Raleigh, N.C. — The North Carolina lottery received a clean bill of health from the state auditor this week, but it fell short of its goal required by law.

The North Carolina lottery launched with just three months to go in the fiscal year that ended June 30. According to the state audit released this week, total revenues totaled more than $231.8 million.

More than $63.5 million of that revenue or 27 percent was directed for educational purposes. The General Statute calls for at least 35 percent of total annual revenues go to education.

Nearly $119 million, or 51 percent of revenues, was paid for lottery prizes. Free tickets given out as prizes cost another $14 million, or 6 percent of revenue.

As for operating expenses, the lottery spent about $19 million, or 8 percent of the total pie. Retailer commissions and advertising accounted for another 7 percent and 1 percent, respectively.

Lottery director Tom Shaheen attributed the shortfall in education funding to the hefty cost of getting the lottery started but said he is determined to meet the 35 percent target by the end of the state's 2007 fiscal year in June.

"We had huge expenses that normal businesses wouldn't have all at one time," Shaheen said. "It is our goal to hit that 35 percent by the end of the (fiscal) year."

In the first three months of fiscal 2007, the lottery turned over 35.6 percent of its revenues to state schools, he said.

Shaheen also defended the practice of awarding bonuses to lottery executives, saying that compensation helped get the lottery launched in March and allowed state schools to receive $63.5 million by the end of June.

"If we wouldn't have brought in experienced people who were uprooted on short notice to come here to start this lottery, it wouldn't have been started by March 30. It would probably have been June 30," he said.