[Federal Register: May 11, 2006 (Volume 71, Number 91)]
[Rules and Regulations]
[Page 27385-27394]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11my06-2]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE INTERIOR
National Indian Gaming Commission
25 CFR Part 542
RIN 3141-AA27
Minimum Internal Control Standards
AGENCY: National Indian Gaming Commission.
ACTION: Final rule revisions.
-----------------------------------------------------------------------
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, which have subsequently been revised several times. 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, the interests of Tribal
stakeholders and the gaming public. To that end, the following final
rule revisions contain certain corrections
[[Page 27386]]
and revisions, which are necessary to clarify, improve, and update the
Commission's existing MICS. 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 comments on these final
MICS revisions were received by the Commission for a period of 45 days
after their publication in the Federal Register as a proposed rule on
November 15, 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.
EFFECTIVE DATES: May 11, 2006.
Compliance Date: On or before July 10, 2006, the Tribal gaming
regulatory authority (TGRA) 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 8, 2006, by which a gaming operation must come
into compliance with the Tribal internal control standards. However,
the TGRA may extend the deadline by an additional 60 days if written
notice is provided to the Commission no later than September 8, 2006.
Such notification must cite the specific revisions to which the
extension pertains.
FOR FURTHER INFORMATION CONTACT: Chief of Staff, Joseph Valandra (202)
632-7003 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On January 5, 1999 (64 FR 590, Jan. 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 be effective, operate as the
Commission had intended, and accommodate changes and advances in gaming
technology and methods. Consequently, the Commission, working with an
Advisory Committee composed of the Commission, NIGS staff and nominated
Tribal representatives, published a new, final revised MICS rule on
June 27, 2002.
Based on the practical experiences of the Commission and Tribes
working with the revised MICS, it has again become apparent that
additional corrections, clarifications and modifications are needed to
ensure that the MICS continue to be effective and 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 implementations, 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 revision to keep them effective and up-to-date.
To address this need, the Commission established a Standing MICS
Advisory Committee to assist it in both identifying and developing
necessary MICS revisions on an ongoing basis.
In recognition of its government-to-government relationship with
Tribes, and its related commitment to meaningful Tribal consultation,
the Commission asked gaming Tribes in January of 2004 for nominations
of Tribal representatives to serve on its Standing MICS Advisory
Commission. From the twenty-seven (27) Tribal nominations that it
received, the Commission selected nine (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 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 benefits of including Tribal representatives on
the Committee, who work daily with the MICS, have been invaluable. The
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 Oklahoma; 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, former 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; 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 Katherine Zebell, Staff
Attorney, Office of General Counsel. Nelson Westrin, former Vice-
Chairman of the Commission, was part of the Standing MICS Advisory
Committee from its inception through December of 2005.
In the past, the MICS were comprehensively revised on a broad,
wholesale basis. Such large-scale revisions proved to be difficult for
Tribes to implement in a timely manner and were often 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. The primary purpose of the
review is to promptly identify and develop needed revisions of the MICS
on a manageable, incremental basis, in order to 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 that take longer to implement and can be
unnecessarily disruptive to Tribal gaming operations.
In accordance with the above-described approach, the Commission has
developed the following set of 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 (Act or IGRA), 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 concerns,
stated in Section 2702(2) of
[[Page 27387]]
the Act, that it ``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 that the Indian tribe is the
primary beneficiary of the gaming operations, and to assure that 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 jurisdiction; (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.
It should be noted that the NIGC's authority to issue and enforce
MICS for Class III gaming was recently challenged in Federal district
court in Colorado River Indian Tribes v. NIGC (CRIT), 383 F. Supp. 2d
123 (D.D.C. 2005); 2005 U.S. Dist. LEXIS 17722. The case arose after
the Colorado River Indian Tribes objected to an NIGC audit of its Class
III gaming operation, which led to the audit's discontinuation. The
NIGC subsequently cited the Tribe for an access violation and imposed a
fine. the Court ruled that the NIGC's notice of violation and
imposition of a civil fine were improper, finding that, under IGRA, the
NIGC lacked the authority to issue or enforce MICS for Class III
gaming. While the Court held that the NIGC could not penalize the
Colorado River Indian Tribes for resisting the NIGC's attempt to
conduct an audit of its Class III gaming, it did not enjoin the NIGC
from applying its MICS to other Class III operations, nor did the Court
prohibit the NIGC from conducting audits to monitor compliance with
those MICS. The CRIT decision applies only to the Colorado River Indian
Tribes. The decision is currently on appeal.
In order to uphold the integrity of Indian gaming, it is important
to maintain the continuity of the system of regulation that has been in
place since 1999. This system has helped ensure adequate regulation and
has facilitated growth and prosperity in the industry. Thus, with the
exception of the gaming operations of the Colorado River Indian Tribes,
the NIGC will continue to monitor Tribal compliance with the MICS with
respect to Class II and III gaming, pending the results of our appeal
in the CRIT case or further judicial or legislative direction.
The Advisory Committee met in person on January 25, 2005, May 10,
2005, and September 26, 2005, and by teleconference on March 13, 2006,
to discuss the changes set forth in the following final MICS rule
revisions. The input received from Committee members has been
invaluable to the Commission in its development of the revisions. In
accordance with the Commission's established government-to-government
Tribal consultation policy, before formulation of the final rule
revisions contained herein, the Commission provided a preliminary
working draft of the revisions to gaming Tribes on August 26, 2005, for
a thirty (30)-day informal review and public comment period.
Furthermore, on November 15, 2005, the Commission published the
proposed rule revisions in the Federal Register for public comment.
Responses were received for a period of 45 days following publication.
In response to its requests for comments, the Commission received 18
comments from Tribal Advisory Committee members, individual Tribes and
Tribal gaming commissions, and other interested parties regarding the
proposed revisions. A summary of these comments is presented below in
the discussion of each final revision to which they relate.
General Comments to Final MICS Revisions
For the reasons stated above in this preamble, the NIGC is revising
the following specific sections of its MICS rules, 25 CFR part 542. The
following discussion addresses each of the final rule revisions and
includes the Commission's response to public comments concerning the
MICS.
Comments Questioning MIGC Authority To Promulgate MICS for Class III
Gaming
Many of the comments to the preliminary working draft of the 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 the MICS is consistent with its
responsibilities as the Federal regulator of Indian gaming.'' 64 FR
590, Jan. 5, 1999).
The current Commission reaffirms that determination. IGRA, 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. 2706(b)(10). Pursuant to this clearly stated
statutory duty and authority under the Act, the Commission has
determined that minimum internal control standards 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 to
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 and standards 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. Internal control systems
establish a regulatory framework for the gaming enterprise's governing
board, management and other personnel who are responsible for providing
reasonable assurances regarding achievement of the enterprise's
objectives. These objectives 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 IGRA to establish necessary baseline, or
minimum, Federal internal control 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 Tribes did not. This absence of minimum Federal internal
control
[[Page 27388]]
standards in all Tribal casinos adversely affected the adequacy of
Indian gaming regulation nationwide, and threatened gaming as a means
of providing the expected Tribal benefits intended by IGRA. The
Commission continues to strongly believe that the promulgation and
revisions of IGRA, and 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 reissue
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. Minimum internal control standards are common in established
gaming jurisdictions. To be effective in establishing a minimum
baseline for the internal operating procedures of Tribal gaming
enterprises, the rules 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 to 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, as well as regularly monitored and
enforced by Tribal regulators and the NIGC to ensure Tribal compliance.
Final New or Revised Definitions in Section 542.2 of the MICS
The Commission has added or revised definitions of the following
five terms in Sec. 542.2. A discussion of each new or revised
definition follows in alphabetical order.
``Account Access Card''
The Commission has revised the existing MICS definition to more
accurately define the applicability of the term. Committee members
recommended that the definition of ``account access card'' be revised
to include the reference that account access cards are not ``smart
cards.''
No comments were received concerning this final rule revision.
``Counter Game''
This is a new definition. Several Committee members recommended
that a definition of the term ``counter game'' be added to the current
MICS definitions. In conjunction with the proposal to add accounting
standards to the MICS, which include the term, the NIGC has determined
that, to ensure that such revisions and existing rules are clear and
unambiguous, insertion of the definition is worthwhile. One comment was
received questioning the need for the definition, since the MICS
already addresses each of the relevant games. As noted, the term is
pertinent to its use in the minimum internal control standards for
accounting, which are added in conjunction with this final rule at
Sec. 542.19.
``Statistical Drop''
This is a new definition. Based on a comment received, the
definition is being added to the current MICS definitions. In
conjunction with other final rule revisions to the MICS, which include
the term, the NIGC has determined that, to ensure that the rules are
clear and unambiguous, insertion of the definition in the MICS is
worthwhile.
``Statistical Win''
This is a new definition. Based on a comment received, the
definition is being added to the current MICS definitions. In
conjunction with other final rule revisions to the MICS, which include
the term, the NIGC has determined that, to ensure that the rules are
clear and unambiguous, insertion of the definition in the MICS is
worthwhile.
Final Addition to Sections 542.7(g)(1) and 542.8(h)(1) Electronic
Equipment
The Commission is revising the current standards to clarify the
intent of the existing regulation. The amendment is to explicitly state
that bingo electronic systems and pull-tab electronic systems utilizing
patron account access cards will be required to comply with the
applicable standards contained within the MICS. One comment was
received concerning this final revision. The commenter put forth the
position that it is confusing to apply Class III requirements to Class
II games. The Commission disagrees, and notes that the MICS are not
game-classification specific; instead, the regulations are pertinent to
a game or activity without regard to the class distinction of the game
or the relevancy of an activity to the game.
Additionally, the commenter noted that the regulation fails to
explicitly identify the specific elements of Sec. 542.13(o) that would
be applicable to bingo and pull-tab games utilizing account access
cards. It was recommended that the account access card standards, which
are pertinent to bingo and pull-tabs, be added to the respective
regulations. The Commission disagrees. The standards incorporated by
reference from the gaming machine section represent minimum controls
for games relying on a back-of-the-house server, in which the patrons
place front money and use a magnetic card to gain access to their
account. Because of the variations that exist in the industry, to amend
the bingo and pull-tab sections would simply involve a reprint of the
rules referenced in the gaming machine section. With regard to the
revision referring to the account access controls that are relevant
(``as applicable''), the Commission disagrees that management would be
challenged to identify which rules pertain to their gaming facility.
Other MICS use qualifying terms, and, from a compliance perspective, it
has not proven to be problematic.
Final Addition and Revisions to Section 542.13(o)(4) Customer Account
Generation Standards
The Commission is revising the noted regulation to clarify the
intent of the existing rule. The amendment will explicitly represent
that a patron's identification must be verified and that an account
must identify a patron's name. The Commission believes this standard is
not inconsistent with Section 103.36 of the Bank Secrecy Act and the
regulations of other gaming jurisdictions, which also require that
patron identification information be recorded and verified at the time
an account is established. The intent of the clarification is to ensure
that management is well aware that establishing cash accounts, which
are identified only by a number or a fictitious identifier, such as
Mickey Mouse, is explicitly prohibited by the MICS. The revision to the
standards governing the obtaining of a new personal identification
number (PIN) is intended to clarify that the Gaming Machine Information
Center is a clerk who has access to the customer's file for the purpose
of changing the PIN. A commenter noted that the revision fails to
address a situation in which the system is utilized by casino personnel
to track buy-in when a customer is approaching the $10,000 cash-
reporting threshold of the Internal Revenue Service.
As a point of clarification, the Commission notes that, although it
is not uncommon for the MICS to echo Bank Secrecy Act regulations, it
is the intent of the NIGC rule to establish a minimum baseline for
casino internal control systems. The Declaration of Policy Section of
IGRA provides
[[Page 27389]]
guidance to the NIGC in the formulation of its regulations. The
specific intent of the MICS is to ensure that the investment of a Tribe
is appropriately safeguarded for the benefit of Tribal stakeholders and
that the interests of the gaming public are adequately protected. The
revisions in question possess the rather narrow objective of assuring
that there is an exact accounting of the funds advanced by patrons for
the purpose of wagering. The Bank Secrecy Act is motivated by other
objectives, not least of which is the deterrence of money-laundering
activities. Although patron-account records may be utilized by the
gaming operation to identify and track in/out cash transactions, it is
not the intent of the Commission to satisfy any specific rule contained
within the Bank Secrecy Act, which, nonetheless, is still an obligation
of casino management. Notwithstanding the overall objectives of the
MICS, Tribal gaming regulators and operators should be well aware that
542.3(C)(2) requires Tribal internal controls standards for currency-
transaction reporting that comply with 31 CFR part 103. The Commission
stresses that Tribal gaming enterprises must fully comply with the Bank
Secrecy Act.
One commenter questioned the applicability of the revision to
player club accounts. To clarify, the rule is pertinent to patron
accounts established by patrons via the deposit of monies for the
purpose of performing wagering transactions. The rule is not applicable
to player-tracking systems that reward patrons for their patronage
based on their level of wagering activity. The commission refers the
commenter to Sec. 542.13(j) for standards governing player-tracking
systems.
Comments were received recommending that the revision not require
that the alternative identification be photographic. The basis for the
recommendation is founded upon the premise that the requirement is
inconsistent with industry practice and generally accepted gaming
regulatory standards. The Commission agrees and has amended the final
revision.
One commenter recommended that the revision address what factors
should be considered when evaluating the validity of an identification
document. The Commission disagrees, since reliance upon casino
personnel to exercise due professional care in examining the
identifying documents should be sufficient. However, the most obvious
criteria would be whether a document matched the individual proffering
the document. Other factors to consider would be whether the document
appears to have been altered or whether data on multiple documents is
inconsistent.
One commenter recommended that the revision require that gaming
operations obtain a patron's social security number, which is a
requirement of the Bank Secrecy Act. Although the Commission recognizes
that casinos are required to obtain the information when establishing
patron accounts, as previously noted, the NIGC's objective is to ensure
that internal control systems are developed which are sufficient to
safeguard the Tribal stakeholder and protect the public. Therefore, the
Commission disagrees with the recommendation.
Final Removal of Section 542.16(f)(vi); Document Storage of Original
Documents Until Audited
The Commission is removing the noted regulation, since it is in
conflict with the final revision adding Sec. 542.19 which pertains to
accounting standards, specifically the maintenance and preservation of
books, records and documents. No comments were received concerning this
final revision.
Final Addition of Section 542.19; What Are the Minimum Internal Control
Standards for Accounting?
The Commission is adding this new regulation to establish the basic
tenets required of a casino accounting function. The standards are
common to established gaming jurisdictions. Over the past few years,
the Commission has become increasingly concerned about the number of
financial statements received in which the independent accountant has
been unable to render a ``clean'' opinion. Furthermore, since the MICS
were initially adopted, many questions have arisen regarding the
relationship of Section 571.7, Maintenance and preservation of papers
and records, to part 542, Minimum Internal Control Standards. The final
revision is also intended to clarify and define the scope of the five
(5)-year record retention requirement as it relates to casino records.
One commenter requested that the part of the provision that reads
``any other records specifically required to be maintained'' identify
who or what is establishing the retention requirement. The Commission
disagrees, and considers the representation to be clear in that it
pertains to other records required by the MICS.
One commenter recommended that the requirement that general
accounting records be prepared according to GAAP on a double-entry
system of accounting, maintaining detailed supporting and subsidiary
records, not apply to records required by theTribal internal control
standards. The basis for this recommendation is founded upon the
premise that the regulation will allow the NIGC to audit the gaming
operation for compliance with the Tribe's internal control standards as
well as with the Federal rule. The Commission disagrees with the
recommendation because, as warranted, the NIGC reserves the right to
utilize the Tribe's internal control standards, particularly those
adopted as gaming regulations of the regulatory entity, in the course
of an audit, and expand the scope of the audit when justified. For
example, under Sec. 542.3(c)(3), a Tribe is required to develop
internal controls for games not addressed in the MICS. With regard to
such games, the Commission could rely on the Tribal internal controls
to test for compliance. Although it has been the practice of the
Commission to report those Tribal internal control compliance
exceptions that do not represent a MICS' exception as merely an
advisory comment, should a finding pose a material risk to operational
integrity, follow-up by the Commission to verify the effectiveness of
remedial action would be likely.
One commenter recommended that the standards addressing the
maintenance and preservation of internal audit documentation and
reports should be addressed in Sec. Sec. 542.22, 542.32 and 542.42,
What are the minimum internal controls for internal audit? The
Commission appreciates the recommendation, but believes that the MICS
would be better served to centralize the retention of all documents and
records at one location.
One commenter questioned the need to have a regulation that
addresses the process of calculating gross gaming revenue for
individual games, since the result is relevant only to the
determination of tier. The Commission disagrees. As previously noted,
the identification of minimum internal controls for accounting is a
common element of the regulations of established gaming jurisdictions.
Furthermore, past experience has demonstrated a lack of consistency in
the calculation of gross gaming revenue, which has often resulted in
miscalculations of NIGC fees. The determination of gross revenue by
game can be a complex process. The final rule is intended to provide
additional guidance; however, the Commission also recognizes that more
issues remain, such as when it is permissible to adjust handle for
promotional items. It is anticipated that, at a minimum, bulletins are
likely to follow which specifically address the
[[Page 27390]]
type of transaction noted. For informational purposes, the Commission
has taken the position that items such as free-play coupons are
acceptable adjustments, if there is a direct audit trail to the drop/
count and there is appropriate accounting for, and controls over, the
coupons.
One commenter noted that in jurisdicitions which require unredeemed
property to be turned over to the state, the standards specific to the
reversal of a cash-out ticket payout entry for items not redeemed
could, or would, be in conflict with state law or regulation. State law
or regulation only applies if made applicable by a Tribal-State
compact. If there is a conflict between the Tribal-State compact and
the revision in Sec. 542.19(h), then Sec. 542.4, which discusses how
these regulations affect minimum internal control standards established
in a Tribal-State compact, controls.
One commenter questioned the need to have regulations governing the
calculation of gross gaming revenue since it is already addressed by
FASB and GAAP pronouncements. The Commission disagrees. Although the
referenced professional pronouncements do provide conceptual guidance
relevant to the determination of casino revenues, they do not provide
the specificity necessary to ensure uniformity in the Tribal gaming
industry. Therefore, it is the position of the Commission that the
final rule is warranted.
One commenter requested an explanation of statistical drop and
statistical win for table games. Accordingly, the Commission has added
definitions of both ``statistical drop'' and ``statistical win'' to
Sec. 542.2.
One commenter suggested that the terms ``reasonably ensure'' and
``reasonable intervals'' be defined. The Commission disagrees. The
obligation of management to reasonably ensure that assets are
safeguarded, financial records are accurate and reliable, and
transactions are appropriately authorized, for example, necessitates
the exercise of professional judgment by management. From a conceptual
perspective, the requirement is pertinent to the users of the data. The
information provided to owners, regulators and other interested parties
should be sufficiently fair in its representation that a misstatement
would not result in a flawed perspective or determination. Materiality
to the overal data, such as total assets, risk of misstatement--such as
what might be associated with accounts receivable or accounts payable--
and past compliance exceptions, would influence the extent of the
procedures employed by management to satisfy the obligation to
reasonable ensure.
With regard to the obligation that booked assets be compared to
actual assets at reasonable intervals, the position of the Commission
is the same as expressed above. Essentially, management should confirm
the existence of recorded assets with such frequency that confidence
can be had in the financial data reported. For example, fixed assets
should be tested on an annual basis; however, absolute verifiction is
generally not necessary. The data will typically be analyzed from a
risk of misstatement and a risk of loss perspective. In other words,
management may determine that items particularly vulnerable to
misappropriation or devaluation--for example, tools or assets
possessing a useful life that is difficult to predict--may warrant
verification more frequently than once a year.
One commenter questioned whether the ability to adjust gross
revenues for uncollected credit issued pertains to the general ledger
account or taxable revenues. To clarify, the standard pertains to the
calculation of gross gaming revenues, as determined according to NIGC
regulations, which would be relevant to the general ledger. With regard
to the NIGC fee calculation, which is based on assessable gaming
revenues, the calculation begins with gross gaming revenues and then
adjustments are made thereto. When revenue has been included that was
derived from the extension of credit to a patron and the patron's debt
is deemed to be uncollectible, or is settled for a lesser amount, it is
the position of the Commission that the facility should have the
latitude of reducing current gross gaming revenue accordingly.
One commenter expressed the position that the reference in the MICS
to ``gaming operation'' fails to recognize that gaming enterprises also
include ancillary activities such as hotels, restautrants, parking
garages and the like, which may, and often do, represent separate, but
interrelated, revenue centers. The Commission disagrees with the
commenter's interpretation of the term ``gaming operation'' as being
too narrow. The term ``gaming operation'' relates to the entity
licensed by the Tribe to conduct gaming, which would include all
interrelated and dependent activities and revenue centers.
One commenter recommended that the requirement that gaming
operations establish administrative and accounting procedures for the
purpose of exercising effective control over its fiscal affairs lacks
specificity and should include exacting standards. The Commission
disagrees. Inherent to the regulation is the obligation of management
to exercise professional judgment in accomplishing the well-recognized
objective of ensuring the reliability of the financial data reported.
An attempt by the Commission to codify specific procedures could result
in the regulation being overly intrusive and burdensome for some
operations and insufficient for others. The Commission's perspective is
founded upon the premise that providing reasonable assurances regarding
the reliability of the data reported has a direct correlation to
materiality, risk of compromise, and past performance, and will vary
from one casino to another, depending on these factors.
Final Revisions to the Following Sections: 542.21(f)(12) (Tier A--Drop
and Count) Gaming
Machine Bill--Acceptor Count Standards; 542.31(f)(12) (Tier B--Drop and
Count) Gaming
Machine Bill--Acceptor Count Standards; 542.41(f)(12) (Tier C--Drop and
Count) Gaming
Machine Bill--Acceptor Count Standards
The referenced standards represent a duplicate control to an
identical requirement contained within each of the respective Tier
section's Gaming Machine Bill-Acceptor Drop Standards, refer to
Sec. Sec. 542.21(e)(4), 542.31(e)(5), and 542.41(e)(5). Specifically,
the standard requires the bill-acceptor canisters to be posted with a
number corresponding to that of the machine from which it was
extracted. The subject control pertains to a drop function, as opposed
to the count process. Therefore, the Commission is deleting the above
subsections. No comments were received pertaining to the final
revision.
Regulatory Matters
Regulatory Flexibility Act
The Commission certifies that the final 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
[[Page 27391]]
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 a gaming operation. The
Commission believes that many Indian gaming operation internal control
standards 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 pubic 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 operations is
estimated at between $3,000 and $5,000. This cost is relatively 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
The following final 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 an 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 do 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 expenditures 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 IGRA. Thus, in accordance with Section 203
of the Unfunded Mandates Reform Act, the Commission undertook several
actions to provide Tribal governments with adequate notice and
opportunities for ``meaningful'' consultation, input, sharing of
information, advice and education regarding compliance.
These actions included the formation of a Standing MICS 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 given to the applicant's
experience in this area, as well as the size of the Tribe the nominee
represented, the geographic location of the gaming operation, and the
size and type of gaming being 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 and discussed the pubic 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 final rule (70 FR 69293,
Nov. 15, 2005).
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 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. Amend Sec. 542.2 to add, in alphabetical order, the definitions for
``Counter Game,'' ``Statistical Drop,'' ``Statistical Win''; by
revising the definition for ``Account Access Card'' to read as follows:
Sec. 542.2 What are the definitions for this part?
* * * * *
Account access card means an instrument used to access customer
accounts for wagering at a gaming machine. Account access cards are
used
[[Page 27392]]
in connection with a computerized account database. Account access
cards are not ``smart cards.''
* * * * *
Counter Game means a game in which the gaming operation is a party
to wagers and wherein the gaming operation documents all wagering
activity. The term includes, but is not limited to, bingo, keno, and
pari-mutuel race books. The term does not include table games, card
games and gaming machines.
* * * * *
Statistical drop means total amount of money, chips and tokens
contained in the drop boxes, plus pit credit issued, minus pit credit
payments in cash in the pit.
Statistical win means closing bankroll, plus credit slips for cash,
chips or tokens returned to the cage, plus drop, minus opening
bankroll, minus fills to the table, plus marker credits.
* * * * *
0
3. Amend Sec. 542.7 to add paragraph (g)(1)(iv) to read as follows:
Sec. 542.7 What are the minimum internal control standards for bingo?
* * * * *
(g) Electronic equipment.
(1) * * *
* * * * *
(iv) If the electronic equipment utilizes patron account access
cards for activation of play, then Sec. 542.13(o) (as applicable)
shall apply.
* * * * *
0
4. Amend Sec. 542.8 to add paragraph (h)(1)(iv) to read as follows:
Sec. 542.8 What are the minimum internal control standards for pull
tabs?
* * * * *
(h) Electronic equipment.
(1) * * *
* * * * *
(iv) If the electronic equipment utilizes patron account access
cards for activation of play, then Sec. 542.13(o) (as applicable)
shall apply.
* * * * *
0
5. Amend Sec. 542.13 to redesignate paragraphs (o)(4)(ii) and
(o)(4)(iii) as (o)(4)(iii) and (o)(4)(iv), add new paragraph
(o)(4)(ii), and revise newly designated (o)(4)(iv) to read as follows:
Sec. 542.13 What are the minimum internal control standards for
gaming machines?
* * * * *
(o) * * *
(4) * * *
* * * * *
(ii) For each customer file, an employee shall:
(A) Record the customer's name and current address;
(B) The date the account was opened; and
(C) At the time the initial deposit is made, account opened, or
credit extended, the identity of the customer shall be verified by
examination of a valid driver's license or other reliable identity
credential.
* * * * *
(iv) After entering a specified number of incorrect PIN entries at
the cage or player terminal, the customer shall be directed to proceed
to a clerk to obtain a new PIN. If a customer forgets, misplaces or
requests a change to their PIN, the customer shall proceed to a clerk
for assistance.
* * * * *
Sec. 542.16 [Amended]
0
6. Amend Sec. 542.16 by removing paragraph (f)(1)(vi).
0
7. Add Sec. 542.19 to read as follows:
Sec. 542.19 What are the minimum internal control standards for
accounting?
(a) Each gaming operation shall prepare accurate, complete,
legible, and permanent records of all transactions pertaining to
revenue and gaming activities.
(b) Each gaming operation shall prepare general accounting records
according to Generally Accepted Accounting Principles on a double-entry
system of accounting, maintaining detailed, supporting, subsidiary
records, including, but not limited to:
(1) Detailed records identifying revenues, expenses, assets,
liabilities, and equity for each gaming operation;
(2) Detailed records of all markers, IOU's, returned checks, hold
checks, or other similar credit instruments;
(3) Individual and statistical game records to reflect statistical
drop, statistical win, and the percentage of statistical win to
statistical drop by each table game, and to reflect statistical drop,
statistical win, and the percentage of statistical win to statistical
drop for each type of table game, by shift, by day, cumulative month-
to-date and year-to-date, and individual and statistical game records
reflecting similar information for all other games;
(4) Gaming machine analysis reports which, by each machine, compare
actual hold percentages to theoretical hold percentages;
(5) The records required by this part and by the Tribal internal
control standards;
(6) Journal entries prepared by the gaming operation and by its
independent accountants; and
(7) Any other records specifically required to be maintained.
(c) Each gaming operation shall establish administrative and
accounting procedures for the purpose of determining effective control
over a gaming operation's fiscal affairs. The procedures shall be
designed to reasonably ensure that:
(1) Assets are safeguarded;
(2) Financial records are accurate and reliable;
(3) Transactions are performed only in accordance with management's
general and specific authorization;
(4) Transactions are recorded adequately to permit proper reporting
of gaming revenue and of fees and taxes, and to maintain accountability
of assets;
(5) Recorded accountability for assets is compared with actual
assets at reasonable intervals, and appropriate action is taken with
respect to any discrepancies; and
(6) Functions, duties, and responsibilities are appropriately
segregated in accordance with sound business practices.
(d) Gross gaming revenue computations. (1) For table games, gross
revenue equals the closing table bankroll, plus credit slips for cash,
chips, tokens or personal/payroll checks returned to the cage, plus
drop, less opening table bankroll and fills to the table, and money
transfers issued from the game through the use of a cashless wagering
system.
(2) For gaming machines, gross revenue equals drop, less fills,
jackpot payouts and personal property awarded to patrons as gambling
winnings. Additionally, the initial hopper load is not a fill and does
not affect gross revenue. The difference between the initial hopper
load and the total amount that is in the hopper at the end of the
gaming operation's fiscal year should be adjusted accordingly as an
addition to or subtraction from the drop for the year.
(3) For each counter game, gross revenue equals:
(i) The money accepted by the gaming operation on events or games
that occur during the month or will occur in subsequent months, less
money paid out during the month to patrons on winning wagers (``cash
basis''); or
(ii) The money accepted by the gaming operation on events or games
that occur during the month, plus money, not previously included in
gross revenue, that was accepted by the gaming operation in previous
months on events or games occurring in the month, less money paid out
during the month to patrons as winning wagers (``modified accrual
basis'').
[[Page 27393]]
(4) For each card game and any other game in which the gaming
operation is not a party to a wager, gross revenue equals all money
received by the operation as compensation for conducting the game.
(i) A gaming operation shall not include either shill win or loss
in gross revenue computations.
(ii) In computing gross revenue for gaming machines, keno and
bingo, the actual cost to the gaming operation of any personal property
distributed as losses to patrons may be deducted from winnings (other
than costs of travel, lodging, services, food, and beverages), if the
gaming operation maintains detailed documents supporting the deduction.
(e) Each gaming operation shall establish internal control systems
sufficient to ensure that currency (other than tips or gratuities)
received from a patron in the gaming area is promptly placed in a
locked box in the table, or, in the case of a cashier, in the
appropriate place in the cashier's cage, or on those games which do not
have a locked drop box, or on card game tables, in an appropriate place
on the table, in the cash register or in another approved repository.
(f) If the gaming operation provides periodic payments to satisfy a
payout resulting from a wager, the initial installment payment, when
paid, and the actual cost of a payment plan, which is funded by the
gaming operation, may be deducted from winnings. The gaming operation
is required to obtain the approval of all payment plans from the TGRA.
For any funding method which merely guarantees the gaming operation's
performance, and under which the gaming operation makes payments out of
cash flow (e.g. irrevocable letters of credits, surety bonds, or other
similar methods), the gaming operation may only deduct such payments
when paid to the patron.
(g) For payouts by wide-area progressive gaming machine systems, a
gaming operation may deduct from winnings only its pro rata share of a
wide-area gaming machine system payout.
(h) Cash-out tickets issued at a gaming machine or gaming device
shall be deducted from gross revenue as jackpot payouts in the month
the tickets are issued by the gaming machine or gaming device. Tickets
deducted from gross revenue that are not redeemed within a period, not
to exceed 180 days of issuance, shall be included in gross revenue. An
unredeemed ticket previously included in gross revenue may be deducted
from gross revenue in the month redeemed.
(i) A gaming operation may not deduct from gross revenues the
unpaid balance of a credit instrument extended for purposes other than
gaming.
(j) A gaming operation may deduct from gross revenue the unpaid
balance of a credit instrument if the gaming operation documents, or
otherwise keeps detailed records of, compliance with the following
requirements. Such records confirming compliance shall be made
available to the TGRA or the Commission upon request:
(1) The gaming operation can document that the credit extended was
for gaming purposes;
(2) The gaming operation has established procedures and relevant
criteria to evaluate a patron's credit reputation or financial
resources and to then determine that there is a reasonable basis for
extending credit in the amount or sum placed at the patron's disposal;
(3) In the case of personal checks, the gaming operation has
established procedures to examine documentation, which would normally
be acceptable as a type of identification when cashing checks, and has
recorded the patron's bank check guarantee card number or credit card
number, or has satisfied paragraph (j)(2) of this section, as
management may deem appropriate for the check-cashing authorization
granted;
(4) In the case of third-party checks for which cash, chips, or
tokens have been issued to the patron, or which were accepted in
payment of another credit instrument, the gaming operation has
established procedures to examine documentation, normally accepted as a
means of identification when cashing checks, and has, for the check's
maker or drawer, satisfied paragraph (j)(2) of this section, as
management may deem appropriate for the check-cashing authorization
granted;
(5) In the case of guaranteed drafts, procedures should be
established to ensure compliance with the issuance and acceptance
procedures prescribed by the issuer;
(6) The gaming operation has established procedures to ensure that
the credit extended is appropriately documented, not least of which
would be the patron's identification and signature attesting to the
authenticity of the individual credit transactions. The authorizing
signature shall be obtained at the time credit is extended.
(7) The gaming operation has established procedures to effectively
document its attempt to collect the full amount of the debt. Such
documentation would include, but not be limited to, letters sent to the
patron, logs of personal or telephone conversations, proof of
presentation of the credit instrument to the patron's bank for
collection, settlement agreements, or other documents which demonstrate
that the gaming operation has made a good faith attempt to collect the
full amount of the debt. Such records documenting collection efforts
shall be made available to the TGRA or the commission upon request.
(k) Maintenance and preservation of books, records and documents.
(1) All original books, records and documents pertaining to the conduct
of wagering activities shall be retained by a gaming operation in
accordance with the following schedule. A record that summarizes gaming
transactions is sufficient, provided that all documents containing an
original signature(s) attesting to the accuracy of a gaming related
transaction are independently preserved. Original books, records or
documents shall not include copies of originals, except for copies that
contain original comments or notations on parts of multi-part forms.
The following original books, records and documents shall be retained
by a gaming operation for a minimum of five (5) years:
(i) Casino cage documents;
(ii) Documentation supporting the calculation of table game win;
(iii) Documentation supporting the calculation of gaming machine
win;
(iv) Documentation supporting the calculation of revenue received
from the games of keno, pari-mutuel, bingo, pull-tabs, card games, and
all other gaming activities offered by the gaming operation;
(v) Table games statistical analysis reports;
(vi) Gaming machine statistical analysis reports;
(vii) Bingo, pull-tab, keno and pari-mutuel wagering statistical
reports;
(viii) Internal audit documentation and reports;
(ix) Documentation supporting the write-off of gaming credit
instruments and named credit instruments;
(x) All other books, records and documents pertaining to the
conduct of wagering activities that contain original signature(s)
attesting to the accuracy of the gaming related transaction.
(2) Unless otherwise specified in this part, all other books,
records, and documents shall be retained until such time as the
accounting records have been audited by the gaming operation's
independent certified public accountants.
(3) The above definition shall apply without regards to the medium
by which the book, record or document is generated or maintained
(paper, computer-generated, magnetic media, etc.).
[[Page 27394]]
Signed in Washington, DC, this 2nd day of May, 2006.
Philip N. Hogen,
Chairman.
Cloyce Choney,
Commissioner.
[FR Doc. 06-4276 Filed 5-10-06; 8:45 am]
BILLING CODE 7565-01-M