the licensing authority and the licensee.

The licensing authority will return the letter of credit to the licensee once the licensee has distributed the prizes and submitted the list of winners and a financial report. If a licensee is unable to award the prizes as approved on the licence, the licensing authority may draw upon the letter of credit to ensure that the prizes are awarded as approved on the licence.

A municipality must inform the Registrar if a licensee is unable to award the prizes. A licensee’s inability to award prizes may have implications for the licensee’s future applications.

3.6.9. STANDARD FINANCIAL REPORTS

Licensees must complete accurate standard financial reports for each lottery event. The reports must be filed with the licensing authority in accordance with the reporting requirements of the terms and conditions of the lottery licence. Licensing authorities will report any inconsistencies to the AGCO.

Where there is a Hall Charities Association (HCA), it must provide the licensing authorities and the Registrar with a financial report for each monthly period. The report is due 30 days following month-end and must include the necessary information, which includes all licensed lottery events held within the bingo hall. Further details are provided in chapter 10.

3.6.10. ELECTRONIC FUNDS TRANSFER (EFT)

Electronic funds transfer (EFT) allows for the transfer of funds between accounts by electronic means. EFT may be used:

• by a licensee to pay for expenses, to deposit monies into its designated lottery trust account, or to distribute net proceeds derived from the conduct of its lotteries to eligible recipients; and
• by an HCA to pay for expenses, to deposit monies into its consolidated designated trust account (CDTA) or to distribute net charitable gaming event proceeds to its member organizations.

The provisions for licensees and HCAs that choose to implement EFT are detailed in the Financial Management and Administration of Pooling Bingo Halls Terms and Conditions (4242). In general:

• Licensees must decide in accordance with their constitution whether to implement EFT.
• In the case of an HCA, it must obtain written authorization from each member organization that is agreeing to the use of EFT. Each participating member organization is responsible for providing to the HCA its banking information, approved by two (2) authorized signing officers, for each designated lottery trust account to receive funds electronically.
• An HCA must designate four (4) bona fide members to administer EFT funds and be signing officers for the HCA. The four (4) bona fide members must be representatives of four (4) different member organizations of the HCA. Licensees must designate at least three (3) bona fide members to administer EFT funds and be signing officers for the licensee.
• The licensee or HCA must ensure that its financial institution’s EFT system has the capability of supporting electronic dual authorization, as the transfer of funds must be authorized by two (2) of the bona fide members that have been designated to administer EFT.
• The licensee or the HCA must obtain reports from the financial institution confirming the electronic transfer of funds and any discrepancies.
• These reports must be reviewed and signed by one of the bona fide members designated to administer EFT who did not authorize the transfer of funds.. This member must also prepare a summary setting out any discrepancies in the report received from the financial institution to be presented to the licensee’s or HCA’s Board of Directors, as the case may be.