Colorado Division of Gaming officials early Tuesday responded to a critical audit from the Office of the State Auditor, saying the pandemic impacted its ability to roll out legalized sports betting in Colorado.

The state auditor issued a scathing audit Monday of how the division regulated the first full year of legal sports betting in the state, alleging the division hands out far too many temporary licenses and that it could be losing tax revenue by not requiring more documentation.

The 56-page report covered the time period between May 1, 2020, and April 30, 2021 – when Colorado customers bet almost $2.3 billion – and included the Colorado Limited Gaming Control Commission.

Colorado auditors ding sports betting regulators

“The entire nation was navigating uncharted waters in the midst of the pandemic, the Division of Gaming was no different,” Director Dan Hartman said in a statement. “The temporary closure of Colorado casinos, the cessation of professional and collegiate sporting events and internal hiring freezes posed significant challenges in setting up Colorado’s first regulated sports betting program.”

That could explain what state auditors described as lax processes for issuing licenses.

“Overall, the audit found that the Division and the Commission did not have effective processes to investigate sports betting operators and make sure they were qualified for temporary licensure, or to collect sufficient documentation to determine if sports betting operators’ monthly tax filings were accurate,” according to a report summary.

Hartman said that they were able to roll out the program during a pandemic, as directed by the state legislature, which took great effort.

“As we look back, not just on the first year covered by the audit, but on the past two and a half years since the voters approved sports betting. We are proud of the work we’ve done,” Hartman said. “We met the legislative mandate for a May 1, 2020 start date, we’ve surpassed expectations in sports betting wagers and we’re paving the way for Colorado’s designated beneficiaries, including Responsible Gaming stakeholders and the state’s Water Plan which received $8,564,616 in 2021.”

Colorado imposes a 10% tax on all “net sports betting proceeds reported by the operators.”

But auditors found “wide variation between the amount of wagering activity that operators reported after each gaming day and the totals they reported in their monthly tax filings,” according to the summary.

Colorado sports betting drops in April

Hartman thanked auditors and said the division is implementing the suggested fixes.

“We can assure you that under the direction of the Colorado Limited Gaming Control Commission, the Colorado Division of Gaming and the multiple implementation teams who worked tirelessly, we have delivered an effectively regulated market to provide the best economic and social outcomes for Colorado.

“We believe these improvements, especially with a new regulatory structure and an ever evolving industry, will only make the program stronger.”