State Lottery Director Buddy Roogow got a mostly sympathetic hearing when he appeared before a legislative oversight committee yesterday as it reviewed a highly critical audit report of his agency.

While some legislators on the Joint Audit Committee raised questions about the findings, others defended Roogow's management of the agency.

Legislative auditors had sharply criticized the lottery agency for serious management and oversight failures, and some of their findings were referred to state prosecutors for criminal prosecution.

The audit found that at least $112,000 was paid out on instant tickets that were improperly "activated" by a lottery employee, permitting them to be fraudulently cashed. The employee was dismissed.

Auditors also found that the lottery had paid $86,000 to people holding nonwinning tickets because a lottery contractor, on three occasions, entered incorrect numbers into an automated system that retail outlets use to check for the winning numbers on games such as Pick 4.

Sen. John J. Hafer, an Allegany County Republican, played down the significance of the audit findings. He said the amount of money involved is minuscule compared with the $1.3 billion in lottery sales each year.

"The amount of money the lottery has brought in far exceeds any losses that have happened," Hafer said.

But Sen. Nathaniel J. McFadden, a Baltimore Democrat who serves as co-chairman of the audit committee, said the panel had an obligation to look into the auditors' findings.

Hafer responded: "I just think Buddy and his group have done a fantastic job and we're grateful for that."

Hafer said problems that auditors found were like those any business might encounter and suggested the audit of the lottery received more attention from the press than was warranted because the state is considering expanding into slot-machine gambling.

Gov.-elect Robert L. Ehrlich Jr. has proposed that the lottery oversee slot machines at horse tracks in Maryland. The General Assembly is expected to take up the slots issue in the coming session.

In rating the lottery's performance as "unsatisfactory," auditors noted that eight of their 24 findings were repeated from a previous audit.

Roogow told the legislative panel he is working diligently to correct the deficiencies reported by the audit.

"We absolutely intend to implement the recommendations to the best of our abilities," Roogow said. "It is a daunting task in some regards."

He said the Maryland lottery is the country's 12th largest, but has fewer employees than most other states and has one of the lowest operating costs.

Sen. Patrick J. Hogan, a Montgomery County Democrat, told the committee he sympathizes with Roogow's efforts to do what auditors want while trying to run the lottery efficiently and effectively.

"Roogow is stuck between a dog and a fire hydrant," Hogan said. "He is going to get wet no matter what he does."