[Federal Register: August 12, 2005 (Volume 70, Number 155)]
[Rules and Regulations]
[Page 47097-47108]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12au05-10]
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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 clarify, improve,
and update other existing MICS provisions. The purpose of these MICS
revisions is to address apparent shortcomings in the MICS and various
changes in Tribal gaming technology and methods. Public comment on
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 March 10, 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: August 12, 2005.
Compliance Date: Except for the final revisions to subsection
542.3(f), on or before October 11, 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 December
12, 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 December
12, 2005. Such notification must cite the specific revisions to which
the extension pertains.
With regard to the final revisions to subsection 542.3(f), on or
before October 11, 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 in
subsection 542.3(f); and (2) establish a deadline no later than August
14, 2006, by which a gaming operation must come into compliance with
the Tribal internal control standards. To further clarify the
referenced deadline, the final revisions to subsection 542.3(f) are
applicable to fiscal years of the gaming operation ending after August
14, 2006. No extension of the compliance period is allowed for the
final revisions to subsection 542.3(f).
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
[[Page 47098]]
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 revised MICS rule on June 27, 2002, and has subsequently made less
comprehensive revisions thereto. As the result of the practical
experience of the Commission and Tribes working with the 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 who
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 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.
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
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, 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 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 and avoid larger-scale MICS revisions which take longer to
implement and may be disruptive to Tribal gaming operations. In
accordance with this approach, the Commission has developed the
following set of final MICS rule revisions, with the assistance of the
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. Section 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 met on October 24, 2004, January
25, 2005, and May 10, 2005, to discuss the revisions set forth in the
following set of final MICS revisions. The input received from the
Committee Members has been invaluable to the Commission in its
development of these revisions.
In furtherance of the Commission's established Government-to-
Government Tribal Consultation Policy, the Commission also provided a
preliminary working draft of the entire final MICS rule revisions
contained herein to gaming Tribes on November 24, 2004, for a 30-day
informal review and comment period, before formulation of the proposed
rule. The proposed rule was published in the Federal Register on March
10, 2005, and comments were accepted for 48 days. In response to its
requests for comments, the Commission
[[Page 47099]]
received 40 comments from Commission and Tribal 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 revision to which they relate.
General Comments to Final Rule MICS Revisions
For reasons stated above in this preamble, the National Indian
Gaming Commission is revising 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 specific final
revisions, along with previously submitted informal comments to the
final 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 previous informal 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 regulations in 1999.
At that time, the Commission determined in its publication of the
original MICS 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 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
Class III gaming operations. Consequently, internal control systems are
a vitally important part of properly regulated gaming. Effective
internal control systems are dependent upon 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. These objectives typically include operational
integrity, effectiveness, and efficiency, reliable financial statement
reporting, and compliance with all 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 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, the Commission also
continues to strongly believe that promulgation and revision of these
standards is necessary and appropriate to effectively implement the
provisions of the Indian Gaming Regulatory Act and, therefore, 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 Revisions to Section 542.3(f) CPA Testing
The Commission has revised the referenced regulation to clarify the
type of report being requested and more accurately define the scope and
function of the process deemed necessary to ensure consistency and
reliability of the reports produced. The text of the final revision is
set forth following the conclusion of this preamble in which all of the
final revisions to the Commission's MICS rule, 25 CFR part 542, are
discussed.
Since the MICS were initially adopted, the CPA testing standard has
been the subject of much concern and question due to its lack of
specificity. Numerous inquiries have been received from Tribal
regulators, gaming operators and accounting practitioners. As a result
of the issues raised, in June 2000, guidelines were issued by the
Commission to aid in the interpretation of the regulation; however,
questions and inconsistencies in the reports continue to exist.
Therefore, the final revision is intended to clarify or define (1) the
type of reporting required of the independent accountant, (2) that the
Commission does not possess an expectation that the independent
accountant render an opinion regarding the overall quality of the
gaming operation's internal control systems, (3) more accurately the
scope and breath of the testing and observations to be performed by the
practitioner in conjunction with the engagement, and (4) that reliance
by the CPA upon the work of the internal auditor is an acceptable
option, subject to satisfaction of certain conditions and the
determination by the practitioner that
[[Page 47100]]
the work product of the internal auditor is sufficient to justify
reliance.
Comments were received acknowledging the need to define explicitly
the regulation's expectations. Furthermore, it was stated that the
final revision may result in a reduction in costs to many Tribes and
will likely improve the quality of the data produced by the CPA.
As initially drafted, the proposed revision contained rather
exacting criteria that the CPA should consider in determining whether
to rely on the work of the internal auditor. The criteria addressed
such items as education, professional certification, and experience.
Several commenters misinterpreted the noted conditions as establishing
minimum criteria for hiring an internal auditor; practitioners noted
that even though an internal auditor or internal audit department
failed to satisfy the criteria the work product produced might still be
of sufficient quality to warrant reliance. The Commission reconsidered
the explicit criteria and deleted them. As reflected in the final
revision, the CPA is advised that reliance is at the discretion of the
practitioner provided the internal audit department can demonstrate
satisfaction of the MICS requirements contained within the internal
audit sections, as applicable.
One commenter noted that the current regulation requires the CPA to
test for material compliance; whereas, the final revision indicates
that all instances of procedural noncompliance be reported, without
regard to materiality. A concern was expressed whether the change
represents a more stringent condition. Although the Commission
appreciates the concern, we do not believe the striking of the
reference to material compliance should have a significant impact on
the work performed by practitioners. The term ``material'' has a
financial connotation that is misplaced in a regulation possessing the
intent of measuring regulatory compliance with a codified set of
minimum internal control procedures. In essence, the term is simply
ambiguous when utilized in the context of compliance testing. However,
it is important to recognize that the ultimate beneficiary of the
information is the gaming operation's management. The report produced
is intended to provide compliance data to the operator that will
facilitate the initiation of a proactive response to the findings.
Obviously, inherent in the merit of disclosing compliance exceptions is
the need for corrective action. We do not believe the final regulation
precludes the CPA from exercising professional judgment in determining
whether an exception warrants disclosure. For example, the Commission
would not consider a report to be noncompliant if, during the sampling
of a large number of items, the CPA detected a minimal number of
compliance exceptions and determined that they represented only
isolated incidents of noncompliance, which did not justify a remedial
response.
Furthermore, if during testing of transactions at the beginning of
an audit period items of noncompliance were detected but the CPA was
able to confirm that corrective action had been effectively implemented
by the end of the period, it would be entirely appropriate for the
practitioner to exercise professional judgment in deciding whether
there was any worthwhile benefit to disclosure.
Since initial adoption, concerns have been expressed regarding the
regulation because it stipulates the benchmark for measuring compliance
to the internal control standards adopted by the Tribal gaming
regulatory authority. Specifically, it was noted that it is not
uncommon for Tribal standards to be more stringent than the federal
rule or require procedures not in the MICS. The propriety of requiring
the CPA to report incidences of noncompliance on standards not
representing noncompliance with the NIGC MICS was questioned. In
consideration of the Commission's stated objective of creating a
minimum baseline for internal control systems, we concur with the
expressed concern. Therefore, in conjunction with the revision of the
section, it was changed to require compliance testing against the
federal rule; however, at the discretion of the Tribe, the Tribe may
opt to engage the external accountant to audit for compliance against
the standards adopted by the Tribal gaming regulatory authority. If the
alternative testing criteria are desired, the final revision require
the CPA to first confirm that the applicable Tribal regulations provide
a level of control that equals or exceed those set forth in part 542.
One commenter objected to the explicit nature of the testing
criteria contained within the final revision. The concern was specific
as to whether any deviation from the stipulated testing would be
permissible: the Tribal gaming regulatory authority should have the
latitude to require testing of greater scope and depth, and the CPA
should be able to expand or contract testing based on a risk analysis.
The Commission does not concur with the concern expressed. To
ensure consistency and reliability of the reports produced, it is
necessary that a minimum level of testing be performed by
practitioners. Although the final revision states that the NIGC MICS
compliance checklist or other comparable testing procedures be
performed, the Commission does not believe the final regulation should
be so narrowly interpreted as to preclude any deviation. For example, a
Tribal gaming regulatory authority might require the CPA to conduct
more in depth testing of gaming machines located in a high stakes area
or might permit a lesser level of testing for table games possessing
exceedingly low bet limits. Such determinations would simply be based
on an analysis of the risk posed by specific games. Furthermore, the
CPA has the latitude to exercise professional judgment in determining
sample size and scope. For example, a firm possessing several years of
experience with a client that has had an exemplary record of addressing
compliance exceptions might result in the external accountant's
contraction of testing. Whereas, if the converse situation existed in
which management had been non-responsive to exceptions, the external
accountant might deem it prudent to expand testing since the control
environment would likely be at a higher risk of compromise.
Another commenter questioned whether it would be permissible for a
CPA to perform the required observations subsequent to the fiscal year
end. Although the Commission questions the wisdom of performing
observations at a time outside the period subject to review, we do not
believe the final regulation explicitly prohibits it. However,
recognizing that the results of such observation would have diminished
value, expanded compensating document testing relevant to the audit
period would seem to be a logical action.
One commenter recommended that the Commission should codify in the
rule that the CPA testing period be the fiscal year of the gaming
enterprise. The Commission disagrees with the need to stipulate in the
rule that the period subject to audit must be the fiscal year. Inherent
in the filing requirement that the report be submitted within 120 days
of the gaming operation's fiscal year end, it is the presumption that
the period subject to review will be the business year. The Commission
is unaware of this concern being of any significance within the
industry.
A commenter suggested that the final revisions require the CPA to
submit a copy of internal audit reports when there is reliance.
Furthermore, the commenter represented that in accordance with the
referenced Agreed-
[[Page 47101]]
Upon-Procedures pronouncement, the practitioner is precluded from
extracting data from the internal audit reports. Other commenters have
not agreed with this position when the CPA has performed such testing
as necessary to gain sufficient assurance in the quality of the
internal audit work to rely thereon. Although the Commission has
received internal audit reports from CPA firms, we do not concur that
such submissions should be required. Our position is founded upon the
fact that the filings frequently include findings unrelated to the
MICS, i.e. incidents of noncompliance with internal policies and
procedures such as personnel or recommendations to management regarding
productivity and efficiency.
Another commenter recommended that the final revisions require the
inclusion of management responses to the compliance audit findings.
Although occasionally submissions do include comments or anticipated
remedial actions plans from management, the Commission believes that
including such a requirement in the rule would unduly hinder
satisfaction of the filing deadline of 120 days past fiscal year end.
It is important to note that the primary beneficiary of the independent
report is management, who should require, as a component of the
enterprise's overall operational objectives, compliance with all
applicable laws and regulations. Although the Commission utilizes the
data submitted to evaluate the internal control systems and their
compliance with the federal rule, the CPA testing report is only one of
several sources of information drawn upon to perform the analysis. It
is the position of the Commission that the lack of management responses
will not significantly impede that evaluation.
A commenter suggested that the CPA, in testing of internal audit
work performed, be allowed to accept digital copies or facsimile of
original documents. The Commission concurs with the suggestion. It is
not uncommon for such reproductions to carry the same weight as the
original, and the final regulation is not intended to preclude the
procedure.
Another commenter suggested that the count observations be required
to be initiated at the beginning of the drop/count process, as such a
procedure would facilitate observation of the key control and
surveillance notification functions.
The Commission disagrees with the suggestion. The objective of
entering the count room after commencement of the count is to detect
irregularities and internal control deficiencies, which would not be as
likely if count personnel were aware that observations were going to be
performed. Furthermore, with regards to the required key controls and
notification of surveillance, documentation of such events is mandated
by the MICS, which enables a subsequent audit.
One commenter raised a concern that the final revisions will
supersede the authority of the Tribe to determine the scope and depth
of the testing to be performed in accordance with the Agreed-Upon-
Procedures pronouncement and, in effect, transfer accountability of the
CPA to the Commission. The Commission disagrees with the commenter's
interpretation of the final revision. Contained therein is the
representation that an independent Certified Public Accountant shall be
engage to perform the compliance testing. The statement is purposeful
in its lack of specificity regarding the entity within the Tribe that
would assume responsibility for executing the engagement letter. It is
the position of the Commission that such a decision should be left to
the discretion of the Tribe. Although in practice most engagement
letters are signed by an authorized management person or audit
committee representative, the Commission has also noted engagements
originating with the Tribal gaming regulatory authority. Without regard
to the entity or individual possessing the authority to engage the
independent accountant, there should be no misunderstanding that the
objective of the final revision is to establish only the minimum
criteria that must be incorporated in the engagement letter.
Furthermore, the CPA should be well aware that their client is the
engaging party, not the Commission.
Another commenter noted that the auditing profession has
established methods and procedures to guide CPA firms in documenting
and conducting their reviews through the AICPA's Casino Audit and
Accounting Guide and the Auditing Standards Board's Statement on
Standards for Attestation Engagements, specifically SSAE10. The
commenter observed that these standards provide CPA firms pertinent
guidance regarding the process, procedures, and reporting format and
requirements to be employed.
The Commission disagrees with the commenter; not because we believe
the Audit and Accounting Guide for casinos conflicts with any standard
contained within the MICS, but because the professional pronouncement
simply lacks sufficient specificity to effectively confirm compliance
with the federal rule or the Tribal internal control standards. With
regard to the pronouncement relevant to performance of attestation
engagements, the Commission embraces the concepts contained therein and
considers the final revision to complement the directive. However, we
do not accept the premise that the professional directive is adequate
to ensure reliability and consistency in the reports; considering the
report's objective of identifying incidences of noncompliance with a
codified set of control procedures, which can be rather exacting.
Another commenter objected to the CPA firm's personnel performing
observations in the count room while the count is in progress because
they would have potential access to unaccounted for funds. Although the
Commission appreciates the concern expressed, it is our position that
for the practitioner to effectively test the internal control systems
for compliance there must be unfettered access to all applicable areas
and records of the gaming operation. Of course, the Commission would
consider it prudent for management or the Tribal regulatory authority
to initiate compensating controls to offset the risk posed by persons
external to the casino being in areas in which access is restricted;
however, in consideration of such controls, they should not unduly
interfere with the objectives of the engagement.
Initial drafts of the final rule contained a requirement that the
gaming operation must provide the CPA with written assurance regarding
compliance by the internal auditor or internal audit department with
applicable standards contained within the internal audit sections of
the MICS. Comments were received questioning the need for the CPA to
receive such written assurance since the external accountant would
still be expected to confirm the representation. The Commission concurs
with the commenter and has struck the noted requirement from the final
rule.
One commenter suggested that any additional procedures performed at
the request of the Tribal gaming regulatory authority or management be
limited to gaming related transactions or activities. The Commission
disagrees with the suggestion. The anticipated scope of testing
reflected in the final revisions to Section 542.3(f) is well defined,
and no additional clarification is necessary. Furthermore, the Tribal
gaming regulatory authority or management should have the discretion to
expand the scope of testing as they deem warranted.
[[Page 47102]]
Another commenter recommended that the CPA reperformance of
internal audit testing criteria, such as the three percent sample
selection for the gaming machine and table games departments, include a
minimum number of tests to be reperformed or a minimum number of
transactions to retest. The Commission disagrees with the
recommendation. In determining sample size, the objective is to gain
reasonable assurance regarding the true characteristics of the
population being tested. The conceptual basis for determining sample
size does not change based on the size of the population, assuming
consistency is maintained within the population. Considering that
absolute assurance is not an expectation, the sample selection criteria
contained in the final revision should produce acceptable results.
Final Revisions to the Following Sections: 542.7(d) (Bingo)
Accountability Form; 542.8(f) (Pull-Tab) Accountability Form; 542.10(f)
(Keno) Checkout Standards at the End of Each Keno Shift; 542.11(e)
(Pari-Mutuel Wagering) Checkout Standards; 542.13(f) (Gaming Machines)
Gaming Machine Department Funds Standards; 542.14(d) (Cage) Cage and
Vault Accountability Standards
Revisions to the referenced sections of the MICS are intended to
clarify the respective existing regulations. Specifically, the change
is to state explicitly that unverified transfers of cash or cash
equivalents accountability are prohibited.
Initially, the proposed revision stated that blind drops are
prohibited but several commenters noted that the term had rather
diverse interpretations. It was recommended that the revision would be
more precise to state, ``Unverified transfers of cash and/or cash
equivalents are prohibited.'' The Commission concurs with the
recommendation and revised the initial draft accordingly.
Comment was received recommending that the final revision also be
added to the relevant standards contained within the MICS drop and
count sections. The Commission disagrees with the recommendation. The
standards contained within the drop and count sections are sufficiently
clear that no additional clarification is needed. The standards are
effective in precluding unverified transfers.
Final Revision to Section 542.14(d)(4) Cage and Vault Accountability
Standards
Based on the result of compliance audits conducted by the
Commission and research performed, it has been determined that the
referenced standard is incorrect with respect to its placement within
the MICS. The standards were intended to codify the minimum components
of the cage/vault accountability. Unfortunately, included within the
list of items is gaming machine hopper loads. Generally accepted gaming
regulatory standards and common industry practice would dictate that
the value of the hoppers be reflected in a general ledger account, not
the cage/vault accountability. To correct the error, the Commission is
striking the referenced control.
No comments were received concerning the final revision.
Final Revisions to Section 542.17 Complimentary Services or Items
In June 2002, a revision was made to the referenced section in
which a stated value of 50 dollars was replaced by a non-specified
amount that was required to be merely reasonable. The threshold
dictates when a complimentary ``comp'' transaction must be included in
a report for review by management. The objective of the report is to
facilitate supervisory oversight of the comps process for the purpose
of ensuring compliance with the gaming operation's comp policy.
Unfortunately, confusion and conflict have resulted from the 2002
revision. Therefore, the Commission is revising the regulation to
require that individual comp transactions equal to or exceeding 100
dollars be included in the report, unless the Tribal gaming regulatory
authority determines that the threshold should be a lesser amount.
As initially drafted, the proposed revision did not acknowledge
that the Tribal gaming regulatory authorities had the latitude of
establishing an amount less than 100 dollars. A commenter recommended
that the draft be revised to grant such an option. The Commission has
accepted and effectuated the recommendation.
Other comments were received supporting the revision.
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 duplicate controls to identical
requirements contained within the respective sections Gaming Machine
Bill Acceptor Drop Standards, Sections 542.21(e)(4), 542.31(e)(5), and
542.41(e)(5). Specifically, the standard requires that each bill
acceptor canister 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 concerning the final revision.
Final Revisions to 542.21(f)(4)(ii) Drop and Count for Tier A;
542.31(f)(4)(ii) Drop and Count for Tier B; 542.41(f)(4)(ii) Drop and
Count for Tier C
The Commission is deleting the referenced standards, which require
a second count of the gaming machine bill acceptor drop by a count team
member who did not perform the first count. In justification of the
final revision, it is important to note that the Commission has
attempted to rely on the advice and experience of the established
gaming jurisdictions in defining its minimum internal control
regulation. Such a methodology is deemed to be not only efficient but
prudent. Generally, the MICS represent a rather simplistic abbreviation
of commensurate controls of the established gaming jurisdictions, which
has left much room for Tribal gaming regulators to complement. However,
consistent with such a concept is the need for the Commission to be
cognizant of any standards enacted that are overreaching. In other
words, before requiring a control more stringent than the established
gaming jurisdictions, the Commission should have a compelling reason
for its action. The deletion of the noted standards is founded upon the
premise that they are inconsistent with the established gaming
jurisdictions and are lacking in a compelling reason justifying a more
stringent procedure for Tribal gaming. Unlike the drop originating with
table games, meter data should be available to confirm the gaming
machine bill acceptor count, which sufficiently mitigates the risk of
compromise associated with that process. Based on research performed,
it is the belief of the Commission that the double count requirement
resulted from a drafting error in June 2002, which originated from the
reformatting of the drop and count sections. Therefore, it is the
position of the Commission that the standards in question should be
struck.
One commenter expressed the position that the second count of the
currency is appropriate and should remain in the MICS. The Commission
disagrees with the commenter for the reasons previously stated.
However, as
[[Page 47103]]
echoed throughout the MICS and within the preamble, the Tribal gaming
regulatory authorities have primary responsibility for the regulation
of their respective gaming operation(s) and have the latitude of
requiring controls more stringent than those of the federal rule.
Another commenter suggested that the rule should be made
conditional such that only when the gaming operation employs an
effective on-line accounting system should the second count be
foregone. The Commission disagrees, since verification of the drop to
the currency in meter reading is required by the MICS, without regard
to whether the meter data is collected electronically or manually.
One commenter questioned the consistency of the Commission's action
to delete the subject standards with its position regarding the
prohibition against unverified transfers of an individual's
accountability. The Commission does not recognize an inconsistency. The
count team takes possession of the drop proceeds and is responsible for
those funds until they are transferred to the cage/vault (buy process).
The count team executes a count of the monies and, in conjunction with
the transfer of the accountability, the vault or cage supervisory
performs another count to verify the amount being conveyed to their
accountability. Consequently, no cash inventories are being transferred
from one person to another without mutual verification and acceptance.
Final Addition of Section 542.22(g) Internal Audit Guidelines--Tier A;
542.32(g) Internal Audit Guidelines--Tier B; 542.42(g) Internal Audit
Guidelines--Tier C
The Commission added the referenced regulations to the MICS, which
represents a simple notification to internal auditors and internal
audit departments that the Commission will provide recommended
guidelines to aid in satisfaction of the testing requirements contained
within the internal audit sections of the MICS. The guidelines do not
represent a rule requiring adherence but an aid for internal auditors
to take advantage of as they deem appropriate.
No comments were received concerning the final revision.
Final Revision to 542.23(n)(3) Tier A Surveillance--Wide Area
Progressive Gaming Machines; 542.33(q)(3) Tier B Surveillance--Wide
Area Progressive Gaming Machines; and 542.43(r)(3) Tier C
Surveillance--Wide Area Progressive Gaming Machines
Prior to June 2002, the referenced regulations required certain
dedicated camera coverage over wide area progressive machines with a
potential payout of 3 million dollars or more. In conjunction with the
revisions of 2002, the standards were revised to require the additional
camera coverage over the noted machines if the base amount was more
than 1.5 million dollars, irrespective of potential payout.
Based on the experience gained by the Commission, it has been
determined that the referenced revision negated the effectiveness of
the regulation, which is to require a heightened level of surveillance
coverage over wide area progressive devices commensurate with the risk
posed to Tribal assets and operational integrity. Such risk is directly
related to the size of the potential awards but is mitigated somewhat
by the fact that a third party, the wide area progressive vendor, is
involved in the transaction.
The final revision is intended to regain the effectiveness of the
original regulation, consistent with the industry's regulatory
standards. Specifically, the threshold is being lowered to a starting
base amount of 1 million dollars or more.
One commenter concurred with the final revision and acknowledged
the limited effectiveness of the 1.5 million dollar base threshold.
Another commenter recommended that the control be modified to require
surveillance to utilize a real time standard for monitoring and
recording a video of the activity in question. The Commission
enthusiastically supports the position expressed by the commenter,
since it is our belief that this critical function should require a
surveillance standard employing a sufficient clarity criterion and be
observed and recorded at 30 frames or images per second, as applicable.
However, the MICS currently defines sufficient clarity as requiring
only 20 frames per second. Since we believe that the term ``real time''
is generally understood to mean at least 30 frames per second,
injecting it into the final revision would likely create an ambiguity
within the MICS.
One commenter questioned whether the additional cost resulting from
the expansion of the standard's applicability is justified. The
Commission appreciates the commenter's concern; however, performance of
a cost benefit analysis in conjunction with the evaluation of a control
can be a challenging exercise. For example, measuring the economic
impact of an irregularity that did not occur because it was deterred by
an effective internal control system is a highly speculative endeavor.
However, a truism of gaming widely accepted by industry professionals
is that as the potential reward increases so does the likelihood of
compromise. This characteristic of gaming is not unrelated to the final
revision. There is much wisdom within a process that learns from the
experience of our peers who are more seasoned in the regulation of
gaming. The final revision is founded upon this concept. Therefore,
considering that the lowered threshold will only bring the
applicability of the control closer to that of the established gaming
jurisdictions, the Commission believes the commenter's concern does not
justify reconsideration of the final revision.
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 367 Indian gaming operations across the country,
approximately 115 of the operations have annual gross revenues of less
than 5 million dollars. Of these, approximately 59 operations have
gross revenues of under 1 million dollars. Since the final revisions
will not apply to gaming operations with gross revenues under 1 million
dollars, only 59 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 are more stringent than those contained in
these regulations. Further, the final rule revisions are technical and
minor in nature.
[[Page 47104]]
Under the final revisions, small gaming operations grossing under 1
million dollars are exempt from MICS compliance. Tier A facilities
(those with gross revenues between 1 and 5 million dollars) 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 dollars. 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 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 the economy of 100 million
dollars 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 dollars 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 and
discussed the public comments that are 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.
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. 542.3 by revising paragraph (f) to read as follows:
Sec. 542.3 How do I comply with this part?
* * * * *
(f) CPA testing. (1) An independent certified public accountant
(CPA) shall be engaged to perform ``Agreed-Upon Procedures'' to verify
that the gaming operation is in compliance with the minimum internal
control standards (MICS) set forth in this part or a Tribally approved
variance thereto that has received Commission concurrence. The CPA
shall report each event and procedure discovered by or brought to the
CPA's attention that the CPA believes does not satisfy the minimum
standards or Tribally approved variance that has received Commission
concurrence. The ``Agreed-Upon Procedures'' may be performed in
conjunction with the annual audit. The CPA shall report its findings to
the Tribe, Tribal gaming regulatory authority, and management. The
Tribe shall submit two copies of the report to the Commission within
120 days of the gaming operation's fiscal year end. This regulation is
intended to communicate the Commission's position on the minimum
agreed-upon procedures to be performed by the CPA. Throughout these
regulations, the CPA's engagement and reporting are based on Statements
[[Page 47105]]
on Standards for Attestation Engagements (SSAEs) in effect as of
December 31, 2003, specifically SSAE 10 (``Revision and Recodification
Agreed-Upon Procedures Engagements.''). If future revisions are made to
the SSAEs or new SSAEs are adopted that are applicable to this type of
engagement, the CPA is to comply with any new or revised professional
standards in conducting engagements pursuant to these regulations and
the issuance of the agreed-upon procedures report. The CPA shall
perform the ``Agreed-Upon Procedures'' in accordance with the
following:
(i) As a prerequisite to the evaluation of the gaming operation's
internal control systems, it is recommended that the CPA obtain and
review an organization chart depicting segregation of functions and
responsibilities, a description of the duties and responsibilities of
each position shown on the organization chart, and an accurate,
detailed narrative description of the gaming operation's procedures in
effect that demonstrate compliance.
(ii) Complete the CPA NIGC MICS Compliance checklists or other
comparable testing procedures. The checklists should measure compliance
on a sampling basis by performing walk-throughs, observations and
substantive testing. The CPA shall complete separate checklists for
each gaming revenue center, cage and credit, internal audit,
surveillance, information technology and complimentary services or
items. All questions on each applicable checklist should be completed.
Work-paper references are suggested for all ``no'' responses for the
results obtained during testing (unless a note in the ``W/P Ref''' can
explain the exception).
(iii) The CPA shall perform, at a minimum, the following procedures
in conjunction with the completion of the checklists:
(A) At least one unannounced observation of each of the following:
Gaming machine coin drop, gaming machine currency acceptor drop, table
games drop, gaming machine coin count, gaming machine currency acceptor
count, and table games count. The AICPA's ``Audits of Casinos'' Audit
and Accounting Guide states that ``observations of operations in the
casino cage and count room should not be announced in advance * * *''
For purposes of these procedures, ``unannounced'' means that no
officers, directors, or employees are given advance information
regarding the dates or times of such observations. The independent
accountant should make arrangements with the gaming operation and
Tribal gaming regulatory authority to ensure proper identification of
the CPA's personnel and to provide for their prompt access to the count
rooms.
(1) The gaming machine coin count observation would include a weigh
scale test of all denominations using pre-counted coin. The count would
be in process when these tests are performed, and would be conducted
prior to the commencement of any other walk-through procedures. For
computerized weigh scales, the test can be conducted at the conclusion
of the count, but before the final totals are generated.
(2) The checklists should provide for drop/count observations,
inclusive of hard drop/count, soft drop/count and currency acceptor
drop/count. The count room would not be entered until the count is in
process and the CPA would not leave the room until the monies have been
counted and verified to the count sheet by the CPA and accepted into
accountability. If the drop teams are unaware of the drop observations
and the count observations would be unexpected, the hard count and soft
count rooms may be entered simultaneously. Additionally, if the gaming
machine currency acceptor count begins immediately after the table
games count in the same location, by the same count team, and using the
same equipment, the currency acceptor count observation can be
conducted on the same day as the table games count observation,
provided the CPA remains until monies are transferred to the vault/
cashier.
(B) Observations of the gaming operation's employees as they
perform their duties.
(C) Interviews with the gaming operation's employees who perform
the relevant procedures.
(D) Compliance testing of various documents relevant to the
procedures. The scope of such testing should be indicated on the
checklist where applicable.
(E) For new gaming operations that have been in operation for three
months or less at the end of their business year, performance of this
regulation, section 542.3(f), is not required for the partial period.
(2) Alternatively, at the discretion of the Tribe, the Tribe may
engage an independent certified public accountant (CPA) to perform the
testing, observations and procedures reflected in paragraphs (f)(1)(i),
(ii), and (iii) of this section utilizing the Tribal internal control
standards adopted by the Tribal gaming regulatory authority or Tribally
approved variance that has received Commission concurrence.
Accordingly, the CPA will verify compliance by the gaming operation
with the Tribal internal control standards. Should the Tribe elect this
alternative, as a prerequisite, the CPA will perform the following:
(i) The CPA shall compare the Tribal internal control standards to
the MICS to ascertain whether the criteria set forth in the MICS or
Commission approved variances are adequately addressed.
(ii) The CPA may utilize personnel of the Tribal gaming regulatory
authority to cross-reference the Tribal internal control standards to
the MICS, provided the CPA performs a review of the Tribal gaming
regulatory authority personnel's work and assumes complete
responsibility for the proper completion of the work product.
(iii) The CPA shall report each procedure discovered by or brought
to the CPA's attention that the CPA believes does not satisfy paragraph
(f)(2)(i) of this section.
(3) Reliance on Internal Auditors. (i) The CPA may rely on the work
of an internal auditor, to the extent allowed by the professional
standards, for the performance of the recommended procedures specified
in paragraphs (f)(1)(iii)(B), (C), and (D) of this section, and for the
completion of the checklists as they relate to the procedures covered
therein provided that the internal audit department can demonstrate to
the satisfaction of the CPA that the requirements contained within
Sec. 542.22, 542.32, or 542.42, as applicable, have been satisfied.
(ii) Agreed-upon procedures are to be performed by the CPA to
determine that the internal audit procedures performed for a past 12-
month period (includes two 6-month periods) encompassing a portion or
all of the most recent business year has been properly completed. The
CPA will apply the following Agreed-Upon Procedures to the gaming
operation's written assertion:
(A) Obtain internal audit department work-papers completed for a
12-month period (includes two 6-month periods) encompassing a portion
or all of the most recent business year and determine whether the CPA
NIGC MICS Compliance Checklists or other comparable testing procedures
were included in the internal audit work-papers and all steps described
in the checklists were initialed or signed by an internal audit
representative.
(B) For the internal audit work-papers obtained in paragraph
(f)(3)(ii)(A) of this section, on a sample basis, reperform the
procedures included in CPA NIGC MICS Compliance Checklists or other
comparable testing procedures prepared
[[Page 47106]]
by internal audit and determine if all instances of noncompliance noted
in the sample were documented as such by internal audit. The CPA NIGC
MICS Compliance Checklists or other comparable testing procedures for
the applicable Drop and Count procedures are not included in the sample
reperformance of procedures because the CPA is required to perform the
drop and count observations as required under paragraph (f)(1)(iii)(A)
of this section of the Agreed-Upon Procedures. The CPA's sample should
comprise a minimum of 3 percent of the procedures required in each CPA
NIGC MICS Compliance Checklist or other comparable testing procedures
for the gaming machine and table game departments and 5 percent for the
other departments completed by internal audit in compliance with the
internal audit MICS. The reperformance of procedures is performed as
follows:
(1) For inquiries, the CPA should either speak with the same
individual or an individual of the same job position as the internal
auditor did for the procedure indicated in their checklist.
(2) For observations, the CPA should observe the same process as
the internal auditor did for the procedure as indicated in their
checklist.
(3) For document testing, the CPA should look at the same original
document as tested by the internal auditor for the procedure as
indicated in their checklist. The CPA need only retest the minimum
sample size required in the checklist.
(C) The CPA is to investigate and resolve any differences between
their reperformance results and the internal audit results.
(D) Documentation is maintained for 5 years by the CPA indicating
the procedures reperformed along with the results.
(E) When performing the procedures for paragraph (f)(3)(ii)(B) of
this section in subsequent years, the CPA must select a different
sample so that the CPA will reperform substantially all of the
procedures after several years.
(F) Any additional procedures performed at the request of the
Commission, the Tribal gaming regulatory authority or management should
be included in the Agreed-Upon Procedures report transmitted to the
Commission.
(4) Report Format. (i) The NIGC has concluded that the performance
of these procedures is an attestation engagement in which the CPA
applies such Agreed-Upon Procedures to the gaming operation's assertion
that it is in compliance with the MICS and, if applicable under
paragraph (f)(2) of this section, the Tribal internal control standards
and approved variances, provide a level of control that equals or
exceeds that of the MICS. Accordingly, the Statements on Standards for
Attestation Engagements (SSAE's), specifically SSAE 10, issued by the
Auditing Standards Board is currently applicable. SSAE 10 provides
current, pertinent guidance regarding agreed-upon procedure
engagements, and the sample report formats included within those
standards should be used, as appropriate, in the preparation of the
CPA's agreed-upon procedures report. If future revisions are made to
this standard or new SSAEs are adopted that are applicable to this type
of engagement, the CPA is to comply with any revised professional
standards in issuing their agreed upon procedures report. The
Commission will provide an Example Report and Letter Formats upon
request that may be used and contain all of the information discussed
below:
(A) The report must describe all instances of procedural
noncompliance regardless of materiality) with the MICS or approved
variations, and all instances where the Tribal gaming regulatory
authority's regulations do not comply with the MICS. When describing
the agreed-upon procedures performed, the CPA should also indicate
whether procedures performed by other individuals were utilized to
substitute for the procedures required to be performed by the CPA. For
each instance of noncompliance noted in the CPA's agreed-upon
procedures report, the following information must be included:
(1) The citation of the applicable MICS for which the instance of
noncompliance was noted.
(2) A narrative description of the noncompliance, including the
number of exceptions and sample size tested.
(5) Report Submission Requirements. (i) The CPA shall prepare a
report of the findings for the Tribe and management. The Tribe shall
submit 2 copies of the report to the Commission no later than 120 days
after the gaming operation's business year. This report should be
provided in addition to any other reports required to be submitted to
the Commission.
(ii) The CPA should maintain the work-papers supporting the report
for a minimum of five years. Digital storage is acceptable. The
Commission may request access to these work-papers, through the Tribe.
(6) CPA NIGC MICS Compliance Checklists. In connection with the CPA
testing pursuant to this section and as referenced therein, the
Commission will provide CPA MICS Compliance Checklists upon request.
* * * * *
0
3. Amend Sec. 542.7 by revising paragraph (d)(2) to read as follows:
Sec. 542.7 What are the minimum internal control standards for bingo?
* * * * *
(d) * * *
(2) All funds used to operate the bingo department shall be counted
independently by at least two persons and reconciled to the recorded
amounts at the end of each shift or session. Unverified transfers of
cash and/or cash equivalents are prohibited.
* * * * *
0
4. Amend Sec. 542.8 by revising paragraph (f)(2) to read as follows:
Sec. 542.8 What are the minimum internal control standards for pull
tabs?
* * * * *
(f) * * *
(2) All funds used to operate the pull tab game shall be counted
independently by at least two persons and reconciled to the recorded
amounts at the end of each shift or session. Unverified transfers of
cash and/or cash equivalents are prohibited.
* * * * *
0
5. Amend Sec. 542.10 by revising paragraph (f)(1)(ii) to read as
follows:
Sec. 542.10 What are the minimum internal control standards for keno?
* * * * *
(f) * * *
(1) * * *
(ii) Signatures of two employees who have verified the net cash
proceeds for the shift and the cash turned in. Unverified transfers of
cash and/or cash equivalents are prohibited.
* * * * *
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6. Amend Sec. 542.11 by revising paragraph (e)(2)(ii) to read as
follows:
Sec. 542.11 What are the minimum internal control standards for pari-
mutuel wagering?
* * * * *
(e) * * *
(2) * * *
(ii) Signature of two employees who have verified the cash turned
in for the shift. Unverified transfers of cash and/or cash equivalents
are prohibited.
* * * * *
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7. Amend Sec. 542.13 by revising paragraph (f)(1) to read as follows:
Sec. 542.13 What are the minimum internal control standards for
gaming machines?
* * * * *
(f) * * *
[[Page 47107]]
(1) The gaming machine booths and change banks that are active
during the shift shall be counted down and reconciled each shift by two
employees utilizing appropriate accountability documentation.
Unverified transfers of cash and/or cash equivalents are prohibited.
* * * * *
0
8. Amend Sec. 542.14 by revising paragraphs (d)(2) and (3) to read as
follows and by removing paragraph (d)(4):
Sec. 542.14 What are the minimum internal control standards for the
cage?
* * * * *
(d) * * *
(2) The cage and vault (including coin room) inventories shall be
counted by the oncoming and outgoing cashiers. These employees shall
make individual counts for comparison for accuracy and maintenance of
individual accountability. Such counts shall be recorded at the end of
each shift during which activity took place. All discrepancies shall be
noted and investigated. Unverified transfers of cash and/or cash
equivalents are prohibited.
(3) 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 a minimum bankroll formula
to ensure the gaming operation maintains cash or cash equivalents (on
hand and in the bank, if readily accessible) in an amount sufficient to
satisfy obligations to the gaming operation's customers as they are
incurred. A suggested bankroll formula will be provided by the
Commission upon request.
* * * * *
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9. Amend Sec. 542.17 by revising paragraphs (b) introductory text and
(c) to read as follows and by removing paragraph (d):
Sec. 542.17 What are the minimum internal control standards for
complimentary services or items?
* * * * *
(b) At least monthly, accounting, information technology, or audit
personnel that cannot grant or receive complimentary privileges shall
prepare reports that include the following information for all
complimentary items and services equal to or exceeding $100 or an
amount established by the Tribal gaming regulatory authority, which
shall not be greater than $100:
* * * * *
(c) The internal audit or accounting departments shall review the
reports required in paragraph (b) of this section at least monthly.
These reports shall be made available to the Tribe, Tribal gaming
regulatory authority, audit committee, other entity designated by the
Tribe, and the Commission upon request.
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10. Amend Sec. 542.21 by revising paragraph (f)(4)(ii) to read as
follows and by removing paragraphs (f)(4)(iii) and (f)(12):
Sec. 542.21 What are the minimum internal control standards for drop
and count for Tier A gaming operations?
* * * * *
(f) * * *
(4) * * *
(ii) Corrections to information originally recorded by the count
team on soft count documentation shall be made by drawing a single line
through the error, writing the correct figure above the original
figure, and then obtaining the initials of at least two count team
members who verified the change.
* * * * *
0
11. Amend Sec. 542.22 by adding paragraph (g) to read as follows:
Sec. 542.22 What are the minimum internal control standards for
internal audit for Tier A gaming operations?
* * * * *
(g) Internal Audit Guidelines. In connection with the internal
audit testing pursuant to paragraph (b)(1) of this section, the
Commission shall develop recommended Internal Audit Guidelines, which
shall be available upon request.
0
12. Amend Sec. 542.23 by revising paragraph (n)(3) introductory text
to read as follows:
Sec. 542.23 What are the minimum internal control standards for
surveillance for Tier A gaming operations?
* * * * *
(n) * * *
(3) Wide-area progressive machine. Wide-area progressive gaming
machines offering a base payout amount of $1 million or more and
monitored by an independent vendor utilizing an on-line progressive
computer system shall be recorded by a dedicated camera(s) to provide
coverage of:
* * * * *
0
13. Amend Sec. 542.31 by revising paragraph (f)(4)(ii) to read as
follows and by removing paragraphs (f)(4)(iii) and (f)(12):
Sec. 542.31 What are the minimum internal control standards for drop
and count for Tier B gaming operations?
* * * * *
(f) * * *
(4) * * *
(ii) Corrections to information originally recorded by the count
team on soft count documentation shall be made by drawing a single line
through the error, writing the correct figure above the original
figure, and then obtaining the initials of at least two count team
members who verified the change.
* * * * *
0
14. Amend Sec. 542.32 by adding paragraph (g) to read as follows:
Sec. 542.32 What are the minimum internal control standards for
internal audit for Tier B gaming operations?
* * * * *
(g) Internal Audit Guidelines. In connection with the internal
audit testing pursuant to paragraph (b)(1) of this section, the
Commission shall develop recommended Internal Audit Guidelines, which
shall be available upon request.
0
15. Amend Sec. 542.33 by revising paragraph (q)(3) introductory text
to read as follows:
Sec. 542.33 What are the minimum internal control standards for
surveillance for Tier B gaming operations?
* * * * *
(q) * * *
(3) Wide-area progressive machine. Wide-area progressive gaming
machines offering a base payout amount of $1 million or more and
monitored by an independent vendor utilizing an on-line progressive
computer system shall be recorded by a dedicated camera(s) to provide
coverage of:
* * * * *
0
16. Amend Sec. 542.41 by revising paragraph (f)(4)(ii) to read as
follows and by removing paragraphs (f)(4)(iii) and (f)(12):
Sec. 542.41 What are the minimum internal control standards for drop
and count for Tier C gaming operations?
* * * * *
(f) * * *
(4) * * *
(ii) Corrections to information originally recorded by the count
team on soft count documentation shall be made by drawing a single line
through the error, writing the correct figure above the original
figure, and then obtaining the initials of at least two count team
members who verified the change.
* * * * *
0
17. Amend Sec. 542.42 by adding paragraph (g) to read as follows:
[[Page 47108]]
Sec. 542.42 What are the minimum internal control standards for
internal audit for Tier C gaming operations?
* * * * *
(g) Internal Audit Guidelines. In connection with the internal
audit testing pursuant to paragraph (b)(1) of this section, the
Commission shall develop recommended Internal Audit Guidelines, which
shall be available upon request.
0
18. Amend Sec. 542.43 by revising paragraph (r)(3) introductory text
to read as follows:
Sec. 542.43 What are the minimum internal control standards for
surveillance for Tier C gaming operations?
* * * * *
(r) * * *
(3) Wide-area progressive machine. Wide-area progressive gaming
machines offering a base payout amount of $1 million or more and
monitored by an independent vendor utilizing an on-line progressive
computer system shall be recorded by a dedicated camera(s) to provide
coverage of:
* * * * *
Signed in Washington, DC, this 8th day of August, 2005.
Philip N. Hogen,
Chairman.
Nelson Westrin,
Vice-Chairman.
Cloyce Choney,
Commissioner.
[FR Doc. 05-16056 Filed 8-12-05; 8:45 am]
BILLING CODE 7565-01-P