The agency overseeing Virginia’s horse racing industry didn’t have policies in place covering conflicts of interest, licensing standards, cash handling or facility inspections when it was audited last year.
The audit, conducted by SC&H Group and released Feb. 12 by the Office of the State Inspector General, examined the Virginia Racing Commission’s structure, licensing practices and two years of financial records.
Auditors also looked into the racetracks and gambling locations for horse racing that report to the agency — including Colonial Downs Racetrack and off-track betting locations, such as Rosie’s gaming parlors, where people can bet on races or play slot-like historical horse racing machines.
The report comes as the commonwealth’s horse racing industry grows alongside the expansion of gambling — despite the failure of a recent legislative effort to create a single gaming authority.
Auditors found, among other issues, that VRC didn’t document ways to track where HHR machines were, leading to inconsistencies between records and physical counts. In roughly one-quarter of inspections, auditors could not verify that HHR machines had been approved.
The audit also noted that the machines were not tamper-proof.
“At each facility inspected where HHR machines were present, instances where machines were not closed properly, allowing public access to a machine’s internal mechanisms, were identified,” the 77-page document states.
The audit report also shows VRC didn’t wait for completed background checks before awarding same-day horse racing licenses to owners, trainers, employees and others. It had incomplete or missing records, as well as small discrepancies in financial records and staffing concerns.
Based on the auditor's findings, the final report concluded “the VRC’s ability to address report observations and their recommendations, and implement positive change, may be limited with the current organizational structure and resource configuration.”
The Virginia Racing Commission — run by five governor-appointed commissioners and staffed with six full-time employees at the time of the audit — licenses people who work in the industry, including owners, operators, trainers and jockeys. It also has financial oversight of the state’s racing industry, supervises racetracks and conducts routine facility inspections and drug testing.
VRC is one of three state agencies responsible for gaming regulation in Virginia, though overseeing horse race wagering is not its primary role. It oversees 12 pari-mutuel wagering facilities and racetracks statewide that collected over $21 million from tax revenues in fiscal year 2023, according to the audit.
The commission’s duties have expanded alongside gambling in Virginia, especially since HHR machine gambling started in 2019.
The agency inspects all HHR facilities twice a month and racetracks for each race day, according to the audit. Two HHR facilities opened as the audit was ongoing, putting the number of yearly inspections at 192 across eight locations.
Three of the six full-time VRC employees are tasked with reviewing applications, fingerprinting, doing background checks and updating licenses. The number of individual licenses issued by VRC went from more than 1,500 in 2022 to just over 3,100 in 2024.
The opening of The Rose Gaming Resort in Dumfries (owned by Churchill Downs Inc., which also owns Colonial Downs and Rosie’s) in October 2024 added 1,650 new HHR machines, bringing the total under VRC oversight to 4,440 across the eight locations.
The audit also found one commission employee responsible for all of VRC’s investigatory functions — including both ensuring races are operating correctly and inspecting HHR machines. Auditors found the commission investigator “has too many responsibilities and the VRC does not have adequate procedures/documentation to record any issues at the facilities which they oversee.”
VRC leadership acknowledged challenges
VRC had leadership changes during the audit, including hiring a new executive secretary last August to run day-to-day operations. VRC launched a separate review of its policies last October that found many of the same findings.
After both reports, VRC Executive Secretary Waqas Ahmed, who was appointed by the commissioners, wrote to the inspector general that agency leadership agrees it “needs consistent internal control.”
In that message, Ahmed wrote that VRC has since adopted conflict of interest protocols, accounting policies and review procedures for HHR machines. He said VRC has also moved all licensing, betting and financial operations onto one site to allow it to track processes, manage changes and document issues.
Ahmed did not answer a VPM News email asking whether he feels the agency is best equipped to oversee HHR machines.
With the commission’s increased demands, the third-party audit recommended bringing on additional resources. VRC said it would seek to hire more employees and get approval for an increase in maximum staff levels at the agency.
When VRC had four full-time employees, a 2022 JLARC report found the agency didn’t have the staff, expertise or regulations to effectively oversee HHR machines.
The General Assembly’s research arm said the agency overseeing HHR should create “licensing and operating requirements that are similarly rigorous to those in place for commercial gaming owners and operators, like casinos.” It also called for the commission to develop internal policies to ensure regulations are followed, including for inspections and financial audits.
VRC staff knew certain protocols for their jobs, but the outside audit didn’t find set rules “to guide consistent, controlled, and compliant procedures that align with operations and Code requirements.”
Another issue was missing or incomplete records: Nearly half sample license applications reviewed for the audit weren’t signed for approval by VRC administrators. And auditors were provided unsigned deposit slips from VRC-licensed racetracks and betting facilities that totaled more than $2 million.
The OSIG report was released after bills to establish the Virginia Gaming Commission, a single statewide gaming agency that would regulate most gambling in the commonwealth, failed in the General Assembly.
The proposed commission would have taken oversight of HHR machines, but its funding was stripped from the compromise budget deal lawmakers approved in late February.
Virginia’s Legislature will consider Gov. Glenn Youngkin’s expected changes to the budget later this month; a final vote is expected in April.
