A BetRivers.com billboard towers over traffic on the 6th Avenue Freeway near Kalamath Street in Denver shortly after sports betting became legal in Colorado in 2020. (Andy Colwell, Special to The Colorado Sun)

Colorado regulators haven’t completed background checks for a majority of internet operators in the state’s nascent sports betting industry, possibly allowing operators with criminal backgrounds or financial conflicts of interest to operate, a state audit has found.

The audit released Tuesday also found discrepancies between some operators’ reported net proceeds and their tax payments on those wages, making it possible Colorado is losing tax revenue from the industry, The Gazette reported.

The audit said the Division of Gaming and Colorado Limited Gaming Control Commission rushed to issue temporary licenses to meet a May 2020 start date for legalized sports betting, shortly after voters approved expanded gaming in November 2019.

The temporary licenses required preliminary background checks. But the division and commission have yet to clear a backlog to issue permanent licenses for those operators by completing more detailed criminal and financial background checks, the Office of the State Auditor found.

In March of this year, 35 of 39 operators — both casinos and internet operators — had temporary licenses, the report said.

The report said one operator, which it didn’t identify, reported $1.4 million more in net proceeds in its daily wager reports compared to a monthly tax filing. It did not cite any specific wrongdoing.

The audit covered the first full year of legalized gaming in the state, from May 2020 to April 2021. Colorado customers bet more than $2.3 billion in that time period; 98% of those wagers were made online.

Colorado taxes 10% of operators’ net proceeds, with most of that revenue going to the state’s water resources planning, as well as industry regulation and behavioral health.

The auditor’s office recommended that regulators complete a regulatory framework for investigations of operators and improve monitoring of the industry’s reported income and tax payments. The division agreed to all the recommendations.

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