[Federal Register: May 4, 2005 (Volume 70, Number 85)]
[Rules and Regulations]
[Page 23011-23027]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04my05-2]
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NATIONAL INDIAN GAMING COMMISSION
25 CFR Part 542
RIN 3141-AA27
Minimum Internal Control Standards
AGENCY: National Indian Gaming Commission.
ACTION: Final rule.
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SUMMARY: In response to the inherent risks of gaming enterprises and
the resulting need for effective internal controls in Tribal gaming
operations, the National Indian Gaming Commission (Commission or NIGC)
first developed Minimum Internal Control Standards (MICS) for Indian
gaming in 1999, and then later revised them in 2002. The Commission
recognized from the outset that periodic technical adjustments and
revisions would be necessary in order to keep the MICS effective in
protecting Tribal gaming assets and the interests of Tribal
stakeholders and the gaming public. To that end, the following final
rule revisions contain certain corrections and revisions to the
Commission's existing MICS, which are necessary to correct erroneous
citations or references in the MICS and to clarify, improve, and update
other existing MICS provisions. The purpose of these final MICS
revisions is to address apparent shortcomings in the MICS and various
changes in Tribal gaming technology and methods. Public comment to
these final MICS revisions was received by the Commission for a period
of 48 days after the date of their publication in the Federal Register
as a proposed rule on December 1, 2004. Thereafter, the comment period
was extended for an additional 31 days until February 18, 2005.
After consideration of all received comments, the Commission has
made whatever changes to the proposed revisions that it deemed
appropriate and is now promulgating and publishing the final revisions
to the Commission's MICS Rule, 25 CFR part 542.
DATES: Effective Date: May 4, 2005.
Compliance Date: On or before July 5, 2005, the Tribal gaming
regulatory authority shall: (1) In accordance with the Tribal gaming
ordinance, establish and implement Tribal internal control standards
that shall provide a level of control that equals or exceeds the
revised standards set forth herein; and (2) establish a deadline no
later than September 1, 2005, by which a gaming operation must come
into compliance with the Tribal internal control standards. However,
the Tribal gaming regulatory authority may extend the deadline by an
additional 60 days if written notice is provided to the Commission no
later than September 1, 2005. Such notification must cite the specific
revisions to which the extension pertains.
FOR FURTHER INFORMATION CONTACT: Vice-Chairman Nelson Westrin, (202)
632-7003 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On January 5, 1999, the Commission first published its Minimum
Internal Control Standards (MICS) as a Final Rule. As gaming Tribes and
the Commission gained practical experience applying the MICS, it became
apparent that some of the standards required clarification or
modification to operate as the Commission had intended and to
accommodate changes and advances that had occurred over the years in
Tribal gaming technology and methods. Consequently, the Commission,
working with an Advisory Committee composed of Commission and Tribal
representatives, published the new final revised MICS rule on June 27,
2002. As the result of the practical experience of the Commission and
Tribes working with the newly revised MICS, it has once again become
apparent that additional corrections, clarifications, and modifications
are needed to ensure that the MICS continue to operate as the
Commission intended. To identify which of the current MICS need
correction, clarification or modification, the Commission initially
solicited input and guidance from NIGC employees, who have extensive
gaming regulatory expertise and experience and work closely with Tribal
gaming regulators in monitoring the implementation, operation, and
effect of the MICS in Tribal gaming operations. The resulting input
from NIGC staff convinced the Commission that the MICS require
continuing review and prompt revision on an ongoing basis to keep them
effective and up-to-date. To address this need, the Commission decided
to establish a Standing MICS Advisory Committee to assist it in both
identifying and developing necessary MICS revisions and revisions on an
ongoing basis. In recognition of its government-to-government
relationship with Tribes and related commitment to meaningful Tribal
consultation, the Commission requested gaming Tribes, in January 2004,
for nominations of Tribal representatives to serve on its Standing MICS
Advisory Committee. From the 27 Tribal nominations that it received,
the Commission selected 9 Tribal representatives in March 2004 to serve
on the Committee. The Commission's Tribal Committee member selections
were based on several factors, including the regulatory experience and
background of the individuals nominated, the size(s) of their
affiliated Tribal gaming operation(s), the types of games played at
their affiliated Tribal gaming operation(s), and the areas of the
country in which their affiliated Tribal gaming operation(s) are
located. The selection process was very difficult, because numerous
highly qualified Tribal representatives were nominated to serve on this
important Committee.
As expected, the benefit of including Tribal representatives on the
Committee, who work daily with the MICS, has proved to be invaluable.
[[Page 23012]]
Through their advice and recommendations to the Commission, the Tribal
Committee members provide early Tribal perspective and input in
assisting the Commission in identifying and developing needed MICS
revisions, without binding their nominating Tribes in any way regarding
the resulting revisions promulgated by the Commission. This, in turn,
helps facilitate and implement the Commission's policy commitment to
early and meaningful consultation concerning changes to the MICS and
other Commission regulatory policies and procedures that affect gaming
Tribes.
Tribal representatives selected to serve on the Commission's
Standing MICS Advisory Committee are: Tracy Burris, Gaming
Commissioner, Chickasaw Nation Gaming Commission, Chickasaw Nation of
Okalahoma; Jack Crawford, Chairman, Umatilla Gaming Commission,
Confederated Tribes of the Umatilla Indian Reservation; Patrick Darden,
Executive Director, Chitimacha Gaming Commission, Chitimacha Indian
Tribe of Louisiana; Mark N. Fox, Compliance Director, Four Bears
Casino, Three Affiliated Tribes of the Fort Berthold Reservation;
Sherrilyn Kie, Senior Internal Auditor, Pueblo of Laguna Gaming
Authority, Pueblo of Laguna; Patrick Lambert, Executive Director,
Eastern Band of Cherokee Gaming Commission, Eastern Band of Cherokee
Indians; John Meskill, Director, Mohegan Tribal Gaming Commission,
Mohegan Indian Tribe; Jerome Schultze, Executive Director, Morongo
Gaming Agency, Morongo Band of Mission Indians; and Lorna Skenandore,
Assistant Gaming Manager, Support Services, Oneida Bingo and Casino,
formerly Gaming Compliance Manager, Oneida Gaming Commission, Oneida
Tribe of Indians of Wisconsin. The Advisory Committee also includes the
following Commission representatives: Philip N. Hogen, Chairman; Nelson
Westrin, Vice-Chairman; Cloyce V. Choney, Associate Commissioner; Joe
H. Smith, Acting Director of Audits; Ken Billingsley, Region III
Director; Nicole Peveler, Field Auditor; Ron Ray, Field Investigator;
and Sandra Ashton, Staff Attorney, Office of General Counsel.
In the past, the MICS were comprehensively revised on a large
wholesale basis. Such large-scale revisions proved to be difficult for
Tribes to implement in a timely manner and unnecessarily disruptive to
Tribal gaming operations. The purpose of the Commission's Standing
Committee is to conduct a continuing review of the operation and
effectiveness of the existing MICS, in order to promptly identify and
develop needed revisions of the MICS, on a manageable incremental
basis, as they become necessary to revise and keep the MICS practical
and effective. By making more manageable incremental changes to the
MICS on an ongoing basis, the Commission hopes to be more prompt in
developing needed revisions, while, at the same time, avoiding larger-
scale MICS revisions which take longer to implement and can be
unnecessarily disruptive to Tribal gaming operations. In accordance
with this approach, the Commission has developed the following final
MICS rule revisions, with the assistance of its Standing MICS Advisory
Committee. In doing so, the Commission is carrying out its statutory
mandate under the Indian Gaming Regulatory Act, 25 U.S.C. 2706(b)(10),
to promulgate necessary and appropriate regulations to implement the
provisions of the Act. In particular, the following final MICS rule
revisions are intended to address Congress' purpose and concern stated
in Section 2702(2) of the Act, that the Act ``provide a statutory basis
for the regulation of gaming by an Indian tribe adequate to shield it
from organized crime and other corrupting influences, to ensure the
Indian tribe is the primary beneficiary of the gaming operation, and to
ensure the gaming is conducted fairly and honestly by both the operator
and the players.''
The Commission, with the Committee's assistance, identified three
specific objectives for the following final MICS rule revisions: (1) To
ensure that the MICS are reasonably comparable to the internal control
standards of established gaming jurisdictions; (2) to ensure that the
interests of the Tribal stakeholders are adequately safeguarded; and
(3) to ensure that the interests of the gaming public are adequately
protected.
The Standing Advisory Committee initially met on April 8, 2004, and
then again on October 21, 2004, and January 25, 2005, to discuss the
revisions set forth in the following final MICS rule revisions. The
input received from the Committee Members has been invaluable to the
Commission in its development of the following final MICS rule
revisions.
In furtherance of the Commission's established Government-to-
Government Tribal Consultation Policy, the Commission also provided a
preliminary working draft of all of the final MICS rule revisions
contained herein to gaming Tribes on June 22, 2004, for a 30-day
informal review and comment period, before formulation of a proposed
rule, which was published in the Federal Register on December 1, 2004.
In response to its requests for comments, the Commission received 89
comments from Commission and Tribal Standing Advisory Committee
members, individual Tribes, and other interested parties regarding the
final revisions. A summary of these comments is presented below in the
discussion of each final revision to which they relate.
General Comments to Final Rule MICS Revisions
For reasons stated above in this preamble, the National Indian
Gaming Commission has revised the following specific sections of its
MICS rule, 25 CFR part 542. The following discussion includes the
Commission's responses to general comments concerning the MICS and is
followed by a discussion regarding each of the specifically final rule
revisions, along with previously submitted comments to the proposed
revisions and the Commission's responses to those comments. As noted
above, prior commenters include Commission and Tribal Advisory
Committee members, gaming Tribes, and others.
Comments Questioning NIGC Authority To Promulgate MICS for Class III
Gaming
Many of the comments to the published proposed MICS revisions
pertained to the Commission's authority to promulgate rules governing
the conduct of Class III gaming. Positions were expressed asserting
that Congress intended the NIGC's Class III gaming regulatory authority
to be limited exclusively to the approval of tribal gaming ordinances
and management contracts. Similar comments were received concerning the
first proposed MICS back in 1999. The Commission, at that time,
determined in its publication of the original MICS in 1999 that it
possessed the statutory authority to promulgate Class III MICS. As
stated in the preamble to those MICS: ``The Commission believes that it
does have the authority to promulgate this final rule. * * * [T]he
Commission's promulgation of MICS is consistent with its
responsibilities as the Federal regulator of Indian gaming.'' 64 FR 509
(Jan. 5, 1999). The current Commission reaffirms that determination.
The Indian Gaming Regulatory Act, which established the regulatory
structure for all classes of Indian gaming, expressly provides that the
Commission ``shall promulgate such regulations as it deems appropriate
to implement the provisions of (the Act).'' 25 U.S.C. 2707(b)(10).
Pursuant to this clearly stated statutory duty and authority under
the
[[Page 23013]]
Act, the Commission has determined that MICS are necessary and
appropriate to implement and enforce the regulatory provisions of the
Act governing the conduct of both Class II and Class III gaming and
accomplish the purposes of the Act.
The Commission believes that the importance of internal control
systems in the casino operating environment cannot be overemphasized.
While this is true of any industry, it is particularly true and
relevant to the revenue generation processes of a gaming enterprise,
which, because of the physical and technical aspects of the games and
their operation and the randomness of game outcomes, makes exacting
internal controls mandatory.
The internal control systems are the primary management procedures
used to protect the operational integrity of gambling games, account
for and protect gaming assets and revenues, and assure the reliability
of the financial statements for Class II and III gaming operations.
Consequently, internal control systems are a vitally important part of
properly regulated gaming. Effective internal control systems are
dependent upon the support of the gaming enterprise's governing board,
management, and other personnel who are responsible for providing
reasonable assurance regarding the achievement of the enterprise's
objectives, which typically include operational integrity,
effectiveness and efficiency, reliable financial statement reporting,
and compliance with applicable laws and regulations. The Commission
believes that strict regulations, such as the MICS, are not only
appropriate but necessary for it to fulfill its responsibilities under
the IGRA to establish a necessary baseline, or minimum, Federal
standards for all Tribal gaming operations on Indian lands. 25 U.S.C.
2702(3). Although the Commission recognizes that many Tribes had
sophisticated internal control standards in place prior to the
Commission's original promulgation of its MICS, many did not.
Accordingly, the Commission continues to believe strongly that
promulgation and revision of these standards is necessary and
appropriate to implement effectively the provisions of the Indian
Gaming Regulatory Act throughout Indian country and, therefore, is
within the Commission's clearly expressed statutory power and duty
under Section 2706(b)(10) of the Act.
Comments Recommending Voluntary Tribal Compliance With MICS
Comments were also received suggesting that the NIGC should re-
issue the MICS as a bulletin or guideline for Tribes to use
voluntarily, at their discretion, in developing and implementing their
own Tribal gaming ordinances and internal control standards. The
Commission disagrees. The MICS are common in established gaming
jurisdictions and, to be effective in establishing a minimum baseline
for the internal operating procedures of Tribal gaming enterprises, the
rule must be concise, explicit, and uniform for all Tribal gaming
operations to which they apply. Furthermore, to nurture and promote
public confidence in the integrity and regulation of Indian gaming and
ensure its adequate regulation to protect Tribal gaming assets and the
interests of Tribal stakeholders and the public, the Commission's MICS
regulations must be reasonably uniform in their implementation and
application and regularly monitored and enforced by Tribal regulators
and the NIGC to ensure Tribal compliance.
Final Rule New or Revised Definitions in Section 542.2 of the MICS
The Commission has added or revised definitions of the following
four terms in section 542.2. A discussion of each new or revised
definition follows in alphabetical order. The text of the new or
revised definition is set forth following the conclusion of this
preamble in which of all of the final rule revisions to the
Commission's MICS rule, 25 CFR part 542, are discussed.
Drop Period
This is a new definition. Several Tribal and Commission Committee
members recommended that a definition of the term ``drop period'' be
added to the current existing MICS definitions. In conjunction with
other final rule revisions to the MICS which include this term, the
NIGC has determined that to ensure that such revisions are clear and
unambiguous, insertion of the definition of the term ``drop period''
into the MICS Definitions section 542.2 is worthwhile. This definition
was included in the proposed rule publishing for review and comment
prior to formulation of the final new definition, and no comments were
received objecting to the definition.
Gaming Machine
The Commission has revised the existing MICS definition of this
term to more accurately define the scope of the referenced term, as it
is used in the MICS. Commission and Committee members recommended that
the existing definition for ``gaming machine'' be revised to cover
central server based linked gaming machines or player stations that are
being increasingly utilized in Indian gaming. Comments were
subsequently received supporting the proposed rule revision, which was
published in the Federal Register prior to formulation of the final
rule revised definition. Comments were received suggesting that the
definition should differentiate Class II and Class III gaming machines.
Comments were also received suggesting that instead of attempting to
list all the various cash equivalents a machine might accept, it would
be better simply to refer to the items as cash, coin or cash
equivalents. The Commission disagrees with the comment that the
definition should attempt to narrow or define the applicability of the
definition based on game classification. The definition is intended to
be broadly applied to all gaming machines that are not otherwise
separately defined in the MICS, such as an electronic bingo machine.
The Commission agrees with the suggestion that the term ``cash
equivalents'' should be used in the definition. We believe the term is
more representative of the various items that could be wagered, in
addition to cash and coin.
Comment was received recommending that a definition be added to the
MICS for the term ``cash equivalents.'' The Commission agrees with this
suggestion and will develop such a definition in subsequent proposed
revisions after further input from the Advisory Committee and gaming
Tribes regarding its text.
Promotional Progressive Pots and/or Pools
The Commission has revised the existing MICS definition of this
term to more accurately define the applicability of the referenced
term. Committee members recommended that the definition of
``promotional progressive pots and/or pools'' be revised to also apply
to poker games. The revision was included in the proposed rule
revision, which was published in the Federal Register for review and
comment before the following final rule revision definition was
formulated. Comments were subsequently received supporting the final
rule revision since most progressive promotional pots are utilized in
poker games. One commenter contended that the final rule revision to
the progressive promotional pots and/or pools definition would create a
conflict with the definition of secondary jackpots. The Commission will
further consider this comment and examine how the two referenced terms
are used in the MICS. If necessary, we may
[[Page 23014]]
consider in the future whether there is any contradiction between the
two terms that requires modification of the definition of secondary
jackpots.
Series Number
This is a new definition. The referenced term is used in the
current MICS but is not defined. Since it has been the frequent subject
of inquiry regarding its meaning, the NIGC has determined that a
definition of the term is warranted. Comments to the proposed rule
published in the Federal Register uniformly supporting the addition of
this final rule definition being added to section 542.2 of the MICS.
Final Rule Correction of Referencing and Citation Errors in Sections
542.7, 542.8, 542.12, and 542.13 of the MICS
The Commission identified and is correcting several referencing and
citation errors in the current MICS. The relevant sections include the
following: Sec. Sec. 542.7(g)(1)(i), 542.8(h)(1)(i), 542.12(i)(4),
542.12(k)(1)(v), 542.12(k)(1)(ix), 542.12(k)(1)(xvii), and
542.13(l)(4).
Each of the referencing and citation corrections was set forth in
the proposed rule published in the Federal Register for review and
comment before this final rule was formulated. No comments were
received objecting to the corrections.
Final Rule Revisions to Section 542.13(h) Standards for Evaluating
Theoretical and Actual Hold Percentages
It is common practice in the gaming industry that gaming machine
manufacturers provide gaming operators with a Pay Analysis Report (PAR)
or PAR sheet for each gaming machine that they supply to the operator.
The PAR sheet provides information regarding certain design
specifications for the gaming machine, including the statistical
theoretical percentage(s) that the gaming machine is designed to win or
hold for the operator (house), based on an adequate level of wagering
activity after payment of game winnings to players. A theoretical hold
worksheet also accompanies the PAR sheet and provides additional
theoretical hold information for the gaming machine, frequently
including probability calculations of the machine's theoretical hold
percentages for different specified levels of coin-in wagering
activity. The converse to a gaming machine's theoretical hold
percentage is its theoretical payback percentage, which is the
percentage of total money wagered that the machine is designed to pay
back to players as game winnings based on adequate levels of wagering
activity. A gaming machine's theoretical payback percentage can be
calculated by deducting its specified theoretical hold percentage(s)
from one.
Periodic statistical tracking of actual gaming machine performance,
by comparing each machine's actual hold and payback percentages in
relation to its theoretical hold and/or payback percentages, has become
a necessary standard of management practice to ensure the integrity of
gaming machine operations and safeguard related machine revenues and
assets. To effectively monitor gaming machine operations for
performance irregularities, whether due to machine defect, malfunction,
embezzlement, cheating, or other improper tampering, gaming operators
are required to periodically prepare a gaming machine analysis report
that compares each machine's actual hold percentages to its specified
theoretical hold percentage(s), based on the levels of coin-in wagering
activity for each reporting period. Any material deviations between the
actual and theoretical hold percentages must be thoroughly investigated
by gaming machine department management and other management personnel
independent of the gaming operation's gaming machine department. The
ultimate objective of the gaming machine analysis report and
investigative process is to ensure that any material uncharacteristic
deviation between actual and theoretical hold is not due to machine
defect, malfunction, embezzlement, cheating, or other improper
tampering; but instead, a reasonably expected mathematical deviation
based on the randomness of the machine's game outcome selection
mechanism and the number of game plays and outcomes analyzed.
The standards set forth in section 542.13(h) of the MICS are
intended to provide a minimum benchmark for effective use of gaming
machine performance analysis by Tribal gaming enterprises to safeguard
the integrity of their gaming machine operations and related Tribal
gaming assets. In establishing these standards, the Commission has
attempted to keep them as practical and effective as possible for the
diverse nature and scale of the Tribal gaming machine operations to
which they apply. For that reason, the Commission has made several
revisions to section 542.13(h).
Final Rule Deletion of Subsection 542.13(h)(2)
The Commission's deletion of subsection 542.13(h)(2) will eliminate
the current requirement that Tribal operators utilize a weighted
average calculation to adjust and determine the appropriate theoretical
hold percentages for periodic analysis of complex gaming machines
(excluding multi-game multi-denominational gaming machines), which have
manufacturer's PAR or theoretical hold worksheets that specify multiple
theoretical hold or payback percentages, with a spread of more than 4%
between their minimum and maximum specified theoretical hold/payback
percentages. Although the manufacturer's PAR sheets and theoretical
hold worksheets for most gaming machines specify a single theoretical
hold percentage, which can be reliably used for analysis of the
machine's actual performance, there are other more complex gaming
machines (excluding multi-gaming and multi-denominational gaming
machines) that have multiple specified theoretical hold percentages.
Identifying the most reliable theoretical hold percentage to use for
analysis of the performance of these more complex gaming machines can
be difficult and challenging, because the most appropriate theoretical
hold percentage is so dependent upon the different amounts of permitted
coin-in betting wagers (e.g. 1-coin, 2-coin, 3-coin, etc.) that players
may actually decide to make during a given reporting period. The
weighted average calculation, which is currently required by subsection
542.13(h)(2), essentially weighs the different permitted player
wagering decisions, by multiplying the total amount wagered for each
permitted coin-in wager amount times the specified theoretical hold
percentage for that wager. Then the sum of the individual theoretical
hold results for each permitted coin-in wager amount is divided by the
total coin-in, to give a weighted average theoretical hold percentage
for use in analyzing that gaming machine's overall performance during
the reporting period.
Based on past MICS compliance audits and consultation with other
gaming jurisdictions, the Commission has determined that the currently
required weighted average calculation may not be necessarily to produce
an acceptable adjusted theoretical hold percentage for analyzing the
performance of complex gaming machines (other than multi-gaming and
multi-denominational gaming machines) which have multiple specified
theoretical hold percentages. Practical experience also demonstrates
that this is also true regardless of whether the spread between the
minimum and maximum specified theoretical hold percentages for such
[[Page 23015]]
complex gaming machines exceeds 4%. Accordingly, the Commission is
deleting subsection 542.13(h)(2) in its entirety. In particular, the
Commission has determined that, excluding multi-game and multi-
denominational gaming machines, most other complex gaming machines with
multiple specified theoretical hold percentages possess certain
characteristics that generally result in most bettors making the
maximum allowed coin-in wager. Typically, the pay tables for such
machines provide for a disproportionately larger payout for maximum
coin-in wagers. This naturally causes most players to bet the maximum
allowable number of coins-in. Consequently, the weighted average
calculation generally produces an adjusted theoretical hold percentage
that is not significantly different than simply selecting the machine's
most conservative or smallest specified theoretical hold percentage.
Therefore, the required weighted average calculations in subsection
542.13(h)(2) for complex gaming machines, other than multi-game and
multi-denomination gaming machines, is being deleted regardless of the
spread between the machines' minimum and maximum specified multiple
theoretical hold percentages. Although no longer required,
circumstances may still dictate use of the weighted average calculation
for such gaming machines, instead of simply selecting the most
conservative or smallest specified theoretical hold percentage for the
machine. In those circumstances, it will remain the responsibility of
Tribal gaming management, subject to Tribal Gaming Regulatory Authority
(TGRA) oversight, to utilize appropriate weighted average calculations
to determine the proper adjusted theoretical hold percentages for
accurate and reliable analysis of gaming machine performance.
Final Rule Revisions Renumbering Subsection 542.13(h)(4) as New
Subsection 542.13(h)(2); Extending the Weighted Average Calculation
Requirement to Both Multi-Game and Multi Denomination Gaming Machines;
and Deleting the 4% Theoretical Payback Spread Standard
The Commission has revised subsection 542.13(h)(4) by renumbering
it as the new subsection 542.13(h)(2); extending the required use of
weighted average calculations to determine the adjusted theoretical
hold percentage for both multi-game and multi-denominational gaming
machines; and deleting the 4% or greater spread criteria regarding the
minimum and maximum specified theoretical payback percentage for such
machines. While concluding that weighted average calculations need not
be required for determining the most appropriate adjusted theoretical
hold percentage for other complex gaming machines with multiple
specified theoretical hold percentages, the Commission has determined
that such calculations are essential for reliable analysis of the
performance of multi-game and multi-denominational gaming machines,
regardless of whether the spread between their minimum and maximum
specified theoretical hold percentages is more or less than 4%.
Therefore, the Commission is adding multi-denominational gaming
machines to the weighted average calculation requirement in current
subsection 542.13(h)(4), and is deleting the current requirement that
the spread between the minimum and maximum specified multiple
theoretical hold percentages must exceed 4% before any weighted average
calculations are required to determine the appropriate adjusted
theoretical hold percentage for either multi-game or multi-
denominational gaming machines. In contrast to other complex gaming
machines with multiple specified theoretical hold percentages, multi-
game and multi-denominational gaming machines do not possess common
characteristics that result in reasonably predictable player decisions
regarding the individual programmed games of the multi-game gaming
machine they elect to play or the denomination of their wager. Instead,
player wagering decisions can vary widely and player game/denomination
selections are also highly unpredictable and often subject to the
effects of intervening management decisions, such as the activation/
cancellation of game options, device location, gaming floor mix, and
paytable alternatives. Thus, to effectively identify a reliable
adjusted theoretical hold percentage for analysis of multi-game and
multi-denominational gaming machine performance requires a weighted
average calculation of player coins-in-wagering for each wager/game/
denomination paytable player option. Furthermore, it is the
Commission's considered judgment that such calculations are required
and necessary regardless of whether the spread between the minimum and
maximum specified multiple theoretical hold percentage for the multi-
game and/or multi-denominational gaming machine exceeds 4%.
Final Rule Revisions Renumbering Subsection 542.13(h)(19) as New
Subsection 542.13(h)(18) and Replacing the Six Month Play Threshold
With a Threshold of at Least 100,000 Wagering Transactions for Required
Investigation of Large Variances Between Actual and Theoretical Hold
Based on past experience and interaction with Tribal gaming
regulatory authorities, the Commission has determined that the current
six months play threshold in subsection 542.13(h)(19) for determining
when a gaming machine is required to be included in the gaming machine
analysis report is not practical or appropriate. Consequently, to
define more accurately when the comparison and investigation of large
variances between actual and theoretical hold is required, the
Commission has revised subsection 542.13(h)(19) by renumbering it as
subsection 542.13(h)(18) and replacing the six months play threshold
with a play threshold of at least 100,000 wagering transactions.
Final Rule Revisions to Subsection 542.13(m)(6) and (7) Accounting/
Audit Standards for Gaming Machines
In recognition of the varying processes that exist in the gaming
industry relative to the time period between currency drops for gaming
machines, the Commission has determined that the current standard in
subsection 542.13(m)(6) requiring weekly comparison of the bill-in
meter readings to the total bill acceptor drop is impractical and too
inflexible. Accordingly, the Commission is deleting the currently
required weekly comparison and replace it with an every ``drop period''
requirement. In conjunction with these final rule revisions, the term
``drop period'' is being defined in section 542.2 as the period of time
between sequential drops.
Furthermore, in consideration of the above revision, the Commission
is revising subsection 542.13(m)(7) by deleting the current $200.00
threshold for required follow-up investigation of an unresolved
variance between actual currency drop and bill-in meter reading and
replacing it with a threshold amount that is ``both more than $25.00
and at least 3 percent (3%) of the actual currency drop.''
[[Page 23016]]
Comments Regarding Final Rule Deletion of 4% Theoretical Payback Spread
Standard and Elimination of the Weighted Average Calculation
Requirements for Complex Gaming Machines With Multiple Theoretical Hold
Percentages (Excluding Multi-Game or Multi-Denominational Gaming
Machines)
Comments were received supporting the deletion of both standards,
indicating that the process will potentially become simpler. Comment
was received supporting the deletion of the standards and the
willingness of the Commission to accept alternative methods of
identifying the appropriate theoretical payback/hold percentage for the
machines in question, which will often involve simply selecting the
most conservative theoretical hold percentage within the range of
acceptable parameters established by the game manufacturer. Such a
procedure is founded upon the premise that patrons will generally opt
for max coin bet.
Comment was received objecting to the striking of the weighted
average calculation for complex gaming machines with a spread between
theoretical payback percentages greater than 4%. It was noted that on-
line computerized accounting systems for gaming machines capture the
required data and facilitate the identification of an optimal
theoretical payback/hold percentage for game analysis. Consequently,
the commenter contended there is no compelling need to strike the
standard. Comment was received questioning whether the standard
requires the data to be collected by hard meter or whether soft meters
are acceptable.
The Commission concurs with the commenter that the selection of the
most conservative hold percentage will generally produce a benchmark
for analysis of complex gaming machines, other than multi-game and
multi-denominational machines, that will enable the gaming machine
analysis report to be accurate and effective. However, should such a
procedure not be reflective of the method of play of the gaming
operation's patrons, the weighted average calculation would become the
desired alternative. By striking the standard, the Commission is
deferring to the Tribal Gaming Regulatory Authority (TGRA) to ensure
Tribal gaming management employs procedures appropriate to identify
reliable theoretical payback/hold percentages for analyzing the
performance of their complex gaming devices with multiple specified
theoretical hold percentages (excluding multi-gaming and multi-
denominational gaming machines). The Commission acknowledges that, in
accordance with industry standard, gaming machines and current
technology on-line accounting systems greatly aid the process of
collecting data. However, such on-line systems are not at this time
required by the MICS for all gaming machines. Therefore, we do not
agree that the striking of the standard lacks compelling justification.
The Commission refers the commenter to the MICS definitions
regarding the question of whether hard or soft meters may be used to
collect necessary game data and determine reliable theoretical payback/
hold percentages for game performance analysis. In accordance with
section 542.2, the term ``meter'' is defined as either hard or soft.
Consequently, to satisfy the standard, either method of collection is
permissible.
Comments Regarding Final Rule Extension of Weighted Average Theoretical
Hold Calculation and Other Multi-Game Gaming Machine Analysis
Requirements to Multi-Denominational Machines
Comments were received acknowledging the need to extend the scope
of the standard to include multi-denominational gaming machines in
addition to multi-game devices. Comment was received supporting the
striking of the 4% theoretical payback percentage spread criteria with
regard to multi-game and multi-denomination gaming machines. The
devices in question generally represent only a small portion of the
typical gaming floor. Comment was received suggesting that, instead of
quarterly meter reads, the meters should be read annually. Comment was
also received questioning the need to make annual adjustments to the
theoretical hold percentage for multi-game and multi-denomination
devices, since the recalculation of the theoretical hold percentage
results in only a nominal change. In addition, comment was also
received regarding the task of calculating theoretical payback and hold
percentages for multi-game machines that are also multi-denomination.
The commenter questioned whether the necessary data could be extracted
from such devices and, even if it could be obtained, the multi-tiered
calculations would be exceedingly cumbersome.
Finally, comment was received questioning whether the potential
annual adjustment to theoretical hold required the gaming machine to be
considered a new device for purposes of the gaming machine analysis
report. The Commission does not concur with the commenter
recommendation that collecting the meter data on an annual basis is
acceptable. With regard to the collection of wagering data from multi-
game and multi-denominational gaming machines, the more data collected,
the greater the confidence in the analysis of patron betting habits
and, consequently, the more reliable the identification of a valid
theoretical hold percentage. Due to the changes in machine mix and
location that frequently occur on the gaming floor, the Commission
believes the subject data should be collected on a quarterly basis. The
Commission does not agree with the comment that the annual review and
adjustment of the previously determined theoretical hold percentage is
of no value. We agree with the premise that, if the gaming floor
remained unaltered from one year to the next, the betting habits of the
patrons are likely to remain constant. However, changes to the gaming
floor are typically frequent, as management attempts to generate the
greatest return on the square footage allocated to the gaming machine
department. Such modifications may involve additions and removals of
devices, movement of machines on the gaming floor, activation/
deactivation of various game options (such as bonusing), changing the
mix of games offered, or increasing or restricting the different
denominations accepted. Each of these management decisions can affect
the theoretical hold of the multi-game and multi-denominational gaming
machines in question. We can certainly understand management electing
not to make an adjustment to the theoretical hold when the amount of
the adjustment will have no significant impact on the reliability of
the gaming machine analysis reports. However, due to the volatility of
the gaming floor and the potential effect such volatility can have on
patron betting habits, we believe the annual testing of previously
determined theoretical hold percentages to be a necessary management
practice.
The Commission appreciates the concern raised by a commenter
regarding the process of determining a reliable theoretical hold
percentage for multi-game devices that also accept multi-denomination
wagers. The Commission acknowledges that the standard is intended to
address either multi-game or multi-denomination but is awkward in its
application with regard to devices that possess both characteristics.
The standard would imply that a multi-tiered level of weighted average
calculations would be required and that, for each
[[Page 23017]]
denomination within each game, the corresponding theoretical hold would
be weighted by patron selection; the resulting game weighted average
theoretical hold would be weighted by patron game selection. Although
the exercise would certainly produce a theoretical hold percentage for
use in the game analysis report possessing a high level of confidence,
we question whether such an in depth examination of the various
theoretical percentages, weighted by both patron game and denomination
selection, is necessary to identify a reasonable benchmark to measure
actual game performance. Generally speaking, we believe it would be
acceptable to calculate a simple weighted average of the various
denominational theoretical hold percentages contained within each game
and use that average theoretical hold percentage in the weighted
average calculation based on patron game selection. Furthermore, to
make additional reductions in the number of calculations, management
might consider grouping games with similar theoretical hold
percentages, i.e. those with a difference of less than 0.5 percentage
points.
In summation, it is important not to lose sight of the ultimate
objective of the standards relevant to the statistical tracking of
gaming performance, which is to employ a process that is effective in
identifying deviations of actual performance from the manufacturer's
specifications that warrant investigation. Such deviations may simply
result from normal play, or be caused by gaming machine defect,
malfunction, heating, embezzlement, or other improper tampering.
Relevant to this overall process is the fact that many frauds have
occurred in Tribal gaming over the past few years involving false or
fraudulent gaming machine payouts that could have been detected sooner,
if the gaming operation had had an effective process for measuring the
appropriateness of actual gaming machine performance.
In response to the question raised by a commenter whether the
annual adjustment to theoretical hold percentage requires a gaming
machine to be given a new machine (asset) number for purposes of the
gaming machine analysis report, the Commission refers the commenter to
section 542.13(h)(16). That section explicitly exempts annual
theoretical hold adjustments made in accordance with section
542.13(h)(2) from the general requirement that the adjusted machine be
treated as a new machine. Consequently, creation of a new machine
number is not required when such adjustments occur.
Comments Regarding Final Rule Deletion of ``Six Month'' Play Threshold
and Addition of a ``100,000 Wagering Transactions'' Threshold for
Required Analysis of Large Gaming Machine Variances Between Theoretical
and Actual Hold
Comments were received supporting the Commission's recommended
change from a specified six (6) month play threshold in section
542.13(h)(18) to a threshold of 100,000 wagering transactions to
determine when a gaming machine should be included in the analysis of
actual hold performance to theoretical hold.
Comment was also received suggesting that the PAR sheets provide
information more relevant to when a particular device has experienced
sufficient play to be included in the gaming machine analysis process.
Comment was also received suggesting that the recommended range of
acceptable deviations from theoretical of 3 percentage
points should be struck from the MICS. The commenter noted that it
should be left up to the discretion of the TGRA as the primary gaming
regulator to make the determination. Additional comment was also
received recommending that it should also be left to the TGRA to
determine when sufficient play exists to require the machine to be
included in the gaming analysis report, since the performance of some
devices should be examined prior to 100,000 wagering transactions,
while others may require more play before any investigation of
deviations between actual and theoretical performance is worthwhile.
Finally, comment was received suggesting that a computerized
application utilizing a volatility indexing mathematical program should
be an acceptable alternative to the process required by the MICS. Such
programs employ a mathematical formula that estimates the minimum and
maximum ranges of acceptable theoretical payback/hold percentages for a
given machine based on the following: (1) The theoretical payback/hold
over the expected life of the machine; (2) the number of winning
combinations; (3) the payback/hold for the winning combinations; and
(4) the number of games played. In essence, the program considers the
game characteristics and determines a tolerable range of accepted
performance, which narrows as performance predictability increases.
Typically, predictability increases commensurate with increasing levels
of wagering activity.
The Commission concurs with the commenter's recommendation that the
standard would be better served by replacing the specified time period
with a minimum number of wagering transactions. The final revision to
section 542.13(h)(18) has, accordingly, been modified to reflect that
recommendation. The Commission also appreciates the suggestion made by
the commenter that determining when sufficient data exists to perform
the analysis of actual game performance should include consideration of
the data contained within the PAR sheet. It is important to recognize
that the 100,000 wagering transaction standard establishes a minimum
threshold for devices to be included in the required gaming machine
analysis report; however, it is also well understood that the
investigation of unacceptable deviations between actual and theoretical
game performance is a complex process. To comment on how the Commission
determined the 100,000 wager transaction threshold, a random number
generator (RNG) with a 10 million cycle will produce a range between
minimum and maximum confidence factors of approximately 3 percentage
points, which we believe justifies an investigation of an unacceptable
deviation, which industry practice would identify to be 3
percentage points between actual hold and theoretical hold. However,
the analyst should also consider the relevant PAR sheet in determining
the extent to which follow-up analysis and investigation is warranted.
For example, a multi-game device, particularly if it also accepts
multi-denomination, may in fact need more than 100,000 wagering
transactions before it is worthwhile to review past performance, i.e.
look for an abnormally large payout within the audit period. With such
a device, the analyst may determine that insufficient play has occurred
to perform an in depth review of past performance and would merely
document his/her determination. Within reason, we would not consider
such a determination to be noncompliant with the standard.
The Commission does not agree with the commenter's suggestion that
the recommended acceptable deviation range of 3 percentage
points be struck from the MICS. We believe the recommended range
represents industry practice and is a reasonable threshold to ensure
that the gaming machine analysis process will be effective. The
Commission also disagrees with the commenter's recommendation that it
should be left to the discretion of the TGRA to decide when a device
must be
[[Page 23018]]
included in the gaming machine analysis report. For the regulations
governing the statistical tracking of gaming performance and the
comparison of actual performance to the manufacturer's theoretical
performance specifications to be effective, the regulation must be
precise and reasonably uniform in defining its applicability. However,
we do acknowledge that the analysis of the data possesses an element of
subjectivity, which in turn necessitates that the analyst have a
professional level of expertise. Inclusion of a gaming machine in the
required gaming analysis report does not necessarily dictate that an in
depth investigation of all variances is warranted, but does require
that the gaming performance analyst/reviewer document the results of
their determination.
Finally, the Commission appreciates the suggestion by a commenter
that a volatility indexing mathematical program may produce results as
reliable as, or even more reliable, than the weighted average
calculation required for multi-game and multi-denominational gaming
machines in the MICS. In response, it is noteworthy that at section
542.3(c), the TGRA is required to adopt regulations that provide a
level of control that equals or exceeds the MICS. Although the rule
does not condone the TGRA accepting management procedures that are in
conflict with the MICS, it does not preclude acceptance of procedures
or controls that are different and at least as stringent as those
contained within the MICS. Furthermore, at section 542.13(b),
computerized applications that provide at least the same level of
control as the MICS are deemed to be acceptable under the current MICS.
Based on the data provided by the commenter, it is the belief of the
Commission that the noted mathematical formula would be an acceptable
alternative procedure. However, it is incumbent upon management to
adequately document the process and its effectiveness in providing the
required level of control and reliability in analyzing game
performance.
Comments Regarding the Final Revision of Section 542.13(m)(6) To
Require Comparison of Bill-In Meter Readings With Total Bill Acceptor
Drop Amounts for Each Drop Period Instead of Weekly
Comments were received concurring with the final revision. Comment
was also received noting that the standard is stricter, but also
acknowledging that the impact on management's gaming machine
accounting/audit function should be nominal. Finally, comment was
received supporting the final revision and noting that it should make
the follow-up process less cumbersome.
Comments Regarding the Final Revision of Section 542.13(m)(7) Requiring
Follow-Up of Unresolved Variances Between the Currency Drop and Bill-In
Meter Readings to Amounts Greater Than $25 and 3 percent Instead of
$200.00
Comment was received suggesting language in the initially proposed
revision to clarify the applicability of $25 or 3 percent. Comment was
received objecting to the revision because it would allow variances to
go uninvestigated that should be subjected to review. Basically, the
commenter contends that the rule is too liberal and results in the
control being ineffective. Comment was received recommending the
threshold be 5 percent and $25. The Commission accepts the commenter
recommendation regarding more explicit language and has modified the
final revision accordingly. The Commission understands the commenter
concern for the rule becoming less stringent and possibly ineffective.
However, the existing rule requires that a variance of $200 per machine
per week must be investigated. Assuming the Tribal gaming operation
performs a daily drop, the average variance threshold per day would be
$28.57. Because the drop must exceed $833.33 before the 3 percent
criteria becomes effective, for all practical purposes, the vast
majority of variances will be subject to the $25 threshold.
Consequently, we do not believe the revision will have a material
impact on the effectiveness of the control. However, by changing the
time frame from a week to a drop period, we believe the standard
becomes more consistent with the workflows of the revenue audit
process.
The Commission does not concur with the recommendation that the
threshold be increased to 5 percent or $25. With regard to drop
amounts, the final rule results in the $25 threshold being applicable
to drops of $25 to $833.33. The commenter recommendation would cause
the $25 threshold to be applicable to drops of $25 to $500, which
would, in effect, result in a lessening of the control. We do not
believe there is a compelling basis for making the recommended change.
Final Revisions to Subsection 542.16(a)(1) General Controls for Gaming
Hardware and Software
Proposed Deletion of Requirement in Vendor Software/Hardware Agreements
That Vendors Agree To Adhere to Related Tribal Internal Controls
Since initial adoption, this standard has often been a troublesome
requirement for management and Tribal gaming regulatory authorities to
implement and enforce. The NIGC is not unsympathetic to the challenges
created by the regulation when a vendor is uncooperative. Although the
proposed rule provided for the deletion of section 542.16(a)(1)(i),
which requires Tribal management to ensure that vendors agree to adhere
to Tribal internal control standards, the Commission has determined
that deletion of this standard is not appropriate at this time. It is
the common goal of the NIGC and Tribal management and regulators to
ensure that vendors adhere to Tribal internal control standards.
Comment was received supporting deletion of the standard, but
noting that management should continue to be held accountable by the
TGRA to ensure that agreements/contracts are not entered into that
would cause the gaming operation to be noncompliant with any Tribal,
State, or Federal laws or regulations. Furthermore, the TGRA should not
hesitate to enact and enforce such regulations of their own specific to
vendor contract requirements. Comment was also received supporting
deletion of the standard because it creates an undue hardship on
management in the negotiation of vendor agreements. Additional comment
was received supporting the deletion of the standard because violations
by vendors are often difficult and troublesome to enforce, which causes
the regulation to be fairly meaningless. Other comment was received
objecting to deletion of the standard because it provides an added
level of protection for Tribes from unscrupulous vendors in their
gaming enterprises. Additional comment was received from a TGRA noting
that, notwithstanding deletion of the standard from the MICS, the Tribe
intends to keep the control in their regulations, which is a Tribe's
right as primary regulator under IGRA.
After careful consideration of the comments received and relevant
public policy issues, the Commission has decided to retain the standard
at this time.
[[Page 23019]]
Final Revisions to Section 542.18 Regarding the Process for Commission
Review and Determination of Tribal Requests for a Variance From the
MICS in Their Tribal Internal Control Standards
To more clearly describe the current variance process, the NIGC is
revising section 542.18 of the MICS. Specifically, the revisions are
intended to more clearly describe the authority and duties of the
Chairman, his/her designee, the full Commission, as well as the appeal
rights of the Tribal petitioner. The final revisions are also intended
to ensure that an adequate factual investigation and record is
developed for administrative and judicial review of the merits of the
Chairman's decision on each variance request.
Comment was received supporting the final revisions. Comment was
also received supporting the revisions, except for that part that
prohibits the implementation of a TGRA approved variance until after
concurrence has been received from the Commission. Comment was received
questioning whether the petitioner Tribe has the authority to extend
stipulated time frames in the variance process.
Additional comment was received questioning whether the thirty (30)
day period associated with a review by NIGC staff of a resubmission was
sufficient. Further comment was received questioning the potential
result of a petitioner objecting to an extension of a stipulated time
period requested by NIGC staff. Specifically, the concern is that
refusal of such a request might result in summary denial of the
variance request. Comment was also received questioning the need for
extensions of the time frames provided. A commenter represented that
the stipulated time periods should be sufficient. Finally, comment was
received suggesting that the Commission should consider variance
requests only after they have been approved by the TGRA.
The Commission understands the commenter's objection to deferring
implementation of a TGRA approved variance until receipt of Commission
concurrence; however, to preserve the integrity of the MICS, the
regulatory body responsible for its enactment must have the latitude to
prohibit the implementation of procedures deemed to be unacceptable and
contrary to the NIGC's MICS regulations. The Commission also recognizes
that the variance concurrence process is one initiated by the
petitioner. Therefore, the Commission would not be unreasonable in
considering requests for additional time from the petitioner. It is
noteworthy to such a position that the implementation of the proposed
alternative procedure is precluded until after the Commission has
concurred.
The Commission acknowledges the concern expressed by a commenter
regarding the time afforded NIGC staff to review a resubmission.
Therefore, language has been added to enable staff to extend the
period, subject to concurrence by the petitioner. The Commission
understands the concern expressed by a commenter regarding a possible
decision not to concur, if acceptance of an extension to a stipulated
time period was not agreed. Certainly, the petitioner should be well
aware that the investigation of pertinent facts and data associated
with a variance request may take hours or many months, depending upon
its complexity. Although requests for additional time should be
reasonable and based on cause, the petitioner should also be well aware
that the undue refusal to grant additional time may result in a
determination different than that which would have otherwise been
rendered, if the petitioners had agreed to the Chairman's request for
more adequate time to investigate and decide their variance request.
Notwithstanding the question pertaining to extension of time frames,
the petitioner's right to appeal would continue to exist.
The Commission disagrees with the commenter's contention that time
period extensions are not warranted. Although some variance requests
can be readily addressed, particularly if the staff charged with
performing the research has past experience with similar requests, most
will involve extensive analysis. Seldom is a petition simply responded
to. Instead, a filing will generally initiate a back and forth exchange
with the petitioner as staff seeks additional information or
clarifications regarding the requested variance. Alternative procedures
involving new technology often involve travel by staff to consult with
manufacturers and other regulators or operators. Inherent to the
analysis of a variance request is the identification of risk and
evaluation of compensating controls. The time periods contained within
the regulation will generally be appropriate for the more simple
concurrence requests; however, complex requests will typically require
one or more extensions of the allotted time frame. The Commission
concurs with the commenter's suggestion regarding consideration of
variance requests only after they have been approved by the TGRA. In
accordance with the final rule, a variance request received by the
Commission lacking evidence of the TGRA approval would not be
considered. Since such a submission would lack authority.
Final Revisions To Add New Sections to the MICS Establishing Minimum
Standards for Computerized Key Security Systems
Section 542.21(t)-(w) What are the minimum internal controls for drop
and count for Tier A gaming operations?
Section 542.31(t)-(w) What are the minimum internal controls for drop
and count for Tier B gaming operations?
Section 542.41(t)-(w) What are the minimum internal controls for drop
and count for Tier C gaming operations?
Sections (t) and (u) are new MICS sections. Existing sections (t)
and (u) are unchanged and are now designated as sections (v) and (w).
In recognition of an increasing number of gaming operations utilizing
or considering the utilization of computerized key control systems, the
NIGC has determined that regulations addressing such systems are
warranted for Tier A, B, and C Tribal gaming operations.
Comment was received supporting the final revisions noting that
electronic key control systems are becoming more prevalent. Comment was
also received supporting the determination by the Commission to adopt
standards specifically covering the use of computerized key control
systems in Tier A, B, and C gaming operations and not rely solely on
the general MICS regulation covering computerized applications. Comment
was also received supporting the new regulation and noting that the
controls also provide for an audit function.
Comment was received supporting the new regulation, but noting that
the TGRA should also consider more stringent standards. Comment was
received recommending that the auditing procedures, particularly the
quarterly inventory of keys, be performed by accounting/auditing
personnel independent of the key control process. Additional comment
was received questioning the need for the regulations since most of the
controls are already in the MICS. Comment was received recommending
that the regulation more clearly differentiate the function of key
custodian from system administrator.
Comment was also received questioning the need for three persons to
be involved in accessing the manual override key to open the box to
perform repairs. It was noted that the persons accessing the box would
not have access
[[Page 23020]]
to the slot drop and count keys. For the purpose of making repairs,
only two persons should be required to gain access to the manual
override key.
The Commission disagrees with the commenter questioning the need
for the new regulations. Computerized key control systems have been the
subject of several Tribal variance requests over the past few years.
Therefore, the Commission believes it appropriate to establish minimum
standards specific to such systems. The Commission concurs with the
commenter recommendation that the auditing procedures be performed by
accounting/auditing personnel independent of the key control process.
The final regulation for all three tiers has been changed accordingly.
The Commission also concurs with the commenter's recommendation that
the key custodian functions be more clearly defined and noted as being
separate from those of the system administrator. Accordingly, the final
revisions have been modified in all three new sections to more clearly
define separation of the two functions.
The Commission also concurs with the commenter's suggestion that
only two people be required to access the manual override key to make
repairs to the key control box. Such access would not include access to
the coin drop and count keys. The final revisions have been modified to
reflect the suggestion of the commenter in all three new MICS sections.
Regulatory Matters
Regulatory Flexibility Act
The Commission certifies that the Final rule revisions to the
Minimum Internal Control Standards contained within this regulation
will not have a significant economic impact on small entities, 5 U.S.C.
605(b). The factual basis for this certification is as follows:
Of the 330 Indian gaming operations across the country,
approximately 93 of the operations have gross revenues of less than $5
million. Of these, approximately 39 operations have gross revenues of
under $1 million. Since the final revisions will not apply to gaming
operations with gross revenues under $1 million, only 39 small
operations may be affected. While this is a substantial number, the
Commission believes that the final revisions will not have a
significant economic impact on these operations for several reasons.
Even before implementation of the original MICS, Tribes had
internal controls because they are essential to gaming operations in
order to protect assets. The costs involved in implementing these
controls are part of the regular business costs incurred by such an
operation. The Commission believes that many Indian gaming operation
internal control standards that are more stringent than those contained
in these regulations. Further, these final rule revisions are technical
and minor in nature.
Under the final revisions, small gaming operations grossing under
$1 million are exempted from MICS compliance. Tier A facilities (those
with gross revenues between $1 and $5 million) are subject to the
yearly requirement that independent certified public accountant testing
occur. The purpose of this testing is to measure the gaming operation's
compliance with the tribe's internal control standards. The cost of
compliance with this requirement for small gaming operation is
estimated at between $3,000 and $5,000. The cost of this report is
minimal and does not create a significant economic effect on gaming
operations. What little impact exists is further offset because other
regulations require yearly independent financial audits that can be
conducted at the same time. For these reasons, the Commission has
concluded that the final rule revisions will not have a significant
economic impact on those small entities subject to the rule.
Small Business Regulatory Enforcement Fairness Act
These following final rule revisions do not constitute a major rule
under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement
Fairness Act. The revisions will not have an annual effect on the
economy of $100 million or more. The revisions also will not cause a
major increase in costs or prices for consumers, individual industries,
federal, state or local government agencies or geographic regions and
does not have a significant adverse effect on competition, employment,
investment, productivity, innovation, or the ability of U.S. based
enterprises to compete with foreign-based enterprises.
Unfunded Mandates Reform Act
The Commission is an independent regulatory agency and, as such, is
not subject to the Unfunded Mandates Reform Act. Even so, the
Commission has determined that the final rule revisions do not impose
an unfunded mandate on State, local, or Tribal governments, or on the
private sector, of more than $100 million per year. Thus, this is not a
``significant regulatory action'' under the Unfunded Mandates Reform
Act, 2 U.S.C. 1501 et seq.
The Commission has, however, determined that the final rule
revisions may have a unique effect on Tribal governments, as they apply
exclusively to Tribal governments, whenever they undertake the
ownership, operation, regulation, or licensing of gaming facilities on
Indian lands, as defined by the Indian Gaming Regulatory Act. Thus, in
accordance with Section 203 of the Unfunded Mandates Reform Act, the
Commission undertook several actions to provide Tribal governments with
adequate notice, opportunity for ``meaningful'' consultation, input,
and shared information, advice, and education regarding compliance.
These actions included the formation of a Tribal Advisory Committee and
the request for input from Tribal leaders.
Section 204(b) of the Unfunded Mandates Reform Act exempts from the
Federal Advisory Committee Act (5 U.S.C. App.) meetings with Tribal
elected officials (or their designees) for the purpose of exchanging
views, information, and advice concerning the implementation of
intergovernmental responsibilities or administration. In selecting
Committee members, consideration was placed on the applicant's
experience in this area, as well as the size of the Tribe the nominee
represented, geographic location of the gaming operation, and the size
and type of gaming conducted. The Commission attempted to assemble a
Committee that incorporates diversity and is representative of Tribal
gaming interests. The Commission met with the Advisory Committee to
discuss the public comments that were received as a result of the
publication of the proposed MICS rule revisions, and considered all
Tribal and public comments and Committee recommendations before
formulating the final rule revisions. The Commission also plans to
continue its policy of providing necessary technical assistance,
information, and support to enable Tribes to implement and comply with
the MICS as revised. The Commission also provided the proposed
revisions to Tribal leaders for comment prior to publication of this
final rule and considered these comments in formulating the rule.
Takings
In accordance with Executive Order 12630, the Commission has
determined that the following final MICS rule revisions do not have
significant takings implications. A takings implication assessment is
not required.
Civil Justice Reform
In accordance with Executive Order 12988, the Office of General
Counsel has determined that the following final
[[Page 23021]]
MICS rule revisions do not unduly burden the judicial system and meet
the requirements of sections 3(a) and 3(b)(2) of the Order.
Paperwork Reduction Act
The following final MICS rule revisions require information
collection under the Paperwork Reduction Act 44 U.S.C. 3501 et seq., as
did the rule it revises. There is no change to the paperwork
requirements created by these final revisions. The Commission's OMB
Control Number for this regulation is 3141-0009.
National Environmental Policy Act
The Commission has determined that the following final MICS rule
revisions do not constitute a major Federal action significantly
affecting the quality of the human environment and that no detailed
statement is required pursuant to the National Environmental Policy Act
of 1969 (42 U.S.C. 4321 et seq).
List of Subjects in 25 CFR Part 542
Accounting, Auditing, Gambling, Indian-lands, Indian-tribal
government, Reporting and recordkeeping requirements.
0
Accordingly, for all of the reasons set forth in the foregoing
preamble, the National Indian Gaming Commission amends 25 CFR part 542
as follows:
PART 542--MINIMUM INTERNAL CONTROL STANDARDS
0
1. The authority citation for part 542 continues to read as follows:
Authority: 25 U.S.C. 2701 et seq.
0
2. Section 542.2 is amended by adding in alphabetical order the
definitions for ``Drop Period'' and ``Series number,'' and by revising
the definitions for ``Gaming Machine'' and ``Promotional progressive
pots and/or pools'' to read as follows:
Sec. 542.2 What are the definitions for this part?
* * * * *
Drop period means the period of time that occurs between sequential
drops.
* * * * *
Gaming machine means an electronic or electromechanical machine
that allows a player to play games of chance, some of which may be
affected by skill, which contains a microprocessor with random number
generator capability for outcome selection or computer terminal that
accesses an outcome that is subsequently and randomly selected in
drawings that are electronically conducted by central computer or other
such methods of chance selection, whether mechanical or electronic. The
machine is activated by the insertion of cash or cash equivalents and
which awards cash, cash equivalents, merchandise, or a written
statement of the player's accumulated credits, which written statements
may be redeemable for cash.
* * * * *
Promotional progressive pots and/or pools means funds contributed
to a table game or card game by and for the benefit of players. Funds
are distributed to players based on a predetermined event.
* * * * *
Series number means the unique identifying number printed on each
sheet of bingo paper that identifies the bingo paper as a series or
packet. The series number is not the free space or center space number
located on the bingo paper.
* * * * *
0
3. Amend Sec. 542.7 by revising paragraph (g)(1)(i) to read as
follows:
Sec. 542.7 What are the minimum internal control standards for bingo?
* * * * *
(g) * * *
(1) * * *
(i) If the electronic equipment contains a bill acceptor, then
Sec. 542.21(e) and (f), Sec. 542.31(e) and (f), or Sec. 542.41(e)
and (f) (as applicable) shall apply.
* * * * *
0
4. Amend Sec. 542.8 by revising paragraph (h)(1)(i) to read as
follows:
Sec. 542.8 What are the minimum internal control standards for pull
tabs?
* * * * *
(h) * * *
(1) * * *
(i) If the electronic equipment contains a bill acceptor, then
Sec. 542.21(e) and (f), Sec. 542.31(e) and (f), or Sec. 542.41(e)
and (f) (as applicable) shall apply.
* * * * *
0
5. Amend Sec. 542.12 by revising paragraphs (i)(4) and (k)(l)(v),
(ix), and (xvii) to read as follows:
Sec. 542.12 What are the minimum internal control standards for table
games?
* * * * *
(i) * * *
(4) The management in paragraph (i)(3) of this section shall
investigate any unusual fluctuations in hold percentage with pit
supervisory personnel.
* * * * *
(k) * * *
(1) * * *
* * * * *
(v) The marker form shall be prepared in at least triplicate form
(triplicate form being defined as three parts performing the functions
delineated in the standard in paragraph (k)(1)(vi) of this section),
with a preprinted or concurrently printed marker number, and utilized
in numerical sequence. (This requirement shall not preclude the
distribution of batches of markers to various pits.)
* * * * *
(ix) The forms required in paragraphs (k)(1)(v), (vi), and (viii)
of this section shall be safeguarded, and adequate procedures shall be
employed to control the distribution, use, and access to these forms.
* * * * *
(xvii) When partial payments are made in the pit, the payment slip
of the marker that was originally issued shall be properly cross-
referenced to the new marker number, completed with all information
required by paragraph (k)(1)(xv) of this section, and inserted into the
drop box.
* * * * *
0
6. Amend Sec. 542.13 by revising paragraph (h), (1)(4), and (m)(6) and
(7) to read as follows:
Sec. 542.13 What are the minimum internal control standards for
gaming machines?
* * * * *
(h) Standards for evaluating theoretical and actual hold
percentages.
(1) Accurate and current theoretical hold worksheets shall be
maintained for each gaming machine.
(2) For multi-game/multi-denominational machines, an employee or
department independent of the gaming machine department shall:
(i) Weekly, record the total coin-in meter;
(ii) Quarterly, record the coin-in meters for each paytable
contained in the machine; and
(iii) On an annual basis, adjust the theoretical hold percentage in
the gaming machine statistical report to a weighted average based upon
the ratio of coin-in for each game paytable.
(3) For those gaming operations that are unable to perform the
weighted average calculation as required by paragraph (h)(2) of this
section, the following procedures shall apply:
(i) On at least an annual basis, calculate the actual hold
percentage for each gaming machine;
(ii) On at least an annual basis, adjust the theoretical hold
percentage in the gaming machine statistical report for each gaming
machine to the previously calculated actual hold percentage; and
(iii) The adjusted theoretical hold percentage shall be within the
spread between the minimum and maximum theoretical payback percentages.
(4) The adjusted theoretical hold percentage for multi-game/multi-
[[Page 23022]]
denominational machines may be combined for machines with exactly the
same game mix throughout the year.
(5) The theoretical hold percentages used in the gaming machine
analysis reports should be within the performance standards set by the
manufacturer.
(6) Records shall be maintained for each machine indicating the
dates and type of changes made and the recalculation of theoretical
hold as a result of the changes.
(7) Records shall be maintained for each machine that indicate the
date the machine was placed into service, the date the machine was
removed from operation, the date the machine was placed back into
operation, and any changes in machine numbers and designations.
(8) All of the gaming machines shall contain functioning meters
that shall record coin-in or credit-in, or on-line gaming machine
monitoring system that captures similar data.
(9) All gaming machines with bill acceptors shall contain
functioning billing meters that record the dollar amounts or number of
bills accepted by denomination.
(10) Gaming machine in-meter readings shall be recorded at least
weekly (monthly for Tier A and Tier B gaming operations) immediately
prior to or subsequent to a gaming machine drop. On-line gaming machine
monitoring systems can satisfy this requirement. However, the time
between readings may extend beyond one week in order for a reading to
coincide with the end of an accounting period only if such extension is
for no longer than six (6) days.
(11) The employee who records the in-meter reading shall either be
independent of the hard count team or shall be assigned on a rotating
basis, unless the in-meter readings are randomly verified quarterly for
all gaming machines and bill acceptors by a person other than the
regular in-meter reader.
(12) Upon receipt of the meter reading summary, the accounting
department shall review all meter readings for reasonableness using
pre-established parameters.
(13) Prior to final preparation of statistical reports, meter
readings that do not appear reasonable shall be reviewed with gaming
machine department employees or other appropriate designees, and
exceptions documented, so that meters can be repaired or clerical
errors in the recording of meter readings can be corrected.
(14) A report shall be produced at least monthly showing month-to-
date, year-to-date (previous twelve (12) months data preferred), and if
practicable, life-to-date actual hold percentage computations for
individual machines and a comparison to each machine's theoretical hold
percentage previously discussed.
(15) Each change to a gaming machine's theoretical hold percentage,
including progressive percentage contributions, shall result in that
machine being treated as a new machine in the statistical reports
(i.e., not commingling various hold percentages), except for
adjustments made in accordance with paragraph (h)(2) of this section.
(16) If promotional payouts or awards are included on the gaming
machine statistical reports, it shall be in a manner that prevents
distorting the actual hold percentages of the affected machines.
(17) The statistical reports shall be reviewed by both gaming
machine department management and management employees independent of
the gaming machine department on at least a monthly basis.
(18) For those machines that have experienced at least 100,000
wagering transactions, large variances (three percent (3%) recommended)
between theoretical hold and actual hold shall be investigated and
resolved by a department independent of the gaming machine department
with the findings documented and provided to the Tribal gaming
regulatory authority upon request in a timely manner.
(19) Maintenance of the on-line gaming machine monitoring system
data files shall be performed by a department independent of the gaming
machine department. Alternatively, maintenance may be performed by
gaming machine supervisory employees if sufficient documentation is
generated and it is randomly verified on a monthly basis by employees
independent of the gaming machine department.
(20) Updates to the on-line gaming machine monitoring system to
reflect additions, deletions, or movements of gaming machines shall be
made at least weekly prior to in-meter readings and the weigh process.
* * * * *
(l) * * *
(4) Reports, where applicable, adequately documenting the
procedures required in paragraph (l)(3) of this section shall be
generated and retained.
(m) * * *
(6) For each drop period, accounting/auditing employees shall
compare the bill-in meter reading to the total bill acceptor drop
amount for the period. Discrepancies shall be resolved before the
generation/distribution of gaming machine statistical reports.
(7) Follow-up shall be performed for any one machine having an
unresolved variance between actual currency drop and bill-in meter
reading in excess of an amount that is both more than $25 and at least
three percent (3%) of the actual currency drop. The follow-up performed
and results of the investigation shall be documented, maintained for
inspection, and provided to the Tribal gaming regulatory authority upon
request.
* * * * *
0
7. Revise Sec. 542.18 to read as follows:
Sec. 542.18 How does a gaming operation apply for a variance from the
standards of the part?
(a) Tribal gaming regulatory authority approval. (1) A Tribal
gaming regulatory authority may approve a variance for a gaming
operation if it has determined that the variance will achieve a level
of control sufficient to accomplish the purpose of the standard it is
to replace.
(2) For each enumerated standard for which the Tribal gaming
regulatory authority approves a variance, it shall submit to the
Chairman of the NIGC, within thirty (30) days, a detailed report, which
shall include the following:
(i) A detailed description of the variance;
(ii) An explanation of how the variance achieves a level of control
sufficient to accomplish the purpose of the standard it is to replace;
and
(iii) Evidence that the Tribal gaming regulatory authority has
approved the variance.
(3) In the event that the Tribal gaming regulatory authority or the
Tribe chooses to submit a variance request directly to the Chairman, it
may do so without the approval requirement set forth in paragraph
(a)(2)(iii) of this section and such request shall be deemed as having
been approved by the Tribal gaming regulatory authority.
(b) Review by the Chairman. (1) Following receipt of the variance
approval, the Chairman or his or her designee shall have sixty (60)
days to concur with or object to the approval of the variance.
(2) Any objection raised by the Chairman shall be in the form of a
written explanation based upon the following criteria:
(i) There is no valid explanation of why the gaming operation
should have received a variance approval from the Tribal gaming
regulatory authority on the enumerated standard; or
[[Page 23023]]
(ii) The variance as approved by the Tribal gaming regulatory
authority does not provide a level of control sufficient to accomplish
the purpose of the standard it is to replace.
(3) If the Chairman fails to object in writing within sixty (60)
days after the date of receipt of a complete submission, the variance
shall be considered concurred with by the Chairman.
(4) The 60-day deadline may be extended, provided such extension is
mutually agreed upon by the Tribal gaming regulatory authority and the
Chairman.
(c) Curing Chairman's objections. (1) Following an objection by the
Chairman to the issuance of a variance, the Tribal gaming regulatory
authority shall have the opportunity to cure any objections noted by
the Chairman.
(2) A Tribal gaming regulatory authority may cure the objections
raised by the Chairman by:
(i) Rescinding its initial approval of the variance; or
(ii) Rescinding its initial approval, revising the variance,
approving it, and re-submitting it to the Chairman.
(3) Upon any re-submission of a variance approval, the Chairman
shall have thirty (30) days to concur with or object to the re-
submitted variance.
(4) If the Chairman fails to object in writing within thirty (30)
days after the date of receipt of the re-submitted variance, the re-
submitted variance shall be considered concurred with by the Chairman.
(5) The thirty (30) day deadline may be extended, provided such
extension is mutually agreed upon by the Tribal gaming regulatory
authority and the Chairman.
(d) Appeals. (1) Upon receipt of objections to a re-submission of a
variance, the Tribal gaming regulatory authority shall be entitled to
an appeal to the full Commission in accordance with the following
process:
(i) Within thirty (30) days of receiving an objection to a re-
submission, the Tribal gaming regulatory authority shall file its
notice of appeal.
(ii) Failure to file an appeal within the time provided by this
section shall result in a waiver of the opportunity for an appeal.
(iii) An appeal under this section shall specify the reasons why
the Tribal gaming regulatory authority believes the Chairman's
objections should be reviewed, and shall include supporting
documentation, if any.
(iv) The Tribal gaming regulatory authority shall be provided with
any comments offered by the Chairman to the Commission on the substance
of the appeal by the Tribal gaming regulatory authority and shall be
offered the opportunity to respond to any such comments.
(v) Within thirty (30) days after receipt of the appeal, the
Commission shall render a decision based upon the criteria contained
within paragraph (b)(2) of this section unless the Tribal gaming
regulatory authority elects to wave the thirty (30) day requirement and
to provide the Commission additional time, not to exceed an additional
thirty (30) days, to render a decision.
(vi) In the absence of a decision within the time provided, the
Tribal gaming regulatory authority's resubmission shall be considered
concurred with by the Commission and become effective.
(2) The Tribal gaming regulatory authority may appeal the
Chairman's objection to the approval of a variance to the full
Commission without resubmitting the variance by filling a notice of
appeal with the full Commission within thirty (30) days of the
Chairman's objection and complying with the procedures described in
paragraph (d)(1) of this section.
(e) Effective date of variance. The gaming operation shall comply
with standards that achieve a level of control sufficient to accomplish
the purpose of the standard it is to replace until such time as the
Commission objects to the Tribal gaming regulatory authority's approval
of a variance as provided in paragraph (b) of this section. Concurrence
in a variance by the Chairman or Commission is discretionary and
variances will not be granted routinely. The gaming operation shall
comply with standards at least as stringent as those set forth in this
part until such time as the Chairman or Commission concurs with the
Tribal gaming regulatory authority's approval of a variance.
0
8. Amend Sec. 542.21 by redesignating paragraphs (t) and (u) as
paragraphs (v) and (w) and by adding new paragraphs (t) and (u) to read
as follows:
Sec. 542.21 What are the minimum internal controls for drop and count
for Tier A gaming operations?
* * * * *
(t) Gaming machine computerized key security systems. (1)
Computerized key security systems which restrict access to the gaming
machine drop and count keys through the use of passwords, keys or other
means, other than a key custodian, must provide the same degree of
control as indicated in the aforementioned key control standards; refer
to paragraphs (l), (o), (q) and (s) of this section. Note: This
standard does not apply to the system administrator. The system
administrator is defined in paragraph (t)(2)(i) of this section.
(2) For computerized key security systems, the following additional
gaming machine key control procedures apply:
(i) Management personnel independent of the gaming machine
department assign and control user access to keys in the computerized
key security system (i.e., system administrator) to ensure that gaming
machine drop and count keys are restricted to authorized employees.
(ii) In the event of an emergency or the key box is inoperable,
access to the emergency manual key(s) (a.k.a. override key), used to
access the box containing the gaming machine drop and count keys,
requires the physical involvement of at least three persons from
separate departments, including management. The date, time, and reason
for access, must be documented with the signatures of all participating
employees signing out/in the emergency manual key(s).
(iii) The custody of the keys issued pursuant to paragraph
(t)(2)(ii) of this section requires the presence of two persons from
separate departments from the time of their issuance until the time of
their return.
(iv) Routine physical maintenance that requires accessing the
emergency manual key(s) (override key) and does not involve the
accessing of the gaming machine drop and count keys, only requires the
presence of two persons from separate departments. The date, time and
reason for access must be documented with the signatures of all
participating employees signing out/in the emergency manual key(s).
(3) For computerized key security systems controlling access to
gaming machine drop and count keys, accounting/audit personnel,
independent of the system administrator, will perform the following
procedures:
(i) Daily, review the report generated by the computerized key
security system indicating the transactions performed by the
individual(s) that adds, deletes, and changes user's access within the
system (i.e., system administrator). Determine whether the transactions
completed by the system administrator provide an adequate control over
the access to the gaming machine drop and count keys. Also, determine
whether any gaming machine drop and count key(s) removed or returned to
the key cabinet by the system administrator was properly authorized.
[[Page 23024]]
(ii) For at least one day each month, review the report generated
by the computerized key security system indicating all transactions
performed to determine whether any unusual gaming machine drop and
count key removals or key returns occurred.
(iii) At least quarterly, review a sample of users that are
assigned access to the gaming machine drop and count keys to determine
that their access to the assigned keys is adequate relative to their
job position.
(iv) All noted improper transactions or unusual occurrences are
investigated with the results documented.
(4) Quarterly, an inventory of all count room, drop box release,
storage rack and contents keys is performed, and reconciled to records
of keys made, issued, and destroyed. Investigations are performed for
all keys unaccounted for, with the investigation being documented.
(u) Table games computerized key security systems. (1) Computerized
key security systems which restrict access to the table game drop and
count keys through the use of passwords, keys or other means, other
than a key custodian, must provide the same degree of control as
indicated in the aforementioned key control standards; refer to
paragraphs (m), (n), (p) and (r) of this section. Note: This standard
does not apply to the system administrator. The system administrator is
defined in paragraph (u)(2)(ii) of this section.
(2) For computerized key security systems, the following additional
table game key control procedures apply:
(i) Management personnel independent of the table game department
assign and control user access to keys in the computerized key security
system (i.e., system administrator) to ensure that table game drop and
count keys are restricted to authorized employees.
(ii) In the event of an emergency or the key box is inoperable,
access to the emergency manual key(s) (a.k.a. override key), used to
access the box containing the table game drop and count keys, requires
the physical involvement of at least three persons from separate
departments, including management. The date, time, and reason for
access, must be documented with the signatures of all participating
employees signing out/in the emergency manual key(s).
(iii) The custody of the keys issued pursuant to paragraph
(u)(2)(ii) of this section requires the presence of two persons from
separate departments from the time of their issuance until the time of
their return.
(iv) Routine physical maintenance that requires accessing the
emergency manual key(s) (override key) and does not involve the
accessing of the table games drop and count keys, only requires the
presence of two persons from separate departments. The date, time and
reason for access must be documented with the signatures of all
participating employees signing out/in the emergency manual key(s).
(3) For computerized key security systems controlling access to
table games drop and count keys, accounting/audit personnel,
independent of the system administrator, will perform the following
procedures:
(i) Daily, review the report generated by the computerized key
security system indicating the transactions performed by the
individual(s) that adds, deletes, and changes user's access within the
system (i.e., system administrator). Determine whether the transactions
completed by the system administrator provide an adequate control over
the access to the table games drop and count keys. Also, determine
whether any table games drop and count key(s) removed or returned to
the key cabinet by the system administrator was properly authorized.
(ii) For at least one day each month, review the report generated
by the computerized key security system indicating all transactions
performed to determine whether any unusual table games drop and count
key removals or key returns occurred.
(iii) At least quarterly, review a sample of users that are
assigned access to the table games drop and count keys to determine
that their access to the assigned keys is adequate relative to their
job position.
(iv) All noted improper transactions or unusual occurrences are
investigated with the results documented.
(4) Quarterly, an inventory of all count room, table game drop box
release, storage rack and contents keys is performed, and reconciled to
records of keys made, issued, and destroyed. Investigations are
performed for all keys unaccounted for, with the investigations being
documented.
(v) Emergency drop procedures. Emergency drop procedures shall be
developed by the Tribal gaming regulatory authority, or the gaming
operation as approved by the Tribal gaming regulatory authority.
(w) Equipment standards for gaming machine count. (1) A weigh scale
calibration module shall be secured so as to prevent unauthorized
access (e.g., prenumbered seal, lock and key, etc.).
(2) A person independent of the cage, vault, gaming machine, and
count team functions shall be required to be present whenever the
calibration module is accessed. Such access shall be documented and
maintained.
(3) If a weigh scale interface is used, it shall be adequately
restricted so as to prevent unauthorized access (passwords, keys,
etc.).
(4) If the weigh scale has a zero adjustment mechanism, it shall be
physically limited to minor adjustments (e.g., weight of a bucket) or
physically situated such that any unnecessary adjustments to it during
the weigh process would be observed by other count team members.
(5) The weigh scale and weigh scale interface (if applicable) shall
be tested by a person or persons independent of the cage, vault, and
gaming machine departments and count team at least quarterly. At least
annually, this test shall be performed by internal audit in accordance
with the internal audit standards. The result of these tests shall be
documented and signed by the person or persons performing the test.
(6) Prior to the gaming machine count, at least two employees shall
verify the accuracy of the weigh scale with varying weights or with
varying amounts of previously counted coin for each denomination to
ensure the scale is properly calibrated (varying weights/coin from drop
to drop is acceptable).
(7) If a mechanical coin counter is used (instead of a weigh
scale), the Tribal gaming regulatory authority, or the gaming operation
as approved by the Tribal gaming regulatory authority, shall establish
and the gaming operation shall comply, with procedures that are
equivalent to those described in paragraphs (u)(4), (u)(5), and (u)(6)
of this section.
(8) If a coin meter count machine is used, the count team member
shall record the machine number denomination and number of coins in ink
on a source document, unless the meter machine automatically records
such information.
(i) A count team member shall test the coin meter count machine
prior to the actual count to ascertain if the metering device is
functioning properly with a predetermined number of coins for each
denomination.
(ii) [Reserved]
0
9. Amend Sec. 542.31 by redesignating paragraphs (t) and (u) as
paragraphs (v) and (w) and by adding new paragraphs (t) and (u) to read
as follows:
[[Page 23025]]
Sec. 542.31 What are the minimum internal controls for drop and count
Tier B gaming operations?
* * * * *
(t) Gaming machine computerized key security systems. (1)
Computerized key security systems which restrict access to the gaming
machine drop and count keys through the use of passwords, keys or other
means, other than a key custodian, must provide the same degree of
control as indicated in the aforementioned key control standards; refer
to paragraphs (l), (o), (q) and (s) of this section. Note: This
standard does not apply to the system administrator. The system
administrator is defined in paragraph (t)(2)(i) of this section.
(2) For computerized key security systems, the following additional
gaming machine key control procedures apply:
(i) Management personnel independent of the gaming machine
department assign and control user access to keys in the computerized
key security system (i.e., system administrator) to ensure that gaming
machine drop and count keys are restricted to authorized employees.
(ii) In the event of an emergency or the key box is inoperable,
access to the emergency manual key(s) (a.k.a. override key), used to
access the box containing the gaming machine drop and count keys,
requires the physical involvement of at least three persons from
separate departments, including management. The date, time, and reason
for access, must be documented with the signatures of all participating
employees signing out/in the emergency manual key(s).
(iii) The custody of the keys issued pursuant to paragraph
(t)(2)(ii) of this section, requires the presence of two persons from
separate departments from the time of their issuance until the time of
their return.
(iv) Routine physical maintenance that requires accessing the
emergency manual key(s) (override key) and does not involve the
accessing of the gaming machine drop and count keys, only requires the
presence of two persons from separate departments. The date, time and
reason for access must be documented with the signatures of all
participating employees signing out/in the emergency manual key(s).
(3) For computerized key security systems controlling access to
gaming machine drop and count keys, accounting/audit personnel,
independent of the system administrator, will perform the following
procedures:
(i) Daily, review the report generated by the computerized key
security system indicating the transactions performed by the
individual(s) that adds, deletes, and changes user's access within the
system (i.e., system administrator). Determine whether the transactions
completed by the system administrator provide an adequate control over
the access to the gaming machine drop and count keys. Also, determine
whether any gaming machine drop and count key(s) removed or returned to
the key cabinet by the system administrator was properly authorized.
(ii) For at least one day each month, review the report generated
by the computerized key security system indicating all transactions
performed to determine whether any unusual gaming machine drop and
count key removals or key returns occurred.
(iii) At least quarterly, review a sample of users that are
assigned access to the gaming machine drop and count keys to determine
that their access to the assigned keys is adequate relative to their
job position.
(iv) All noted improper transactions or unusual occurrences are
investigated with the results documented.
(4) Quarterly, an inventory of all count room, drop box release,
storage rack and contents keys is performed, and reconciled to records
of keys made, issued, and destroyed. Investigations are performed for
all keys unaccounted for, with the investigation being documented.
(u) Table games computerized key security systems. (1) Computerized
key security systems which restrict access to the table game drop and
count keys through the use of passwords, keys or other means, other
than a key custodian, must provide the same degree of control as
indicated in the aforementioned key control standards, refer to
paragraphs (m), (n), (p) and (r) of this section. Note: This standard
does not apply to the system administrator. The system administrator is
defined in paragraph (u)(2)(ii) of this section.
(2) For computerized key security systems, the following additional
table game key control procedures apply:
(i) Management personnel independent of the table game department
assign and control user access to keys in the computerized key security
system (i.e., system administrator) to ensure that table game drop and
count keys are restricted to authorized employees.
(ii) In the event of an emergency or the key box is inoperable,
access to the emergency manual key(s) (a.k.a. override key), used to
access the box containing the table game drop and count keys, requires
the physical involvement of at least three persons from separate
departments, including management. The date, time, and reason for
access, must be documented with the signatures of all participating
employees signing out/in the emergency manual key(s).
(iii) The custody of the keys issued pursuant to paragraph
(u)(2)(ii) of this section, requires the presence of two persons from
separate departments from the time of their issuance until the time of
their return.
(iv) Routine physical maintenance that requires accessing the
emergency manual key(s) (override key) and does not involve the
accessing of the table games drop and count keys, only requires the
presence of two persons from separate departments. The date, time and
reason for access must be documented with the signatures of all
participating employees signing out/in the emergency manual key(s).
(3) For computerized key security systems controlling access to
table games drop and count keys, accounting/audit personnel,
independent of the system administrator, will perform the following
procedures:
(i) Daily, review the report generated by the computerized key
security system indicating the transactions performed by the
individual(s) that adds, deletes, and changes user's access within the
system (i.e., system administrator). Determine whether the transactions
completed by the system administrator provide an adequate control over
the access to the table games drop and count keys. Also, determine
whether any table games drop and count key(s) removed or returned to
the key cabinet by the system administrator was properly authorized.
(ii) For at least one day each month, review the report generated
by the computerized key security system indicating all transactions
performed to determine whether any unusual table games drop and count
key removals or key returns occurred.
(iii) At least quarterly, review a sample of users that are
assigned access to the table games drop and count keys to determine
that their access to the assigned keys is adequate relative to their
job position.
(iv) All noted improper transactions or unusual occurrences are
investigated with the results documented.
(4) Quarterly, an inventory of all count room, table game drop box
release, storage rack and contents keys is performed, and reconciled to
records of keys made, issued, and destroyed. Investigations are
performed for all keys
[[Page 23026]]
unaccounted for, with the investigations being documented.
(v) Emergency drop procedures. Emergency drop procedures shall be
developed by the Tribal gaming regulatory authority, or the gaming
operation as approved by the Tribal gaming regulatory authority.
(w) Equipment standards for gaming machine count. (1) A weigh scale
calibration module shall be secured so as to prevent unauthorized
access (e.g., prenumbered seal, lock and key, etc.).
(2) A person independent of the cage, vault, gaming machine, and
count team functions shall be required to be present whenever the
calibration module is accessed. Such access shall be documented and
maintained.
(3) If a weigh scale interface is used, it shall be adequately
restricted so as to prevent unauthorized access (passwords, keys,
etc.).
(4) If the weigh scale has a zero adjustment mechanism, it shall be
physically limited to minor adjustments (e.g., weight of a bucket) or
physically situated such that any unnecessary adjustments to it during
the weigh process would be observed by other count team members.
(5) The weigh scale and weigh scale interface (if applicable) shall
be tested by a person or persons independent of the cage, vault, and
gaming machine departments and count team at least quarterly. At least
annually, this test shall be performed by internal audit in accordance
with the internal audit standards. The result of these tests shall be
documented and signed by the person or persons performing the test.
(6) Prior to the gaming machine count, at least two employees shall
verify the accuracy of the weigh scale with varying weights or with
varying amounts of previously counted coin for each denomination to
ensure the scale is properly calibrated (varying weights/coin from drop
to drop is acceptable).
(7) If a mechanical coin counter is used (instead of a weigh
scale), the Tribal gaming regulatory authority, or the gaming operation
as approved by the Tribal gaming regulatory authority, shall establish
and the gaming operation shall comply, with procedures that are
equivalent to those described in paragraphs (u)(4), (u)(5), and (u)(6)
of this section.
(8) If a coin meter count machine is used, the count team member
shall record the machine number denomination and number of coins in ink
on a source document, unless the meter machine automatically records
such information.
(i) A count team member shall test the coin meter count machine
prior to the actual count to ascertain if the metering device is
functioning properly with a predetermined number of coins for each
denomination.
(ii) [Reserved]
0
10. Amend Sec. 542.41 by redesignating paragraphs (t) and (u) as
paragraphs (v) and (w) and by adding new paragraphs (t) and (u) to read
as follows:
Sec. 542.41 What are the minimum internal controls for drop and count
for Tier C gaming operations?
* * * * *
(t) Gaming machine computerized key security systems. (1)
Computerized key security systems which restrict access to the gaming
machine drop and count keys through the use of passwords, keys or other
means, other than a key custodian, must provide the same degree of
control as indicated in the aforementioned key control standards; refer
to paragraphs (l), (o), (q) and (s) of this section. Note: This
standard does not apply to the system administrator. The system
administrator is defined in paragraph (t)(2)(i) of this section.
(2) For computerized key security systems, the following additional
gaming machine key control procedures apply:
(i) Management personnel independent of the gaming machine
department assign and control user access to keys in the computerized
key security system (i.e., system administrator) to ensure that gaming
machine drop and count keys are restricted to authorized employees.
(ii) In the event of an emergency or the key box is inoperable,
access to the emergency manual key(s) (a.k.a. override key), used to
access the box containing the gaming machine drop and count keys,
requires the physical involvement of at least three persons from
separate departments, including management. The date, time, and reason
for access, must be documented with the signatures of all participating
employees signing out/in the emergency manual key(s).
(iii) The custody of the keys issued pursuant to paragraph
(t)(2)(ii) of this section requires the presence of two persons from
separate departments from the time of their issuance until the time of
their return.
(iv) Routine physical maintenance that requires accessing the
emergency manual key(s) (override key) and does not involve the
accessing of the gaming machine drop and count keys, only requires the
presence of two persons from separate departments. The date, time and
reason for access must be documented with the signatures of all
participating employees signing out/in the emergency manual key(s).
(3) For computerized key security systems controlling access to
gaming machine drop and count keys, accounting/audit personnel,
independent of the system administrator, will perform the following
procedures:
(i) Daily, review the report generated by the computerized key
security system indicating the transactions performed by the
individual(s) that adds, deletes, and changes user's access within the
system (i.e., system administrator). Determine whether the transactions
completed by the system administrator provide an adequate control over
the access to the gaming machine drop and count keys. Also, determine
whether any gaming machine drop and count key(s) removed or returned to
the key cabinet by the system administrator was properly authorized.
(ii) For at least one day each month, review the report generated
by the computerized key security system indicating all transactions
performed to determine whether any unusual gaming machine drop and
count key removals or key returns occurred.
(iii) At least quarterly, review a sample of users that are
assigned access to the gaming machine drop and count keys to determine
that their access to the assigned keys is adequate relative to their
job position.
(iv) All noted improper transactions or unusual occurrences are
investigated with the results documented.
(4) Quarterly, an inventory of all count room, drop box release,
storage rack and contents keys is performed, and reconciled to records
of keys made, issued, and destroyed. Investigations are performed for
all keys unaccounted for, with the investigation being documented.
(u) Table games computerized key security systems. (1) Computerized
key security systems which restrict access to the table game drop and
count keys through the use of passwords, keys or other means, other
than a key custodian, must provide the same degree of control as
indicated in the aforementioned key control standards; refer to
paragraphs (m), (n), (p) and (r) of this section. Note: This standard
does not apply to the system administrator. The system administrator is
defined in paragraph (u)(2)(ii) of this section.
(2) For computerized key security systems, the following additional
table game key control procedures apply:
(i) Management personnel independent of the table game department
assign and control user
[[Page 23027]]
access to keys in the computerized key security system (i.e., system
administrator) to ensure that table game drop and count keys are
restricted to authorized employees.
(ii) In the event of an emergency or the key box is inoperable,
access to the emergency manual key(s) (a.k.a. override key), used to
access the box containing the table game drop and count keys, requires
the physical involvement of at least three persons from separate
departments, including management. The date, time, and reason for
access, must be documented with the signatures of all participating
employees signing out/in the emergency manual key(s).
(iii) The custody of the keys issued pursuant to paragraph
(u)(2)(ii) of this section requires the presence of two persons from
separate departments from the time of their issuance until the time of
their return.
(iv) Routine physical maintenance that requires accessing the
emergency manual key(s) override key) and does not involve the
accessing of the table games drop and count keys, only requires the
presence of two persons from separate departments. The date, time and
reason for access must be documented with the signatures of all
participating employees signing out/in the emergency manual key(s).
(3) For computerized key security systems controlling access to
table games drop and count keys, accounting/audit personnel,
independent of the system administrator, will perform the following
procedures:
(i) Daily, review the report generated by the computerized key
security system indicating the transactions performed by the
individual(s) that adds, deletes, and changes user's access within the
system (i.e., system administrator). Determine whether the transactions
completed by the system administrator provide an adequate control over
the access to the table games drop and count keys. Also, determine
whether any table games drop and count key(s) removed or returned to
the key cabinet by the system administrator was properly authorized.
(ii) For at least one day each month, review the report generated
by the computerized key security system indicating all transactions
performed to determine whether any unusual table games drop and count
key removals or key returns occurred.
(iii) At least quarterly, review a sample of users that are
assigned access to the table games drop and count keys to determine
that their access to the assigned keys is adequate relative to their
job position.
(iv) All noted improper transactions or unusual occurrences are
investigated with the results documented.
(4) Quarterly, an inventory of all count room, table game drop box
release, storage rack and contents keys is performed, and reconciled to
records of keys made, issued, and destroyed. Investigations are
performed for all keys unaccounted for, with the investigations being
documented.
(v) Emergency drop procedures. Emergency drop procedures shall be
developed by the Tribal gaming regulatory authority, or the gaming
operation as approved by the Tribal gaming regulatory authority.
(w) Equipment standards for gaming machine count. (1) A weigh scale
calibration module shall be secured so as to prevent unauthorized
access (e.g., prenumbered seal, lock and key, etc.).
(2) A person independent of the cage, vault, gaming machine, and
count team functions shall be required to be present whenever the
calibration module is accessed. Such access shall be documented and
maintained.
(3) If a weigh scale interface is used, it shall be adequately
restricted so as to prevent unauthorized access (passwords, keys,
etc.).
(4) If the weigh scale has a zero adjustment mechanism, it shall be
physically limited to minor adjustments (e.g., weight of a bucket) or
physically situated such that any unnecessary adjustments to it during
the weigh process would be observed by other count team members.
(5) The weigh scale and weigh scale interface (if applicable) shall
be tested by a person or persons independent of the cage, vault, and
gaming machine departments and count team at least quarterly. At least
annually, this test shall be performed by internal audit in accordance
with the internal audit standards. The result of these tests shall be
documented and signed by the person or persons performing the test.
(6) Prior to the gaming machine count, at least two employees shall
verify the accuracy of the weigh scale with varying weights or with
varying amounts of previously counted coin for each denomination to
ensure the scale is properly calibrated (varying weights/coin from drop
to drop is acceptable).
(7) If a mechanical coin counter is used (instead of a weigh
scale), the Tribal gaming regulatory authority, or the gaming operation
as approved by the Tribal gaming regulatory authority, shall establish
and the gaming operation shall comply, with procedures that are
equivalent to those described in paragraphs (u)(4), (u)(5), and (u)(6)
of this section.
(8) If a coin meter count machine is used, the count team member
shall record the machine number denomination and number of coins in ink
on a source document, unless the meter machine automatically records
such information.
(i) A count team member shall test the coin meter count machine
prior to the actual count to ascertain if the metering device is
functioning properly with a predetermined number of coins for each
denomination.
(ii) [Reserved]
Signed in Washington, DC, this 21st day of April, 2005.
Philip N. Hogen,
Chairman.
Nelson Westrin,
Vice-Chairman.
Cloyce Choney,
Commissioner.
[FR Doc. 05-8424 Filed 5-3-05; 8:45 am]
BILLING CODE 7565-01-P