[Federal Register: December 1, 2004 (Volume 69, Number 230)]
[Proposed Rules]
[Page 69847-69863]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01de04-20]
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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: Proposed rule revisions.
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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 proposed
rule revisions contain certain proposed corrections and revisions to
the Commission's existing MICS, which are necessary to correct
erroneous citations or references in the MICS and to clarify, improve,
and update other existing MICS provisions. The purpose of these
proposed MICS revisions is to address apparent shortcomings in the MICS
and various changes in Tribal gaming technology and methods. Public
comment to these proposed MICS revisions will be received by the
Commission for a period of forty-five (45) days after the date of their
publication in the Federal Register. After consideration of all
received comments, the Commission will make whatever changes to the
proposed revisions that it deems appropriate and then promulgate and
publish the final revisions to the Commission's MICS Rule, 25 CFR part
542.
DATES: Submit comments on or before January 18, 2005.
ADDRESSES: Mail comments to ``Comments to First Proposed MICS Rule
Revisions, National Indian Gaming Commission, 1441 L Street, NW.,
Washington, DC 20005, Attn: Vice-Chairman Nelson Westrin.'' Comments
may be transmitted by facsimile to Vice-Chairman Westrin at (202) 632-
0045, but the original also must be submitted to the above address.
FOR FURTHER INFORMATION CONTACT: Vice-Chairman Nelson Westrin, (202)
632-7003 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On January 5, 1999, the Commission first published its Minimum
Internal Control Standards (MICS) as a Final Rule. As gaming Tribes and
the Commission gained practical experience applying the MICS, it became
apparent that some of the standards required clarification or
modification to operate as the Commission had intended and to
accommodate changes and advances that had occurred over the years in
Tribal gaming technology and methods. Consequently, the Commission,
working with an Advisory Committee composed of Commission and Tribal
representatives, published the new final revised MICS rule on June 27,
2002.
As the result of the practical experience of the Commission and
Tribes working with the newly revised MICS, it has once again become
apparent that additional corrections, clarifications, and modifications
are needed to ensure that the MICS continue to operate as the
Commission intended. To identify which of the current MICS need
correction, clarification or modification, the Commission initially
solicited input and guidance from NIGC employees, who have extensive
gaming regulatory expertise and experience and work closely with Tribal
gaming regulators in monitoring the implementation, operation, and
effect of the MICS in Tribal gaming operations. The resulting input
from NIGC staff convinced the Commission that the MICS require
continuing review and prompt revision on an ongoing basis to keep them
effective and up-to-date. To address this need, the Commission decided
to establish a Standing MICS Advisory Committee to assist it in both
identifying and developing necessary MICS revisions and revisions on an
ongoing basis.
In recognition of its government-to-government relationship with
Tribes and related commitment to meaningful Tribal consultation, the
Commission requested gaming Tribes, in January 2004, for nominations of
Tribal representatives to serve on its Standing
[[Page 69848]]
MICS Advisory Committee. 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 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.
Tribal representatives selected to serve on the Commission's
Standing MICS Advisory Committee are: Tracy Burris, Gaming
Commissioner, Chickasaw Nation Gaming Commission, Chickasaw Nation of
Okalahoma; Jack Crawford, Chairman, Umatilla Gaming Commission,
Confederated Tribes of the Umatilla Indian Reservation; Patrick Darden,
Executive Director, Chitimacha Gaming Commission, Chitimacha Indian
Tribe of Louisiana; Mark N. Fox, Compliance Director, Four Bears
Casino, Three Affiliated Tribes of the Fort Berthold Reservation;
Sherrilyn Kie, Senior Internal Auditor, Pueblo of Laguna Gaming
Authority, Pueblo of Laguna; Patrick Lambert, Executive Director,
Eastern Band of Cherokee Gaming Commission, Eastern Band of Cherokee
Indians; John Meskill, Director, Mohegan Tribal Gaming Commission,
Mohegan Indian Tribe; Jerome Schultze, Executive Director, Morongo
Gaming Agency, Morongo Band of Mission Indians; and Lorna Skenandore,
Assistant Gaming Manager, Support Services, Oneida Bingo and Casino,
formerly Gaming Compliance Manager, Oneida Gaming Commission, Oneida
Tribe of Indians of Wisconsin. The Advisory Committee also includes the
following Commission representatives: Philip N. Hogen, Chairman; Nelson
Westrin, Vice-Chairman; Cloyce V. Choney, Associate Commissioner; Joe
H. Smith, Acting Director of Audits; Ken Billingsley, Region III
Director; Nicole Peveler, Field Auditor; Ron Ray, Field Investigator;
and Sandra Ashton, Staff Attorney, Office of General Counsel.
In the past, the MICS were comprehensively revised on a large
wholesale basis. Such large-scale revisions proved to be difficult for
Tribes to implement in a timely manner and unnecessarily disruptive to
Tribal gaming operations. The purpose of the Commission's Standing
Committee is to conduct a continuing review of the operation and
effectiveness of the existing MICS, in order to promptly identify and
develop needed revisions of the MICS, on a manageable incremental
basis, as they become necessary to revise and keep the MICS practical
and effective. By making more manageable incremental changes to the
MICS on an ongoing basis, the Commission hopes to be more prompt in
developing needed revisions, while, at the same time, avoiding larger-
scale MICS revisions which take longer to implement and can be
unnecessarily disruptive to Tribal gaming operations. In accordance
with this approach, the Commission has developed the following proposed
MICS rule revisions, with the assistance of its Standing MICS Advisory
Committee. In doing so, the Commission is carrying out its statutory
mandate under the Indian Gaming Regulatory Act, 25 U.S.C. 2706(b)(10),
to promulgate necessary and appropriate regulations to implement the
provisions of the Act. In particular, the following proposed 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 proposed 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 Advisory Committee initially met on April 8, 2004, and then
again on October 21, 2004, to discuss the revisions set forth in the
following proposed MICS rule revisions. The input received from the
Committee Members has been invaluable to the Commission in its
development of the following proposed MICS rule revisions. In
accordance with the Commission's established Government-to-Government
Tribal Consultation Policy, the Commission provided a preliminary
working draft of all of the proposed MICS rule revisions contained
herein to gaming Tribes on June 22, 2004, for a thirty (30)-day
informal review and comment period, before formulation of this proposed
rule. In response to its requests for comments, the Commission received
approximately fifty (50) comments from Commission and Tribal Advisory
Committee members, individual Tribes, and other interested parties
regarding the proposed revisions. A summary of these comments is
presented below in the discussion of each proposed revision to which
they relate.
General Comments to Proposed MICS Revisions
For reasons stated above in this preamble, the National Indian
Gaming Commission proposes to revise the following specific sections of
its MICS rule, 25 CFR part 542. The following discussion includes the
Commission's responses to general comments concerning the MICS and is
followed by a discussion regarding each of the specifically proposed
revisions, along with previously submitted informal comments to the
proposed revisions and the Commission's responses to those comments. As
noted above, prior commenters include Commission and Tribal Advisory
Committee members, gaming Tribes, and others.
Comments Questioning NIGC Authority To Promulgate MICS for Class III
Gaming
Many of the previous informal comments to the preliminary working
draft of the proposed MICS revisions pertained to the Commission's
authority to promulgate rules governing the conduct of Class III
gaming. Positions were expressed asserting that Congress intended the
NIGC's Class III gaming regulatory authority to be limited exclusively
to the approval of tribal gaming ordinances and management contracts.
Similar comments were received concerning the first proposed MICS back
in 1999. The Commission, at that time, determined in its publication of
the original MICS in 1999 that it possessed the statutory authority to
promulgate Class III MICS. As stated in the preamble to those MICS:
``The Commission believes that it does have the authority to promulgate
this final rule. * * * [T]he Commission's promulgation of MICS is
consistent with its responsibilities as the Federal regulator of Indian
gaming.'' 64 FR 509 (Jan. 5, 1999). The current Commission reaffirms
that determination. The Indian Gaming Regulatory Act, which established
the regulatory structure for
[[Page 69849]]
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
III gaming operations. Consequently, internal control systems are a
vitally important part of properly regulated gaming. Internal control
systems govern the gaming enterprise's governing board, management, and
other personnel who are responsible for providing reasonable assurance
regarding the achievement of the enterprise's objectives, which
typically include operational integrity, effectiveness and efficiency,
reliable financial statement reporting, and compliance with applicable
laws and regulations.
The Commission believes that strict regulations, such as the MICS,
are not only appropriate but necessary for it to fulfill its
responsibilities under the IGRA to establish 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.
Proposed New or Revised Definitions in Section 542.2 of the MICS
The Commission proposes to add or revise definitions of the
following four terms in section 542.2. A discussion of each proposed
new or revised definition follows in alphabetical order. The text of
the proposed new or revised definition is set forth following the
conclusion of this preamble in which of all of the proposed revisions
to the Commission's MICS rule, 25 CFR part 542, are discussed.
``Drop Period''
This is a new definition. Several Tribal and Commission Committee
members recommended that a definition of the term ``drop period'' be
added to the current existing MICS definitions. In conjunction with
other proposed revisions to the MICS which include this term, the NIGC
has determined that to ensure that such revisions are clear and
unambiguous, insertion of the definition of the term ``drop period''
into the MICS Definitions section 542.2 is worthwhile. This definition
was included in the preliminary working draft sent to Tribes for
informal review and comment prior to formulation of the proposed new
definition, and no comments were received objecting to the definition.
``Gaming Machine''
The Commission proposes to revise the existing MICS definition of
this term to more accurately define the scope of the referenced term,
as it is used in the MICS. Commission and Committee members recommended
that the existing definition for ``gaming machine'' be revised to cover
central server based linked gaming machines or player stations that are
being increasingly utilized in Indian gaming. Comments were
subsequently received supporting the proposed revision to the gaming
machine definition, which was set forth in the preliminary working
draft sent to the Committee and Tribes prior to formulation of the
proposed revised definition. Comments were also received suggesting
that the definition should differentiate Class II and Class III gaming
machines. Comments were also received suggesting that instead of
attempting to list all the various cash equivalents a machine might
accept, it would be better simply to refer to the items as cash, coin
or cash equivalents.
The Commission disagrees with the comment that the definition
should attempt to narrow or define the applicability of the definition
based on game classification. The definition is intended to be broadly
applied to all gaming machines that are not otherwise separately
defined in the MICS, such as an electronic bingo machine.
The Commission agrees with the suggestion that the term ``cash
equivalents'' should be used in the definition. We believe the term is
more representative of the various items that could be wagered, in
addition to cash and coin. The following proposed revised definition of
``gaming machine'' has been modified accordingly to reflect this
recommendation.
``Promotional Progressive Pots and/or Pools''
The Commission proposes to revise the existing MICS definition of
this term to more accurately define the applicability of the referenced
term. Committee members recommended that the definition of
``promotional progressive pots and/or pools'' be revised to also apply
to poker games. The proposed revision was included in the preliminary
working draft sent to the Committee and Tribes for informal review and
comment before the following proposed revised definition was
formulated. Comments were subsequently received supporting the proposed
revision since most progressive promotional pots are utilized in poker
games. One commenter contended that the proposed revision to
[[Page 69850]]
the progressive promotional pots and/or pools definition would create a
conflict with the definition of secondary jackpots. The Commission will
further consider this comment and examine how the two referenced terms
are used in the MICS. If necessary, we may consider in the future
whether there is any contradiction between the two terms that requires
modification of the definition of secondary jackpots.
``Series Number''
This is a new definition. The referenced term is used in the
current MICS but is not defined. Since it has been the frequent subject
of inquiry regarding its meaning, the NIGC has determined that a
definition of the term is warranted. Comments to the preliminary
working draft were received from Committee members and Tribes uniformly
supporting the addition of this proposed new definition to section
542.2 of the MICS:
Proposed Correction of Referencing and Citation Errors in Sections
542.7, 542.8, 542.12, and 542.13 of the MICS
The Commission identified and proposes to correct several
referencing and citation errors in the current MICS. The sections where
corrective revisions are proposed include the following: Sec. Sec.
542.7(g)(1)(i), 542.8(h)(1)(i), 542.12(i)(4), 542.12(k)(1)(v),
542.12(k)(1)(ix), 542.12(k)(1)(xvii), and 542.13(l)(4).
Each of the referencing and citation corrections proposed above was
set forth in the preliminary working draft provided to the Committee
and Tribes for informal review and comment before this proposed rule
was formulated. No comments were received objecting to the proposed
corrections.
Proposed Revisions to Section 542.13(h) Standards for Evaluating
Theoretical and Actual Hold Percentages
It is common practice in the gaming industry that gaming machine
manufacturers provide gaming operators with a Pay Analysis Report (PAR)
or PAR sheet for each gaming machine that they supply to the operator.
The PAR sheet provides information regarding certain design
specifications for the gaming machine, including the statistical
theoretical percentage(s) that the gaming machine is designed to win or
hold for the operator (house), based on an adequate level of wagering
activity after payment of game winnings to players. A theoretical hold
worksheet also accompanies the PAR sheet and provides additional
theoretical hold information for the gaming machine, frequently
including probability calculations of the machine's theoretical hold
percentages for different specified levels of coin-in wagering
activity. The converse to a gaming machine's theoretical hold
percentage is its theoretical payback percentage, which is the
percentage of total money wagered that the machine is designed to pay
back to players as game winnings based on adequate levels of wagering
activity. A gaming machine's theoretical payback percentage can be
calculated by deducting its specified theoretical hold percentage(s)
from one.
Periodic statistical tracking of actual gaming machine performance,
by comparing each machine's actual hold and payback percentages in
relation to its theoretical hold and/or payback percentages, has become
a necessary standard of management practice to ensure the integrity of
gaming machine operations and safeguard related machine revenues and
assets. To effectively monitor gaming machine operations for
performance irregularities, whether due to machine defect, malfunction,
embezzlement, cheating, or other improper tampering, gaming operators
are required to periodically prepare a gaming machine analysis report
that compares each machine's actual hold percentages to its specified
theoretical hold percentage(s), based on the levels of coin-in wagering
activity for each reporting period. Any material deviations between the
actual and theoretical hold percentages must be thoroughly investigated
by gaming machine department management and other management personnel
independent of the gaming operation's gaming machine department. The
ultimate objective of the gaming machine analysis report and
investigative process is to ensure that any material uncharacteristic
deviation between actual and theoretical hold is not due to machine
defect, malfunction, embezzlement, cheating, or other improper
tampering; but instead, a reasonably expected mathematical deviation
based on the randomness of the machine's game outcome selection
mechanism and the number of game plays and outcomes analyzed.
The standards set forth in section 542.13(h) of the MICS are
intended to provide a minimum benchmark for effective use of gaming
machine performance analysis by Tribal gaming enterprises to safeguard
the integrity of their gaming machine operations and related Tribal
gaming assets. In establishing these standards, the Commission strives
to keep them as practical and effective as possible for the diverse
nature and scale of the Tribal gaming machine operations to which they
apply. For that reason, the Commission proposes several revisions to
section 542.13(h).
Proposed Deletion of Subsection 542.13(h)(2)
The Commission's proposed deletion of subsection 542.13(h)(2) will
eliminate the current requirement that Tribal operators utilize a
weighted average calculation to adjust and determine the appropriate
theoretical hold percentages for periodic analysis of complex gaming
machines (excluding multi-game multi-denominational gaming machines),
which have manufacturer's PAR or theoretical hold worksheets that
specify multiple theoretical hold or payback percentages, with or
without a spread of more than 4% between their minimum and maximum
specified theoretical hold/payback percentages.
Although the manufacturer's PAR sheets and theoretical hold
worksheets for most gaming machines specify a single theoretical hold
percentage, which can be reliably used for analysis of the machine's
actual performance, there are other more complex gaming machines
(excluding multi-gaming and multi-denominational gaming machines) that
have multiple specified theoretical hold percentages. Identifying the
most reliable theoretical hold percentage to use for analysis of the
performance of these more complex gaming machines can be very difficult
and challenging, because the most appropriate theoretical hold
percentage is so dependent upon the different amounts of permitted
coin-in betting wagers (e.g. 1-coin, 2-coin, 3-coin, etc.) that players
may actually decide to make during a given reporting period. The
weighted average calculation, which is currently required by subsection
542.13(h)(2), essentially weighs the different permitted player
wagering decisions, by multiplying the total amount wagered for each
permitted coin-in wager amount times the specified theoretical hold
percentage for that wager. Then the sum of the individual theoretical
hold results for each permitted coin-in wager amount is divided by the
total amount of coin-ins, to give a weighted average theoretical hold
percentage for use in analyzing that gaming machine's overall
performance during the reporting period.
Based on past MICS compliance audits and consultation with other
gaming jurisdictions, the Commission has determined that the currently
required weighted average calculation does not necessarily produce the
most reliable adjusted theoretical hold percentage for analyzing the
[[Page 69851]]
performance of complex gaming machines (other than multi-gaming and
multi-denominational gaming machines) which have multiple specified
theoretical hold percentages. Practical experience also demonstrates
that this is also true regardless of whether the spread between the
minimum and maximum specified theoretical hold percentages for such
complex gaming machines exceeds 4%. Accordingly, the Commission
proposes to delete subsection 542.13(h)(2) in its entirety.
In particular, the Commission has determined that, excluding multi-
game and multi-denominational gaming machines, complex gaming machines
with multiple specified theoretical hold percentages possess certain
characteristics that generally result in most bettors making the
maximum allowed coin-in wager. Typically, the pay tables for such
machines provide for a disproportionately larger payout for maximum
coin-in wagers. This naturally causes most players to bet the maximum
allowable number of coins-in. Consequently, the weighted average
calculation generally produces an adjusted theoretical hold percentage
that is not significantly different than simply selecting the machine's
most conservative or smallest specified theoretical hold percentage.
Therefore, it is proposed that the required weighted average
calculations in subsection 542.13(h)(2) for complex gaming machines,
other than multi-game and multi-denomination gaming machines, be
deleted regardless of the spread between the machines' minimum and
maximum specified multiple theoretical hold percentages. Although no
longer required, circumstances may still dictate use of the weighted
average calculation for such gaming machines, instead of simply
selecting the most conservative or smallest specified theoretical hold
percentage for the machine. In those circumstances, it will remain the
responsibility of Tribal gaming management, subject to Tribal Gaming
Regulatory Authority (TGRA) oversight, to utilize appropriate weighted
average calculations to determine the proper adjusted theoretical hold
percentages for accurate and reliable analysis of gaming machine
performance.
Proposed Revisions Renumbering Subsection 542.13(h)(4) as New
Subsection 542.13(h)(2); Extending the Weighted Average Calculation
Requirement to Both Multi-Game and Multi-Denomination Gaming Machines;
and Deleting the 4% Theoretical Payback Spread Standard
The Commission also proposes to revise subsection 542.13(h)(4) by
renumbering it as the new subsection 542.13(h)(2); extending the
required use of weighted average calculations to determine the adjusted
theoretical hold percentage for both multi-game and multi-
denominational gaming machines; and deleting the 4% or greater spread
criteria regarding the minimum and maximum specified theoretical
payback percentage for such machines. While concluding that weighted
average calculations need not be required for determining the most
appropriate adjusted theoretical hold percentage for other complex
gaming machines with multiple specified theoretical hold percentages,
the Commission has determined that such calculations are essential for
reliable analysis of the performance of multi-game and multi-
denominational gaming machines, regardless of whether the spread
between their minimum and maximum specified theoretical hold
percentages is more or less than 4%. Therefore, the Commission proposes
to add multi-denominational gaming machines to the weighted average
calculation requirement in current subsection 542.13(h)(4), and also to
delete the current requirement that the spread between the minimum and
maximum specified multiple theoretical hold percentages must exceed 4%
before any weighted average calculations are required to determine the
appropriate adjusted theoretical hold percentage for either multi-game
or multi-denominational gaming machines. In contrast to other complex
gaming machines with multiple specified theoretical hold percentages,
multi-game and multi-denominational gaming machines do not possess
common characteristics that result in reasonably predictable player
decisions regarding the individual programmed games of the multi-game
gaming machine they elect to play or the amount or denomination of
their wager. Instead player wagering decisions can vary widely and
player game/denomination selections are also highly unpredictable and
often subject to the effects of intervening management decisions, such
as the activation/cancellation of game options, device location, gaming
floor mix, and paytable alternatives. Thus, to effectively identify a
reliable adjusted theoretical hold percentage for analysis of multi-
game and multi-denominational gaming machine performance requires a
weighted average calculation of player coins-in-wagering for each
wager/game/denomination paytable player option. Furthermore, it is the
Commission's considered judgment that such calculations are required
and necessary regardless of whether the spread between the minimum and
maximum specified multiple theoretical hold percentage for the multi-
game and/or multi-denominational gaming machine exceeds 4%.
Proposed Revisions Renumbering Subsection 542.13(h)(19) as New
Subsection 542.13(h)(18) and Replacing the Six Month Play Threshold
With a Threshold of at Least 100,000 Wagering Transactions for Required
Investigation of Large Variances Between Actual and Theoretical Hold
Based on past experience and interaction with Tribal gaming
regulatory authorities, the Commission has determined that the current
six (6) months play threshold in subsection 542.13(h)(19) for
determining when a gaming machine is required to be included in the
gaming machine analysis report is not practical or appropriate.
Consequently, to more accurately define when the comparison and
investigation of large variances between actual and theoretical hold is
required, the Commission proposes to revise subsection 542.13(h)(19) by
renumbering it as subsection 542.13(h)(18) and replacing the six (6)
months play threshold with a play threshold of at least 100,000
wagering transactions.
Proposed Revisions to Subsection 542.13(m)(6) and (7) Accounting/Audit
Standards for Gaming Machines
In recognition of the varying processes that exist in the gaming
industry relative to the time period between currency drops for gaming
machines, the Commission has determined that the current standard in
subsection 542.13(m)(6) requiring weekly comparison of the bill-in
meter readings to the total bill acceptor drop is impractical and too
inflexible. Accordingly, the Commission proposes to delete the
currently required weekly comparison and replace it within an every
``drop period'' requirement. The term ``drop period'' is proposed to be
defined in section 542.2 as the period of time between sequential
drops.
Furthermore, in consideration of the above proposed revision, the
Commission also proposes to revise
[[Page 69852]]
subsection 542.13(m)(7) by deleting the current $200.00 threshold for
required follow-up investigation of an unresolved variance between
actual currency drop and bill-in meter reading and replacing it with a
threshold amount that is ``both more than $25.00 and at least 3 percent
(3%) of the actual currency drop.''
Comments Regarding Proposed Deletion of 4% Theoretical Payback Spread
Standard and Elimination of the Weighted Average Calculation
Requirements for Complex Gaming Machines, (Excluding Multi-Game or
Multi-Denominational Gaming Machines), With Multiple Theoretical Hold
Percentages
Comments were received supporting the deletion of both standards,
indicating that the process will potentially become simpler. Comment
was received supporting the deletion of the standards and the
willingness of the Commission to accept alternative methods of
identifying the appropriate theoretical payback/hold percentage for the
machines in question, which will often involve simply selecting the
most conservative theoretical hold percentage within the range of
acceptable parameters established by the game manufacturer. Such a
procedure is founded upon the premise that patrons will generally opt
for max coin bet. Comment was received objecting to the proposed
striking of the weighted average calculation for complex gaming
machines with a spread between theoretical payback percentages greater
than 4%. It was noted that on-line computerized accounting systems for
gaming machines capture the required data and facilitate the
identification of an optimal theoretical payback/hold percentage for
game analysis. Consequently, the commenter contended there is no
compelling need to strike the standard. Comment was received
questioning whether the standard requires the data to be collected by
hard meter or whether soft meters are acceptable.
The Commission concurs with the commenter that the selection of the
most conservative hold percentage will generally produce a benchmark
for analysis of complex gaming machines, other than multi-game and
multi-denominational machines, that will enable the gaming machine
analysis report to be accurate and effective. However, should such a
procedure not be reflective of the method of play of the gaming
operation's patrons, the weighted average calculation would become the
desired alternative. By striking the standard, the Commission is
deferring to the Tribal Gaming Regulatory Authority (TGRA) to ensure
Tribal gaming management employs procedures appropriate to identify
reliable theoretical payback/hold percentages for analyzing the
performance of their complex gaming devices with multiple specified
theoretical hold percentages (excluding multi-gaming and multi-
denominational gaming machines). The Commission acknowledges that
industry standard gaming machines and current technology on-line
accounting systems greatly aid the process of collecting data. However,
such on-line systems are not at this time required by the MICS for all
gaming machines. Therefore, we do not agree that the striking of the
standard lacks compelling justification.
The Commission refers the commenter to the MICS definitions
regarding the question of whether hard or soft meters may be used to
collect necessary game data and determine reliable theoretical payback/
hold percentages for game performance analysis. In accordance with
section 542.2, the term ``meter'' is defined as either hard or soft.
Consequently, to satisfy the standard, either method of collection is
permissible.
Comments Regarding Proposed Extension of Weighted Average Theoretical
Hold Calculation and Other Multi-Game Gaming Machine Analysis
Requirements to Multi-Denominational Machines
Comments were received acknowledging the need to extend the scope
of the standard to include multi-denominational machines in addition to
multi-game devices. Comment was received supporting the striking of the
4% theoretical payback percentage spread criteria with regards to
multi-game and multi-denomination machines. The devices in question
generally represent only a small portion of the typical gaming floor.
Comment was received suggesting that, instead of quarterly meter reads,
the meters could be read annually. Comment was also received
questioning the need to make annual adjustments to the theoretical hold
percentage for multi-game and multi-denomination devices, since the
recalculation of the theoretical hold percentage results in only a
nominal change. In addition, comment was also received regarding the
task of calculating theoretical payback and hold percentages for multi-
game machines that are also multi-denomination. The commenter
questioned whether the necessary data could be extracted from such
devices and, even if it could be obtained, the multi-tiered
calculations would be exceedingly cumbersome. Finally, comment was
received questioning whether the potential annual adjustment to
theoretical hold required the gaming machine to be considered a new
device for purposes of the gaming machine analysis report.
The Commission does not concur with the commenter recommendation
that collecting the meter data on an annual basis is acceptable. With
regards to the collection of wagering data from multi-game and multi-
denominational gaming machines, the more data collected the greater the
confidence in the analysis of patron betting habits and, consequently,
the more reliable the identification of a reliable theoretical hold
percentage. Due to the changes in machine mix and location that
frequently occur on the gaming floor, the Commission believes the
subject data should be collected on a quarterly basis. The Commission
does not agree with the comment that the annual review and adjustment
of the previously determined theoretical hold percentage is of no
value. We agree with the premise that, if the gaming floor remained
unaltered from one year to the next, the betting habits of the patrons
are likely to remain constant. However, changes to the gaming floor are
typically frequent, as management attempts to generate the greatest
return on the square footage allocated to the gaming machine
department. Such modifications may involve additions and removals of
devices, movement of machines on the gaming floor, activation/
deactivation of various game options (such as bonusing), changing the
mix of games offered or increasing or restricting the different
denominations accepted. Each of these management decisions can impact
the theoretical hold of the multi-game and multi-denominational gaming
machines in question. We can certainly understand management electing
not to make an adjustment to the theoretical hold when the amount of
the adjustment will have no significant impact on the reliability of
the gaming machine analysis reports. However, due to the volatility of
the gaming floor and the potential effect such volatility can have on
patron betting habits, we believe the annual testing of previously
determined theoretical hold percentages to be a necessary management
practice.
The Commission appreciates the concern raised by a commenter
regarding the process of determining a reliable theoretical hold
percentage for multi-game devices that also accept multi-denomination
wagers. The Commission acknowledges that the standard is intended to
address either multi-game or multi-denomination but
[[Page 69853]]
is awkward in its application with regards to devices that possess both
characteristics. The standard would imply that a multi-tiered level of
weighted average calculations would be required. That, for each
denomination within each game, the corresponding theoretical hold would
be weighted by patron selection and then the resulting game weighted
average theoretical hold would be weighted by patron game selection.
Although the exercise would certainly produce a theoretical hold
percentage for use in the game analysis report possessing a high level
of confidence, we question whether such an in depth examination of the
various theoretical percentages, weighted by patron selection, is
necessary to identify a reasonable benchmark to measure actual game
performance. Generally speaking, we believe it would be acceptable to
calculate a simple weighted average of the various denominational
theoretical hold percentages contained within each game, and then use
that average theoretical hold percentage in the weighted average
calculation based on patron game selection. Furthermore, to make
additional reductions in the number of calculations, management might
consider grouping games with similar theoretical hold percentages, i.e.
those with a difference of less than 0.5 percentage points. In
summation, it is important not to lose sight of the ultimate objective
of the standards relevant to the statistical tracking of gaming
performance, which is to employ a process that is effective in
identifying deviations of actual performance from the manufacturer's
specifications that warrant investigation. Such deviations may simply
result from normal play, or be caused by gaming machine defect,
malfunction, cheating, embezzlement, or other improper tampering.
Relevant to this overall process is the fact that many frauds have
occurred in Tribal gaming over the past few years involving false or
fraudulent gaming machine payouts that could have been detected sooner,
if the gaming operation had had an effective process for measuring the
appropriateness of actual gaming machine performance.
In response to the question raised by a commenter whether the
annual adjustment to theoretical hold percentage requires a gaming
machine to be given a new machine (asset) number for purposes of the
gaming machine analysis report, the Commission refers the commenter to
section 542.13(h)(16). That section explicitly exempts annual
theoretical hold adjustments made in accordance with section
542.13(h)(2) from the general requirement that the adjusted machine be
treated as a new machine. Consequently, creation of a new machine
number is not required when such adjustments occur.
Comments Regarding Proposed Deletion of ``Six Month'' Play Threshold
and Addition of a ``100,000 Wagering Transactions'' Threshold for
Required Analysis of Large Gaming Machine Variances Between Theoretical
and Actual Hold
Comment was received recommending that, instead of the Commission
just striking the six (6) month play threshold from section
542.13(h)(18), consideration should be given to replacing it with a
threshold of 100,000 wagering transactions, which should be sufficient
to trigger a gaming machine's required inclusion in the gaming machine
analysis report. Comments were received strongly supporting the change
from a specified time period to a fixed number of wagering
transactions, to determine when a gaming machine should be included in
the analysis of actual hold performance to theoretical hold. Comment
was also received suggesting that the PAR sheets provide information
more relevant to when a particular device has experienced sufficient
play to be included in the gaming machine analysis process. Comment was
also received suggesting that the recommended range of acceptable
deviations from theoretical of +/-3 percentage points should be struck
from the MICS. The commenter noted that it should be left up to the
discretion of the TGRA as the primary gaming regulator to make the
determination. Additional comment was also received recommending that
it should also be left to the TGRA to determine when sufficient play
exists to require the machine to be included in the gaming analysis
report, since the performance of some devices should be examined prior
to 100,000 wagering transactions, while others may require more play
before any investigation of deviations between actual and theoretical
performance is worthwhile. Finally, comment was received suggesting
that a computerized application utilizing a volatility indexing
mathematical program should be an acceptable alternative to the process
required by the MICS. Such programs employ a mathematical formula that
estimates the minimum and maximum ranges of acceptable theoretical
payback/hold percentages for a given machine based on the following:
(1) The theoretical payback/hold over the expected life of the machine;
(2) the number of winning combinations; (3) the payback/hold for the
winning combinations; and (4) the number of games played. In essence,
the program considers the game characteristics and determines a
tolerable range of accepted performance, which narrows as performance
predictability increases. Typically predictability increases
commensurate with increasing levels of wagering activity.
The Commission concurs with the commenter's recommendation that the
standard would be better served by replacing the specified time period
with a minimum number of wagering transactions. The proposed revision
to section 542.13(h)(18) has, accordingly, been modified to reflect
that recommendation. The Commission also appreciates the suggestion
made by the commenter that determining when sufficient data exists to
perform the analysis of actual game performance should include
consideration of the data contained within the PAR sheet. It is
important to recognize that the 100,000 wagering transaction standard
establishes a minimum threshold for devices to be included in the
required gaming machine analysis report; however, it is also well
understood that the investigation of unacceptable deviations between
actual and theoretical game performance is a complex process. To
comment on how the Commission determined the proposed 100,000 wager
transaction threshold, a random number generator (RNG) with a ten (10)
million cycle will produce a range between minimum and maximum
confidence factors of approximately three (3) percentage points, which
we believe justifies an investigation of an unacceptable deviation,
which industry practice would identify to be +/- 3 percentage points
between actual hold and theoretical hold. However, the analyst should
also consider the relevant PAR sheet in determining the extent to which
follow-up analysis and investigation is warranted. For example, a
multi-game device, particularly if it also accepts multi-denomination,
may in fact need more than 100,000 wagering transactions before it is
worthwhile to review past performance, i.e. look for an abnormally
large payout within the audit period. With such a device, the analyst
may determine that insufficient play has occurred to perform an in
depth review of past performance and would merely document his/her
determination. Within reason, we would not consider such a
determination to be noncompliant with the standard.
[[Page 69854]]
The Commission does not agree with the commenter's suggestion that
the recommended acceptable deviation range of +/- 3 percentage points
be struck from the MICS. We believe the recommended range represents
industry practice and is a reasonable threshold to ensure that the
gaming machine analysis process will be effective. The Commission also
disagrees with the commenter's recommendation that it should be left to
the discretion of the TGRA to decide when a device must be included in
the gaming machine analysis report. For the regulations governing the
statistical tracking of gaming performance and the comparison of actual
performance to the manufacturer's theoretical performance
specifications to be effective, the regulation must be precise and
reasonably uniform in defining its applicability. However, we do
acknowledge that the analysis of the data possesses an element of
subjectivity, which in turn necessitates that the analyst have a
professional level of expertise. Inclusion of a gaming machine in the
required gaming analysis report does not necessarily dictate that an in
depth investigation of all variances is warranted, but does require
that the gaming performance analyst/reviewer document the results of
their determination.
Finally, the Commission appreciates the suggestion by a commenter
that a volatility indexing mathematical program may produce results as
reliable as, or even more reliable, than the weighted average
calculation required for multi-game and multi-denominational gaming
machines in the MICS. In response, it is noteworthy that at section
542.3(c), the TGRA is required to adopt regulations that provide a
level of control that equals or exceeds the MICS. Although the rule
does not condone the TGRA accepting management procedures that are in
conflict with the MICS, it does not preclude acceptance of procedures
or controls that are different and at least as stringent as those
contained within the MICS. Furthermore, at section 542.13(b),
computerized applications that provide at least the same level of
control as the MICS are deemed to be acceptable under the current MICS.
Based on the data provided by the commenter, it is the belief of the
Commission that the noted mathematical formula would be an acceptable
alternative procedure. However, it is incumbent upon management to
adequately document the process and its effectiveness in providing the
required level of control and reliability in analyzing game
performance.
Comments Regarding the Proposed Revision of Section 542.13(m)(6) To
Require Comparison of Bill-In Meter Readings With Total Bill Acceptor
Drop Amounts for Each Drop Period Instead of Weekly
Comments were received concurring with the proposed revision.
Comment was also received noting that the proposed standard is
stricter, but also acknowledging that the impact on management's gaming
machine accounting/audit function should be nominal. Finally, comment
was received supporting the proposed revision and noting that it should
make the follow-up process less cumbersome.
Comments Regarding the Proposed Revision of Section 542.13(m)(7)
Requiring Follow-Up of Unresolved Variances Between the Currency Drop
and Bill-In Meter Readings to Amounts Greater Than $25 and 3% Instead
of $200.00
Comment was received suggesting language in the initially proposed
revision to clarify the applicability of $25 or 3%. Comment was
received objecting to the revision because it would allow variances to
go uninvestigated that should be subjected to review. Basically, the
commenter contends that the rule is too liberal and results in the
control being ineffective. Comment was received recommending the
threshold be 5% and $25.
The Commission accepts the commenter recommendation regarding more
explicit language and has modified the proposed revision accordingly.
The Commission understands the commenter concern for the rule becoming
less stringent and possibly ineffective. However, the existing rule
requires that a variance of $200 per machine per week must be
investigated. Assuming the Tribal gaming operation performs a daily
drop, the average variance threshold per day would be $28.57. Because
the drop must exceed $833.33 before the 3% criteria becomes effective,
for all practical purposes, the vast majority of variances will be
subject to the $25 threshold. Consequently, we do not believe the
revision will have a material impact on the effectiveness of the
control. However, by changing the time frame from a week to a drop
period, we believe the standard becomes more consistent with the
workflows of the revenue audit process. The Commission does not concur
with the recommendation that the threshold be increased to 5% or $25.
With regards to drop amounts, the proposed rule results in the $25
threshold being applicable to drops of $25 to $833.33. The commenter
recommendation would cause the $25 threshold to be applicable to drops
of $25 to $500, which would, in effect, result in a lessening of the
control. We do not believe there is a compelling basis for making the
recommended change.
Proposed Revisions to Subsection 542.16(a)(1) General Controls for
Gaming Hardware and Software
Deletion of Requirement in Vendor Software/Hardware Agreements That
Vendors Agree To Adhere to Related Tribal Internal Controls
Since initial adoption, this standard has often been a troublesome
requirement for management and Tribal gaming regulatory authorities to
implement and enforce. The NIGC is not unsympathetic to the challenges
created by the regulation when a vendor is uncooperative. Although not
wishing to discourage Tribal regulators or gaming operators from
striving to ensure that vendor products are compliant with all
applicable Tribal laws and regulations, the NIGC does not believe such
a control contained within the part 542 is appropriate as a minimum
standard and proposes to delete and revise the Information Technology
Section accordingly.
Comment was received supporting deletion of the standard, but
noting that management should continue to be held accountable by the
TGRA to ensure that agreements/contracts are not entered into that
would cause the gaming operation to be noncompliant with any Tribal,
State or Federal laws or regulations. Furthermore, the TGRA should not
hesitate to enact and enforce such regulations of their own specific to
vendor contract requirements. Comment was also received supporting
deletion of the standard because it creates an undue hardship on
management in the negotiation of vendor agreements. Additional comment
was received supporting the deletion of the standard because violations
by vendors are often difficult and troublesome to enforce, which causes
the regulation to be fairly meaningless. Other comment was received
objecting to deletion of the standard because it provides an added
level of protection for Tribes from unscrupulous vendors in their
gaming enterprises. Additional comment was received from a TGRA noting
that, notwithstanding deletion of the standard from the MICS, the Tribe
intends to keep the control in their
[[Page 69855]]
regulations, which is a Tribe's right as primary regulator under IGRA.
The Commission does not concur with the comments objecting to
deletion of the standard. Although it could be argued that the
Commission should exercise greater regulatory authority over gaming
vendors to protect the integrity of Tribal gaming, we do not believe
the standard in question represents an appropriate and effective
vehicle for accomplishing that objective.
Proposed Revisions to Section 542.18 Regarding the Process for
Commission Review and Determination of Tribal Requests for a Variance
From the MICS in Their Tribal Internal Control Standards
To more clearly describe the current variance process, the NIGC
proposes to revise section 542.18 of the MICS. Specifically, the
revisions are intended to more clearly describe the authority and
duties of the Chairman, his/her designee, and the full Commission, and
the appeal rights of the Tribal petitioner. The proposed revisions are
also proposed to ensure that an adequate factual investigation and
record is developed for administrative and judicial review of the
merits of the Chairman's decision on each variance request.
Comment was received supporting the proposed revisions. Comment was
also received supporting the revisions, except for that part that
prohibits the implementation of a TGRA approved variance until after
concurrence has been received from the Commission. Comment was received
questioning whether the petitioner Tribe has the authority to extend
stipulated time frames in the variance process. Additional comment was
received questioning whether the thirty (30) day period associated with
a review by NIGC staff of a resubmission was sufficient. Further
comment was received questioning the potential result of a petitioner
objecting to an extension of a stipulated time period requested by NIGC
staff. Specifically, the concern is that refusal of such a request
might result in summary denial of the variance request. Comment was
also received questioning the need for extensions of the time frames
provided. A commenter represented that the stipulated time periods
should be sufficient. Finally, comment was received suggesting that the
Commission should consider variance requests only after they have been
approved by the TGRA.
The Commission understands the commenter's objection to deferring
implementation of a TGRA approved variance until receipt of Commission
concurrence; however, to preserve the integrity of the MICS, the
regulatory body responsible for its enactment must have the latitude to
prohibit the implementation of procedures deemed to be unacceptable and
contrary to the NIGC's MICS regulations. The Commission also recognizes
that the variance concurrence process is one initiated by the
petitioner. Therefore, the Commission would not be unreasonable in
considering requests for additional time from the petitioner. It is
noteworthy to such a position that the implementation of the proposed
alternative procedure is precluded until after the Commission has
concurred. The Commission acknowledges the concern expressed by a
commenter regarding the time afforded NIGC staff to review a
resubmission. Therefore, language has been added to enable staff to
extend the period, subject to concurrence by the petitioner. The
Commission understands the concern expressed by a commenter regarding a
possible decision not to concur, if acceptance of an extension to a
stipulated time period was not agreed. Certainly, the petitioner should
be well aware that the investigation of pertinent facts and data
associated with a variance request may take hours or many months,
depending upon its complexity. Although requests for additional time
should be reasonable and based on cause, the petitioner should also be
well aware that the undue refusal to grant additional time may result
in a determination different than that which would have otherwise been
rendered, if the petitioners had agreed to the Chairman's request for
more adequate time to investigate and decide their variance request.
Notwithstanding the question pertaining to extension of time frames,
the petitioner's right to appeal would continue to exist.
The Commission disagrees with the commenter's contention that time
period extensions are not warranted. Although some variance requests
can be readily addressed, particularly if the staff charged with
performing the research has past experience with similar requests, most
will involve extensive analysis. Seldom is a petition simply responded
to. Instead, a filing will generally initiate a back and forth exchange
with the petitioner as staff seeks additional information or
clarifications regarding the requested variance. Alternative procedures
involving new technology often involve travel by staff to consult with
manufactures and other regulators or operators. Inherent to the
analysis of a variance request is the identification of risk and
evaluation of compensating controls. The time periods contained within
the regulation will generally be appropriate for the more simple
concurrence requests; however, complex requests will typically require
one or more extensions of the allotted time frame. The Commission
concurs with the commenter's suggestion regarding consideration of
variance requests only after they have been approved by the TGRA. In
accordance with the proposed rule, a variance request received by the
Commission lacking evidence of the TGRA approval would not be
considered. Since such a submission would lack authority.
Proposed Revisions To Add the Following New Sections to the MICS
Establishing Minimum Standards for Computerized Key Security Systems
Section 542.21(t)-(w) What are the minimum internal controls for
drop and count for Tier A gaming operations?
Section 542.31(t)-(w) What are the minimum internal controls for
drop and count for Tier B gaming operations?
Section 542.41(t)-(w) What are the minimum internal controls for
drop and count for Tier C gaming operations?
These are proposed new MICS sections. In recognition of an
increasing number of gaming operations utilizing or considering the
utilization of computerized key control systems, the NIGC has
determined that regulations addressing such systems are warranted for
Tier A, B, and C Tribal gaming operations.
Comment was received supporting the proposed revisions noting that
electronic key control systems are becoming more prevalent. Comment was
also received supporting the determination by the Commission to adopt
standards specifically covering the use of computerized key control
systems in Tier A, B, and C gaming operations and not rely solely on
the general MICS regulation covering computerized applications. Comment
was also received supporting the new regulation and noting that the
controls also provide for an audit function. Comment was received
supporting the new regulation, but noting that the TGRA should also
consider more stringent standards. Comment was received recommending
that the auditing procedures, particularly the quarterly inventory of
keys, be performed by accounting/auditing personnel independent of the
key control process. Additional comment was received questioning the
need for the regulations since most of the controls are already in the
MICS. Comment was received recommending
[[Page 69856]]
that the regulation more clearly differentiate the function of key
custodian from system administrator. Comment was also received
questioning the need for three persons to be involved in accessing the
manual override key to open the box to perform repairs. It was noted
that the persons accessing the box would not have access to the slot
drop and count keys. For the purpose of making repairs, only two
persons should be required to gain access to the manual override key.
The Commission disagrees with the commenter questioning the need
for the new regulations. Computerized key control systems have been the
subject of several Tribal variance requests over the past few years.
Therefore, the Commission believes it appropriate to establish minimum
standards specific to such systems. The Commission concurs with the
commenter recommendation that the auditing procedures be performed by
accounting/auditing personnel independent of the key control process.
The proposed regulation for all three tiers has been changed
accordingly. The Commission also concurs with the commenter's
recommendation that the key custodian functions be more clearly defined
and noted as being separate from those of the system administrator.
Accordingly, the proposed revisions been modified in all three new
sections to more clearly define separation of the two functions. The
Commission also concurs with the commenter's suggestion that only two
people be required to access the manual override key to make repairs to
the key control box. Such access would not include access to the coin
drop and count keys. The proposed revisions have been modified to
reflect the suggestion of the commenter in all three proposed new MICS
sections.
Regulatory Matters
Regulatory Flexibility Act
The Commission certifies that the proposed 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 proposed revisions will not apply to gaming
operations with gross revenues under $1 million, only 39 small
operations may be affected. While this is a substantial number, the
Commission believes that the proposed revisions will not have a
significant economic impact on these operations for several reasons.
Even before implementation of the original MICS, Tribes had internal
controls because they are essential to gaming operations in order to
protect assets. The costs involved in implementing these controls are
part of the regular business costs incurred by such an operation. The
Commission believes that many Indian gaming operation internal control
standards that are more stringent than those contained in these
regulations. Further, these proposed rule revisions are technical and
minor in nature.
Under the proposed revisions, small gaming operations grossing
under $1 million are exempted from MICS compliance. Tier A facilities
(those with gross revenues between $1 and $5 million) are subject to
the yearly requirement that independent certified public accountant
testing occur. The purpose of this testing is to measure the gaming
operation's compliance with the tribe's internal control standards. The
cost of compliance with this requirement for small gaming operation is
estimated at between $3,000 and $5,000. The cost of this report is
minimal and does not create a significant economic effect on gaming
operations. What little impact exists is further offset because other
regulations require yearly independent financial audits that can be
conducted at the same time. For these reasons, the Commission has
concluded that the proposed rule revisions will not have a significant
economic impact on those small entities subject to the rule.
Small Business Regulatory Enforcement Fairness Act
These following proposed revisions do not constitute a major rule
under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement
Fairness Act. The revisions will not have an annual effect on the
economy of $100 million or more. The revisions also will not cause a
major increase in costs or prices for consumers, individual industries,
federal, state or local government agencies or geographic regions and
does not have a significant adverse effect on competition, employment,
investment, productivity, innovation, or the ability of U.S. based
enterprises to compete with foreign-based enterprises.
Unfunded Mandates Reform Act
The Commission is an independent regulatory agency and, as such, is
not subject to the Unfunded Mandates Reform Act. Even so, the
Commission has determined that the proposed rule revisions do not
impose an unfunded mandate on State, local, or Tribal governments, or
on the private sector, of more than $100 million per year. Thus, this
is not a ``significant regulatory action'' under the Unfunded Mandates
Reform Act, 2 U.S.C. 1501 et seq.
The Commission has, however, determined that the proposed 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 will meet with the Advisory Committee to
discuss the public comments that are received as a result of the
publication of the following proposed MICS rule revisions, and will
consider 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 proposed rule and
considered these comments in formulating the proposed rule.
[[Page 69857]]
Takings
In accordance with Executive Order 12630, the Commission has
determined that the following proposed 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 proposed 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 proposed 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 proposed revisions. The Commission's OMB
Control Number for this regulation is 3141-0009.
National Environmental Policy Act
The Commission has determined that the following proposed 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.
Accordingly, for all of the reasons set forth in the foregoing
preamble, the National Indian Gaming Commission proposes to amend 25
CFR part 542 as follows:
PART 542--MINIMUM INTERNAL CONTROL STANDARDS
1. The authority citation for part 542 continues to read as
follows:
Authority: 25 U.S.C. 2701 et seq.
2. Section 542.2 is amended by adding in alphabetical order the
definitions for ``Drop Period'' and ``Series number'', and by revising
the definitions for ``Gaming Machine'' and ``Promotional progressive
pots and/or pools'' to read as follows:
Sec. 542.2 What are the definitions for this part?
* * * * *
Drop period means the period of time that occurs between sequential
drops.
* * * * *
Gaming machine means an electronic or electromechanical machine
that allows a player to play games of chance, some of which may be
affected by skill, which contains a microprocessor with random number
generator capability for outcome selection or computer terminal that
accesses an outcome that is subsequently and randomly selected in
drawings that are electronically conducted by central computer or other
such methods of chance selection, whether mechanical or electronic. The
machine is activated by the insertion of cash or cash equivalents and
which awards cash, cash equivalents, merchandise, or a written
statement of the player's accumulated credits, which written statements
may be redeemable for cash.
* * * * *
Promotional progressive pots and/or pools means funds contributed
to a table game or card game by and for the benefit of players. Funds
are distributed to players based on a predetermined event.
* * * * *
Series number means the unique identifying number printed on each
sheet of bingo paper that identifies the bingo paper as a series or
packet. The series number is not the free space or center space number
located on the bingo paper.
* * * * *
3. Amend Sec. 542.7 by revising paragraph (g)(1)(i) to read as
follows:
Sec. 542.7 What are the minimum internal control standards for bingo?
* * * * *
(g) * * *
(1) * * *
(i) If the electronic equipment contains a bill acceptor, then
Sec. 542.21(e) and (f), Sec. 542.31(e) and (f), or Sec. 542.41(e)
and (f) (as applicable) shall apply.
* * * * *
4. Revise Sec. 542.8 by revising paragraph (h)(1)(i) to read as
follows:
Sec. 542.8 What are the minimum internal control standards for pull
tabs?
* * * * *
(h) * * *
(1) * * *
(i) If the electronic equipment contains a bill acceptor, then
Sec. 542.21(e) and (f), Sec. 542.31(e) and (f), or Sec. 542.41(e)
and (f) (as applicable) shall apply.
* * * * *
5. Amend Sec. 542.12 by revising paragraphs (i)(4) and (k)(l)(v),
(ix), and (xvii) to read as follows:
Sec. 542.12 What are the minimum internal control standards for table
games?
* * * * *
(i) * * *
(4) The management in paragraph (i)(3) of this section shall
investigate any unusual fluctuations in hold percentage with pit
supervisory personnel.
* * * * *
(k) * * *
(1) * * *
* * * * *
(v) The marker form shall be prepared in at least triplicate form
(triplicate form being defined as three parts performing the functions
delineated in the standard in paragraph (k)(1)(vi) of this section),
with a preprinted or concurrently-printed marker number, and utilized
in numerical sequence. (This requirement shall not preclude the
distribution of batches of markers to various pits.)
* * * * *
(ix) The forms required in paragraphs (k)(1)(v), (vi), and (viii)
of this section shall be safeguarded, and adequate procedures shall be
employed to control the distribution, use, and access to these forms.
* * * * *
(xvii) When partial payments are made in the pit, the payment slip
of the marker that was originally issued shall be properly cross-
referenced to the new marker number, completed with all information
required by paragraph (k)(1)(xv) of this section, and inserted into the
drop box.
* * * * *
5. Amend Sec. 542.13 by revising paragraph (h), (1)(4), and (m)(6)
and (7) to read as follows:
Sec. 542.13 What are the minimum internal control standards for
gaming machines?
* * * * *
(h) Standards for evaluating theoretical and actual hold
percentages.
(1) Accurate and current theoretical hold worksheets shall be
maintained for each gaming machine.
(2) For multi-game/multi-denominational machines, an employee or
department independent of the gaming machine department shall:
(i) Weekly, record the total coin-in meter;
(ii) Quarterly, record the coin-in meters for each paytable
contained in the machine; and
(iii) On an annual basis, adjust the theoretical hold percentage in
the gaming machine statistical report to a weighted average based upon
the ratio of coin-in for each game paytable.
(3) For those gaming operations that are unable to perform the
weighted average calculation as required by
[[Page 69858]]
paragraph (h)(2) of this section, the following procedures shall apply:
(i) On at least an annual basis, calculate the actual hold
percentage for each gaming machine;
(ii) On at least an annual basis, adjust the theoretical hold
percentage in the gaming machine statistical report for each gaming
machine to the previously calculated actual hold percentage; and
(iii) The adjusted theoretical hold percentage shall be within the
spread between the minimum and maximum theoretical payback percentages.
(4) The adjusted theoretical hold percentage for multi-game/multi-
denominational machines may be combined for machines with exactly the
same game mix throughout the year.
(5) The theoretical hold percentages used in the gaming machine
analysis reports should be within the performance standards set by the
manufacturer.
(6) Records shall be maintained for each machine indicating the
dates and type of changes made and the recalculation of theoretical
hold as a result of the changes.
(7) Records shall be maintained for each machine that indicate the
date the machine was placed into service, the date the machine was
removed from operation, the date the machine was placed back into
operation, and any changes in machine numbers and designations.
(8) All of the gaming machines shall contain functioning meters
that shall record coin-in or credit-in, or on-line gaming machine
monitoring system that captures similar data.
(9) All gaming machines with bill acceptors shall contain
functioning bill-in meters that record the dollar amounts or number of
bills accepted by denomination.
(10) Gaming machine in-meter readings shall be recorded at least
weekly (monthly for Tier A and Tier B gaming operations) immediately
prior to or subsequent to a gaming machine drop. On-line gaming machine
monitoring systems can satisfy this requirement. However, the time
between readings may extend beyond one week in order for a reading to
coincide with the end of an accounting period only if such extension is
for no longer than six (6) days.
(11) The employee who records the in-meter reading shall either be
independent of the hard count team or shall be assigned on a rotating
basis, unless the in-meter readings are randomly verified quarterly for
all gaming machines and bill acceptors by a person other than the
regular in-meter reader.
(12) Upon receipt of the meter reading summary, the accounting
department shall review all meter readings for reasonableness using
pre-established parameters.
(13) Prior to final preparation of statistical reports, meter
readings that do not appear reasonable shall be reviewed with gaming
machine department employees or other appropriate designees, and
exceptions documented, so that meters can be repaired or clerical
errors in the recording of meter readings can be corrected.
(14) A report shall be produced at least monthly showing month-to-
date, year-to-date (previous twelve (12) months data preferred), and if
practicable, life-to-date actual hold percentage computations for
individual machines and a comparison to each machine's theoretical hold
percentage previously discussed.
(15) Each change to a gaming machine's theoretical hold percentage,
including progressive percentage contributions, shall result in that
machine being treated as a new machine in the statistical reports
(i.e., not commingling various hold percentages), except for
adjustments made in accordance with paragraph (h)(2) of this section.
(16) If promotional payouts or awards are included on the gaming
machine statistical reports, it shall be in a manner that prevents
distorting the actual hold percentages of the affected machines.
(17) The statistical reports shall be reviewed by both gaming
machine department management and management employees independent of
the gaming machine department on at least a monthly basis.
(18) For those machines that have experienced at least 100,000
wagering transactions, large variances (three percent (3%) recommended)
between theoretical hold and actual hold shall be investigated and
resolved by a department independent of the gaming machine department
with the findings documented and provided to the Tribal gaming
regulatory authority upon request in a timely manner.
(19) Maintenance of the on-line gaming machine monitoring system
data files shall be performed by a department independent of the gaming
machine department. Alternatively, maintenance may be performed by
gaming machine supervisory employees if sufficient documentation is
generated and it is randomly verified on a monthly basis by employees
independent of the gaming machine department.
(20) Updates to the on-line gaming machine monitoring system to
reflect additions, deletions, or movements of gaming machines shall be
made at least weekly prior to in-meter readings and the weigh process.
* * * * *
(l) * * *
(4) Reports, where applicable, adequately documenting the
procedures required in paragraph (l)(3) of this section shall be
generated and retained.
(m) * * *
(6) For each drop period, accounting/auditing employees shall
compare the bill-in meter reading to the total bill acceptor drop
amount for the period. Discrepancies shall be resolved before the
generation/distribution of gaming machine statistical reports.
(7) Follow-up shall be performed for any one machine having an
unresolved variance between actual currency drop and bill-in meter
reading in excess of an amount that is both more than $25 and at least
three percent (3%) of the actual currency drop. The follow-up performed
and results of the investigation shall be documented, maintained for
inspection, and provided to the Tribal gaming regulatory authority upon
request.
* * * * *
6. Amend Sec. 542.16 by revising paragraph (a)(1) introductory to
read as follows:
Sec. 542.16 What are the minimum internal control standards for
information technology?
(a) * * *
(1) Management shall take an active role in making sure that
physical and logical security measures are implemented, maintained, and
adhered to by personnel to prevent unauthorized access that could cause
errors or compromise data or processing integrity.
* * * * *
7. Revise Sec. 542.18 to read as follows:
Sec. 542.18 How does a gaming operation apply for a variance from the
standards of the part?
(a) Tribal gaming regulatory authority approval. (1) A Tribal
gaming regulatory authority may approve a variance for a gaming
operation if it has determined that the variance will achieve a level
of control sufficient to accomplish the purpose of the standard it is
to replace.
(2) For each enumerated standard for which the Tribal gaming
regulatory authority approves a variance, it shall submit to the
Chairman of the NIGC, within thirty (30) days, a detailed report, which
shall include the following:
[[Page 69859]]
(i) A detailed description of the variance;
(ii) An explanation of how the variance achieves a level of control
sufficient to accomplish the purpose of the standard it is to replace;
and
(iii) Evidence that the Tribal gaming regulatory authority has
approved the variance.
(3) In the event that the Tribal gaming regulatory authority or the
Tribe chooses to submit a variance request directly to the Chairman, it
may do so without the approval requirement set forth in paragraph
(a)(2)(iii) of this section and such request shall be deemed as having
been approved by the Tribal gaming regulatory authority.
(b) Review by the Chairman. (1) Following receipt of the variance
approval, the Chairman or his or her designee shall have sixty (60)
days to concur with or object to the approval of the variance.
(2) Any objection raised by the Chairman shall be in the form of a
written explanation based upon the following criteria:
(i) There is no valid explanation of why the gaming operation
should have received a variance approval from the Tribal gaming
regulatory authority on the enumerated standard; or
(ii) The variance as approved by the Tribal gaming regulatory
authority does not provide a level of control sufficient to accomplish
the purpose of the standard it is to replace.
(3) If the Chairman fails to object in writing within sixty (60)
days after the date of receipt of a complete submission, the variance
shall be considered concurred with by the Chairman.
(4) The 60-day deadline may be extended, provided such extension is
mutually agreed upon by the Tribal gaming regulatory authority and the
Chairman.
(c) Curing Chairman's objections. (1) Following an objection by the
Chairman to the issuance of a variance, the Tribal gaming regulatory
authority shall have the opportunity to cure any objections noted by
the Chairman.
(2) A Tribal gaming regulatory authority may cure the objections
raised by the Chairman by:
(i) Rescinding its initial approval of the variance; or
(ii) Rescinding its initial approval, revising the variance,
approving it, and re-submitting it to the Chairman.
(3) Upon any re-submission of a variance approval, the Chairman
shall have thirty (30) days to concur with or object to the re-
submitted variance.
(4) If the Chairman fails to object in writing within thirty (30)
days after the date of receipt of the re-submitted variance, the re-
submitted variance shall be considered concurred with by the Chairman.
(5) The thirty (30) day deadline may be extended, provided such
extension is mutually agreed upon by the Tribal gaming regulatory
authority and the Chairman.
(d) Appeals. (1) Upon receipt of objections to a re-submission of a
variance, the Tribal gaming regulatory authority shall be entitled to
an appeal to the full Commission in accordance with the following
process:
(i) Within thirty (30) days of receiving an objection to a re-
submission, the Tribal gaming regulatory authority shall file its
notice of appeal.
(ii) Failure to file an appeal within the time provided by this
section shall result in a waiver of the opportunity for an appeal.
(iii) An appeal under this section shall specify the reasons why
the Tribal gaming regulatory authority believes the Chairman's
objections should be reviewed, and shall include supporting
documentation, if any.
(iv) The Tribal gaming regulatory authority shall be provided with
any comments offered by the Chairman to the Commission on the substance
of the appeal by the Tribal gaming regulatory authority and shall be
offered the opportunity to respond to any such comments.
(v) Within thirty (30) days after receipt of the appeal, the
Commission shall render a decision based upon the criteria contained
within paragraph (b)(2) of this section unless the Tribal gaming
regulatory authority elects to wave the thirty (30) day requirement and
to provide the Commission additional time, not to exceed an additional
thirty (30) days, to render a decision.
(vi) In the absence of a decision within the time provided, the
Tribal gaming regulatory authority's re-submission shall be considered
concurred with by the Commission and become effective.
(2) The Tribal gaming regulatory authority may appeal the
Chairman's objection to the approval of a variance to the full
Commission without resubmitting the variance by filling a notice of
appeal with the full Commission within thirty (30) days of the
Chairman's objection and complying with the procedures described in
paragraph (d)(1) of this section.
(e) Effective date of variance. The gaming operation shall comply
with standards that achieve a level of control sufficient to accomplish
the purpose of the standard it is to replace until such time as the
Commission objects to the Tribal gaming regulatory authority's approval
of a variance as provided in paragraph (b) of this section. Concurrence
in a variance by the Chairman or Commission is discretionary and
variances will not be granted routinely. The gaming operation shall
comply with standards at least as stringent as those set forth in this
part until such time as the Chairman or Commission concurs with the
Tribal gaming regulatory authority's approval of a variance.
8. Amend Sec. 542.21 by adding paragraphs (t), (u), (v), and (w)
to read as follows:
Sec. 542.21 What are the minimum internal controls for drop and count
for Tier A gaming operations?
* * * * *
(t) Gaming machine computerized key security systems. (1)
Computerized key security systems which restrict access to the gaming
machine drop and count keys through the use of passwords, keys or other
means, other than a key custodian, must provide the same degree of
control as indicated in the aforementioned key control standards; refer
to paragraphs (l), (o), (q) and (s) of this section. Note: This
standard does not apply to the system administrator. The system
administrator is defined in paragraph (t)(2)(i) of this section.
(2) For computerized key security systems, the following additional
gaming machine key control procedures apply:
(i) Management personnel independent of the gaming machine
department assign and control user access to keys in the computerized
key security system (i.e., system administrator) to ensure that gaming
machine drop and count keys are restricted to authorized employees.
(ii) In the event of an emergency or the key box is inoperable,
access to the emergency manual key(s) (a.k.a. override key), used to
access the box containing the gaming machine drop and count keys,
requires the physical involvement of at least three persons from
separate departments, including management. The date, time, and reason
for access, must be documented with the signatures of all participating
employees signing out/in the emergency manual key(s).
(iii) The custody of the keys issued pursuant to paragraph
(t)(2)(ii) of this section requires the presence of two persons from
separate departments from the time of their issuance until the time of
their return.
(iv) Routine physical maintenance that requires accessing the
emergency
[[Page 69860]]
manual key(s) (override key) and does not involve the accessing of the
gaming machine drop and count keys, only requires the presence of two
persons from separate departments. The date, time and reason for access
must be documented with the signatures of all participating employees
signing out/in the emergency manual key(s).
(3) For computerized key security systems controlling access to
gaming machine drop and count keys, accounting/audit personnel,
independent of the system administrator, will perform the following
procedures:
(i) Daily, review the report generated by the computerized key
security system indicating the transactions performed by the
individual(s) that adds, deletes, and changes user's access within the
system (i.e., system administrator). Determine whether the transactions
completed by the system administrator provide an adequate control over
the access to the gaming machine drop and count keys. Also, determine
whether any gaming machine drop and count key(s) removed or returned to
the key cabinet by the system administrator was properly authorized.
(ii) For at least one day each month, review the report generated
by the computerized key security system indicating all transactions
performed to determine whether any unusual gaming machine drop and
count key removals or key returns occurred.
(iii) At least quarterly, review a sample of users that are
assigned access to the gaming machine drop and count keys to determine
that their access to the assigned keys is adequate relative to their
job position.
(iv) All noted improper transactions or unusual occurrences are
investigated with the results documented.
(4) Quarterly, an inventory of all count room, drop box release,
storage rack and contents keys is performed, and reconciled to records
of keys made, issued, and destroyed. Investigations are performed for
all keys unaccounted for, with the investigation being documented.
(u) Table games computerized key security systems. (1) Computerized
key security systems which restrict access to the table game drop and
count keys through the use of passwords, keys or other means, other
than a key custodian, must provide the same degree of control as
indicated in the aforementioned key control standards; refer to
paragraphs (m), (n), (p) and (r) of this section. Note: This standard
does not apply to the system administrator. The system administrator is
defined in paragraph (u)(2)(ii) of this section.
(2) For computerized key security systems, the following additional
table game key control procedures apply:
(i) Management personnel independent of the table game department
assign and control user access to keys in the computerized key security
system (i.e., system administrator) to ensure that table game drop and
count keys are restricted to authorized employees.
(ii) In the event of an emergency or the key box is inoperable,
access to the emergency manual key(s) (a.k.a. override key), used to
access the box containing the table game drop and count keys, requires
the physical involvement of at least three persons from separate
departments, including management. The date, time, and reason for
access, must be documented with the signatures of all participating
employees signing out/in the emergency manual key(s).
(iii) The custody of the keys issued pursuant to paragraph
(u)(2)(ii) of this section requires the presence of two persons from
separate departments from the time of their issuance until the time of
their return.
(iv) Routine physical maintenance that requires accessing the
emergency manual key(s) (override key) and does not involve the
accessing of the table games drop and count keys, only requires the
presence of two persons from separate departments. The date, time and
reason for access must be documented with the signatures of all
participating employees signing out/in the emergency manual key(s).
(3) For computerized key security systems controlling access to
table games drop and count keys, accounting/audit personnel,
independent of the system administrator, will perform the following
procedures:
(i) Daily, review the report generated by the computerized key
security system indicating the transactions performed by the
individual(s) that adds, deletes, and changes user's access within the
system (i.e., system administrator). Determine whether the transactions
completed by the system administrator provide an adequate control over
the access to the table games drop and count keys. Also, determine
whether any table games drop and count key(s) removed or returned to
the key cabinet by the system administrator was properly authorized.
(ii) For at least one day each month, review the report generated
by the computerized key security system indicating all transactions
performed to determine whether any unusual table games drop and count
key removals or key returns occurred.
(iii) At least quarterly, review a sample of users that are
assigned access to the table games drop and count keys to determine
that their access to the assigned keys is adequate relative to their
job position.
(iv) All noted improper transactions or unusual occurrences are
investigated with the results documented.
(4) Quarterly, an inventory of all count room, table game drop box
release, storage rack and contents keys is performed, and reconciled to
records of keys made, issued, and destroyed. Investigations are
performed for all keys unaccounted for, with the investigations being
documented.
(v) Emergency drop procedures. Emergency drop procedures shall be
developed by the Tribal gaming regulatory authority, or the gaming
operation as approved by the Tribal gaming regulatory authority.
(w) Equipment standards for gaming machine count. (1) A weigh scale
calibration module shall be secured so as to prevent unauthorized
access (e.g., prenumbered seal, lock and key, etc.).
(2) A person independent of the cage, vault, gaming machine, and
count team functions shall be required to be present whenever the
calibration module is accessed. Such access shall be documented and
maintained.
(3) If a weigh scale interface is used, it shall be adequately
restricted so as to prevent unauthorized access (passwords, keys,
etc.).
(4) If the weigh scale has a zero adjustment mechanism, it shall be
physically limited to minor adjustments (e.g., weight of a bucket) or
physically situated such that any unnecessary adjustments to it during
the weigh process would be observed by other count team members.
(5) The weigh scale and weigh scale interface (if applicable) shall
be tested by a person or persons independent of the cage, vault, and
gaming machine departments and count team at least quarterly. At least
annually, this test shall be performed by internal audit in accordance
with the internal audit standards. The result of these tests shall be
documented and signed by the person or persons performing the test.
(6) Prior to the gaming machine count, at least two employees shall
verify the accuracy of the weigh scale with varying weights or with
varying amounts of previously counted coin for each denomination to
ensure the scale is properly calibrated (varying weights/coin from drop
to drop is acceptable).
[[Page 69861]]
(7) If a mechanical coin counter is used (instead of a weigh
scale), the Tribal gaming regulatory authority, or the gaming operation
as approved by the Tribal gaming regulatory authority, shall establish
and the gaming operation shall comply, with procedures that are
equivalent to those described in paragraphs (u)(4), (u)(5), and (u)(6)
of this section.
(8) If a coin meter count machine is used, the count team member
shall record the machine number denomination and number of coins in ink
on a source document, unless the meter machine automatically records
such information.
(i) A count team member shall test the coin meter count machine
prior to the actual count to ascertain if the metering device is
functioning properly with a predetermined number of coins for each
denomination.
(ii) [Reserved]
9. Amend Sec. 542.31 by adding paragraphs (t), (u), (v), and (w)
to read as follows:
Sec. 542.31 What are the minimum internal controls for drop and count
Tier B gaming operations?
* * * * *
(t) Gaming machine computerized key security systems. (1)
Computerized key security systems which restrict access to the gaming
machine drop and count keys through the use of passwords, keys or other
means, other than a key custodian, must provide the same degree of
control as indicated in the aforementioned key control standards; refer
to paragraphs (l), (o), (q) and (s) of this section. Note: This
standard does not apply to the system administrator. The system
administrator is defined in paragraph (t)(2)(i) of this section.
(2) For computerized key security systems, the following additional
gaming machine key control procedures apply:
(i) Management personnel independent of the gaming machine
department assign and control user access to keys in the computerized
key security system (i.e., system administrator) to ensure that gaming
machine drop and count keys are restricted to authorized employees.
(ii) In the event of an emergency or the key box is inoperable,
access to the emergency manual key(s) (a.k.a. override key), used to
access the box containing the gaming machine drop and count keys,
requires the physical involvement of at least three persons from
separate departments, including management. The date, time, and reason
for access, must be documented with the signatures of all participating
employees signing out/in the emergency manual key(s).
(iii) The custody of the keys issued pursuant to paragraph
(t)(2)(ii) of this section, requires the presence of two persons from
separate departments from the time of their issuance until the time of
their return.
(iv) Routine physical maintenance that requires accessing the
emergency manual key(s) (override key) and does not involve the
accessing of the gaming machine drop and count keys, only requires the
presence of two persons from separate departments. The date, time and
reason for access must be documented with the signatures of all
participating employees signing out/in the emergency manual key(s).
(3) For computerized key security systems controlling access to
gaming machine drop and count keys, accounting/audit personnel,
independent of the system administrator, will perform the following
procedures:
(i) Daily, review the report generated by the computerized key
security system indicating the transactions performed by the
individual(s) that adds, deletes, and changes user's access within the
system (i.e., system administrator). Determine whether the transactions
completed by the system administrator provide an adequate control over
the access to the gaming machine drop and count keys. Also, determine
whether any gaming machine drop and count key(s) removed or returned to
the key cabinet by the system administrator was properly authorized.
(ii) For at least one day each month, review the report generated
by the computerized key security system indicating all transactions
performed to determine whether any unusual gaming machine drop and
count key removals or key returns occurred.
(iii) At least quarterly, review a sample of users that are
assigned access to the gaming machine drop and count keys to determine
that their access to the assigned keys is adequate relative to their
job position.
(iv) All noted improper transactions or unusual occurrences are
investigated with the results documented.
(4) Quarterly, an inventory of all count room, drop box release,
storage rack and contents keys is performed, and reconciled to records
of keys made, issued, and destroyed. Investigations are performed for
all keys unaccounted for, with the investigation being documented.
(u) Table games computerized key security systems. (1) Computerized
key security systems which restrict access to the table game drop and
count keys through the use of passwords, keys or other means, other
than a key custodian, must provide the same degree of control as
indicated in the aforementioned key control standards; refer to
paragraphs (m), (n), (p) and (r) of this section. Note: This standard
does not apply to the system administrator. The system administrator is
defined in paragraph (u)(2)(ii) of this section.
(2) For computerized key security systems, the following additional
table game key control procedures apply:
(i) Management personnel independent of the table game department
assign and control user access to keys in the computerized key security
system (i.e., system administrator) to ensure that table game drop and
count keys are restricted to authorized employees.
(ii) In the event of an emergency or the key box is inoperable,
access to the emergency manual key(s) (a.k.a. override key), used to
access the box containing the table game drop and count keys, requires
the physical involvement of at least three persons from separate
departments, including management. The date, time, and reason for
access, must be documented with the signatures of all participating
employees signing out/in the emergency manual key(s).
(iii) The custody of the keys issued pursuant to paragraph
(u)(2)(ii) of this section, requires the presence of two persons from
separate departments from the time of their issuance until the time of
their return.
(iv) Routine physical maintenance that requires accessing the
emergency manual key(s) (override key) and does not involve the
accessing of the table games drop and count keys, only requires the
presence of two persons from separate departments. The date, time and
reason for access must be documented with the signatures of all
participating employees signing out/in the emergency manual key(s).
(3) For computerized key security systems controlling access to
table games drop and count keys, accounting/audit personnel,
independent of the system administrator, will perform the following
procedures:
(i) Daily, review the report generated by the computerized key
security system indicating the transactions performed by the
individual(s) that adds, deletes, and changes user's access within the
system (i.e., system administrator). Determine whether the transactions
completed by the system administrator provide an adequate control over
the access to the table games drop and count keys. Also,
[[Page 69862]]
determine whether any table games drop and count key(s) removed or
returned to the key cabinet by the system administrator was properly
authorized.
(ii) For at least one day each month, review the report generated
by the computerized key security system indicating all transactions
performed to determine whether any unusual table games drop and count
key removals or key returns occurred.
(iii) At least quarterly, review a sample of users that are
assigned access to the table games drop and count keys to determine
that their access to the assigned keys is adequate relative to their
job position.
(iv) All noted improper transactions or unusual occurrences are
investigated with the results documented.
(4) Quarterly, an inventory of all count room, table game drop box
release, storage rack and contents keys is performed, and reconciled to
records of keys made, issued, and destroyed. Investigations are
performed for all keys unaccounted for, with the investigations being
documented.
(v) Emergency drop procedures. Emergency drop procedures shall be
developed by the Tribal gaming regulatory authority, or the gaming
operation as approved by the Tribal gaming regulatory authority.
(w) Equipment standards for gaming machine count. (1) A weigh scale
calibration module shall be secured so as to prevent unauthorized
access (e.g., prenumbered seal, lock and key, etc.).
(2) A person independent of the cage, vault, gaming machine, and
count team functions shall be required to be present whenever the
calibration module is accessed. Such access shall be documented and
maintained.
(3) If a weigh scale interface is used, it shall be adequately
restricted so as to prevent unauthorized access (passwords, keys,
etc.).
(4) If the weigh scale has a zero adjustment mechanism, it shall be
physically limited to minor adjustments (e.g., weight of a bucket) or
physically situated such that any unnecessary adjustments to it during
the weigh process would be observed by other count team members.
(5) The weigh scale and weigh scale interface (if applicable) shall
be tested by a person or persons independent of the cage, vault, and
gaming machine departments and count team at least quarterly. At least
annually, this test shall be performed by internal audit in accordance
with the internal audit standards. The result of these tests shall be
documented and signed by the person or persons performing the test.
(6) Prior to the gaming machine count, at least two employees shall
verify the accuracy of the weigh scale with varying weights or with
varying amounts of previously counted coin for each denomination to
ensure the scale is properly calibrated (varying weights/coin from drop
to drop is acceptable).
(7) If a mechanical coin counter is used (instead of a weigh
scale), the Tribal gaming regulatory authority, or the gaming operation
as approved by the Tribal gaming regulatory authority, shall establish
and the gaming operation shall comply, with procedures that are
equivalent to those described in paragraphs (u)(4), (u)(5), and (u)(6)
of this section.
(8) If a coin meter count machine is used, the count team member
shall record the machine number denomination and number of coins in ink
on a source document, unless the meter machine automatically records
such information.
(i) A count team member shall test the coin meter count machine
prior to the actual count to ascertain if the metering device is
functioning properly with a predetermined number of coins for each
denomination.
(ii) [Reserved]
10. Amend Sec. 542.41 by adding paragraphs (t), (u), (v), and (w)
to read as follows:
Sec. 542.41 What are the minimum internal controls for drop and count
for Tier C gaming operations?
* * * * *
(t) Gaming machine computerized key security systems. (1)
Computerized key security systems which restrict access to the gaming
machine drop and count keys through the use of passwords, keys or other
means, other than a key custodian, must provide the same degree of
control as indicated in the aforementioned key control standards; refer
to paragraphs (l), (o), (q) and (s) of this section. Note: This
standard does not apply to the system administrator. The system
administrator is defined in paragraph (t)(2)(i) of this section.
(2) For computerized key security systems, the following additional
gaming machine key control procedures apply:
(i) Management personnel independent of the gaming machine
department assign and control user access to keys in the computerized
key security system (i.e., system administrator) to ensure that gaming
machine drop and count keys are restricted to authorized employees.
(ii) In the event of an emergency or the key box is inoperable,
access to the emergency manual key(s) (a.k.a. override key), used to
access the box containing the gaming machine drop and count keys,
requires the physical involvement of at least three persons from
separate departments, including management. The date, time, and reason
for access, must be documented with the signatures of all participating
employees signing out/in the emergency manual key(s).
(iii) The custody of the keys issued pursuant to paragraph
(t)(2)(ii) of this section requires the presence of two persons from
separate departments from the time of their issuance until the time of
their return.
(iv) Routine physical maintenance that requires accessing the
emergency manual key(s) (override key) and does not involve the
accessing of the gaming machine drop and count keys, only requires the
presence of two persons from separate departments. The date, time and
reason for access must be documented with the signatures of all
participating employees signing out/in the emergency manual key(s).
(3) For computerized key security systems controlling access to
gaming machine drop and count keys, accounting/audit personnel,
independent of the system administrator, will perform the following
procedures:
(i) Daily, review the report generated by the computerized key
security system indicating the transactions performed by the
individual(s) that adds, deletes, and changes user's access within the
system (i.e., system administrator). Determine whether the transactions
completed by the system administrator provide an adequate control over
the access to the gaming machine drop and count keys. Also, determine
whether any gaming machine drop and count key(s) removed or returned to
the key cabinet by the system administrator was properly authorized.
(ii) For at least one day each month, review the report generated
by the computerized key security system indicating all transactions
performed to determine whether any unusual gaming machine drop and
count key removals or key returns occurred.
(iii) At least quarterly, review a sample of users that are
assigned access to the gaming machine drop and count keys to determine
that their access to the assigned keys is adequate relative to their
job position.
(iv) All noted improper transactions or unusual occurrences are
investigated with the results documented.
(4) Quarterly, an inventory of all count room, drop box release,
storage rack and contents keys is performed,
[[Page 69863]]
and reconciled to records of keys made, issued, and destroyed.
Investigations are performed for all keys unaccounted for, with the
investigation being documented.
(u) Table games computerized key security systems. (1) Computerized
key security systems which restrict access to the table game drop and
count keys through the use of passwords, keys or other means, other
than a key custodian, must provide the same degree of control as
indicated in the aforementioned key control standards; refer to
paragraphs (m), (n), (p) and (r) of this section. Note: This standard
does not apply to the system administrator. The system administrator is
defined in paragraph (u)(2)(ii) of this section.
(2) For computerized key security systems, the following additional
table game key control procedures apply:
(i) Management personnel independent of the table game department
assign and control user access to keys in the computerized key security
system (i.e., system administrator) to ensure that table game drop and
count keys are restricted to authorized employees.
(ii) In the event of an emergency or the key box is inoperable,
access to the emergency manual key(s) (a.k.a. override key), used to
access the box containing the table game drop and count keys, requires
the physical involvement of at least three persons from separate
departments, including management. The date, time, and reason for
access, must be documented with the signatures of all participating
employees signing out/in the emergency manual key(s).
(iii) The custody of the keys issued pursuant to paragraph
(u)(2)(ii) of this section requires the presence of two persons from
separate departments from the time of their issuance until the time of
their return.
(iv) Routine physical maintenance that requires accessing the
emergency manual key(s) (override key) and does not involve the
accessing of the table games drop and count keys, only requires the
presence of two persons from separate departments. The date, time and
reason for access must be documented with the signatures of all
participating employees signing out/in the emergency manual key(s).
(3) For computerized key security systems controlling access to
table games drop and count keys, accounting/audit personnel,
independent of the system administrator, will perform the following
procedures:
(i) Daily, review the report generated by the computerized key
security system indicating the transactions performed by the
individual(s) that adds, deletes, and changes user's access within the
system (i.e., system administrator). Determine whether the transactions
completed by the system administrator provide an adequate control over
the access to the table games drop and count keys. Also, determine
whether any table games drop and count key(s) removed or returned to
the key cabinet by the system administrator was properly authorized.
(ii) For at least one day each month, review the report generated
by the computerized key security system indicating all transactions
performed to determine whether any unusual table games drop and count
key removals or key returns occurred.
(iii) At least quarterly, review a sample of users that are
assigned access to the table games drop and count keys to determine
that their access to the assigned keys is adequate relative to their
job position.
(iv) All noted improper transactions or unusual occurrences are
investigated with the results documented.
(4) Quarterly, an inventory of all count room, table game drop box
release, storage rack and contents keys is performed, and reconciled to
records of keys made, issued, and destroyed. Investigations are
performed for all keys unaccounted for, with the investigations being
documented.
(v) Emergency drop procedures. Emergency drop procedures shall be
developed by the Tribal gaming regulatory authority, or the gaming
operation as approved by the Tribal gaming regulatory authority.
(w) Equipment standards for gaming machine count. (1) A weigh scale
calibration module shall be secured so as to prevent unauthorized
access (e.g., prenumbered seal, lock and key, etc.).
(2) A person independent of the cage, vault, gaming machine, and
count team functions shall be required to be present whenever the
calibration module is accessed. Such access shall be documented and
maintained.
(3) If a weigh scale interface is used, it shall be adequately
restricted so as to prevent unauthorized access (passwords, keys,
etc.).
(4) If the weigh scale has a zero adjustment mechanism, it shall be
physically limited to minor adjustments (e.g., weight of a bucket) or
physically situated such that any unnecessary adjustments to it during
the weigh process would be observed by other count team members.
(5) The weigh scale and weigh scale interface (if applicable) shall
be tested by a person or persons independent of the cage, vault, and
gaming machine departments and count team at least quarterly. At least
annually, this test shall be performed by internal audit in accordance
with the internal audit standards. The result of these tests shall be
documented and signed by the person or persons performing the test.
(6) Prior to the gaming machine count, at least two employees shall
verify the accuracy of the weigh scale with varying weights or with
varying amounts of previously counted coin for each denomination to
ensure the scale is properly calibrated (varying weights/coin from drop
to drop is acceptable).
(7) If a mechanical coin counter is used (instead of a weigh
scale), the Tribal gaming regulatory authority, or the gaming operation
as approved by the Tribal gaming regulatory authority, shall establish
and the gaming operation shall comply, with procedures that are
equivalent to those described in paragraphs (u)(4), (u)(5), and (u)(6)
of this section.
(8) If a coin meter count machine is used, the count team member
shall record the machine number denomination and number of coins in ink
on a source document, unless the meter machine automatically records
such information.
(i) A count team member shall test the coin meter count machine
prior to the actual count to ascertain if the metering device is
functioning properly with a predetermined number of coins for each
denomination.
(ii) [Reserved]
Signed in Washington, DC, this 19th day of November, 2004.
Philip N. Hogen,
Chairman.
Nelson Westrin,
Vice-Chairman.
Cloyce Choney,
Commissioner.
[FR Doc. 04-26041 Filed 11-30-04; 8:45 am]
BILLING CODE 7565-01-P