Ontario's ombudsman wants to ban retailers who sell provincial lottery tickets from playing unless the Ontario Lottery and Gaming Corp. (OLG) can prove fraud has dropped sharply.

André Marin said Thursday that he has written to OLG and given the agency six months to provide concrete evidence of a drop in fraud. If the results aren't satisfactory, he'll recommend that lottery ticket sellers and their families be banned from the games.

Kelly McDougald, CEO of the OLG, said the agency has been reporting to Marin and will continue to do so.

"We have absolutely embraced the ombudsman's [past] recommendations" about mitigating fraud and will continue to work to do so," she said.

Marin announced his ultimatum a day after an independent audit showed that insiders had claimed $198 million — 3.4 per cent of total winnings — in prizes over 13 years, almost double OLG's estimate of $106 million.

That is an astronomical number, and shows that fraud is rampant, Marin said.

"Playing the lottery is not a God-given right in Ontario. It is a privilege," he said. "If retailers and insiders can't control their itchy fingers, if they demonstrate they are not responsible lottery players, then it's not worth the tens of millions of dollars to police them. We should just ban them outright."

McDougald said the audit identified six behaviours that suggested possible fraud. In five of them, OLG actions have mitigated the potential fraud, and the sixth is a possible fraud against the company, not lottery gamblers.

Marin believes the OLG has a cosy relationship with retailers who sell lottery tickets because they bring in a lot of revenue, and buy tickets themselves.

The company is spending millions of dollars to police the lottery system, but still isn't stopping the fraud, he said.

Marin said the amount of fraud could be even higher than reported in the audit.

McDougald said Wednesday that the corporation has taken steps in the past two years to protect players and limit potential fraud by people who sell lottery tickets.

"For the past two years, the organization has been better protecting players," and the audit "confirms we are on the right path and gives us great insight to drive even greater changes into our business," she said.

Marin has criticized OLG before, in March 2007 reporting that it was "too cozy" with its retailers.