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Uhm, it's a lottery. Do what Canada does, use a ball-drop machine [1].

Hmm, just did a bit of checking: Apparently we use both ball-drop machines and RNGs, depending on draw frequency [2].

I hope the powers-that-be audit their system security now.

[1] http://www.olg.ca/lotteries/draws_overview.jsp

[2] http://www.olg.ca/lotteries/games/lottomax_faq.jsp

There are some bitcoin lotteries if you search around. One simple method is players all propose a number, and then at choosing time, compare to the hash of the last blockchain transaction. They might be able to automate the wagering and payout parts too.

Isn't that liable for manipulation by bitcoin miners? Why not use some other public source of randomness instead?

See the NIST Randomness Beacon.

Correct me if I'm wrong but that wouldn't stop a NIST insider from making the system output the numbers at lottery selection time would it?