Casino Gaming Regulation: Roles of Five States and the National Indian
Gaming Commission (Letter Report, 05/15/98, GAO/RCED-98-97).
Pursuant to a congressional request, GAO reviewed the roles of the
National Indian Gaming Commission and states in casino gaming
regulation, focusing on: (1) information on the Commission's
organization, staffing, funding, and responsibilities from 1991 through
1997; (2) similar information on state gaming agencies in Arizona,
Michigan, Nevada, New Jersey, and Washington, as it relates to casino
gaming; and (3) views of the heads of the gaming agencies from the five
states on the elements critical to regulating gaming.
GAO noted that: (1) in 1991, the Commission's organization consisted of
three commissioners and six other staff; (2) by 1997, the Commission's
staffing had increased to 37 and included two oversight offices--the
Office of Contracts and Audits and the Office of Enforcement; (3)
funding for the Commission, which comes from fees assessed on Indian
bingo operations, appropriations, or cost reimbursements, increased from
$1.6 million in 1991 to $4.6 million in 1997; (4) expenditures were
greater than revenue during the last 4 fiscal years, but the use of
carryover balances from prior years sustained the Commission; (5) during
the early 1990s, the Commission promulgated regulations for the Indian
gaming; (6) later, it focused on its responsibilities to: (a) monitor
gaming operations; and (b) review or approve various gaming reports and
submissions for both bingo and casino gaming; (7) the gaming agencies in
the five states GAO reviewed vary considerably in their organization,
staffing, and funding for casino gaming, a situation that reflects the
differences in the scope and level of the responsibilities that state
agencies have; (8) in fiscal year 1997, Nevada and New Jersey, the two
states that almost exclusively regulate non-Indian casino gaming, had
the largest organizations, in part, because they regulate all or almost
all of the casino gaming in their states; (9) New Jersey had a staff of
about 700 and a budget of about $54 million to license, monitor, and
enforce the gaming requirements for 12 non-Indian casinos in Atlantic
City; (10) Nevada had a staff of about 400 and a budget of $22 million
to regulate over 2,400 gaming operations; (11) Arizona, Michigan, and
Washington had smaller organizations and shared responsibilities with
the tribes; (12) although these three states oversee about the same
number of Indian gaming operations, staffing and funding levels varied;
(13) licensing, monitoring, and enforcement activities also differed in
these three states; (14) in all five states, gaming operations fund each
state's regulatory or oversight program; (15) the heads of the gaming
agencies in all five states GAO visited cited the importance of ensuring
the integrity of gaming and identified what they viewed as critical
regulatory elements; and (16) from their perspective, the critical
elements are: (a) the use of accounting, administrative, and internal
controls to assist the regulators and casinos in monitoring gaming
operations; and (b) the licensing process, because it helps to identify
and deter organized crime.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-98-97
TITLE: Casino Gaming Regulation: Roles of Five States and the
National Indian Gaming Commission
DATE: 05/15/98
SUBJECT: Indian lands
Native Americans
Independent regulatory commissions
Recreation
Internal controls
State governments
Licenses
IDENTIFIER: Arizona
Washington
New Jersey
Nevada
Michigan
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Cover
================================================================ COVER
Report to Congressional Requesters
May 1998
CASINO GAMING REGULATION - ROLES
OF FIVE STATES AND THE NATIONAL
INDIAN GAMING COMMISSION
GAO/RCED-98-97
Casino Gaming Regulation
(141075)
Abbreviations
=============================================================== ABBREV
FTE - full-time equivalent
Letter
=============================================================== LETTER
B-279573
May 15, 1998
The Honorable Ben Nighthorse Campbell
Chairman
The Honorable Daniel K. Inouye
Vice-Chairman
Committee on Indian Affairs
United States Senate
In the last decade, Indian gaming has grown into a
multibillion-dollar business. At the end of fiscal year 1997, 275
Indian gaming operations existed in 28 states. These operations
included casino gaming, which ranged from multimillion-dollar
casinos, to a unit with a few slot machines, to bingo. The Indian
Gaming Regulatory Act of 1988, among other things, established a
statutory basis for the operation of gaming by Indian tribes as a
means to promote tribal economic development, shield it from
organized crime, and ensure that gaming is conducted fairly and
honestly by both the operators and players. To this end, the act
established the National Indian Gaming Commission to oversee Indian
gaming and differentiated the roles of the Commission, the states,
and the tribes. The Commission is responsible for ensuring that
tribal gaming is conducted in compliance with the act and the
Commission's regulations. In actual practice, the states, as well as
the tribes, are responsible for ensuring compliance with tribal-state
compacts--agreements negotiated between the states and tribes that
identify which party will be responsible for licensing, monitoring,
and enforcing the gaming activities. Thus, the day-to-day oversight
of casino gaming was left to the states and tribes to negotiate--not
the Commission. The act provided for the Commission's funding from
appropriations and fees on Indian bingo operations.
In the last two Congresses, proposals have been put forward to expand
the Commission's responsibilities and resources. These proposals
included reconfiguring the Commission to promulgate minimum federal
standards for Indian casino gaming. Minimum standards would be
established for such areas as background checks, licensing,
surveillance, and monitoring. The Commission's funding and staffing
needs were also discussed during hearings. In order to better
understand the organizational structure, staffing, and funding levels
needed for an enhanced Commission, you requested (1) information on
the National Indian Gaming Commission's organization, staffing,
funding, and responsibilities from 1991 through 1997; (2) similar
information on state gaming agencies in Arizona, Michigan, Nevada,
New Jersey, and Washington, as it relates to casino gaming; and (3)
for those states, the views of the heads of the gaming agencies on
the elements critical to regulating gaming.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
In 1991, the Commission's organization consisted of three
commissioners and six other staff. By 1997, the Commission's
staffing had increased to 37 and included two oversight offices--the
Office of Contracts and Audits and the Office of Enforcement.
Funding for the Commission, which comes from fees assessed on Indian
bingo operations, appropriations, or cost reimbursements, increased
from $1.6 million in 1991 to $3.8 million in 1997. Expenditures were
greater than revenue during the last 4 fiscal years, but the use of
carryover balances from prior years sustained the Commission. During
the early 1990s, the Commission promulgated regulations for Indian
gaming. Later, it focused on its responsibilities to (1) monitor
gaming operations and (2) review and/or approve various gaming
reports and submissions for both bingo and casino gaming. During the
last 2 years, the Commission conducted over 500 field visits to
discuss compliance requirements and to inspect records and
operations. The submissions include, among other things, tribal
ordinances that establish how tribes will regulate their gaming and,
for tribes that choose to have contractors manage their gaming, the
management contracts between the tribes and gaming operators.
The gaming agencies in the five states we reviewed vary considerably
in their organization, staffing, and funding for casino gaming, a
situation that reflects the differences in the scope and level of the
responsibilities that the state agencies have. In fiscal year 1997,
Nevada and New Jersey, the two states that almost exclusively
regulate non-Indian casino gaming, had the largest organizations, in
part, because they regulate all or almost all of the casino gaming in
their state. New Jersey had a staff of about 700 and expenditures of
about $54 million to license, monitor, and enforce the gaming
requirements at 12 non-Indian casinos in Atlantic City. Nevada had a
staff of about 400 and expenditures of $22 million to regulate over
2,400 gaming operations, of which 4 were Indian casinos. Arizona,
Michigan, and Washington, which had only Indian casino gaming at the
time of our review, had smaller organizations and shared
responsibilities with the tribes. Although these three states
oversee about the same number of Indian gaming operations--16 in
Arizona, 17 in Michigan, and 11 in Washington--staffing and funding
levels varied. Arizona had 61 staff and $3.8 million in
expenditures; Washington, 24 staff and $1.6 million; and Michigan, 2
staff and $175,000. Licensing, monitoring, and enforcement
activities also differed in these three states. For example, Arizona
and Washington certify, rather than license, gaming businesses and
individuals and have enforcement responsibilities; Michigan does
neither. In all five states, gaming operations fund each state's
regulatory or oversight program.
The heads of the gaming agencies in all five states we visited cited
the importance of ensuring the integrity of gaming and identified
what they view as critical regulatory elements. From their
perspective, the critical elements are (1) the use of accounting,
administrative, and internal controls, such as audits of the
financial statements, to assist the regulators and casinos in
monitoring gaming operations, and (2) the licensing process, which
includes background investigations of individuals and companies,
because it helps to identify and deter organized crime.
BACKGROUND
------------------------------------------------------------ Letter :2
From an estimated $100 million when the act was passed in 1988,
revenue from Indian gaming reached $1.2 billion in 1992, $3.2 billion
in 1994, and exceeded $6 billion in 1996. As we reported last year,
casinos accounted for most of the Indian gaming revenue, and a few
large casinos accounted for a major portion of the casino revenue.\1
In 1996, according to the Commission, for every $1 in revenue derived
from Indian bingo gaming, almost $15 derived from Indian casino
gaming. Although tremendous growth in total revenue has occurred,
not every Indian gaming operation has been successful. In addition,
not every operation has been without controversy. One contentious
issue concerns the types of casino games that can be played within
states.
The Indian Gaming Regulatory Act of 1988 established several
requirements.\2 One requirement is that net revenues from tribal
gaming are to be used to (1) fund tribal government operations or
programs, (2) provide for the general welfare of the Indian tribe and
its members, (3) promote tribal economic development, (4) donate to
charitable organizations, or (5) help fund the operations of local
government agencies. In addition, tribes may distribute a portion of
their net revenues directly to tribal members as per-capita payments.
However, such a distribution requires a revenue allocation plan that
must be approved by the Secretary of the Interior.\3
The act established three classes of gaming to be regulated by a
combination of tribal governments, state governments, and the
National Indian Gaming Commission. Briefly, Class I gaming includes
traditional forms of Indian gaming connected with tribal ceremonies
or celebrations and is regulated solely by the tribes. Class II
gaming includes bingo and other similar games and is regulated by the
tribes and the Commission. Class III gaming includes casino games
and slot machines and, although the Commission has regulatory
responsibilities under the act, is regulated primarily by the tribes
and states according to a compact that governs the gaming
activities.\4 For ease of discussion, we use "Indian bingo gaming" to
refer to all Class II gaming and "Indian casino gaming" to refer to
all Class III gaming.
The compact for Indian casino gaming is a negotiated agreement that
establishes the state's and tribe's regulatory and oversight roles
and specifies the games allowed. It may include provisions
concerning the standards for the operation and maintenance of the
gaming facility, the application of the tribe's and the state's laws
and regulations that are related to the gaming activity, and the
state's assessment of the amounts necessary to defray the costs of
regulating or overseeing the gaming activity. A compact may cover a
single gaming operation or multiple operations, depending upon what
is negotiated.
The act requires that tribes and states negotiate compacts to balance
the interests of both the state and the tribe. In addition, the
Secretary of the Interior must approve the compacts.\5
The act also requires that the tribe's governing body must pass a
tribal gaming ordinance or resolution before the tribe can have
casino gaming. Furthermore, if a management company is to run the
gaming operation, a management contract is required. Per the act,
the Commission must approve tribal gaming ordinances or resolutions
and management contracts.\6
At the end of fiscal year 1997, of the 275 Indian gaming operations,
203 had casino gaming, according to the Commission. Of these 203,
141 were operating with an approved compact, while 62 were not. Of
the 57 Indian casinos in the four states that we visited that had
Indian gaming,\7 45 were operating with a compact approved by the
Secretary. Three tribes in Washington operated the remaining 12
without a Secretary-approved compact. Of those, 11 casino operations
of two tribes contained slot machines, which Washington does not
allow, and Washington would not agree to a compact allowing them.
According to state officials, these two tribes are allowed to operate
under a court order until pending litigation on this issue is
settled. The other tribe with one operation had a compact approved
by the state but not by the Secretary, as of the end of fiscal year
1997.\8 The tribe has since submitted the compact for approval, and
approval was granted on March 30, 1998. In these four states, about
60 percent of all of the federally recognized tribes (46 of 78) have
negotiated compacts, but not all have opened casino operations or had
successful operations.
Figure 1 shows the number of Indian casino gaming operations by
state.
Figure 1: Distribution of 203
Indian Casino Gaming
Operations, by State
(See figure in printed
edition.)
Source: National Indian Gaming Commission, as of September 30, 1997.
--------------------
\1 Tax Policy: A Profile of the Indian Gaming Industry
(GAO/GGD-97-91, May 5, 1997); see also Profile of Indian Gaming
(GAO/GGD-96-148R, Aug. 20, 1996).
\2 Under the act, an Indian tribe must be federally recognized by the
Secretary of the Interior.
\3 The Secretary of the Interior delegated this authority to the
Assistant Secretary--Indian Affairs, who is responsible for the
Bureau of Indian Affairs.
\4 Appendix I contains a more detailed explanation of the classes.
\5 The Secretary of the Interior delegated this authority to the
Assistant Secretary--Indian Affairs, who is responsible for the
Bureau of Indian Affairs.
\6 Tribal gaming ordinance and management contract requirements apply
to Indian bingo gaming and Indian casino gaming.
\7 New Jersey did not have Indian gaming.
\8 Indian Gaming: Federal Controls Did Not Detect Compact Approval
Violation (GAO/RCED-98-45R, Dec. 19, 1997). A Notice of Approved
Tribal/State Compact for this tribe was published in the Federal
Register on March 30, 1998.
NATIONAL INDIAN GAMING
COMMISSION
------------------------------------------------------------ Letter :3
ORGANIZATION, STAFFING, AND
FUNDING
---------------------------------------------------------- Letter :3.1
The National Indian Gaming Commission is headed by a Chairman and two
associate commissioners. The Commission grew from a total staff of 9
in fiscal year 1991 to 37 in fiscal year 1997. With the staffing
increases, the Commission's organization evolved to its current
organizational structure, which includes a Chief of Staff and a
General Counsel reporting to the Chairman. Reporting to the Chief of
Staff are two primary oversight offices--the Office of Contracts and
Audits with 3 staff and the Office of Enforcement with 16 staff,
including 6 field investigators. The Office of General Counsel has
five staff.
The Commission's revenue increased from $1.6 million in fiscal year
1991 to $3.8 million in fiscal year 1997. The revenue came from fees
on Indian bingo operations,\9 federal appropriations, and cost
reimbursements for conducting background investigations on
contractors and processing fingerprints. While the revenues from
fees and appropriations have remained fairly constant and are the
primary sources of revenue, cost reimbursements have increased
dramatically.
Expenditures have also increased in the last 7 years--from $1.2
million to $4.6 million. The Commission's expenditures for the last
4 fiscal years have outpaced its revenues. The Commission used prior
years' carryover balances to make up the difference. Figure 2 shows
the Commission's sources and amounts of revenue and expenditures over
the 7-year period.
Figure 2: National Indian
Gaming Commission's Revenues,
by Source, and Total
Expenditures, Fiscal Years
1991-97
(See figure in printed
edition.)
Source: National Indian Gaming Commission.
--------------------
\9 For most tribes, beginning in fiscal year 1998, the Commission
will assess fees on Indian casino gaming operations as well.
RESPONSIBILITIES
---------------------------------------------------------- Letter :3.2
Established by the Indian Gaming Regulatory Act of 1988, the
Commission is responsible for ensuring that both Indian bingo and
casino gaming operations are in compliance with the act and its
regulations. For example, the Commission is responsible for ensuring
that the tribe has an approved tribal ordinance concerning the
conduct of bingo and casino gaming. In the first few years of
existence, the Commission focused its efforts on its responsibility
to promulgate regulations. Later, the Commission focused on
reviewing and/or approving various gaming reports and submissions for
both bingo and casino gaming as well as on its monitoring activities.
It reviews or approves (1) tribal ordinances for bingo and casino
gaming that establish how tribes will comply with the Commission's
regulations; (2) management contracts that establish the relationship
between the tribe and its gaming operator, including the payment to
be made for this service; (3) annual independent audits of the
financial statements; and (4) background investigation reports.
The Commission monitors compliance with its regulations and the
requirements of the act. Monitoring activities include examining
records of the gaming operation and inspecting the gaming facilities.
As a part of its monitoring, six Commission field investigators made
over 500 field visits in 25 states during the last 2 years. These
visits involved discussions about compliance requirements as well as
examinations of the records and inspections of the operations. Also,
the Commission took 55 enforcement actions in the last 2 years for
violations of the act or of the Commission's regulations.
STATE GAMING AGENCIES
------------------------------------------------------------ Letter :4
Much variety exists among the five state gaming agencies that we
reviewed that regulate or oversee casino gaming; differences exist in
their organization, staffing levels, and funding levels. These
differences are not, by themselves, an indication of effectiveness.
They merely reflect differences in the scope and level of the state
agencies' responsibilities. For example, the gaming agencies vary
from a small organization that reviews compliance and operations at
least quarterly to a relatively huge organization that has 24-hour
continuous monitoring.
Some states' programs have some unique aspects. For example,
Washington limits the number of gaming tables that a casino may have,
and Arizona limits the number of slot machines on the basis of tribal
membership. Michigan, on the other hand, considers the number of
machines in a casino to be a business decision made by each
individual operation. (Apps. III through VII provide the details of
each state's program.)
ORGANIZATION, STAFFING, AND
FUNDING
---------------------------------------------------------- Letter :4.1
The five state gaming agencies varied from a large, multibodied
organization to much smaller units. The larger organizations are in
New Jersey and Nevada, which primarily oversee billions of dollars in
non-Indian casino gaming. The smaller units are in Arizona,
Michigan, and Washington--states that oversee Indian casino gaming
with many fewer total gaming dollars involved. All five state
agencies, although structured differently, include audit and
investigations functions.
For fiscal year 1997, staffing and expenditures in the states with
the larger, more complex organizations were much greater than for the
smaller organizations, as would be expected. The number of gaming
operations in a state, however, does not correlate directly to the
state agency's staffing level. For example, for 17 Indian casinos,
Michigan committed 2 staff to oversee gaming operations.\10
Washington, which has 11 Indian casinos, committed 24 staff to
oversee the gaming operations. As we discuss later, staffing and
funding levels reflect the states' roles in oversight or regulation.
Table 1 illustrates the staffing and funding variations among the
states.
Table 1
Number of Casino Gaming Operations and
Total Staff and Expenditures for Five
States' Gaming Agencies and Additional
Revenue Generated for Fiscal Year 1997
(Dollars in millions)
Number of
casino gaming State gaming
operations agency's total
-------------- ------------------
Additional
revenue
generated
Indi Non- Staf from
State an Indian f Expenditures gaming\a
-------------------- ---- -------- ---- ------------ ------------
Arizona 16 0 61 $3.8 $0
Michigan 17 0 2 0.2 38.1\b
Nevada 4 2,421 402 22.0 548.0
New Jersey 0 12 731 53.7 308.1
Washington 11 0 24 1.6 0
----------------------------------------------------------------------
Note: Fiscal year is July 1 of one year to June 30 of the next,
except for Michigan's, which is October 1 to September 30.
\a Additional revenues represent the following: in Michigan, 8
percent of net win from electronic video gaming and slot machines but
not payments made to local governmental units; in Nevada, total
revenue collected minus expenditures; in New Jersey, 8 percent of the
casino win (which goes to the Casino Revenue Fund).
\b Calendar year data.
Source: The five states' gaming agencies.
Although revenue sources vary somewhat, the gaming agencies in all
five states receive their funding from gaming operations within the
state; state tax dollars are not used. Generally, the states are
reimbursed for the expenditures they actually incur for their
licensing, certification, or oversight costs. Arizona bills the
tribes for services provided, but if bills for services do not cover
all expenditures, Arizona allocates the remaining amount (shared
enforcement expenditures) on the basis of the number of gaming
machines an operation has. New Jersey also bills for services
provided but allocates any remaining costs equally among the casinos.
Michigan bills the tribes equally for staff wages and benefits and
bills for other expenses as they are incurred. Nevada, depending on
the compact, charges the tribes a 1-percent fee or bills for services
provided. Washington either bills for services or charges a flat
fee, at the option of the tribe.
Nevada, Michigan, and New Jersey receive additional revenue from
gaming. In Nevada, this additional revenue is largely generated from
the fees assessed on gaming revenues. Michigan and New Jersey also
receive a percentage of the gaming revenues. Michigan receives an
8-percent fee on electronic video gaming and slot machine earnings
because the tribes have the exclusive right to operate such games in
the state.\11 New Jersey collects an 8-percent tax on casinos' gross
revenues, which is used to benefit senior citizens and disabled
persons within the state.
--------------------
\10 A staff of 48 is anticipated for non-Indian casino gaming
expected to begin in Michigan in 1999.
\11 This revenue will end when non-Indian casinos open with slot
machines, which is expected sometime in 1999.
RESPONSIBILITIES
---------------------------------------------------------- Letter :4.2
The level of staffing and funding that each state commits to gaming
oversight or regulatory activities varied according to the
responsibilities each state has for licensing, monitoring, and
enforcement. New Jersey is the only casino gaming regulator in the
state and, therefore, assumes all of the oversight responsibilities.
Nevada assumes all of the responsibility except in the case of one
Indian casino gaming operation for which, under the compact, the
tribe assumes some of the regulatory responsibility. Arizona,
Michigan, and Washington all monitor or oversee Indian casino gaming.
Their responsibilities for licensing and enforcement vary according
to the compact negotiated.
LICENSING
-------------------------------------------------------- Letter :4.2.1
The states differed in how they handled the licensing of gaming
businesses and individuals, such as operators, employees,
contractors, and suppliers. New Jersey licenses these individuals
because the state is the only casino gaming regulator. Depending on
the compact, Nevada may license these individuals or the tribe may
have the responsibility. In Arizona, Michigan, and Washington, the
tribes license businesses and individuals. However, Arizona and
Washington have a certification process to certify the businesses and
individuals as suitable. Michigan, which has standards for gaming
equipment, supplies, and machines, does not certify businesses or
individuals associated with Indian gaming casinos.
MONITORING
-------------------------------------------------------- Letter :4.2.2
Monitoring activities in the five states were fairly similar, but the
frequency of the monitoring varied. For example, all states review
the annual financial reports of the gaming operations and conduct
informal observations of gaming operations. However, the states
perform their monitoring activities at various times. For example,
Washington conducts many of its activities weekly, whereas Michigan
conducts its activities at least quarterly. In some instances,
states conduct their monitoring activities at nonspecific times, such
as periodically or ongoing. Table 2 shows how states perform
selected monitoring activities at widely differing intervals.
Table 2
Frequency of Selected Monitoring
Activities Performed by Five States'
Gaming Agencies
Monitoring activity
------------------------------------------------------------------------------
Tribal compliance Formal inspection
with compact of gaming Compliance with Observation of
State requirements operation internal controls money count
--------- ------------------ ------------------ ------------------ ------------------
Arizona Ongoing Every 1.5 years\a Weekly Annually
Michigan At least quarterly At least quarterly At least quarterly At least quarterly
Nevada Periodically Periodically Periodically Periodically
New N/A\b Daily Daily Daily
Jersey
Washingto Weekly Weekly Weekly Periodically
n
-----------------------------------------------------------------------------------------
\a Formal observation of the operation is on a weekly ongoing basis.
\b N/A = not applicable. New Jersey has no federally recognized
tribes and thus has no compacts.
Source: Five states' gaming agencies.
New Jersey is the only state of the five that has a state presence in
the casinos at all times during operations. This presence is
possible, in part, because all of the state's casinos are located in
Atlantic City.
ENFORCEMENT
-------------------------------------------------------- Letter :4.2.3
The five states varied somewhat in their enforcement authority. New
Jersey and Washington have the authority to assess fines or penalties
and seize illegal equipment. Arizona and Michigan do not. For
Indian gaming, Nevada's enforcement authority varies according to the
compact. Of the five states, only Michigan, which does not certify
or license gaming employees or establishments, cannot suspend or
revoke any employee's license. All five states can ultimately
suspend or shut down a gaming operation, either directly or through
an injunction directing closure.
CRITICAL REGULATORY ELEMENTS
------------------------------------------------------------ Letter :5
In outlining their views on the elements critical to regulating
gaming, the heads of the gaming agencies in all five states stressed
the importance of ensuring the integrity of gaming. From their
perspective, two critical elements emerge. All agree on the
importance of accounting, administrative, and internal controls, such
as audits of the financial statements, to assist the regulators and
casinos in monitoring gaming operations. Four of the five view the
licensing or certification process, which includes background
investigations of individuals and companies, as critical. They noted
that this process helps to identify individuals and companies having
criminal records or involvement with organized crime in order to keep
such elements out of the states' gaming operations.
State officials provided a variety of other critical elements. For
example, Nevada and Arizona noted the importance of having the
regulatory body independent from the industry regulated. Washington
and Michigan cited the importance of a cooperative relationship
between the tribe and state. New Jersey pointed out that it is
important to have a laboratory to evaluate and approve the
sophisticated electronic equipment and devices used in the gaming
industry and to monitor changes and advances in technology.
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :6
We provided a draft of this report to the Commission and the gaming
agencies in the five states we visited as well as to the tribes whose
gaming operations we visited. The Commission's Director of Contracts
and Audits provided several technical comments, which we incorporated
into this report. He also pointed out that we did not mention the
role of the tribal gaming commissions, whose role the Commission
views as significant. We recognize that the tribes have a regulatory
role that is based on what is negotiated in their compacts, as stated
in the background section of our report. However, the major
objectives of our review were to provide information on the
Commission's organization, staffing, funding, and responsibilities
from 1991 to 1997 and similar information for five states' gaming
agencies.
We obtained comments from each of the five states' gaming agencies.
The Arizona Department of Gaming (see app. VIII), the Deputy
Director of the Michigan Gaming Control Board, and the Chairman of
the Nevada Gaming Control Board provided technical comments, which we
incorporated, as appropriate, into our report. New Jersey's Division
of Gaming Enforcement (see app. IX), New Jersey's Casino Control
Commission, and the Washington State Gambling Commission indicated
that the report was accurate.
The Arizona Tribal Gaming Regulators Alliance, which represents the
Arizona gaming tribes, provided comments on its differences with the
information provided by the Arizona Department of Gaming and noted
that the draft report did not discuss the regulatory role and
commitment of the tribal gaming commissions in protecting the
integrity of gaming in Arizona. The Alliance presented its view that
the Department is attempting to both attack the sovereignty of
Arizona tribes and increase the Department's role to more than
oversight. Specifically, the Alliance stated that the state's
oversight responsibility is limited to monitoring, rather than
enforcement; would prefer a different presentation of the state's
revenue and expenditures; and stated that the intervals for
monitoring activities were less frequent than what the Department
said it performed. Finally, the Alliance concluded that the Arizona
gaming tribes would be more agreeable to an increased role by the
National Indian Gaming Commission and a reduced role by the Arizona
Department of Gaming.
The tribal gaming commissions have a regulatory role in Indian gaming
activities. However, the scope of our review was to obtain data from
the state gaming agencies, including Arizona's, on their licensing,
monitoring, and enforcement concerning gaming activities--not the
tribes'. The remaining comments noted above by the Alliance
demonstrate the differing views that exist in Arizona between the
Alliance and the Department. Because our scope was limited to
gathering data from the states, we did not take a position on or try
to reconcile these differing views. Appendix X presents the
Alliance's views in their entirety, and we have annotated the
Alliance's letter to indicate the current pages to which the comments
refer.
In a separate letter, the Ft. McDowell Tribal Gaming Office, of one
of the Arizona gaming tribes, found the report informative and noted
that it indicates that diverse Indian gaming regulation by states is
"creeping" toward increased federal control and more stringent state
controls, in spite of Indian gaming efforts to adequately regulate
Indian gaming businesses. These comments are in appendix XI. The
tribes whose gaming operations we visited in Michigan, Nevada, and
Washington had no comments on the draft.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7
At the National Indian Gaming Commission, we met with staff,
including the Chairman and an Associate Commissioner, to discuss the
Commission's organization, staffing, funding, and responsibilities.
We reviewed documents that they provided as well as the Indian Gaming
Regulatory Act, the Commission's relevant regulations, congressional
hearings, and recent legislation proposed to modify the Commission's
responsibilities. To obtain an indication of the type and frequency
of contact made with gaming operations by Commission field staff, at
our request, the Commission identified the number and type of field
visits made during the last 2 years.
To obtain information on the organization, staffing, funding, and
responsibilities of the state agencies that regulate or oversee
casino gaming operations, we visited five states. We were
specifically requested to gather this information for Nevada and New
Jersey, which are the two states with the largest gaming revenues.
We judgmentally selected Arizona, Michigan, and Washington as the
other three states to provide information about a variety of
tribal-state gaming relationships and to include states that had only
Indian casinos at the time of our review. Because our work was
performed in a limited number of states, the results cannot be used
to make generalized statements about all states' activities.
In all five states, we met with staff to discuss the states' roles
and operations and to obtain various documentation, including copies
of organizational charts, state regulations, copies of tribal-state
compacts, and state reports on gaming operations. To obtain
comparable data on funding, staffing, and monitoring activities, we
provided each state with tables in standard format for them to
complete. We met with state staff and officials to discuss their
states' regulation or oversight of gaming operations. In addition,
we obtained written comments on views of critical regulatory elements
from the heads of the Arizona Department of Gaming, the Michigan
Gaming Control Board, the Nevada Gaming Control Board, the New Jersey
Casino Control Commission, the New Jersey Division of Gaming
Enforcement, and the Washington State Gambling Commission.
Because our work focused on the states' perspectives, we did not
review the operations of the tribal gaming commissions. However, we
visited gaming activities in all five states to observe their
operations and procedures. We visited Indian casinos in Arizona,
Nevada, Michigan, and Washington and non-Indian casinos in Nevada and
New Jersey.
Because the funding and staffing figures we used were generally from
budgets or other published data, we did not independently verify the
accuracy of these figures. When appropriate, however, we asked for
clarification of the figures provided. Because it was beyond the
scope of what we were asked to do, we did not assess the
effectiveness of the Commission's or state gaming agencies' programs
or operations. We conducted our review from June 1997 through March
1998 in accordance with generally accepted government auditing
standards.
---------------------------------------------------------- Letter :7.1
As agreed with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after the date of this letter. At that time, we will
send copies of this report to the Secretary of the Interior; the
Director, Office of Management and Budget; the Chairman, National
Indian Gaming Commission; the five states' gaming agencies discussed
in this report; tribes whose casinos we visited; and other interested
parties. We will also make copies available to others upon request.
If you or your staff have any questions about this report, please
call me at (202) 512-3841.
Barry T. Hill
Associate Director, Energy,
Resources, and Science Issues
CLASSES OF INDIAN GAMING
=========================================================== Appendix I
----------------------------------------------------------------------
Class I
1. Social games played solely for prizes of minimum value
2. Traditional forms of Indian gaming played as part of or in
connection with tribal ceremonies or celebrations
Class II
1. Bingo or lotto (regardless of whether electronic, computer, or
other technological aids are used) played for prizes
2. Pull-tabs, punch boards, tip jars, instant bingo (if played in same
location as bingo) and other games similar to bingo
3. Nonbanking card games that state law authorizes or does not
prohibit and that are played legally anywhere in the state\a
Class III
1. All forms of gaming that are not Class I or II gaming and any house
banking games
2. Card games such as baccarat, blackjack (21), Pai Gow, etc.
3. Casino games such as roulette, craps, keno, etc.
4. Slot machines and electronic or electro-mechanical facsimiles of
any game of chance, such as video poker, video blackjack, etc.
5. Sports betting and pari-mutuel wagering, including horse racing,
dog racing, Jai Alai, etc.
6. Lotteries
----------------------------------------------------------------------
\a Per the National Indian Gaming Commission, a banking game is any
game of chance that is played with the house or player as a banker
participant in the game, in which the bank takes on all players,
collects from all losers, and pays all winners--and the bank can win.
NATIONAL INDIAN GAMING COMMISSION
========================================================== Appendix II
The Indian Gaming Regulatory Act of 1988 (Pub. L. 100-497)
established the National Indian Gaming Commission as an independent
agency within the Department of the Interior. Although the
Commission began its start-up efforts in May 1990, it did not
consider itself operational until early 1993 after the publication of
its regulations in the Federal Register. The Commission's mission is
to fulfill the mandates of the act in fostering the economic
development of Indian tribes by attempting to ensure the integrity of
Indian bingo and casino gaming and to ensure that tribes are the
primary beneficiaries. The Commission is responsible for regulating
Indian bingo and casino gaming in 28 states and 275 gaming facilities
operated by 189 tribes. Figure II.1 shows which states have Indian
bingo gaming and the number of operations in each state.
Figure II.1: Distribution of
207 Indian Bingo Gaming
Operations, by State
(See figure in printed
edition.)
Source: National Indian Gaming Commission.
ORGANIZATION, STRUCTURE, AND
STAFFING
------------------------------------------------------ Appendix II:0.1
As established by the act, the Commission is composed of three
full-time commissioners--a chairman appointed by the President with
the advice and consent of the Senate and two associate commissioners
appointed by the Secretary of the Interior. At least two must be
enrolled members of an Indian tribe, and no more than two may be of
the same political party. The commissioners serve 3-year terms. The
first Chairman of the Commission came on board in May 1990, and the
two associate commissioners started in November 1990 and April 1991,
respectively. The Commission has had three Chairmen and two acting
Chairmen and a total of five associate commissioners. The most
recent Chairman started in September 1997.
Figure II.2: Organizational
Structure of the National
Indian Gaming Commission
(See figure in printed
edition.)
Source: National Indian Gaming Commission.
The Commission has evolved to its current organization, which
consists of a General Counsel and a Chief of Staff who report to the
Chairman. Under the Chief of Staff are the two primary oversight
divisions, the Division of Contracts and Audits and the Division of
Enforcement, and two other divisions, Chief Financial
Officer/Administration and Congressional and Public Affairs. The
Division of Contracts and Audits is responsible for overseeing annual
audits of tribal gaming operations and management contracts between
the tribes and the companies running their gaming operations. The
Division of Enforcement is responsible for monitoring compliance with
the act and the Commission's regulations and taking appropriate
enforcement actions. The Chief Financial Officer/Administration
Division is responsible for budget, financial, and administrative
matters, while the Congressional and Public Affairs Division is the
liaison to the public and the Congress.
Including the three commissioners, the Commission began with 9 staff
in fiscal year 1991 and increased to a total of 37 staff by the end
of fiscal year 1997. In addition to the Chairman and the two
Associate Commissioners, five staff are in the General Counsel's
office. Under the Chief of Staff, 3 staff are in Contracts and
Audits, 16 are in Enforcement, including 6 field investigators to
cover the 28 states with Indian gaming, 8 are in Chief Financial
Officer/Administration, and 1 is in Congressional and Public Affairs.
Figure II.3 shows the growth in staffing at the Commission over the
last 7 years.
Figure II.3: National Indian
Gaming Commission Staffing,
Fiscal Years 1991-97
(See figure in printed
edition.)
Source: National Indian Gaming Commission.
FUNDING
------------------------------------------------------ Appendix II:0.2
The Commission's revenue comes primarily from fees assessed on Indian
bingo gaming revenues, federal appropriations, and cost
reimbursements. In fiscal year 1991, the Commission had $1.6 million
in revenues--77 percent from appropriations, 23 percent from fees,
and no cost reimbursements. By fiscal year 1997, the Commission had
$3.8 million in revenues--39 percent from fees, 35 percent from cost
reimbursements, and 26 percent from appropriations. The Congress
provided for an increase in the Commission's fiscal year 1998
funding. Starting in 1998, the Commission can charge fees on the
revenues of Indian casino gaming as well as Indian bingo gaming. The
total amount that can be collected from such fees increased from $1.5
million to $8 million. In addition, up to $2 million can be
appropriated. Thus, fees will likely provide the majority of the
funding for the Commission.
Expenditures for the Commission also have increased each year since
fiscal year 1991. During the last 4 fiscal years, expenditures
exceeded revenues to the Commission. Unused fees carried over from
prior years were used to make up the difference between the two.
Table II.1 shows the Commission's revenues and expenditures since
1991.
Table II.1
National Indian Gaming Commission's
Revenues, by Source and Total
Expenditures, Fiscal Years 1991-97
(Dollars in thousands)
Fiscal year
----------------------------------------
1991 1992 1993 1994 1995 1996 1997
---------------------------- ---- ---- ---- ---- ---- ---- ----
Revenues
----------------------------------------------------------------------
Fees $375 $1,5 $1,5 $1,5 $1,5 $1,5 $1,5
00 00 00 00 00 00
Appropriations 1,24 2,19 2,04 1,00 1,00 1,00 1,00
7 0 0 0 0 0 0
Cost reimbursements 0 0 12 242 315 565 1,33
5
Other 0 1 2 1 1 0 0
Total $1,6 $3,6 $3,5 $2,7 $2,8 $3,0 $3,8
22 91 54 43 15\a 65 35
Expenditures
----------------------------------------------------------------------
Total $1,2 $1,6 $2,1 $2,9 $3,2 $3,9 $4,6
14 77 79 03 95 44 42
----------------------------------------------------------------------
Note: According to the Commission, unused fees were carried forward
until used, while unused appropriations expired.
\a Numbers do not add to total because of rounding.
Source: National Indian Gaming Commission, as of September 30, 1997.
RESPONSIBILITIES
------------------------------------------------------ Appendix II:0.3
The Indian Gaming Regulatory Act established the Commission's
responsibilities for the different classes of Indian gaming, charging
the Commission with regulating and monitoring Indian bingo gaming and
certain aspects of Indian casino gaming. Individual tribes and
states regulate casino gaming under negotiated tribal-state
agreements, called compacts. The act requires the Commission to
provide the Congress with a report on various issues pertaining to
the Commission every 2 years.
Initially, the Commission focused its efforts on its responsibility
to promulgate regulations for Indian bingo and casino gaming. From
April 1991, when the third commissioner was approved, until January
1993, the Commission developed, proposed, and issued regulations
covering such requirements as the annual fee rates, ordinances,\1
background investigations for gaming licenses, management contracts,
monitoring and investigations, and enforcement.\2 During this time,
in December 1991, the Commission issued its first and only report to
the Congress, although the act established the requirement for a
report every 2 years. The Commission also performed other initial
responsibilities, such as requesting and reviewing for approval all
existing ordinances.
The Commission's more recent efforts have focused on ongoing
responsibilities, such as processing fingerprint cards, the review
and approval of new ordinances, management contracts, and background
investigation reports for Indian bingo gaming and Indian casino
gaming, as well as oversight and monitoring of Indian bingo and
casino gaming. The Commission's monitoring responsibilities include
examining records and inspecting the facilities. As a part of the
Commission's monitoring, six field investigators made over 500 field
visits in 25 states during the last 2 years. These visits, in part,
were to monitor and discuss compliance requirements and to inspect
gaming operations and their records. Because the Commission assesses
a fee on Indian bingo gaming, it is responsible for verifying the
gross revenues of Indian bingo gaming, collecting fees, and
reconciling the quarterly fee reports from these operations. In
addition, the Commission reviews the results of the annual
independent audits of the financial statements of Indian bingo gaming
and Indian casino gaming operations, which the act requires to be
submitted to the Commission.
The Commission also has enforcement responsibilities, preparing a
quarterly report to the Secretary of the Interior on tribal
compliance with the act and its regulations. Depending on the
severity of the noncompliance and whether voluntary compliance can be
obtained, noncompliance can result in a notice of violation, an order
of temporary closure, or a civil fine of up to $25,000. According to
the Commission, from 1994 through 1997, the Commission took 67
enforcement actions, of which 55 were taken in the last 2 years, and
collected over $1 million in fines for violations of the act or the
Commission's regulations. These actions were against both Indian
bingo and casino gaming operations and covered a range of violations
including operating casino gaming without a compact, failure to
submit an annual audit, and operating in a manner that threatened
public health and safety.
The Commission also provides training to assist tribes in
understanding regulatory requirements. For example, its January 1997
compliance workshop included speakers and information on the
quarterly report prepared by the Commission on overall compliance,
compacts, background investigations, management contracts and the
Commission's enforcement policy, procedures, and priorities.
--------------------
\1 Tribal ordinances establish how the tribe will comply with the
gaming requirements, including the appropriate use of net revenues
and adequate protection of the environment and the public health and
safety.
\2 The act authorized the Commission to issue a tribe a certificate
of self-regulation. On March 12, 1998, the Commission published in
the Federal Register the start of a rulemaking process for
self-regulated casino operations and proposed regulations for similar
bingo gaming operations.
ARIZONA
========================================================= Appendix III
According to the Arizona Department of Gaming, an Arizona federal
district court judge ruled in 1991 that the state of Arizona had to
negotiate the scope of games to be included in a compact with the
tribes. Although the state successfully negotiated compacts with
four tribes, several other tribes asked for mediation to resolve
disagreements concerning the scope of gaming to be allowed. Between
June 24, 1993, and April 14, 1994, the state agreed to 10-year
compacts with 16 of the 21 federally recognized tribes in Arizona.
According to the state, these compacts provide for state oversight of
casino gaming in Arizona and are generally similar with some minor
modifications on a case-by-case basis.
Under the compacts, tribal population determines the number of gaming
devices authorized and the number of locations authorized. For 11 of
the 16 tribes with compacts, the compact allows each to have up to
475 gaming devices at two facilities. Four tribes are allowed up to
900 gaming devices at three locations, and one tribe is allowed 1,400
gaming devices at four locations. While these 16 tribes are
authorized a total of 10,225 gaming devices at 38 locations under
their compacts, as of the end of December 1997, 14 tribes were
operating casinos in 16 locations with a total of 6,490 gaming
devices. (See fig. III.1.) In addition, two tribes with compacts
have closed their casino gaming operations--one in 1995 and one in
1996.
Figure III.1: Distribution of
Indian Casino Gaming Operations
With Compacts in Arizona
(See figure in printed
edition.)
Source: Arizona Department of Gaming.
ORGANIZATIONAL STRUCTURE AND
STAFFING
----------------------------------------------------- Appendix III:0.1
The Arizona State Gaming Agency was established within the Arizona
Department of Racing to carry out the state's responsibilities under
the Indian Gaming Regulatory Act and the gaming compacts negotiated
pursuant to the act. In 1995, the Arizona Department of Gaming was
established as a separate state agency. Its mission is to protect
the public by ensuring the integrity of the Indian gaming industry in
Arizona.
The Department is headed by a Director appointed by the Governor and
confirmed by the Arizona Senate. It monitors and enforces compliance
by the tribal gaming operations with all compact requirements,
including those governing the nature, extent, and conduct of gaming
activities; public health, safety and welfare; and other operational
requirements. The Department conducts background investigations to
ensure that unsuitable individuals or companies are not involved in
Arizona's gaming industry.
Figure III.2: Organizational
Structure of the Arizona
Department of Gaming
(See figure in printed
edition.)
Source: Arizona Department of Gaming.
The Department has two divisions, Enforcement and Administration,
each headed by a Deputy Director. The Enforcement Division is
divided into five units: Applications/Records, Compliance Audit,
Corporate Investigations, Games and Devices Compliance, and Tribal
Affairs Investigations. The Applications/Records Unit processes all
individual certification applications; collects fees; maintains
agency records and databases; and conducts background investigations
on individuals. The Compliance Audit Unit performs compact
compliance reviews to monitor the tribes' compliance with all of the
provisions of the compact; tests internal controls; and reviews and
analyzes financial records of companies applying for state
certification. The Corporate Investigations Unit performs the
corporate background investigations that are required to obtain state
certification. The Games and Devices Compliance Unit ensures that
electronic games of chance and related equipment comply with the
technical standards set forth in the compacts before the devices are
put into operation at the gaming facility and through random
inspections and testing. The Tribal Affairs Investigations Unit is
the primary unit charged with enforcing compact provisions at gaming
facilities. This unit conducts background investigations on all key
employees, primary management personnel, and casino employees
submitting renewal applications. The Administration Division is
responsible for accounting, budget, hearings, purchasing, personnel,
planning, and support services. Table III.1 and figure III.3 show
how the agency's staff were distributed for fiscal year 1997 and
total staffing for fiscal years 1993 through 1997, respectively.
Table III.1
Arizona Department of Gaming Staffing at
the End of Fiscal Year 1997
Number of Percent of
staff total\a
------------------------------------------ ------------ ------------
Director 1 2
Administration
----------------------------------------------------------------------
Administrative staff 8 13
Enforcement
----------------------------------------------------------------------
Applications/records staff 15 25
Compliance audit staff 7 11
Corporate investigations staff 8 13
Enforcement support staff 6 10
Gaming and devices compliance staff 6 10
Tribal affairs investigations staff 10 17
----------------------------------------------------------------------
Note: Fiscal year is July 1 of one year to June 30 of the next.
\a Percentages do not add to 100 because of rounding.
Source: Arizona Department of Gaming.
Figure III.3: Arizona
Department of Gaming's Fiscal
Years 1993-97 Staffing
(See figure in printed
edition.)
Note: Fiscal year is July 1 of one year to June 30 of the next.
Source: Arizona Department of Gaming.
FUNDING
----------------------------------------------------- Appendix III:0.2
The Department is funded by the gaming industry solely through gaming
device assessments and certification fees. The $500 annual
assessment for a gaming device is used to fund enforcement and is
pro-rated on the basis of quarterly use. The certification fee is
nonrefundable and applied to the actual cost of the background
investigation. However, should the cost of the investigation exceed
the initial certification fee, the applicant is required to reimburse
the Department in full for its actual costs before the state issues
certification. In fiscal year 1997, enforcement activities
represented about 70 percent of the Department's operating budget,
and certification represented the remaining portion of the budget.
Actual expenditures for enforcement are allocated to the tribes in
two ways. The expenditure may be directly billed to an individual
tribe if the expenditure is directly attributed to that tribe.
Otherwise, shared enforcement expenditures are billed quarterly to
each tribe on the basis of the number of machines a tribe has; the
greater the number of gaming devices, the more its share of the
shared enforcement expenditures. If revenues exceed expenditures,
the distribution is made similarly. Table III.2 shows the change in
revenue and expenditures since 1993.
Table III.2
Arizona Department of Gaming's Revenues,
by Source and Expenditures, Fiscal Years
1993-97
(Dollars in thousands)
Fiscal year\a
--------------------------------------
1993 1994 1995 1996 1997
------------------------------ ------ ------ ------ ------ ------
Revenues
----------------------------------------------------------------------
Gaming device assessments $415.3 $828.0 $906.8 $2,804 $2,771
.8 .4
Certification fees 99.3 308.3 516.9 1,624. 1,056.
5 1
Total $514.5 $1,136 $1,423 $4,429 $3,827
\b .3 .6\b .3 .5
Expenditures
----------------------------------------------------------------------
Total $193.2 $648.3 $1,306 $3,072 $3,790
.4 .6 .0
----------------------------------------------------------------------
\a Fiscal year is July 1 of one year to June 30 of the next.
\b Numbers do not add to total because of rounding.
Source: Arizona Department of Gaming.
OVERSIGHT RESPONSIBILITIES
----------------------------------------------------- Appendix III:0.3
The Department of Gaming's oversight responsibilities include
certification, monitoring, and enforcement. The Department is
responsible for the certification of individuals and companies
involved in gaming, the review of individual tribal members'
applications, and monitoring to ensure that operations are conducted
in compliance with the compacts.
LICENSING
--------------------------------------------------- Appendix III:0.3.1
In Arizona, the compacts call for the tribe to license and the state
to certify. The Department certifies non-tribal individuals seeking
employment in the gaming industry, manufacturers and suppliers of
gaming services, distributors of gaming devices, and management
contractors. The tribe licenses these same individuals and
companies. However, the tribe is not bound to issue a license if a
state certification has been issued. The Department does not certify
tribal members. Instead, the state issues a recommendation for
licensing on the tribal member. Furthermore, if an individual tribal
member is denied a state recommendation, the tribe may allow this
person to work at its casino without a state recommendation. The
state may appeal the decision at an appropriate tribal forum, and the
decision of the tribal forum is final. While this individual would
be able to work at a casino gaming operation of his or her tribe,
this individual would not be able to work at a different tribe's
casino gaming operation without state certification. According to
the Department, under the compacts, the gaming facility operators
cannot employ someone who has been convicted of any felony or gaming
offense and must terminate any such employee if already employed.
Tribal licenses and state certifications are effective for 1 year
from the date of issuance. The compact allows tribes to set their
fees for licensing and prescribes the state's fees for certification
shown in table III.3.
Table III.3
Fees for State Certification in Arizona
Initial Renewal
Type of certification fee fee
-------------------------------------------------- -------- --------
Gaming employees and provider of gaming services $150 $75
Management contractor and/or financier $1,500 $500
Manufacturers and suppliers of gaming devices $1,500 $500
----------------------------------------------------------------------
Note: The total cost of the background investigation is borne by the
applicant. If the actual cost exceeds the certification fee, payment
in full is required prior to state certification.
Source: Arizona Department of Gaming.
MONITORING
--------------------------------------------------- Appendix III:0.3.2
According to the compacts, the primary responsibility for the on-site
regulation, control, and security of the gaming operation is that of
the tribal gaming agency. The Department has the authority to
monitor the gaming operation to ensure that the operation is
conducted in compliance with the compact's provisions and conducts
regular inspections of facilities to verify compact compliance. The
Department has unrestricted access to public areas but generally must
provide notice to enter nonpublic areas. The Department has access
to records of the gaming operation and reviews employment records to
verify certification status and workpapers prepared for the annual
financial audit. The tribe has access to the Department's records on
the tribe's casino gaming. Table III.4 shows selected monitoring
activities and the frequency of the monitoring performed by the state
gaming agency.
Table III.4
Selected Monitoring Activities for
Indian Casino Gaming in Arizona
Performed by state
gaming agency
----------------------
(Y)es/
Monitoring activity (N)o How often
---------------------------------------------- ---------- ----------
On-site presence during operating hours Y Weekly
Compliance with compact provisions Y Ongoing
Formal inspection or observation of operation Y Every 1.5
years\a/
ongoing
Informal inspection or observation of Y Ongoing
operation
Review of annual financial report Y Annually
Compliance with internal control systems Y Weekly
Audit of gaming operation records Y Periodical
ly
Verification of slot machine computer chip\b Y Ongoing
Review of gaming operator's surveillance Y Ongoing
Observation of money count Y Annually
Monitoring for safety and health Y Ongoing
Verification of funds (net win) for state N N/A\c
payments
----------------------------------------------------------------------
\a According to the Department, a formal inspection is a detailed
compact compliance review and report of the internal control systems
and is performed every 18 months; the formal observation of the
operation is on a weekly, ongoing basis.
\b This chip is the brain of the machine.
\c N/A = not applicable.
Source: Arizona Department of Gaming.
ENFORCEMENT
--------------------------------------------------- Appendix III:0.3.3
According to the Department, the tribes and the Department have dual
responsibilities for ensuring compliance with the compact. The tribe
investigates reported violations of the compact provisions and sends
copies of the investigative report to the state. In turn, the
Department conducts an independent investigation of the reported
violations. If the violation is committed by a non-tribal employee
or a vendor certified by the Department, the Department may suspend
or revoke its certification. If the violation is committed by the
gaming operation, the only remedy available to the Department under
the compact is to file suit in federal district court to enjoin the
gaming activity. The compact does not provide the Department the
ability to assess fines or penalties, seize illegal equipment, or
resolve patrons' disputes.
CRITICAL REGULATORY ELEMENTS
----------------------------------------------------- Appendix III:0.4
The Director, Arizona Department of Gaming, stressed the
cash-intensive nature of the industry and identified three critical
elements for regulating gaming: (1) a truly independent regulatory
body; (2) licensing, reporting, and audit requirements; and (3)
minimum levels for internal controls.
First, according to the Director, the body that provides oversight
must be truly independent and should not be composed of individuals
who have an interest in the gaming industry. This body should have
broad enforcement authority that should include investigative
authority, criminal jurisdiction, subpoena authority, the authority
to assess civil fines, and the ability to close noncomplying gaming
facilities. Due process requirements must be provided, as well.
Second, a licensing component should be included for the independent
regulatory body to conduct background/financial investigations of
individuals employed in the industry and companies seeking to conduct
business with gaming facilities. The Director said that these
investigations are extremely useful in identifying and deterring
organized crime influences within the industry. Gaming revenues
should be reported to the independent regulatory authority, and this
authority must be able to conduct independent audits of the gaming
facilities. Finally, the independent regulatory authority should be
able to establish minimum internal controls for the handling and
protection of assets and enforce compliance with these internal
controls.
MICHIGAN
========================================================== Appendix IV
Until recently, tribal gaming was the only legalized casino gaming in
the state. Non-Indian casino gaming is expected to begin in 1999 as
a result of the passage of a voter referendum to allow private casino
gaming in the state. Tribal gaming began in Michigan in the early
1980s with high-stakes bingo games, but compacts were not entered
into until 1993, when seven tribes signed compacts with the state.
As of December 1997, the 7 tribes, of the state's 11 tribes that are
currently federally recognized, operate a total of 17 separate
casinos. (See fig. IV.1.) Two of the 17 casinos were the subject of
pending litigation over whether the casinos are located on approved
tribal lands. The four other tribes have attempted to enter into
compacts with the state to open casinos. While the Governor has
signed these compacts, the compacts have not been approved by the
legislature.
Figure IV.1: Distribution of
Indian Casino Gaming Operations
With Compacts in Michigan
(See figure in printed
edition.)
Note: Because of differences in the way they count gaming
operations, Michigan identified 17 casino gaming operations, while
the National Indian Gaming Commission identified 15.
Source: Michigan Gaming Control Board.
Approved games under the compact include dice and wheel games, banked
card games, and slot machines, among others. The tribes determine
any limitations, such as the number of games, hours of operations,
and limits on wagers. The annual gross gaming receipts of the tribes
in Michigan cannot be reported because tribal revenues are not public
information.
ORGANIZATIONAL STRUCTURE AND
STAFFING
------------------------------------------------------ Appendix IV:0.1
With the advent of non-Indian gaming, the state is establishing a
much larger regulatory infrastructure that will include the
responsibility for non-Indian gaming. Responsibility for oversight
of the compacts originally resided with the Office of Racing
Commissioner. It was recently transferred to the newly created
Michigan Gaming Control Board, which was established in late 1997 to
regulate the recently approved non-Indian gaming. The Board's
mission is to properly license and regulate the conduct of private
commercial casino gaming activities and to closely monitor the
compliance of Native American casino operations with the compacts in
order to protect the best interests of the state and its residents
and ensure that such gaming activities and operations are conducted
in an honest and lawful manner.
The Board is headed by an Executive Director, who is appointed by the
Governor. It is comprised of three divisions: the Administrative
Services Division, Audit and Financial Services Division, and
Licensing and Compliance Division. When fully staffed, the Board
will have 48 full-time-equivalent\1 staff. An additional 55 state
troopers will be assigned by the Michigan State Police to assist the
Board, as will five attorneys from the Office of the Attorney
General.
Indian gaming oversight, although virtually the same as before the
new organization, is the responsibility of the Indian Gaming
Oversight Section, which reports to the Administrative Services
Division. The section consists of the same two gaming
specialists--one functions as a regulatory officer who has been in
this position since 1993 and the other, as an auditor who has been in
this position since 1995. They report to the Deputy Director of the
Administrative Services Division.
--------------------
\1 A full-time equivalent equals the number of hours worked divided
by the number of compensable hours in a fiscal year.
FUNDING
------------------------------------------------------ Appendix IV:0.2
Michigan is reimbursed for its actual oversight costs of Indian
casino gaming at $175,000 a year and also receives revenue-sharing
funds from certain tribal gaming activities. A provision in the
compacts requires each of the tribes to submit $25,000 annually to
the state for reimbursement of the actual costs incurred by the state
in conducting its oversight responsibilities. With seven tribes,
this payment currently totals $175,000 in billings and provides the
total annual funding for the Indian Gaming Oversight Section. The
total expenditures to support the wages and benefits of the two staff
members are divided equally among the seven tribes. Since the first
casino opened December 1993, the first payment year was 1994. Any
amounts not expended are returned to the tribes. Although funds were
returned to the tribes the first 2 years, no funds have been returned
since 1995. If the state incurs costs above the $25,000 limit, the
compacts, which are in effect for 20 years, do not contain any
provision for increasing the amount above $25,000.
According to the Michigan Gaming Control Board, the tribes are also
required by a federal court consent judgment and order\2 to pay the
state 8 percent of their net win from the electronic video gaming and
slot machines operated at the tribal casinos--about $38 million in
calendar year 1997. (The net win is the amount wagered at each
machine minus the payout to the players.) This money is deposited in
the state's Strategic Fund. As part of this agreement, the tribes
were given the exclusive right to operate electronic games of chance
in Michigan. If this right is rescinded, the tribes' obligation to
make these payments ceases. Thus, when the non-Indian casinos open
with their electronic video gaming and slot machines, which,
according to Board officials, is anticipated sometime in 1999, the
tribes at that time will no longer be required to pay the 8 percent.
Table IV.1 shows the increases in expenditures and additional
revenues over the years.
Table IV.1
Michigan Gaming Control Board's
Expenditures and Additional Revenue,
Fiscal Years 1994-97
(Dollars in thousands)
Additional
Fiscal/calendar year\a Expenditures revenue\b
------------------------------ ------------------ ------------------
1994 $17 $14,053
1995 $167 $25,850
1996 $175 $31,888
1997 $175 $38,061
----------------------------------------------------------------------
\a Expenditures are for fiscal year October 1 to September 30;
revenue is for calendar year.
\b Excludes locality payments, required by a federal court consent
judgment and order, that the tribes make to local units of government
affected by gaming in their area. The locality payments are not
contingent upon the tribes having exclusive right to operate
electronic games of chance in Michigan.
Source: Michigan Gaming Control Board.
--------------------
\2 In an effort to reach final agreement on a compact, the state and
tribes entered into a consent judgment in U.S. District Court. The
consent decree gave the state and the tribes a vehicle outside the
compacts that would allow for payments to the state.
OVERSIGHT RESPONSIBILITIES
------------------------------------------------------ Appendix IV:0.3
The compacts in Michigan provide that the regulation of Indian casino
gaming is the responsibility of the tribe. Michigan recognizes the
tribes as individual sovereign nations and therefore has no
regulatory authority over the tribal casinos in the state. This
policy is made public by requiring the tribe to post a sign at each
casino gaming facility stating that Michigan does not regulate this
facility. Regulatory activities, such as licensing, and business
decisions as to the numbers of machines and hours of operation are
left to the tribes.
LICENSING
---------------------------------------------------- Appendix IV:0.3.1
The state does not license the various Indian gaming entities and
employees. According to the compact, the tribes are responsible for
licensing and background investigations. However, the compacts do
stipulate certain conditions. For example, in licensing suppliers,
no casino games of chance, gaming equipment, or supplies may be used
unless they meet the technical equipment standards of either Nevada
or New Jersey. The compacts also stipulate that upon written request
from the state, the tribes will provide information on personnel,
suppliers, and others sufficient to allow the state to conduct its
own background investigation as it may deem necessary and to make an
independent determination as to the suitability of the individuals.
MONITORING
---------------------------------------------------- Appendix IV:0.3.2
Although the state does not regulate Indian casino gaming, the state
does have monitoring responsibilities, which Board officials refer to
as oversight. The compacts provide for the state to inspect all
tribal casino gaming operations and records to determine compliance
with the compacts. The state inspects the various records that the
tribes are required to maintain. For example, it may review
revenues, expenses, daily cash transactions, audits prepared by or on
behalf of the tribe, and personnel information. The state also
reviews the tribes' submittals of semiannual financial questionnaires
with their payments and reports of what they have done during the
last 6 months, such as any procedural or key personnel changes. As
part of its audit function, the state audits all of the tribal
casinos' electronic gaming operations to ensure that the tribes have
made their required payments to the state. According to Board
officials, staff schedule at least one visit each quarter to all of
the tribal casinos. Table IV.2 shows selected monitoring activities
and the frequency with which they are performed by the state gaming
agency.
Table IV.2
Selected Monitoring Activities for
Indian Casino Gaming in Michigan
Performed by state
gaming agency
----------------------
(Y)es/
Monitoring activity (N)o How often
---------------------------------------------- ---------- ----------
On-site presence during operating hours Y At least
quarterly
Compliance with compact provisions Y At least
quarterly
Formal inspection or observation of operation Y At least
quarterly
Informal inspection or observation of Y At least
operation quarterly
Review of annual financial report Y Yearly
Compliance with internal control systems Y At least
quarterly
Audit of gaming operation records Y Yearly
Verification of slot machine computer chip\a Y At least
quarterly
Review of gaming operator's surveillance Y At least
quarterly
Observation of money count Y At least
quarterly
Monitoring for safety and health N N/A\b
Verification of funds (net win) for state Y Biannually
payments
----------------------------------------------------------------------
\a This chip is the brain of the machine.
\b N/A = not applicable.
Source: Michigan Gaming Control Board.
ENFORCEMENT
---------------------------------------------------- Appendix IV:0.3.3
The primary responsibility for enforcement rests with the tribes.
The compacts contain no provision for the state to issue fines, seize
illegal equipment, or suspend or revoke the licenses issued by the
tribes. The state also is not responsible for resolving disputes
with patrons. Although the state can ultimately suspend or shut down
a gaming operation for a tribe's noncompliance with the compact, it
must seek an injunction directing closure. However, when the state
finds a tribe out of compliance, it generally tries to work with the
tribe to obtain compliance, according to Michigan staff. The compact
provides options for resolving compact disputes between the tribe and
the state. Written notice identifying the relevant compact provision
is required, and representatives of the state and tribe are to meet
in an effort to resolve the dispute. If the dispute is not resolved,
the state may serve notice to the tribe to stop the particular
activity. The tribe may stop or continue the activity and request
arbitration.
CRITICAL REGULATORY ELEMENTS
------------------------------------------------------ Appendix IV:0.4
In responding to our request for views on critical elements in
regulating tribal gaming, the Executive Director of Michigan's Gaming
Control Board pointed out that Michigan does not have true regulatory
authority over tribal casinos in the state. Rather, the state's role
has been largely oversight in nature. Nevertheless, he cited
cooperation between the state and tribe as critical, regardless of
whether the authority is oversight or regulatory.
The Executive Director also explained that testing and sealing
electronic gaming machines with specially designed security tape,
coupled with periodic casino inspection visits and audits, have
enabled the Michigan oversight program to effectively protect the
state's interests. The testing and sealing program typifies the
cooperative and respectful relationship that exists between the
oversight staff and the tribes because the tribes cooperate although
they are not required to do so. The program also serves to protect
both the state's and tribes' interests by enhancing public confidence
in the integrity of tribal gaming operations in the state.
If Michigan were to regulate tribal gaming, according to the
Executive Director, it would be essential to have the authority to
effectively police and enforce the activity. As such, it would be
possible to conduct unannounced inspections (currently, unannounced
inspections are restricted to public areas of the casinos) and
unannounced audits. Enforcement authority would also allow for
penalties for noncompliance and would eliminate the delays that
accompany litigation in federal court, which is the only current
remedy for dispute resolution. Ultimately, however, such efforts
would be ineffective without tribal-state cooperation.
NEVADA
=========================================================== Appendix V
Gaming has been present in Nevada for most of the last 100 years.
Nevada began its modern era of legalized gambling in 1931 and later,
in 1955, inaugurated a policy to eliminate the undesirable element in
Nevada gaming and provide gaming regulations. One of the 19
federally recognized tribes entered into the first compact with the
state in 1987. Although compacts with six Indian tribes have been
approved, only three tribes were operating four gaming facilities as
of December 1997. (See fig. V.1.) The remaining tribes had not yet
opened facilities.
Figure V.1: Distribution of
Indian Casino Gaming Operations
With Compacts in Nevada
(See figure in printed
edition.)
Source: Nevada Gaming Control Board.
Most casino-type gaming is allowed in Nevada. As of December 1997,
Nevada had approximately 2,425 licensed gaming operations; about 80
percent of them consisted of 15 or fewer slot machines. The gross
gaming revenue in Nevada for fiscal year 1997 was $7.6 billion.
Nevada's tribal revenue is considered confidential, however, because
the disproportionate share of the revenue for one of the four tribal
operations would have the effect of releasing confidential revenue
figures for a single licensee.
ORGANIZATIONAL STRUCTURE AND
STAFFING
------------------------------------------------------- Appendix V:0.1
Nevada's gaming regulatory structure consists of the State Gaming
Control Board, the Nevada Gaming Commission, and the Gaming Policy
Committee. The Gaming Control Board, a three-member body appointed
by the Governor, is the regulatory, investigatory, and enforcement
branch of the system. The mission of the Board is to regulate the
state's gaming industry to ensure that gaming is conducted honestly,
competitively, and free from criminal and corruptive elements; to
foster the continued growth and success of gaming; and to ensure the
collection of gaming taxes and fees, which are an essential source of
state revenue. A five-member Gaming Commission, also appointed by
the Governor, considers and acts upon the Board's licensing
recommendations; it is the final authority in gaming matters. A
nine-member Gaming Policy Committee is appointed by the Governor as
an advisory group to the Board and Commission. It meets as necessary
to examine gaming policies and to make recommendations to the Board
and the Commission.
The Board has six operating divisions in addition to an
administrative division that provides staff services. (See fig.
V.2.)
Figure V.2: Organizational
Structure of the Nevada Gaming
Control Board
(See figure in printed
edition.)
Source: Nevada Gaming Control Board.
The six operating divisions and their responsibilities are as
follows:
-- The Audit Division audits the records of licensees to determine
whether taxable gaming revenues have been properly reported and
if the licensees have complied with the regulations.
-- The Corporate Securities Division monitors, investigates, and
analyzes activities of registered, publicly traded corporations
and their subsidiaries.
-- The Electronic Services Division tests and recommends gaming
devices for approval or denial by the Board and Commission.
-- The Enforcement Division is responsible for the enforcement of
Nevada's Gaming Control Act and the regulations of the Board and
Commission. The Division conducts inspections and investigates
reported violations.
-- The Investigations Division conducts in-depth background and
financial investigations on all applicants for gaming licenses
and for key employee positions.
-- The Tax and License Division issues all state gaming licenses
approved by the Commission and collects, controls, and accounts
for all state gaming fees, taxes, fines, and penalties.
The Board's offices are located in Las Vegas, Carson City, or Reno,
except for the Enforcement Division, which in addition to those three
cities also has offices in Laughlin and Elko. Table V.3 shows the
authorized full-time equivalent\1 (FTE) staffing for the divisions;
over half of the total FTEs are assigned to the Audit and Enforcement
Divisions.
Figure V.3: Nevada Gaming
Control Board's Fiscal Year
1997 Authorized FTEs, by
Division
(See figure in printed
edition.)
Note: Fiscal year is from July 1 of one year to June 30 of the next.
Source: Nevada Gaming Control Board.
The Gaming Control Board had 402 FTEs in fiscal year 1997,
approximately half of whom are located in Las Vegas. The Board does
not assign specific staff to Indian gaming. As shown in figure V.4,
staffing over the last 7 years has remained fairly stable.
Figure V.4: Nevada Gaming
Control Board's Authorized FTEs
for Fiscal Years 1991-97
(See figure in printed
edition.)
Note: Fiscal year is July 1 of one year to June 30 of the next.
Source: Nevada Gaming Control Board.
--------------------
\1 A full-time equivalent equals the number of hours worked divided
by the number of compensable hours in a fiscal year.
FUNDING
------------------------------------------------------- Appendix V:0.2
Nevada imposes various fees on its gaming industry. These fees are a
source of revenue for the state, and the cost of the regulatory
program is then funded from the state's general fund. For fiscal
year 1997, the statewide gaming taxes and fees totaled about $570
million. About $22 million of that amount was used to fund the State
Gaming Control Board and Nevada Gaming Commission.
Funding from Indian gaming is governed by the three different
compacts with the tribes that operate casinos. As a result, the
tribes agree to pay Nevada either (1) a fee of 1 percent of the gross
revenue of the licensed gaming establishments located within the
Indian reservation or (2) all reasonable costs incurred by Nevada for
its oversight or regulatory activities. For non-Indian gaming, the
state collects a monthly percentage fee based on gross gaming
revenue. The fee ranges from 3 percent to 6-1/4 percent, depending
on the amount of the revenue. Additional revenue that the state
collects from non-Indian gaming comes from such sources as annual
taxes and quarterly license fees for slot machines and other games.
For example, a gaming establishment with 1 game is assessed $100
annually, while an establishment with 16 games is assessed $1,000 for
each game. Revenue also comes from applicants who bear the entire
cost of pre-licensing investigations; and the funds, which are
prepaid, cannot be refunded, even if the license is denied. This is
true for both non-Indian and Indian gaming--that is, for the two
tribes for which Nevada licenses.
The following table shows the revenues and expenditures over the last
7 fiscal years. Indian gaming expenditures and revenue are not
provided. The Nevada Gaming Control Board declined to release these
figures because divulging them could be viewed as releasing
confidential revenue figures for a single licensee because of the
disproportionate revenue of one Indian gaming operation over the
others.
Table V.1
Nevada Gaming Control Board's
Expenditures and Additional Revenue,
Fiscal Years 1991-97
(Dollars in millions)
Additional
Fiscal year\a Expenditures revenue\b
------------------------------ ------------------ ------------------
1991 $19 $400
1992 $19 $410
1993 $19 $436
1994 $18 $480
1995 $19 $502
1996 $21 $545
1997 $22 $548
----------------------------------------------------------------------
\a Fiscal year is July 1 of one year to June 30 of the next.
\b Additional revenue is the total revenue collected minus the amount
used for expenditures.
Source: Nevada Gaming Control Board.
OVERSIGHT RESPONSIBILITIES
------------------------------------------------------- Appendix V:0.3
Nevada regulates all non-Indian casino gaming in the state, but its
regulatory responsibilities over Indian casinos vary according to the
three different compacts. Under two of the compacts, the state
basically regulates the Indian casino as it does non-Indian gaming.
The tribe transfers to the state its civil and criminal
jurisdiction--except for taxing authority--for licensing and
regulation, together with the authority to enforce all of Nevada's
gaming laws and regulations. Under the third compact, which permits
only slot machines, the facility is generally regulated by the tribe
as long as it is operated only by tribal members. However, the slot
machines are limited in number, must meet state standards, and must
be acquired and disposed of through a state-licensed distributor.
The tribe is also required to post a sign that indicates that the
facility is not licensed by the state.
LICENSING
----------------------------------------------------- Appendix V:0.3.1
Under one compact, the tribe licenses the applicants but agrees not
to hire any non-tribal members until the state makes a suitability
determination. Under the other two compacts, the tribes transfer
their jurisdiction to the state to license. Except for the one
compact, the state licenses all establishments where gaming is
conducted and where gaming devices are operated, as well as
manufacturers, sellers, and distributors of certain gaming devices
and equipment. In addition, it licenses key employees of the gaming
industry and issues work permits to casino employees. Licenses are
valid for an indefinite period of time, and the costs for the
licenses, which the state considers confidential, cover the
investigative fees only.
The Nevada Control Board conducts in-depth background and financial
investigations on all applicants for gaming licenses and for key
employee positions to determine their viability, business integrity,
and suitability. The license for a gaming device requires the
Electronic Services Division to examine, test, and recommend approval
or denial. Licensing decisions are made by the Gaming Commission at
public meetings held once each month, and licenses are issued by the
Tax and License Division. Work permits to ensure the suitability of
all gaming employees are reviewed and issued by the Board.
MONITORING
----------------------------------------------------- Appendix V:0.3.2
The Nevada Control Board is also responsible for monitoring various
aspects of the gaming industry, including Indian gaming, depending on
the individual compacts. For one compact, the Board conducts random
inspections of slot machines and provides other assistance at the
request of the tribe. Also, as part of its monitoring, the Board
requires various reports from the tribe, including an independent
accountant's report of the gaming operation's financial statements.
For the other two compacts, the Board monitors the Indian gaming
operations as it does non-Indian operations. It conducts inspections
as well as undercover observations of gaming activities. The Board
also investigates post-licensing, non-routine gaming problems, such
as hidden ownership interests in casinos, organized crime involvement
in Nevada, and intelligence gathering. The Board's Enforcement
Division is staffed or on-call 24 hours a day, 7 days a week at all
five offices (Las Vegas, Reno, Elko, Laughlin, and Carson City).
The Board audits the accounting records of licensees to determine if
taxable gaming revenues have been properly reported and if the
licensees have complied with the regulations. It uses information
provided by the licensees' independent accountants to supplement its
own monitoring efforts. The length of the audit cycle for the
largest gaming operations is about 3 years. However, the Board also
uses a regulatory risk evaluation system to determine the nature and
frequency of contacts with each licensee. Factors include the
licensee's history of noncompliance, gross gaming revenue, and
financial condition, among other things.
The Board also monitors stockholder lists for stockholders with
holdings large enough to be considered a controlling interest. It
inspects gaming devices in its laboratory and in the field to ensure
continued integrity and assists in resolving gaming patrons' disputes
through analysis of device electronics. Table V.2 shows selected
monitoring activities and the frequency with which they are performed
by the Board for the two tribes that transfer their jurisdiction to
the state.
Table V.2
Selected Monitoring Activities for
Selected Indian Casino Gaming in Nevada
Performed by state
gaming agency
----------------------
(Y)es/
Monitoring activity (N)o How often
---------------------------------------------- ---------- ----------
On-site presence during operating hours Y Periodical
ly
Compliance with compact provisions Y Periodical
ly
Formal inspection or observation of operation Y Periodical
ly
Informal inspection or observation of Y Weekly
operation
Review of annual financial report Y Annually
Compliance with internal control systems Y Periodical
ly
Audit of gaming operation records Y 3 years
Verification of slot machine computer chip\a Y Periodical
ly
Review of gaming operator's surveillance Y Weekly
Observation of money count Y Periodical
ly
Monitoring for safety and health Y Periodical
ly
Verification of funds (net win) for state Y Periodical
payments ly
----------------------------------------------------------------------
\a This chip is the brain of the machine.
Source: Nevada Gaming Control Board.
ENFORCEMENT
----------------------------------------------------- Appendix V:0.3.3
Two compacts allow for transfer to the state of such criminal
jurisdiction as may be necessary to enforce the gaming regulations.
Nevada's gaming regulations allow enforcement actions for various
violations, and certain state gaming agents have the powers of peace
officers. The state can suspend gaming operations, suspend or revoke
the license of any establishment or person, seize illegal equipment,
and resolve patrons' disputes. In addition, the state may also
assess a fine of not less than $25,000 or more than $250,000 for each
separate violation of the gaming regulations.
Under the remaining compact, the tribe has the enforcement
responsibilities. However, in connection with any violation of the
compact, the compact provides for resolution of disputes between the
state and tribe, including mediation and arbitration. And the state
can seek an injunction directing closure of the gaming facility.
CRITICAL REGULATORY ELEMENTS
------------------------------------------------------- Appendix V:0.4
According to the Chairman of Nevada's Gaming Control Board, critical
regulatory elements involve a balance of two issues in its public
policy on gambling. On the one hand, the gaming industry is vital to
Nevada's economy, and the state must ensure that regulatory efforts
do not needlessly hamper the furtherance of the industry. At the
same time, the success of gaming requires public confidence that
gaming is conducted honestly and free from corruptive and criminal
elements. Such confidence can only be maintained by strict
regulation of all gaming operations as well as the manufacturers and
distributors of gaming devices.
To be effective, the Chairman noted, the regulatory body must
maintain independence from the gaming industry. Adequate staff must
also be provided to the regulatory body. According to the Chairman,
one cannot over-emphasize the need for qualified individuals to test
and inspect gaming devices and without whom it would be impossible to
ensure the integrity of the gaming devices in play. It is also vital
that employees of the regulatory organization be permitted free
access to any licensee's operation 24 hours a day. Such access is
necessary to maintain assurance that proper procedures are being
followed when regulatory personnel are not present, and establishing
the statutory authority to enforce this access is critical.
To ensure the legitimacy of individuals connected with the gaming
industry, the Chairman said that Nevada focuses intensely on whom it
allows into the industry and considers the prelicensing investigation
as the cornerstone of Nevada's gaming regulation. The audit function
relies on minimum internal control standards and reports of
independent accountants and uses a regulatory risk evaluation system
to determine the nature and frequency of contacts with each licensee.
He also said that a critical aspect of the audits includes the
authority to promulgate internal controls. Finally, the enforcement
arm must have the legal authority to discipline gaming licensees for
noncompliance with gaming regulations and statutes, serve as a
neutral third party when resolving patrons' or casinos' complaints,
and pursue aggressive prosecution of cheating crimes to protect the
revenue as well as act as a deterrent.
NEW JERSEY
========================================================== Appendix VI
In November 1976, voters in New Jersey approved a referendum proposal
authorizing casino gambling in Atlantic City. According to the New
Jersey Casino Control Act,\1 the law that governs the casino industry
in New Jersey, casinos are not to be an industry unto themselves.
Instead, in keeping with Atlantic City's traditional emphasis on
tourism and the convention industry, the casinos are to be associated
with major hotel and convention facilities.
In 1978, when the first casino opened in Atlantic City, gross gaming
revenues were about $134 million. In December 1997, after almost 20
years of casino operations, Atlantic City had 12 casinos and remains
the only location in New Jersey with casinos. Casino win\2
for the casinos totaled $3.9 billion in 1997 from slot machines and
table games.\3 New Jersey has no federally recognized Indian tribes
and, thus, no Indian casino gaming.
--------------------
\1 New Jersey P.L. 1977, c.110, as amended.
\2 The amount the casinos retain after all bets have been paid but
before any operating or other expenses have been paid.
\3 In December 1997, Atlantic City had 12 casinos with 35,057 slot
machines and 1,473 table games such as blackjack, poker, roulette,
and craps. In December 1990, 12 casinos had 21,186 slot machines and
1,355 table games.
ORGANIZATIONAL STRUCTURE AND
STAFFING
------------------------------------------------------ Appendix VI:0.1
In an April 1977 report on casino gambling, the New Jersey State
Commission of Investigation recommended that the regulation of casino
gambling be a two-tier system. This system was to consist of a
decision-making, rule-making, hearing body and an investigative and
law enforcement body. The decision-making, rule-making, hearing body
became the Casino Control Commission, while the investigative and law
enforcement body became the Division of Gaming Enforcement.
CASINO CONTROL COMMISSION
---------------------------------------------------- Appendix VI:0.1.1
The Casino Control Commission is the agency of the state government
responsible for regulating Atlantic City's casino gaming industry.
The Commission is made up of five members--a chairman and four
commissioners appointed to 5-year terms by the Governor with the
advice and consent of the State Senate.
The Commission determines the granting, suspension, revocation, and
renewal of all licenses,\4 registrations, certificates, and permits
and promulgates regulations. It holds hearings\5 and can levy
penalties on civil violations of the Casino Control Act or
regulations promulgated under the act and collects fees, taxes, and
penalties assessed.
In addition to its Office of the General Counsel, the Commission has
four operating divisions. These are the Division of Compliance, the
Division of Financial Evaluation, the Division of Licensing, and the
Division of Administration. The divisions are staffed by a variety
of professionals, including auditors and financial analysts. In
addition, a staff of inspectors is in each casino around the clock.
Figure VI.1 shows the Commission's organizational structure.
Figure VI.1: Organizational
Structure of the New Jersey
Casino Control Commission
(See figure in printed
edition.)
Note: AA/EEO = Affirmative Action/Equal Employment Opportunity.
Source: New Jersey Casino Control Commission.
The Division of Compliance develops and revises regulations under
which the casinos operate and monitors the casinos' compliance with
gaming rules and regulations and internal controls. The Division of
Financial Evaluation is responsible for ensuring the integrity of
financial controls in casinos, tracking casinos' revenues, and making
sure that all of the appropriate taxes and fees are paid. It also
analyzes the financial stability of casino operators and collects
fines, penalties, or other assessments imposed by the Commission.
The Division of Licensing is responsible for handling initial and
renewal applications for casino employees and casino service
industries, tracks dealings with companies permitted to do business
with casinos, handles most of the contested cases, and promulgates
regulations affecting licensing issues. The Division of
Administration provides support services to the Commission.
The Commission also establishes affirmative action requirements for
casinos, certain licensees, and construction contractors and
subcontractors for hiring women, minorities, and persons with
disabilities. It also establishes affirmative action requirements
for the purchase of goods and services from minority-owned and
women-owned business enterprises.
In fiscal year 1997, the Casino Control Commission had a total of 360
staff. Figure VI.2 shows the staffing, by division, for fiscal year
1997.
Figure VI.2: New Jersey Casino
Control Commission Staffing, by
Division, at the End of Fiscal
Year 1997
(See figure in printed
edition.)
Note: Fiscal year is July 1 of one year to June 30 of the next.
Source: New Jersey Casino Control Commission.
--------------------
\4 Includes Casino Hotel Alcoholic Beverage licenses. While the
Division of Alcoholic Beverage Control is responsible for licensing
elsewhere in the state, the Commission has this responsibility for
the casinos.
\5 All parties in actions before the Commission have a right of
appeal that begins in the Appellate Division of the New Jersey
Superior Court.
DIVISION OF GAMING
ENFORCEMENT
---------------------------------------------------- Appendix VI:0.1.2
The Division of Gaming Enforcement is a law enforcement agency within
the Department of Law and Public Safety. It is headed by a Director
appointed by the Governor with the advice and consent of the State
Senate and serves during the Governor's term of office. The Division
is charged with carrying out the investigations necessary for the
licensing of casinos, their employees, and the service industries
that do business with them, ensuring integrity, monitoring casino
operations, and scrutinizing gaming. The Division has investigatory
and prosecutorial functions and is staffed by attorneys,
investigators, and state police. The Division performs
investigations and then prosecutes the case before the Casino Control
Commission, which then may grant or revoke a license or assess fines
and/or penalties. The Division prosecutes criminal violations of the
Casino Control Act, except those it refers to the Division of
Criminal Justice. Figure VI.3 shows the Division's organizational
structure.
Figure VI.3: Organizational
Structure of the New Jersey
Division of Gaming Enforcement
(See figure in printed
edition.)
Source: New Jersey Division of Gaming Enforcement.
The Licensing Investigation Bureau conducts background investigations
to ensure that casino employees, casino entities, and service
industries do not have links to organized crime and meet the
standards of employment established by law, including financial
stability, integrity, and good character. The Criminal Enforcement
Bureau enforces New Jersey's criminal statutes and the provisions of
the Casino Control Act. The Regulatory Enforcement Bureau provides
continuous oversight of the revenues from casino gaming and is
responsible for ensuring the integrity of the casino games,
accounting, and internal controls. In addition, this Bureau enforces
the state's alcoholic beverage control rules and regulations. The
Division also has three bureaus with prosecution
responsibilities--the Licensing Prosecution Bureau, the Casino
Criminal Prosecution Bureau, and the Regulatory Prosecution Bureau.
The Technical Services Bureau is responsible for ensuring the
integrity of slot machines and electronic games in Atlantic City. It
operates a slot machine laboratory to test machines and provides
technical assistance to others. The Casino Intelligence Bureau
oversees and directs all intelligence for licensing, regulatory, and
criminal matters. Finally, the Administrative Services Bureau
provides support for the division. Table VI.1 provides staffing for
the various bureaus within the Division as of the end of fiscal year
1997.
Table VI.1
New Jersey Division of Gaming
Enforcement Staffing at End of Fiscal
Year 1997
Bureau Number of staff
---------------------------------------- ----------------------------
Licensing Investigation 146
Licensing Prosecution 27
Criminal Enforcement 75
Casino Criminal Prosecution 14
Regulatory Enforcement 23
Regulatory Prosecution 8
Technical Services 20
Casino Intelligence 14
Administrative Services 36
Other -(Executive) 8
======================================================================
Total 371
----------------------------------------------------------------------
Note: Fiscal year is July 1 of one year to June 30 of the next.
Source: New Jersey Division of Gaming Enforcement.
From fiscal years 1991 through 1997, total staffing for casino
regulation in New Jersey decreased. Figure VI.4 provides
end-of-fiscal-year staffing for the Casino Control Commission and the
Division of Gaming Enforcement.
Figure VI.4: New Jersey Casino
Control Commission and Division
of Gaming Enforcement's
End-of-Year Staffing, Fiscal
Years 1991-97
(See figure in printed
edition.)
Note: Fiscal year is July 1 of one year to June 30 of the next.
Source: New Jersey Casino Control Commission and Division of Gaming
Enforcement.
FUNDING
------------------------------------------------------ Appendix VI:0.2
The money needed to regulate casinos in New Jersey comes from
licensing fees and assessments charged to the casino industry. No
tax money is used to support either the Casino Control Commission or
the Division of Gaming Enforcement. In addition, the state collects
8 percent of the gross revenues from Atlantic City casinos, which
goes into the Casino Revenue Fund.\6 In 1997, this fund received
about $308 million. Civil penalties collected are used to fund
programs related to compulsive gambling. Should the penalties
collected exceed $600,000, the additional amount collected goes to
the Casino Revenue Fund.
The revenue needed to fund casino regulation comes from fees charged
for casino licenses and other forms of licensure or approval and an
annual $500 per machine slot machine assessment. In addition, if
revenues from the preceding sources are not sufficient to cover all
expenditures, the state allocates the remaining costs among the
casinos for payment. The moneys collected are deposited into the
state of New Jersey Casino Control Fund,\7 from which funds are
appropriated to pay for the operations of the Casino Control
Commission and the Division of Gaming Enforcement. Table VI.2
provides total funding and expenditures for the Casino Control
Commission and Division of Gaming Enforcement for fiscal years 1991
through 1997.
Table VI.2
Expenditures for Casino Regulation in
New Jersey, Fiscal Years 1991-97
(Dollars in millions)
Fiscal yeara
----------------------------------------
Organization 1991 1992 1993 1994 1995 1996 1997
---------------------------- ---- ---- ---- ---- ---- ---- ----
Casino Control Commission $25. $23. $23. $22. $21. $22. $23.
9 1 0 0 4 4 8
Division of Gaming 36.0 33.9 31.5 31.7 32.0 28.3 29.9
Enforcement
======================================================================
Total $61. $57. $54. $53. $53. $50. $53.
9 0 5 7 3\b 7 7
----------------------------------------------------------------------
\a Fiscal year is July 1 of one year to June 30 of the following
year.
\b Numbers do not add to total because of rounding.
Source: New Jersey Casino Control Commission.
--------------------
\6 The Casino Revenue Fund was established in 1977 as a separate fund
dedicated to programs that benefit senior citizens and the disabled.
The funds are turned over to the State Treasurer and are disbursed to
authorized programs such as pharmaceutical assistance to the aged and
disabled, utility payments, transportation aid, or real estate
property tax reimbursements. From May 1978 through December 1997,
$3.77 billion was deposited into this fund.
\7 The Casino Control Fund is a special revenue fund used to account
for the proceeds of specific revenue sources that are legally
restricted to expenditure for specified purposes.
OVERSIGHT RESPONSIBILITIES
------------------------------------------------------ Appendix VI:0.3
According to a 1986 report by the Casino Control Commission,\8 New
Jersey believed that its Casino Control Act was the toughest gaming
control measure ever enacted. As a result of this act and the
regulations promulgated by the Casino Control Commission, New Jersey
started with extremely strict controls and, on the basis of changes
in technology and experience with the industry, has made adjustments
to work with the industry to develop rules that make sense.
Nonetheless, applicants for casino licenses undergo complete
investigations; accounting and internal controls are monitored;
accounting, administrative, and financial records are audited; and
the state has the authority to assess fines, close operations, and
seize illegal equipment.
--------------------
\8 A Report on Casino Gaming in Atlantic City, State of New Jersey,
Casino Control Commission, July 1986.
LICENSING
---------------------------------------------------- Appendix VI:0.3.1
In New Jersey, every employee who has anything to do with the
operation of the casino,\9
and companies doing regular and continuing business with casinos must
be licensed. In addition, every labor organization that represents
or seeks to represent employees who are employed in a casino hotel,
casino, or a casino simulcasting facility owned by a casino licensee
must register annually.
The level of information required from an applicant and the effort
required for the state to grant a license varies depending on the
position held or the type of business license. For example, a casino
service employee pays a fee of $60 for a one-time registration; a
gaming-related casino service industry pays a minimum of $5,000,
while a casino pays a minimum of $200,000 for its initial license.
The depth or complexity of the investigation involved in granting a
license generally is reflected in the initial or minimum charge shown
in table VI.3.
Table VI.3
Examples of Fees Charged in New Jersey
for Selected Licenses
Type of license Initial fee Renewal fee
------------------------------ ------------------ ------------------
1-year -not less
than
$100,000
Casino Minimum of 4-year -not less
$200,000 than
$200,000
Casino key employee $750 -$4,000 $750
Casino employee $350 $250
Casino service employee $60 one-time fee N/A\a
Gaming-related casino service $5,000 minimum $5,000 minimum
industry
Nongaming-related casino $2,000 $2,500
service industry
Junket\b enterprise $3,000 $3,750
Casino hotel alcoholic $1,000 per $1,000 per
beverage\c location location
----------------------------------------------------------------------
\a N/A = not applicable.
\b An arrangement to induce individuals to take trips to a casino to
gamble where the casino pays for some or all of the transportation,
food, lodging, and entertainment cost.
\c The Casino Control Commission has the exclusive authority to issue
alcoholic beverage licenses to any premises licensed as part of a
casino hotel. The application fee for an alcoholic beverage license
issued to a casino hotel is included with the casino license
application fee. However, casino service industries pay a $1,000 fee
for a new or renewed alcoholic beverage license.
Source: New Jersey Casino Control Commission.
--------------------
\9 This includes casino employees such as dealers or croupiers,
security employees, count room personnel, slot machine personnel, and
casino surveillance personnel; casino key employees, persons
empowered to make discretionary decisions related to casino
operations, such as facility managers and assistant managers, credit
executives, hotel managers, entertainment directors, and food and
beverage directors; and casino service employees who work in a casino
as other than a casino employee, casino key employee, or casino
security employee. For the 1978-96 period, 38 percent of the
applications were for casino employees, 3 percent were for casino key
employees, and 59 percent were for casino service employees.
MONITORING
---------------------------------------------------- Appendix VI:0.3.2
Casino Control Commission and Division of Gaming Enforcement staff
maintain a 24-hour-a-day presence in each casino in Atlantic City.
The state has a variety of controls on and performs a variety of
monitoring of the money that flows through the casino. For example,
the access door to the cash boxes on slot machines has a second lock
to which only the state has the key. When the moneys are collected,
the state unlocks its lock and monitors the collection. In addition,
the state both observes and verifies the "hard" (coin) and "soft"
(bill) counts of funds and verifies the amount received. The
verification of the money counts is important to the state in
monitoring the flow of money and because 8 percent of this money goes
to the Casino Revenue Fund, as mentioned above.
The state monitors the casino's accounting and internal controls to
ensure that all funds are accounted for and proper procedures are
followed. It also limits the amount of complimentary items or
services such as food, room, beverage, or travel that a casino can
provide to casino patrons at little or no cost and monitors the
amount provided. Table VI.4 shows selected monitoring activities and
the frequency with which they are performed.
Table VI.4
Selected Monitoring Activities for
Casino Gaming in New Jersey
Performed by state
gaming agency
----------------------
(Y)es/
Monitoring activity (N)o How often
---------------------------------------------- ---------- ----------
On-site presence during operating hours Y At all
times
Compliance with compact provisions N/A\a N/A
Formal inspection or observation of operation Y Daily
Informal inspection or observation of Y Daily
operation
Review of annual financial report Y Annually
Compliance with internal control systems Y Daily
Audit of gaming operation records Y Monthly
Verification of slot machine computer chip\b Y Prior to
use
Review of gaming operator's surveillance Y Daily
Observation of money count Y Daily
Monitoring for safety and health N/A N/A
Verification of funds (net win) for state Y Daily
payments
----------------------------------------------------------------------
\a N/A = not applicable.
\b This chip is the brain of the slot machine. The chip is verified
upon initial installation or when a payout of $35,000 or more occurs.
Source: New Jersey Casino Control Commission.
ENFORCEMENT
---------------------------------------------------- Appendix VI:0.3.3
The state, through the Casino Control Commission, has the authority
to suspend or shut down a gaming operation or suspend or revoke a
license. The state may also assess fines or penalties or seize
illegal equipment. On the basis of its investigations, the Division
of Gaming Enforcement presents the information to the Commission for
an administrative decision. While the Atlantic City police have
jurisdiction in the hotels, the Division of Gaming Enforcement has
jurisdiction on the casino floor and uses state police to deal with
any criminal violations.
At the Casino Control Commission's office in the casino, part of the
inspector's job is to accept patrons' complaints. These complaints
typically include concern about the payoffs from table games,
malfunctioning slot machines, or funds received from cashiers.
CRITICAL REGULATORY ELEMENTS
------------------------------------------------------ Appendix VI:0.4
We obtained comments from the Chairman, Casino Control Commission,
and the Director, Division of Gaming Enforcement, on what they view
as critical regulatory elements. Each noted the importance of
insuring the integrity of gaming and the criticality of licensing and
internal control systems and provided additional comments. The
following summarizes their responses.
CASINO CONTROL COMMISSION
---------------------------------------------------- Appendix VI:0.4.1
The Chairman of the Casino Control Commission stated that it is
critical to maintain the integrity of the industry and keep proper
controls over and accounting for casino revenues. The state's
licensing system ensures the integrity of the companies and
individuals involved in gaming, and its rulemaking process ensures
the integrity of the games. Internal control systems assist the
casinos and the regulators in monitoring gaming operations. The
Chairman said that he recognizes that the approach to handling these
two critical elements varies among states and stated his belief that
New Jersey has the "tightest and most complex system of controls."
The state's licensing system is designed to keep unsavory
individuals, including anyone associated with organized crime, from
direct and indirect employment in the casino industry. The state
licenses all casino companies, their officers, directors, management,
financial sources, and other employees involved in gaming operations.
They undergo complete background investigations and must satisfy
standards of honesty, integrity, good character, and financial
stability. In addition, all entities doing regular and continuing
business with a casino licensee must be licensed.
The integrity of the games played is ensured, according to the
Chairman, by the state's establishment of the rules for the various
games and the use of on-site inspectors who observe play 24 hours a
day. The inspectors observe the play to ensure that dealers are
following the rules and that the public is not being cheated.
According to the Chairman, the system of regulation has been
described as "people watching people, watching people." He pointed
out that because of the internal control requirements in New Jersey,
a conspiracy among numerous people in different departments would be
required in order to misappropriate casino revenue. For example,
when money is collected from the casino floor, three separate casino
departments are involved--accounting, games, and security. As a
result, the Chairman believes that misappropriation of casino revenue
is more difficult.
The Chairman also pointed out other areas that should be considered.
These include the ability of casinos and management to contribute to
political campaigns, the ability of casino employees and regulators
to gamble, pre- and post-employment restrictions, and ethics codes
for commissioners and regulators.
DIVISION OF GAMING
ENFORCEMENT
---------------------------------------------------- Appendix VI:0.4.2
The Director, Division of Gaming Enforcement, told us that the
overall objective of a regulatory system is to ensure the integrity
of gaming operations and public confidence in the gaming industry.
According to the Director, to do this requires a determination as to
who qualifies for licensure as well as the oversight of the gaming
operations. Substantial resources must be allocated to underwriting
the regulatory system, and once such a system is established, it is
critical to assemble a professional staff to develop and implement
the regulations to ensure the integrity of the system. In addition,
a laboratory is needed to evaluate and approve the sophisticated
electronic equipment and devices.
The licensing process includes the investigation of casino entities,
their employees, and those companies with which they transact
business, directly or indirectly. This is an ongoing process in
which licenses are subject to renewal and investigations are
conducted on a continuing basis. Oversight of gaming operations
includes enforcing the New Jersey Casino Control Act and the
regulations promulgated thereunder. The Director noted that the act,
the regulations, and the required internal controls make for a system
of checks and balances which, if properly implemented and monitored,
ensure the integrity of the industry.
Because the gaming industry uses highly sophisticated electronic
games and equipment such as slot machines and bill and coin
acceptors, the state established and developed a laboratory capable
of evaluating and approving these devices. In the Director's view,
it is important for the laboratory to continuously monitor the
changes and advances in technology.
WASHINGTON
========================================================= Appendix VII
Washington's legalized gaming began with social gambling activities,
such as bingo, authorized in 1973, and card games, authorized in
1974. Although Indian casino gaming first began in Washington in the
1970s, the first two tribes did not enter into compacts to operate
casinos until 1991. Washington has 27 federally recognized tribes in
the state. As of December 1997, 17 tribes had compacts with
Washington, 11 of which were operating casinos. (See fig. VII.1.)
According to the Director, Office of Policy, Planning and Support,
one operation closed because of competition with recently opened
Canadian casinos, and one operation is expected to open in 1998.
Three tribes were operating casinos without approved compacts. One
of the tribes had a compact agreed to with the state but did not
obtain the required approval of the Secretary of the Interior until
March 30, 1998. The two other tribes had no compact agreed to with
the state and were operating slot machines, which Washington does not
allow and would not agree to in a compact, at 11 casinos. Washington
does not oversee these 11 casinos, which are under litigation.
"Banked" card games, in which the house serves as the bank, were
approved for non-Indian gaming in October 1997. Banked games have
been allowed in Indian gaming, but the numbers of tables for the
games are limited by the compact. Slot machines are illegal in all
Washington gaming establishments. The net profit in tribal gaming
establishments amounted to about $150 million last fiscal year. This
is in addition to the approximately $750 million annual total from
all non-Indian regulated gaming activities under the Commission's
jurisdiction, which included non-casino activities, such as bingo and
unbanked card games.
Figure VII.1: Distribution of
Indian Casino Gaming Operations
With Compacts in Washington
(See figure in printed
edition.)
Note: The Nisqually Indian Tribe was operating a casino under a
compact approved by the state but did not receive approval of its
compact by the Secretary of the Interior until March 30, 1998.
Source: Washington State Gambling Commission.
ORGANIZATIONAL STRUCTURE AND
STAFFING
----------------------------------------------------- Appendix VII:0.1
The Washington State Gambling Commission was established in 1973 to
keep out the criminal element and promote the social welfare of the
people by limiting the nature and scope of gambling activities and by
strictly regulating and controlling them. In 1992, the Commission
was given the responsibility for negotiating and implementing the
terms of the compacts. The Commission primarily regulates
non-Indian, non-casino gaming, such as bingo and unbanked card games.
The only casino-type gaming that the Commission oversaw at the time
of our review was Indian. Other commissions regulate pari-mutuel
betting on horse races and the state lottery.
The Commission operates under a five-citizen board appointed by the
Governor and approved by the State Senate for a single 6-year term
with staggered expiration dates. Also on the board are four members
of the legislature--one each from the majority and minority parties
of the two branches of the legislature--appointed to act as
coordinators between the legislature and the Commission. They are
nonvoting members for routine Commission business, except for the
approval of tribal gaming compacts. The board generally meets
monthly to approve licenses; hear administrative cases; promulgate
regulations; and interact with licensees, public officials, and the
public. Figure VII.2 shows the organization of the Commission.
Figure VII.2: Organizational
Structure of the Washington
State Gambling Commission
(See figure in printed
edition.)
Source: Washington State Gambling Commission.
The board appoints the executive director to manage the day-to-day
activities of the Commission. The Commission has three operating
divisions: (1) licensing operations, which is responsible for all
licensing investigations, including certifying qualifications of
persons involved in Indian casino gaming activities, and for
maintaining agency records and activity reports; (2) field
operations, which is responsible for the day-to-day investigation of
complaints, inspections, and audits of licensed operators and for
training licensees; and (3) special operations, which is responsible
for monitoring tribal gaming activities, investigations of illegal or
criminal activities, and criminal intelligence. Agents in the Tribal
Gaming Unit must complete training courses on Native American
cultural heritage and on the specific tribal culture of the casino
the agent oversees. A fourth division, Policy, Planning and Support,
consists of Public Affairs, Legal Services, Business Operations, and
Information Services. Human Resources reports to the Executive
Director. The Commission, located in Olympia, has three regional
offices throughout the state--Spokane in the east, Lynnwood in the
northwest, and Tacoma in the southwest.
The Commission's staffing for fiscal year 1997 was 137, of which 24
staff were assigned to Indian gaming. The remaining 113 regulated
non-Indian gaming activities. Figure VII.3 shows how the staff were
distributed among the various divisions.
Figure VII.3: Washington State
Gambling Commission's Staffing,
by Division, End of Fiscal Year
1997
(See figure in printed
edition.)
Note: Fiscal year is July 1 of one year to June 30 of the next.
Source: Washington State Gambling Commission.
After initial increases, Commission staff for both Indian and
non-Indian gaming have remained fairly constant in recent years.
Figure VII.4 shows staffing levels over the last 7 fiscal years.
Figure VII.4: Washington State
Gambling Commission's Fiscal
Years 1991-97 Staffing
(See figure in printed
edition.)
Note: Fiscal year is July 1 of one year to June 30 of the next.
Source: Washington State Gambling Commission.
FUNDING
----------------------------------------------------- Appendix VII:0.2
All revenue for the Commission, which included about $1.6 million
from Indian gaming last fiscal year, is derived independently from
gaming operations and is deposited into a revolving fund controlled
by the Commission. Under the compacts, the tribes are to reimburse
the state gaming agency for all reasonable costs and expenses
actually incurred by the Commission in carrying out its
responsibilities as authorized under the provisions of the compact.
Reimbursement for monitoring, investigative, and processing costs is
on an hourly basis or a flat fee, at the option of the tribe.
Administrative actions, such as certifying a license, are reimbursed
for the costs incurred that exceed the fees received. The state does
not provide an appropriation for the Commission, and no taxes are
assessed on gaming revenues at the state level.
The Commission's total revenue of almost $9.7 million for fiscal year
1997 included about $1.6 million from Indian gaming sources and about
$8 million from non-Indian gaming. Both types of revenue have
generally been increasing since 1991, or when initially collected.
The Commission's expenditures for Indian casino gaming totaled about
$1.6 million and for non-Indian gaming, about $7 million. While the
Commission's expenditures for Indian gaming are increasing,
non-Indian gaming expenditures have varied. Table VII.1 shows the
revenues and expenditures since fiscal year 1991.
Table VII.1
Washington State Gambling Commission's
Revenue and Expenditures, Fiscal Years
1991-97
(Dollars in thousands)
Revenue Expenditures
---------------------- ----------------------
Non- Non-
Indian Indian Indian Indian
Fiscal year\a gaming gaming gaming gaming
---------------------- ---------- ---------- ---------- ----------
1991 $0 $5,842 $0 $5,462
1992 $37 $6,368 $0 $6,845
1993 $169 $6,599 $156 $7,828
1994 $404 $6,902 $490 $7,203
1995 $839 $6,956 $1,305 $6,715
1996 $1,298 $7,107 $1,554 $6,997
1997 $1,603 $8,074 $1,638 $6,993
----------------------------------------------------------------------
\a Fiscal year is July 1 of one year to June 30 of the next.
Source: Washington State Gambling Commission.
OVERSIGHT RESPONSIBILITIES
----------------------------------------------------- Appendix VII:0.3
The state's oversight responsibilities for Indian casino gaming are
established in the compacts. Although the tribal gaming agencies
have the primary oversight responsibility, the state also has
oversight responsibilities. State activities consist of
certification of tribal gaming licensees, weekly monitoring of
various gaming activities, and the ability to take various
enforcement actions. The state also limits the number of gaming
facilities, number of gaming stations, amount of wagers, and hours of
operation. The state reviews the operations of an establishment
after it has been in operation for 6 months, and increasing the scope
of the operation is conditioned upon a favorable review. For
example, tribes may operate up to 31 gaming tables\1 and allow wagers
up to $250 during the first 6 months, after which these may be
increased to 52 tables and wagers up to $500.
--------------------
\1 And one optional nonprofit table--the proceeds of which are
dedicated to support nonprofit organizations in the state.
LICENSING
--------------------------------------------------- Appendix VII:0.3.1
For Indian casino gaming, the compacts assign the licensing
responsibility to both the state and the tribal gaming agency, but
the state, through its certification process, assumes final
responsibility for approving an applicant. Licenses are required for
all gaming employees, management companies, manufacturers and
suppliers of gaming services, and financiers--those extending
financing to the gaming operation. No license is required for
nongaming employees, such as those involved in food and beverage
service. The state certifies and recertifies the applicants
annually. Table VII.2 shows the basic fees for selected
certifications; it does not include additional fees necessary to
defray the cost of background investigations.
Table VII.2
Examples of Fees Charged in Washington
for Selected Certifications
Initial Renewal
Type of certification fee\a fee
---------------------------------------------- ---------- ----------
Gaming equipment manufacturer/supplier $1,500 $500
Gaming management company $1,500 $500
Gaming employee $200 $125
Gaming financier $1,500 $500
----------------------------------------------------------------------
\a These fees are for in-state applicants; out-of-state certification
fees are higher. The initial fee for an out-of-state
manufacturer/supplier, management company, or financier is $5,000;
for an out-of-state gaming employee, $250.
Source: Washington State Gambling Commission.
Applicants submit their completed applications to the tribal gaming
agency. Once the tribal gaming agency transmits the completed
application package to the state gaming agency, the state conducts a
background investigation to ensure that the applicant is qualified
for state certification. The tribal gaming agency may also conduct a
background investigation or may rely on the state's certification.
MONITORING
--------------------------------------------------- Appendix VII:0.3.2
According to the compact, the tribal gaming agency has the primary
responsibility for on-site regulation, control, and security.
However, the state gaming agency has the authority to monitor whether
the gaming operation is conducted in compliance with the provisions
of the compact. State agents have free and unrestricted access to
all areas of the gaming facility and access to all records. They
conduct scheduled and unscheduled inspections, investigations, and/or
audits of all Indian casino gaming activities to ensure compliance
with the terms of the compacts.
The state periodically performs various monitoring activities at the
tribal gaming operations. Table VII.3 shows selected monitoring
activities and the frequency with which they are performed by the
state gaming agency.
Table VII.3
Selected Monitoring Activities for
Indian Casino Gaming in Washington
Performed by state
gaming agency
----------------------
(Y)es/
Monitoring activity (N)o How often
---------------------------------------------- ---------- ----------
On-site presence during operating hours Y Weekly
Compliance with compact provisions Y Weekly
Formal inspection or observation of operation Y Weekly
Informal inspection or observation of Y Weekly
operation
Review of annual financial report Y Annually
Compliance with internal control systems Y Weekly
Audit of gaming operation records Y Periodical
ly
Verification of slot machine computer chip\a N/A\b N/A
Review of gaming operator's surveillance Y Weekly
Observation of money count Y Periodical
ly
Monitoring for safety and health N N/A
Verification of funds (net win) for state N N/A
payments
----------------------------------------------------------------------
\a This chip is the brain of the machine.
\b N/A = not applicable. Slot machines are not authorized in the
compacts.
Source: Washington State Gambling Commission.
ENFORCEMENT
--------------------------------------------------- Appendix VII:0.3.3
Although, according to the compact, the tribal gaming agency has
primary responsibility for the enforcement of the compact, the state
has similar enforcement authorities. The state has the authority to
suspend or revoke license certifications; seize illegal equipment,
such as slot machines; and resolve patrons' disputes. In addition,
the state can seek an injunction directing closure of a gaming
facility if it determines that any violation of the compact has
occurred. The compact also contains provisions for the imposition of
fines or penalties, which vary depending on whether the infraction
was a repeat violation. For example, for the first violation of the
licensing and certification requirements, a gaming supplier could be
fined up to $5,000; for the second violation, up to $20,000. The
payments for imposed fines go to nonprofit organizations.
In recognition of the government-to-government relationship that
exists between the state and the tribes, several remedies for breach
of compact provisions are allowable. Methods for resolution of
compact disputes include good faith negotiations; mediation;
arbitration (nonbinding as well as mandatory and binding); and, for
breach of provisions, injunction.
CRITICAL REGULATORY ELEMENTS
----------------------------------------------------- Appendix VII:0.4
According to the Executive Director of the Commission, although
several elements are critical to regulating gaming, the most critical
is the compact. The compact should contain provisions to ensure that
the interests of all parties are met and that the integrity of gaming
is beyond reproach. As such, he said that the compact should require
comprehensive background investigations of managers and operators.
It should also include a framework of controls and procedures that
allow for independent verification that the games are operated fairly
and the proceeds are used lawfully.
In state certification of individuals and entities involved in
gaming, according to the Executive Director, ensuring that
precertification investigations are adequate is the most important
step in ensuring that individuals with undesirable histories or the
criminal element do not infiltrate gaming. Similarly, the financial
investigations that the state conducts to certify management
companies or any entity providing financing to the tribe are to
ensure that the money is from a legitimate source.
Another critical element that the Executive Director cited is
maintaining and building a positive and cooperative partnership.
This partnership involves the state's dealing with tribes on a
government-to-government basis while balancing the state's duty to
the public. He said that a cooperative partnership also includes
having voluntary compliance as the goal, instead of taking a
heavy-handed approach.
(See figure in printed edition.)Appendix VIII
COMMENTS FROM THE ARIZONA
DEPARTMENT OF GAMING
========================================================= Appendix VII
(See figure in printed edition.)
(See figure in printed edition.)Appendix IX
COMMENTS FROM THE NEW JERSEY
DIVISION OF GAMING ENFORCEMENT
========================================================= Appendix VII
(See figure in printed edition.)
(See figure in printed edition.)Appendix X
COMMENTS FROM THE ARIZONA TRIBAL
GAMING REGULATORS ALLIANCE
========================================================= Appendix VII
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)Appendix XI
COMMENTS FROM THE FT. MCDOWELL
TRIBAL GAMING OFFICE
========================================================= Appendix VII
(See figure in printed edition.)
*** End of document. ***