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That vetting consisted merely of a criminal-background check of Mr. Bailey and a check to see whether VSC had been barred from government work. But VSC had never done any work of any kind, so there wasn’t much to see.

“Because VSC was a newly formed business, it had no previous record of performance to assess,” the report states, noting that despite failing to meet local business requirements, D.C. officials had certified the company as a local business.

Lottery experience was similarly impossible to assess, according to the report.

“Neither VSC nor [Mr. Bailey] had experience in the lottery industry,” the report states. “Because DC09 was created to perform the lottery contract, it had no history of previous performance for the CFO to review.”

The inspector general, the report states, could not even determine whether the CFO’s “responsibility assessment” would have turned out differently if it “had been aware of the discrepancies surrounding” VSC’s local business certification.

Investigators also confirmed a series of articles in The Washington Times, beginning in July 2010, that showed Mr. Bailey’s firm “misrepresented its previous work experience on its website.” Yet the inspector general could not determine whether the bogus claims were posted during the CFO’s vetting of VSC. Mr. Gandhi had determined by late June in a letter to Mr. Nickles that no further vetting was necessary.

Still, the inspector general acknowledged that the CFO could have “exercised its continuous right to approve or reject any subcontractor by rejecting VSC, DC09, or any key employee.”

Recommendations

While finding that neither the council nor the CFO’s office was required to clean up the subcontract, the inspector general nevertheless recommended that the council clearly define its role in modifying contracts, including whether it should be “nullifying the results of the competitive bid process” and to decide whether it needs a revised code of ethics.

The inspector general also recommends that city officials clean up the local business certification process, “especially where the final determination contravenes the compliance specialists’ findings.”

David A. Catania, at-large independent, agreed with the findings, saying current certification requirements erode the value of being a true local business.

“The shell game that some businesses are able to get away with under current law is unacceptable and does a disservice to the integrity of our certification program,” he said through a spokesman.

Mr. Catania and Vincent B. Orange, at-large Democrat, have introduced separate bills aimed at reforming the District’s local — or minority — business requirements.

As for the lottery deal, Mr. Nickles, the former attorney general who led the call for an investigation, said last week that he disagrees with the limited findings of the inspector general. He said a court would invalidate the contract approval because it tied Mr. Bailey’s firm to a contract without fully presenting it for scrutiny by the CFO, the council or the mayor at the time.

“I went head to head with Gandhi about this,” Mr. Nickles said. “You can’t go through a procurement based on an independent assessment on the merits, then substitute what amounts to a majority partner when the city doesn’t know about it. And you can’t hide behind the claim that it is a subcontract and Intralot remains primarily responsible.”

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