Minimum Internal Control Standards, 23011-23027 [05-8424]

Agencies

• National Indian Gaming Commission

[Federal Register Volume 70, Number 85 (Wednesday, May 4, 2005)]
[Rules and Regulations]
[Pages 23011-23027]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-8424]


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NATIONAL INDIAN GAMING COMMISSION

25 CFR Part 542

RIN 3141-AA27


Minimum Internal Control Standards

AGENCY: National Indian Gaming Commission.

ACTION: Final rule.

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SUMMARY: In response to the inherent risks of gaming enterprises and 
the resulting need for effective internal controls in Tribal gaming 
operations, the National Indian Gaming Commission (Commission or NIGC) 
first developed Minimum Internal Control Standards (MICS) for Indian 
gaming in 1999, and then later revised them in 2002. The Commission 
recognized from the outset that periodic technical adjustments and 
revisions would be necessary in order to keep the MICS effective in 
protecting Tribal gaming assets and the interests of Tribal 
stakeholders and the gaming public. To that end, the following final 
rule revisions contain certain corrections and revisions to the 
Commission's existing MICS, which are necessary to correct erroneous 
citations or references in the MICS and to clarify, improve, and update 
other existing MICS provisions. The purpose of these final MICS 
revisions is to address apparent shortcomings in the MICS and various 
changes in Tribal gaming technology and methods. Public comment to 
these final MICS revisions was received by the Commission for a period 
of 48 days after the date of their publication in the Federal Register 
as a proposed rule on December 1, 2004. Thereafter, the comment period 
was extended for an additional 31 days until February 18, 2005.
    After consideration of all received comments, the Commission has 
made whatever changes to the proposed revisions that it deemed 
appropriate and is now promulgating and publishing the final revisions 
to the Commission's MICS Rule, 25 CFR part 542.

DATES: Effective Date: May 4, 2005.
    Compliance Date: On or before July 5, 2005, the Tribal gaming 
regulatory authority shall: (1) In accordance with the Tribal gaming 
ordinance, establish and implement Tribal internal control standards 
that shall provide a level of control that equals or exceeds the 
revised standards set forth herein; and (2) establish a deadline no 
later than September 1, 2005, by which a gaming operation must come 
into compliance with the Tribal internal control standards. However, 
the Tribal gaming regulatory authority may extend the deadline by an 
additional 60 days if written notice is provided to the Commission no 
later than September 1, 2005. Such notification must cite the specific 
revisions to which the extension pertains.

FOR FURTHER INFORMATION CONTACT: Vice-Chairman Nelson Westrin, (202) 
632-7003 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    On January 5, 1999, the Commission first published its Minimum 
Internal Control Standards (MICS) as a Final Rule. As gaming Tribes and 
the Commission gained practical experience applying the MICS, it became 
apparent that some of the standards required clarification or 
modification to operate as the Commission had intended and to 
accommodate changes and advances that had occurred over the years in 
Tribal gaming technology and methods. Consequently, the Commission, 
working with an Advisory Committee composed of Commission and Tribal 
representatives, published the new final revised MICS rule on June 27, 
2002. As the result of the practical experience of the Commission and 
Tribes working with the newly revised MICS, it has once again become 
apparent that additional corrections, clarifications, and modifications 
are needed to ensure that the MICS continue to operate as the 
Commission intended. To identify which of the current MICS need 
correction, clarification or modification, the Commission initially 
solicited input and guidance from NIGC employees, who have extensive 
gaming regulatory expertise and experience and work closely with Tribal 
gaming regulators in monitoring the implementation, operation, and 
effect of the MICS in Tribal gaming operations. The resulting input 
from NIGC staff convinced the Commission that the MICS require 
continuing review and prompt revision on an ongoing basis to keep them 
effective and up-to-date. To address this need, the Commission decided 
to establish a Standing MICS Advisory Committee to assist it in both 
identifying and developing necessary MICS revisions and revisions on an 
ongoing basis. In recognition of its government-to-government 
relationship with Tribes and related commitment to meaningful Tribal 
consultation, the Commission requested gaming Tribes, in January 2004, 
for nominations of Tribal representatives to serve on its Standing MICS 
Advisory Committee. From the 27 Tribal nominations that it received, 
the Commission selected 9 Tribal representatives in March 2004 to serve 
on the Committee. The Commission's Tribal Committee member selections 
were based on several factors, including the regulatory experience and 
background of the individuals nominated, the size(s) of their 
affiliated Tribal gaming operation(s), the types of games played at 
their affiliated Tribal gaming operation(s), and the areas of the 
country in which their affiliated Tribal gaming operation(s) are 
located. The selection process was very difficult, because numerous 
highly qualified Tribal representatives were nominated to serve on this 
important Committee.
    As expected, the benefit of including Tribal representatives on the 
Committee, who work daily with the MICS, has proved to be invaluable.

[[Page 23012]]

Through their advice and recommendations to the Commission, the Tribal 
Committee members provide early Tribal perspective and input in 
assisting the Commission in identifying and developing needed MICS 
revisions, without binding their nominating Tribes in any way regarding 
the resulting revisions promulgated by the Commission. This, in turn, 
helps facilitate and implement the Commission's policy commitment to 
early and meaningful consultation concerning changes to the MICS and 
other Commission regulatory policies and procedures that affect gaming 
Tribes.
    Tribal representatives selected to serve on the Commission's 
Standing MICS Advisory Committee are: Tracy Burris, Gaming 
Commissioner, Chickasaw Nation Gaming Commission, Chickasaw Nation of 
Okalahoma; Jack Crawford, Chairman, Umatilla Gaming Commission, 
Confederated Tribes of the Umatilla Indian Reservation; Patrick Darden, 
Executive Director, Chitimacha Gaming Commission, Chitimacha Indian 
Tribe of Louisiana; Mark N. Fox, Compliance Director, Four Bears 
Casino, Three Affiliated Tribes of the Fort Berthold Reservation; 
Sherrilyn Kie, Senior Internal Auditor, Pueblo of Laguna Gaming 
Authority, Pueblo of Laguna; Patrick Lambert, Executive Director, 
Eastern Band of Cherokee Gaming Commission, Eastern Band of Cherokee 
Indians; John Meskill, Director, Mohegan Tribal Gaming Commission, 
Mohegan Indian Tribe; Jerome Schultze, Executive Director, Morongo 
Gaming Agency, Morongo Band of Mission Indians; and Lorna Skenandore, 
Assistant Gaming Manager, Support Services, Oneida Bingo and Casino, 
formerly Gaming Compliance Manager, Oneida Gaming Commission, Oneida 
Tribe of Indians of Wisconsin. The Advisory Committee also includes the 
following Commission representatives: Philip N. Hogen, Chairman; Nelson 
Westrin, Vice-Chairman; Cloyce V. Choney, Associate Commissioner; Joe 
H. Smith, Acting Director of Audits; Ken Billingsley, Region III 
Director; Nicole Peveler, Field Auditor; Ron Ray, Field Investigator; 
and Sandra Ashton, Staff Attorney, Office of General Counsel.
    In the past, the MICS were comprehensively revised on a large 
wholesale basis. Such large-scale revisions proved to be difficult for 
Tribes to implement in a timely manner and unnecessarily disruptive to 
Tribal gaming operations. The purpose of the Commission's Standing 
Committee is to conduct a continuing review of the operation and 
effectiveness of the existing MICS, in order to promptly identify and 
develop needed revisions of the MICS, on a manageable incremental 
basis, as they become necessary to revise and keep the MICS practical 
and effective. By making more manageable incremental changes to the 
MICS on an ongoing basis, the Commission hopes to be more prompt in 
developing needed revisions, while, at the same time, avoiding larger-
scale MICS revisions which take longer to implement and can be 
unnecessarily disruptive to Tribal gaming operations. In accordance 
with this approach, the Commission has developed the following final 
MICS rule revisions, with the assistance of its Standing MICS Advisory 
Committee. In doing so, the Commission is carrying out its statutory 
mandate under the Indian Gaming Regulatory Act, 25 U.S.C. 2706(b)(10), 
to promulgate necessary and appropriate regulations to implement the 
provisions of the Act. In particular, the following final MICS rule 
revisions are intended to address Congress' purpose and concern stated 
in Section 2702(2) of the Act, that the Act ``provide a statutory basis 
for the regulation of gaming by an Indian tribe adequate to shield it 
from organized crime and other corrupting influences, to ensure the 
Indian tribe is the primary beneficiary of the gaming operation, and to 
ensure the gaming is conducted fairly and honestly by both the operator 
and the players.''
    The Commission, with the Committee's assistance, identified three 
specific objectives for the following final MICS rule revisions: (1) To 
ensure that the MICS are reasonably comparable to the internal control 
standards of established gaming jurisdictions; (2) to ensure that the 
interests of the Tribal stakeholders are adequately safeguarded; and 
(3) to ensure that the interests of the gaming public are adequately 
protected.
    The Standing Advisory Committee initially met on April 8, 2004, and 
then again on October 21, 2004, and January 25, 2005, to discuss the 
revisions set forth in the following final MICS rule revisions. The 
input received from the Committee Members has been invaluable to the 
Commission in its development of the following final MICS rule 
revisions.
    In furtherance of the Commission's established Government-to-
Government Tribal Consultation Policy, the Commission also provided a 
preliminary working draft of all of the final MICS rule revisions 
contained herein to gaming Tribes on June 22, 2004, for a 30-day 
informal review and comment period, before formulation of a proposed 
rule, which was published in the Federal Register on December 1, 2004. 
In response to its requests for comments, the Commission received 89 
comments from Commission and Tribal Standing Advisory Committee 
members, individual Tribes, and other interested parties regarding the 
final revisions. A summary of these comments is presented below in the 
discussion of each final revision to which they relate.

General Comments to Final Rule MICS Revisions

    For reasons stated above in this preamble, the National Indian 
Gaming Commission has revised the following specific sections of its 
MICS rule, 25 CFR part 542. The following discussion includes the 
Commission's responses to general comments concerning the MICS and is 
followed by a discussion regarding each of the specifically final rule 
revisions, along with previously submitted comments to the proposed 
revisions and the Commission's responses to those comments. As noted 
above, prior commenters include Commission and Tribal Advisory 
Committee members, gaming Tribes, and others.

Comments Questioning NIGC Authority To Promulgate MICS for Class III 
Gaming

    Many of the comments to the published proposed MICS revisions 
pertained to the Commission's authority to promulgate rules governing 
the conduct of Class III gaming. Positions were expressed asserting 
that Congress intended the NIGC's Class III gaming regulatory authority 
to be limited exclusively to the approval of tribal gaming ordinances 
and management contracts. Similar comments were received concerning the 
first proposed MICS back in 1999. The Commission, at that time, 
determined in its publication of the original MICS in 1999 that it 
possessed the statutory authority to promulgate Class III MICS. As 
stated in the preamble to those MICS: ``The Commission believes that it 
does have the authority to promulgate this final rule. * * * [T]he 
Commission's promulgation of MICS is consistent with its 
responsibilities as the Federal regulator of Indian gaming.'' 64 FR 509 
(Jan. 5, 1999). The current Commission reaffirms that determination. 
The Indian Gaming Regulatory Act, which established the regulatory 
structure for all classes of Indian gaming, expressly provides that the 
Commission ``shall promulgate such regulations as it deems appropriate 
to implement the provisions of (the Act).'' 25 U.S.C. 2707(b)(10).
    Pursuant to this clearly stated statutory duty and authority under 
the

[[Page 23013]]

Act, the Commission has determined that MICS are necessary and 
appropriate to implement and enforce the regulatory provisions of the 
Act governing the conduct of both Class II and Class III gaming and 
accomplish the purposes of the Act.
    The Commission believes that the importance of internal control 
systems in the casino operating environment cannot be overemphasized. 
While this is true of any industry, it is particularly true and 
relevant to the revenue generation processes of a gaming enterprise, 
which, because of the physical and technical aspects of the games and 
their operation and the randomness of game outcomes, makes exacting 
internal controls mandatory.
    The internal control systems are the primary management procedures 
used to protect the operational integrity of gambling games, account 
for and protect gaming assets and revenues, and assure the reliability 
of the financial statements for Class II and III gaming operations. 
Consequently, internal control systems are a vitally important part of 
properly regulated gaming. Effective internal control systems are 
dependent upon the support of the gaming enterprise's governing board, 
management, and other personnel who are responsible for providing 
reasonable assurance regarding the achievement of the enterprise's 
objectives, which typically include operational integrity, 
effectiveness and efficiency, reliable financial statement reporting, 
and compliance with applicable laws and regulations. The Commission 
believes that strict regulations, such as the MICS, are not only 
appropriate but necessary for it to fulfill its responsibilities under 
the IGRA to establish a necessary baseline, or minimum, Federal 
standards for all Tribal gaming operations on Indian lands. 25 U.S.C. 
2702(3). Although the Commission recognizes that many Tribes had 
sophisticated internal control standards in place prior to the 
Commission's original promulgation of its MICS, many did not. 
Accordingly, the Commission continues to believe strongly that 
promulgation and revision of these standards is necessary and 
appropriate to implement effectively the provisions of the Indian 
Gaming Regulatory Act throughout Indian country and, therefore, is 
within the Commission's clearly expressed statutory power and duty 
under Section 2706(b)(10) of the Act.

Comments Recommending Voluntary Tribal Compliance With MICS

    Comments were also received suggesting that the NIGC should re-
issue the MICS as a bulletin or guideline for Tribes to use 
voluntarily, at their discretion, in developing and implementing their 
own Tribal gaming ordinances and internal control standards. The 
Commission disagrees. The MICS are common in established gaming 
jurisdictions and, to be effective in establishing a minimum baseline 
for the internal operating procedures of Tribal gaming enterprises, the 
rule must be concise, explicit, and uniform for all Tribal gaming 
operations to which they apply. Furthermore, to nurture and promote 
public confidence in the integrity and regulation of Indian gaming and 
ensure its adequate regulation to protect Tribal gaming assets and the 
interests of Tribal stakeholders and the public, the Commission's MICS 
regulations must be reasonably uniform in their implementation and 
application and regularly monitored and enforced by Tribal regulators 
and the NIGC to ensure Tribal compliance.

Final Rule New or Revised Definitions in Section 542.2 of the MICS

    The Commission has added or revised definitions of the following 
four terms in section 542.2. A discussion of each new or revised 
definition follows in alphabetical order. The text of the new or 
revised definition is set forth following the conclusion of this 
preamble in which of all of the final rule revisions to the 
Commission's MICS rule, 25 CFR part 542, are discussed.

Drop Period

    This is a new definition. Several Tribal and Commission Committee 
members recommended that a definition of the term ``drop period'' be 
added to the current existing MICS definitions. In conjunction with 
other final rule revisions to the MICS which include this term, the 
NIGC has determined that to ensure that such revisions are clear and 
unambiguous, insertion of the definition of the term ``drop period'' 
into the MICS Definitions section 542.2 is worthwhile. This definition 
was included in the proposed rule publishing for review and comment 
prior to formulation of the final new definition, and no comments were 
received objecting to the definition.

Gaming Machine

    The Commission has revised the existing MICS definition of this 
term to more accurately define the scope of the referenced term, as it 
is used in the MICS. Commission and Committee members recommended that 
the existing definition for ``gaming machine'' be revised to cover 
central server based linked gaming machines or player stations that are 
being increasingly utilized in Indian gaming. Comments were 
subsequently received supporting the proposed rule revision, which was 
published in the Federal Register prior to formulation of the final 
rule revised definition. Comments were received suggesting that the 
definition should differentiate Class II and Class III gaming machines. 
Comments were also received suggesting that instead of attempting to 
list all the various cash equivalents a machine might accept, it would 
be better simply to refer to the items as cash, coin or cash 
equivalents. The Commission disagrees with the comment that the 
definition should attempt to narrow or define the applicability of the 
definition based on game classification. The definition is intended to 
be broadly applied to all gaming machines that are not otherwise 
separately defined in the MICS, such as an electronic bingo machine.
    The Commission agrees with the suggestion that the term ``cash 
equivalents'' should be used in the definition. We believe the term is 
more representative of the various items that could be wagered, in 
addition to cash and coin.
    Comment was received recommending that a definition be added to the 
MICS for the term ``cash equivalents.'' The Commission agrees with this 
suggestion and will develop such a definition in subsequent proposed 
revisions after further input from the Advisory Committee and gaming 
Tribes regarding its text.

Promotional Progressive Pots and/or Pools

    The Commission has revised the existing MICS definition of this 
term to more accurately define the applicability of the referenced 
term. Committee members recommended that the definition of 
``promotional progressive pots and/or pools'' be revised to also apply 
to poker games. The revision was included in the proposed rule 
revision, which was published in the Federal Register for review and 
comment before the following final rule revision definition was 
formulated. Comments were subsequently received supporting the final 
rule revision since most progressive promotional pots are utilized in 
poker games. One commenter contended that the final rule revision to 
the progressive promotional pots and/or pools definition would create a 
conflict with the definition of secondary jackpots. The Commission will 
further consider this comment and examine how the two referenced terms 
are used in the MICS. If necessary, we may

[[Page 23014]]

consider in the future whether there is any contradiction between the 
two terms that requires modification of the definition of secondary 
jackpots.

Series Number

    This is a new definition. The referenced term is used in the 
current MICS but is not defined. Since it has been the frequent subject 
of inquiry regarding its meaning, the NIGC has determined that a 
definition of the term is warranted. Comments to the proposed rule 
published in the Federal Register uniformly supporting the addition of 
this final rule definition being added to section 542.2 of the MICS.

Final Rule Correction of Referencing and Citation Errors in Sections 
542.7, 542.8, 542.12, and 542.13 of the MICS

    The Commission identified and is correcting several referencing and 
citation errors in the current MICS. The relevant sections include the 
following: Sec. Sec.  542.7(g)(1)(i), 542.8(h)(1)(i), 542.12(i)(4), 
542.12(k)(1)(v), 542.12(k)(1)(ix), 542.12(k)(1)(xvii), and 
542.13(l)(4).
    Each of the referencing and citation corrections was set forth in 
the proposed rule published in the Federal Register for review and 
comment before this final rule was formulated. No comments were 
received objecting to the corrections.

Final Rule Revisions to Section 542.13(h) Standards for Evaluating 
Theoretical and Actual Hold Percentages

    It is common practice in the gaming industry that gaming machine 
manufacturers provide gaming operators with a Pay Analysis Report (PAR) 
or PAR sheet for each gaming machine that they supply to the operator. 
The PAR sheet provides information regarding certain design 
specifications for the gaming machine, including the statistical 
theoretical percentage(s) that the gaming machine is designed to win or 
hold for the operator (house), based on an adequate level of wagering 
activity after payment of game winnings to players. A theoretical hold 
worksheet also accompanies the PAR sheet and provides additional 
theoretical hold information for the gaming machine, frequently 
including probability calculations of the machine's theoretical hold 
percentages for different specified levels of coin-in wagering 
activity. The converse to a gaming machine's theoretical hold 
percentage is its theoretical payback percentage, which is the 
percentage of total money wagered that the machine is designed to pay 
back to players as game winnings based on adequate levels of wagering 
activity. A gaming machine's theoretical payback percentage can be 
calculated by deducting its specified theoretical hold percentage(s) 
from one.
    Periodic statistical tracking of actual gaming machine performance, 
by comparing each machine's actual hold and payback percentages in 
relation to its theoretical hold and/or payback percentages, has become 
a necessary standard of management practice to ensure the integrity of 
gaming machine operations and safeguard related machine revenues and 
assets. To effectively monitor gaming machine operations for 
performance irregularities, whether due to machine defect, malfunction, 
embezzlement, cheating, or other improper tampering, gaming operators 
are required to periodically prepare a gaming machine analysis report 
that compares each machine's actual hold percentages to its specified 
theoretical hold percentage(s), based on the levels of coin-in wagering 
activity for each reporting period. Any material deviations between the 
actual and theoretical hold percentages must be thoroughly investigated 
by gaming machine department management and other management personnel 
independent of the gaming operation's gaming machine department. The 
ultimate objective of the gaming machine analysis report and 
investigative process is to ensure that any material uncharacteristic 
deviation between actual and theoretical hold is not due to machine 
defect, malfunction, embezzlement, cheating, or other improper 
tampering; but instead, a reasonably expected mathematical deviation 
based on the randomness of the machine's game outcome selection 
mechanism and the number of game plays and outcomes analyzed.
    The standards set forth in section 542.13(h) of the MICS are 
intended to provide a minimum benchmark for effective use of gaming 
machine performance analysis by Tribal gaming enterprises to safeguard 
the integrity of their gaming machine operations and related Tribal 
gaming assets. In establishing these standards, the Commission has 
attempted to keep them as practical and effective as possible for the 
diverse nature and scale of the Tribal gaming machine operations to 
which they apply. For that reason, the Commission has made several 
revisions to section 542.13(h).

Final Rule Deletion of Subsection 542.13(h)(2)

    The Commission's deletion of subsection 542.13(h)(2) will eliminate 
the current requirement that Tribal operators utilize a weighted 
average calculation to adjust and determine the appropriate theoretical 
hold percentages for periodic analysis of complex gaming machines 
(excluding multi-game multi-denominational gaming machines), which have 
manufacturer's PAR or theoretical hold worksheets that specify multiple 
theoretical hold or payback percentages, with a spread of more than 4% 
between their minimum and maximum specified theoretical hold/payback 
percentages. Although the manufacturer's PAR sheets and theoretical 
hold worksheets for most gaming machines specify a single theoretical 
hold percentage, which can be reliably used for analysis of the 
machine's actual performance, there are other more complex gaming 
machines (excluding multi-gaming and multi-denominational gaming 
machines) that have multiple specified theoretical hold percentages. 
Identifying the most reliable theoretical hold percentage to use for 
analysis of the performance of these more complex gaming machines can 
be difficult and challenging, because the most appropriate theoretical 
hold percentage is so dependent upon the different amounts of permitted 
coin-in betting wagers (e.g. 1-coin, 2-coin, 3-coin, etc.) that players 
may actually decide to make during a given reporting period. The 
weighted average calculation, which is currently required by subsection 
542.13(h)(2), essentially weighs the different permitted player 
wagering decisions, by multiplying the total amount wagered for each 
permitted coin-in wager amount times the specified theoretical hold 
percentage for that wager. Then the sum of the individual theoretical 
hold results for each permitted coin-in wager amount is divided by the 
total coin-in, to give a weighted average theoretical hold percentage 
for use in analyzing that gaming machine's overall performance during 
the reporting period.
    Based on past MICS compliance audits and consultation with other 
gaming jurisdictions, the Commission has determined that the currently 
required weighted average calculation may not be necessarily to produce 
an acceptable adjusted theoretical hold percentage for analyzing the 
performance of complex gaming machines (other than multi-gaming and 
multi-denominational gaming machines) which have multiple specified 
theoretical hold percentages. Practical experience also demonstrates 
that this is also true regardless of whether the spread between the 
minimum and maximum specified theoretical hold percentages for such

[[Page 23015]]

complex gaming machines exceeds 4%. Accordingly, the Commission is 
deleting subsection 542.13(h)(2) in its entirety. In particular, the 
Commission has determined that, excluding multi-game and multi-
denominational gaming machines, most other complex gaming machines with 
multiple specified theoretical hold percentages possess certain 
characteristics that generally result in most bettors making the 
maximum allowed coin-in wager. Typically, the pay tables for such 
machines provide for a disproportionately larger payout for maximum 
coin-in wagers. This naturally causes most players to bet the maximum 
allowable number of coins-in. Consequently, the weighted average 
calculation generally produces an adjusted theoretical hold percentage 
that is not significantly different than simply selecting the machine's 
most conservative or smallest specified theoretical hold percentage. 
Therefore, the required weighted average calculations in subsection 
542.13(h)(2) for complex gaming machines, other than multi-game and 
multi-denomination gaming machines, is being deleted regardless of the 
spread between the machines' minimum and maximum specified multiple 
theoretical hold percentages. Although no longer required, 
circumstances may still dictate use of the weighted average calculation 
for such gaming machines, instead of simply selecting the most 
conservative or smallest specified theoretical hold percentage for the 
machine. In those circumstances, it will remain the responsibility of 
Tribal gaming management, subject to Tribal Gaming Regulatory Authority 
(TGRA) oversight, to utilize appropriate weighted average calculations 
to determine the proper adjusted theoretical hold percentages for 
accurate and reliable analysis of gaming machine performance.

Final Rule Revisions Renumbering Subsection 542.13(h)(4) as New 
Subsection 542.13(h)(2); Extending the Weighted Average Calculation 
Requirement to Both Multi-Game and Multi Denomination Gaming Machines; 
and Deleting the 4% Theoretical Payback Spread Standard

    The Commission has revised subsection 542.13(h)(4) by renumbering 
it as the new subsection 542.13(h)(2); extending the required use of 
weighted average calculations to determine the adjusted theoretical 
hold percentage for both multi-game and multi-denominational gaming 
machines; and deleting the 4% or greater spread criteria regarding the 
minimum and maximum specified theoretical payback percentage for such 
machines. While concluding that weighted average calculations need not 
be required for determining the most appropriate adjusted theoretical 
hold percentage for other complex gaming machines with multiple 
specified theoretical hold percentages, the Commission has determined 
that such calculations are essential for reliable analysis of the 
performance of multi-game and multi-denominational gaming machines, 
regardless of whether the spread between their minimum and maximum 
specified theoretical hold percentages is more or less than 4%. 
Therefore, the Commission is adding multi-denominational gaming 
machines to the weighted average calculation requirement in current 
subsection 542.13(h)(4), and is deleting the current requirement that 
the spread between the minimum and maximum specified multiple 
theoretical hold percentages must exceed 4% before any weighted average 
calculations are required to determine the appropriate adjusted 
theoretical hold percentage for either multi-game or multi-
denominational gaming machines. In contrast to other complex gaming 
machines with multiple specified theoretical hold percentages, multi-
game and multi-denominational gaming machines do not possess common 
characteristics that result in reasonably predictable player decisions 
regarding the individual programmed games of the multi-game gaming 
machine they elect to play or the denomination of their wager. Instead, 
player wagering decisions can vary widely and player game/denomination 
selections are also highly unpredictable and often subject to the 
effects of intervening management decisions, such as the activation/
cancellation of game options, device location, gaming floor mix, and 
paytable alternatives. Thus, to effectively identify a reliable 
adjusted theoretical hold percentage for analysis of multi-game and 
multi-denominational gaming machine performance requires a weighted 
average calculation of player coins-in-wagering for each wager/game/
denomination paytable player option. Furthermore, it is the 
Commission's considered judgment that such calculations are required 
and necessary regardless of whether the spread between the minimum and 
maximum specified multiple theoretical hold percentage for the multi-
game and/or multi-denominational gaming machine exceeds 4%.

Final Rule Revisions Renumbering Subsection 542.13(h)(19) as New 
Subsection 542.13(h)(18) and Replacing the Six Month Play Threshold 
With a Threshold of at Least 100,000 Wagering Transactions for Required 
Investigation of Large Variances Between Actual and Theoretical Hold

    Based on past experience and interaction with Tribal gaming 
regulatory authorities, the Commission has determined that the current 
six months play threshold in subsection 542.13(h)(19) for determining 
when a gaming machine is required to be included in the gaming machine 
analysis report is not practical or appropriate. Consequently, to 
define more accurately when the comparison and investigation of large 
variances between actual and theoretical hold is required, the 
Commission has revised subsection 542.13(h)(19) by renumbering it as 
subsection 542.13(h)(18) and replacing the six months play threshold 
with a play threshold of at least 100,000 wagering transactions.

Final Rule Revisions to Subsection 542.13(m)(6) and (7) Accounting/
Audit Standards for Gaming Machines

    In recognition of the varying processes that exist in the gaming 
industry relative to the time period between currency drops for gaming 
machines, the Commission has determined that the current standard in 
subsection 542.13(m)(6) requiring weekly comparison of the bill-in 
meter readings to the total bill acceptor drop is impractical and too 
inflexible. Accordingly, the Commission is deleting the currently 
required weekly comparison and replace it with an every ``drop period'' 
requirement. In conjunction with these final rule revisions, the term 
``drop period'' is being defined in section 542.2 as the period of time 
between sequential drops.
    Furthermore, in consideration of the above revision, the Commission 
is revising subsection 542.13(m)(7) by deleting the current $200.00 
threshold for required follow-up investigation of an unresolved 
variance between actual currency drop and bill-in meter reading and 
replacing it with a threshold amount that is ``both more than $25.00 
and at least 3 percent (3%) of the actual currency drop.''

[[Page 23016]]

Comments Regarding Final Rule Deletion of 4% Theoretical Payback Spread 
Standard and Elimination of the Weighted Average Calculation 
Requirements for Complex Gaming Machines With Multiple Theoretical Hold 
Percentages (Excluding Multi-Game or Multi-Denominational Gaming 
Machines)

    Comments were received supporting the deletion of both standards, 
indicating that the process will potentially become simpler. Comment 
was received supporting the deletion of the standards and the 
willingness of the Commission to accept alternative methods of 
identifying the appropriate theoretical payback/hold percentage for the 
machines in question, which will often involve simply selecting the 
most conservative theoretical hold percentage within the range of 
acceptable parameters established by the game manufacturer. Such a 
procedure is founded upon the premise that patrons will generally opt 
for max coin bet.
    Comment was received objecting to the striking of the weighted 
average calculation for complex gaming machines with a spread between 
theoretical payback percentages greater than 4%. It was noted that on-
line computerized accounting systems for gaming machines capture the 
required data and facilitate the identification of an optimal 
theoretical payback/hold percentage for game analysis. Consequently, 
the commenter contended there is no compelling need to strike the 
standard. Comment was received questioning whether the standard 
requires the data to be collected by hard meter or whether soft meters 
are acceptable.
    The Commission concurs with the commenter that the selection of the 
most conservative hold percentage will generally produce a benchmark 
for analysis of complex gaming machines, other than multi-game and 
multi-denominational machines, that will enable the gaming machine 
analysis report to be accurate and effective. However, should such a 
procedure not be reflective of the method of play of the gaming 
operation's patrons, the weighted average calculation would become the 
desired alternative. By striking the standard, the Commission is 
deferring to the Tribal Gaming Regulatory Authority (TGRA) to ensure 
Tribal gaming management employs procedures appropriate to identify 
reliable theoretical payback/hold percentages for analyzing the 
performance of their complex gaming devices with multiple specified 
theoretical hold percentages (excluding multi-gaming and multi-
denominational gaming machines). The Commission acknowledges that, in 
accordance with industry standard, gaming machines and current 
technology on-line accounting systems greatly aid the process of 
collecting data. However, such on-line systems are not at this time 
required by the MICS for all gaming machines. Therefore, we do not 
agree that the striking of the standard lacks compelling justification.
    The Commission refers the commenter to the MICS definitions 
regarding the question of whether hard or soft meters may be used to 
collect necessary game data and determine reliable theoretical payback/
hold percentages for game performance analysis. In accordance with 
section 542.2, the term ``meter'' is defined as either hard or soft. 
Consequently, to satisfy the standard, either method of collection is 
permissible.

Comments Regarding Final Rule Extension of Weighted Average Theoretical 
Hold Calculation and Other Multi-Game Gaming Machine Analysis 
Requirements to Multi-Denominational Machines

    Comments were received acknowledging the need to extend the scope 
of the standard to include multi-denominational gaming machines in 
addition to multi-game devices. Comment was received supporting the 
striking of the 4% theoretical payback percentage spread criteria with 
regard to multi-game and multi-denomination gaming machines. The 
devices in question generally represent only a small portion of the 
typical gaming floor. Comment was received suggesting that, instead of 
quarterly meter reads, the meters should be read annually. Comment was 
also received questioning the need to make annual adjustments to the 
theoretical hold percentage for multi-game and multi-denomination 
devices, since the recalculation of the theoretical hold percentage 
results in only a nominal change. In addition, comment was also 
received regarding the task of calculating theoretical payback and hold 
percentages for multi-game machines that are also multi-denomination. 
The commenter questioned whether the necessary data could be extracted 
from such devices and, even if it could be obtained, the multi-tiered 
calculations would be exceedingly cumbersome.
    Finally, comment was received questioning whether the potential 
annual adjustment to theoretical hold required the gaming machine to be 
considered a new device for purposes of the gaming machine analysis 
report. The Commission does not concur with the commenter 
recommendation that collecting the meter data on an annual basis is 
acceptable. With regard to the collection of wagering data from multi-
game and multi-denominational gaming machines, the more data collected, 
the greater the confidence in the analysis of patron betting habits 
and, consequently, the more reliable the identification of a valid 
theoretical hold percentage. Due to the changes in machine mix and 
location that frequently occur on the gaming floor, the Commission 
believes the subject data should be collected on a quarterly basis. The 
Commission does not agree with the comment that the annual review and 
adjustment of the previously determined theoretical hold percentage is 
of no value. We agree with the premise that, if the gaming floor 
remained unaltered from one year to the next, the betting habits of the 
patrons are likely to remain constant. However, changes to the gaming 
floor are typically frequent, as management attempts to generate the 
greatest return on the square footage allocated to the gaming machine 
department. Such modifications may involve additions and removals of 
devices, movement of machines on the gaming floor, activation/
deactivation of various game options (such as bonusing), changing the 
mix of games offered, or increasing or restricting the different 
denominations accepted. Each of these management decisions can affect 
the theoretical hold of the multi-game and multi-denominational gaming 
machines in question. We can certainly understand management electing 
not to make an adjustment to the theoretical hold when the amount of 
the adjustment will have no significant impact on the reliability of 
the gaming machine analysis reports. However, due to the volatility of 
the gaming floor and the potential effect such volatility can have on 
patron betting habits, we believe the annual testing of previously 
determined theoretical hold percentages to be a necessary management 
practice.
    The Commission appreciates the concern raised by a commenter 
regarding the process of determining a reliable theoretical hold 
percentage for multi-game devices that also accept multi-denomination 
wagers. The Commission acknowledges that the standard is intended to 
address either multi-game or multi-denomination but is awkward in its 
application with regard to devices that possess both characteristics. 
The standard would imply that a multi-tiered level of weighted average 
calculations would be required and that, for each

[[Page 23017]]

denomination within each game, the corresponding theoretical hold would 
be weighted by patron selection; the resulting game weighted average 
theoretical hold would be weighted by patron game selection. Although 
the exercise would certainly produce a theoretical hold percentage for 
use in the game analysis report possessing a high level of confidence, 
we question whether such an in depth examination of the various 
theoretical percentages, weighted by both patron game and denomination 
selection, is necessary to identify a reasonable benchmark to measure 
actual game performance. Generally speaking, we believe it would be 
acceptable to calculate a simple weighted average of the various 
denominational theoretical hold percentages contained within each game 
and use that average theoretical hold percentage in the weighted 
average calculation based on patron game selection. Furthermore, to 
make additional reductions in the number of calculations, management 
might consider grouping games with similar theoretical hold 
percentages, i.e. those with a difference of less than 0.5 percentage 
points.
    In summation, it is important not to lose sight of the ultimate 
objective of the standards relevant to the statistical tracking of 
gaming performance, which is to employ a process that is effective in 
identifying deviations of actual performance from the manufacturer's 
specifications that warrant investigation. Such deviations may simply 
result from normal play, or be caused by gaming machine defect, 
malfunction, heating, embezzlement, or other improper tampering. 
Relevant to this overall process is the fact that many frauds have 
occurred in Tribal gaming over the past few years involving false or 
fraudulent gaming machine payouts that could have been detected sooner, 
if the gaming operation had had an effective process for measuring the 
appropriateness of actual gaming machine performance.
    In response to the question raised by a commenter whether the 
annual adjustment to theoretical hold percentage requires a gaming 
machine to be given a new machine (asset) number for purposes of the 
gaming machine analysis report, the Commission refers the commenter to 
section 542.13(h)(16). That section explicitly exempts annual 
theoretical hold adjustments made in accordance with section 
542.13(h)(2) from the general requirement that the adjusted machine be 
treated as a new machine. Consequently, creation of a new machine 
number is not required when such adjustments occur.

Comments Regarding Final Rule Deletion of ``Six Month'' Play Threshold 
and Addition of a ``100,000 Wagering Transactions'' Threshold for 
Required Analysis of Large Gaming Machine Variances Between Theoretical 
and Actual Hold

    Comments were received supporting the Commission's recommended 
change from a specified six (6) month play threshold in section 
542.13(h)(18) to a threshold of 100,000 wagering transactions to 
determine when a gaming machine should be included in the analysis of 
actual hold performance to theoretical hold.
    Comment was also received suggesting that the PAR sheets provide 
information more relevant to when a particular device has experienced 
sufficient play to be included in the gaming machine analysis process. 
Comment was also received suggesting that the recommended range of 
acceptable deviations from theoretical of 3 percentage 
points should be struck from the MICS. The commenter noted that it 
should be left up to the discretion of the TGRA as the primary gaming 
regulator to make the determination. Additional comment was also 
received recommending that it should also be left to the TGRA to 
determine when sufficient play exists to require the machine to be 
included in the gaming analysis report, since the performance of some 
devices should be examined prior to 100,000 wagering transactions, 
while others may require more play before any investigation of 
deviations between actual and theoretical performance is worthwhile.
    Finally, comment was received suggesting that a computerized 
application utilizing a volatility indexing mathematical program should 
be an acceptable alternative to the process required by the MICS. Such 
programs employ a mathematical formula that estimates the minimum and 
maximum ranges of acceptable theoretical payback/hold percentages for a 
given machine based on the following: (1) The theoretical payback/hold 
over the expected life of the machine; (2) the number of winning 
combinations; (3) the payback/hold for the winning combinations; and 
(4) the number of games played. In essence, the program considers the 
game characteristics and determines a tolerable range of accepted 
performance, which narrows as performance predictability increases. 
Typically, predictability increases commensurate with increasing levels 
of wagering activity.
    The Commission concurs with the commenter's recommendation that the 
standard would be better served by replacing the specified time period 
with a minimum number of wagering transactions. The final revision to 
section 542.13(h)(18) has, accordingly, been modified to reflect that 
recommendation. The Commission also appreciates the suggestion made by 
the commenter that determining when sufficient data exists to perform 
the analysis of actual game performance should include consideration of 
the data contained within the PAR sheet. It is important to recognize 
that the 100,000 wagering transaction standard establishes a minimum 
threshold for devices to be included in the required gaming machine 
analysis report; however, it is also well understood that the 
investigation of unacceptable deviations between actual and theoretical 
game performance is a complex process. To comment on how the Commission 
determined the 100,000 wager transaction threshold, a random number 
generator (RNG) with a 10 million cycle will produce a range between 
minimum and maximum confidence factors of approximately 3 percentage 
points, which we believe justifies an investigation of an unacceptable 
deviation, which industry practice would identify to be 3 
percentage points between actual hold and theoretical hold. However, 
the analyst should also consider the relevant PAR sheet in determining 
the extent to which follow-up analysis and investigation is warranted. 
For example, a multi-game device, particularly if it also accepts 
multi-denomination, may in fact need more than 100,000 wagering 
transactions before it is worthwhile to review past performance, i.e. 
look for an abnormally large payout within the audit period. With such 
a device, the analyst may determine that insufficient play has occurred 
to perform an in depth review of past performance and would merely 
document his/her determination. Within reason, we would not consider 
such a determination to be noncompliant with the standard.
    The Commission does not agree with the commenter's suggestion that 
the recommended acceptable deviation range of 3 percentage 
points be struck from the MICS. We believe the recommended range 
represents industry practice and is a reasonable threshold to ensure 
that the gaming machine analysis process will be effective. The 
Commission also disagrees with the commenter's recommendation that it 
should be left to the discretion of the TGRA to decide when a device 
must be

[[Page 23018]]

included in the gaming machine analysis report. For the regulations 
governing the statistical tracking of gaming performance and the 
comparison of actual performance to the manufacturer's theoretical 
performance specifications to be effective, the regulation must be 
precise and reasonably uniform in defining its applicability. However, 
we do acknowledge that the analysis of the data possesses an element of 
subjectivity, which in turn necessitates that the analyst have a 
professional level of expertise. Inclusion of a gaming machine in the 
required gaming analysis report does not necessarily dictate that an in 
depth investigation of all variances is warranted, but does require 
that the gaming performance analyst/reviewer document the results of 
their determination.
    Finally, the Commission appreciates the suggestion by a commenter 
that a volatility indexing mathematical program may produce results as 
reliable as, or even more reliable, than the weighted average 
calculation required for multi-game and multi-denominational gaming 
machines in the MICS. In response, it is noteworthy that at section 
542.3(c), the TGRA is required to adopt regulations that provide a 
level of control that equals or exceeds the MICS. Although the rule 
does not condone the TGRA accepting management procedures that are in 
conflict with the MICS, it does not preclude acceptance of procedures 
or controls that are different and at least as stringent as those 
contained within the MICS. Furthermore, at section 542.13(b), 
computerized applications that provide at least the same level of 
control as the MICS are deemed to be acceptable under the current MICS. 
Based on the data provided by the commenter, it is the belief of the 
Commission that the noted mathematical formula would be an acceptable 
alternative procedure. However, it is incumbent upon management to 
adequately document the process and its effectiveness in providing the 
required level of control and reliability in analyzing game 
performance.

Comments Regarding the Final Revision of Section 542.13(m)(6) To 
Require Comparison of Bill-In Meter Readings With Total Bill Acceptor 
Drop Amounts for Each Drop Period Instead of Weekly

    Comments were received concurring with the final revision. Comment 
was also received noting that the standard is stricter, but also 
acknowledging that the impact on management's gaming machine 
accounting/audit function should be nominal. Finally, comment was 
received supporting the final revision and noting that it should make 
the follow-up process less cumbersome.

Comments Regarding the Final Revision of Section 542.13(m)(7) Requiring 
Follow-Up of Unresolved Variances Between the Currency Drop and Bill-In 
Meter Readings to Amounts Greater Than $25 and 3 percent Instead of 
$200.00

    Comment was received suggesting language in the initially proposed 
revision to clarify the applicability of $25 or 3 percent. Comment was 
received objecting to the revision because it would allow variances to 
go uninvestigated that should be subjected to review. Basically, the 
commenter contends that the rule is too liberal and results in the 
control being ineffective. Comment was received recommending the 
threshold be 5 percent and $25. The Commission accepts the commenter 
recommendation regarding more explicit language and has modified the 
final revision accordingly. The Commission understands the commenter 
concern for the rule becoming less stringent and possibly ineffective. 
However, the existing rule requires that a variance of $200 per machine 
per week must be investigated. Assuming the Tribal gaming operation 
performs a daily drop, the average variance threshold per day would be 
$28.57. Because the drop must exceed $833.33 before the 3 percent 
criteria becomes effective, for all practical purposes, the vast 
majority of variances will be subject to the $25 threshold. 
Consequently, we do not believe the revision will have a material 
impact on the effectiveness of the control. However, by changing the 
time frame from a week to a drop period, we believe the standard 
becomes more consistent with the workflows of the revenue audit 
process.
    The Commission does not concur with the recommendation that the 
threshold be increased to 5 percent or $25. With regard to drop 
amounts, the final rule results in the $25 threshold being applicable 
to drops of $25 to $833.33. The commenter recommendation would cause 
the $25 threshold to be applicable to drops of $25 to $500, which 
would, in effect, result in a lessening of the control. We do not 
believe there is a compelling basis for making the recommended change.

Final Revisions to Subsection 542.16(a)(1) General Controls for Gaming 
Hardware and Software

Proposed Deletion of Requirement in Vendor Software/Hardware Agreements 
That Vendors Agree To Adhere to Related Tribal Internal Controls

    Since initial adoption, this standard has often been a troublesome 
requirement for management and Tribal gaming regulatory authorities to 
implement and enforce. The NIGC is not unsympathetic to the challenges 
created by the regulation when a vendor is uncooperative. Although the 
proposed rule provided for the deletion of section 542.16(a)(1)(i), 
which requires Tribal management to ensure that vendors agree to adhere 
to Tribal internal control standards, the Commission has determined 
that deletion of this standard is not appropriate at this time. It is 
the common goal of the NIGC and Tribal management and regulators to 
ensure that vendors adhere to Tribal internal control standards.
    Comment was received supporting deletion of the standard, but 
noting that management should continue to be held accountable by the 
TGRA to ensure that agreements/contracts are not entered into that 
would cause the gaming operation to be noncompliant with any Tribal, 
State, or Federal laws or regulations. Furthermore, the TGRA should not 
hesitate to enact and enforce such regulations of their own specific to 
vendor contract requirements. Comment was also received supporting 
deletion of the standard because it creates an undue hardship on 
management in the negotiation of vendor agreements. Additional comment 
was received supporting the deletion of the standard because violations 
by vendors are often difficult and troublesome to enforce, which causes 
the regulation to be fairly meaningless. Other comment was received 
objecting to deletion of the standard because it provides an added 
level of protection for Tribes from unscrupulous vendors in their 
gaming enterprises. Additional comment was received from a TGRA noting 
that, notwithstanding deletion of the standard from the MICS, the Tribe 
intends to keep the control in their regulations, which is a Tribe's 
right as primary regulator under IGRA.
    After careful consideration of the comments received and relevant 
public policy issues, the Commission has decided to retain the standard 
at this time.

[[Page 23019]]

Final Revisions to Section 542.18 Regarding the Process for Commission 
Review and Determination of Tribal Requests for a Variance From the 
MICS in Their Tribal Internal Control Standards

    To more clearly describe the current variance process, the NIGC is 
revising section 542.18 of the MICS. Specifically, the revisions are 
intended to more clearly describe the authority and duties of the 
Chairman, his/her designee, the full Commission, as well as the appeal 
rights of the Tribal petitioner. The final revisions are also intended 
to ensure that an adequate factual investigation and record is 
developed for administrative and judicial review of the merits of the 
Chairman's decision on each variance request.
    Comment was received supporting the final revisions. Comment was 
also received supporting the revisions, except for that part that 
prohibits the implementation of a TGRA approved variance until after 
concurrence has been received from the Commission. Comment was received 
questioning whether the petitioner Tribe has the authority to extend 
stipulated time frames in the variance process.
    Additional comment was received questioning whether the thirty (30) 
day period associated with a review by NIGC staff of a resubmission was 
sufficient. Further comment was received questioning the potential 
result of a petitioner objecting to an extension of a stipulated time 
period requested by NIGC staff. Specifically, the concern is that 
refusal of such a request might result in summary denial of the 
variance request. Comment was also received questioning the need for 
extensions of the time frames provided. A commenter represented that 
the stipulated time periods should be sufficient. Finally, comment was 
received suggesting that the Commission should consider variance 
requests only after they have been approved by the TGRA.
    The Commission understands the commenter's objection to deferring 
implementation of a TGRA approved variance until receipt of Commission 
concurrence; however, to preserve the integrity of the MICS, the 
regulatory body responsible for its enactment must have the latitude to 
prohibit the implementation of procedures deemed to be unacceptable and 
contrary to the NIGC's MICS regulations. The Commission also recognizes 
that the variance concurrence process is one initiated by the 
petitioner. Therefore, the Commission would not be unreasonable in 
considering requests for additional time from the petitioner. It is 
noteworthy to such a position that the implementation of the proposed 
alternative procedure is precluded until after the Commission has 
concurred.
    The Commission acknowledges the concern expressed by a commenter 
regarding the time afforded NIGC staff to review a resubmission. 
Therefore, language has been added to enable staff to extend the 
period, subject to concurrence by the petitioner. The Commission 
understands the concern expressed by a commenter regarding a possible 
decision not to concur, if acceptance of an extension to a stipulated 
time period was not agreed. Certainly, the petitioner should be well 
aware that the investigation of pertinent facts and data associated 
with a variance request may take hours or many months, depending upon 
its complexity. Although requests for additional time should be 
reasonable and based on cause, the petitioner should also be well aware 
that the undue refusal to grant additional time may result in a 
determination different than that which would have otherwise been 
rendered, if the petitioners had agreed to the Chairman's request for 
more adequate time to investigate and decide their variance request. 
Notwithstanding the question pertaining to extension of time frames, 
the petitioner's right to appeal would continue to exist.
    The Commission disagrees with the commenter's contention that time 
period extensions are not warranted. Although some variance requests 
can be readily addressed, particularly if the staff charged with 
performing the research has past experience with similar requests, most 
will involve extensive analysis. Seldom is a petition simply responded 
to. Instead, a filing will generally initiate a back and forth exchange 
with the petitioner as staff seeks additional information or 
clarifications regarding the requested variance. Alternative procedures 
involving new technology often involve travel by staff to consult with 
manufacturers and other regulators or operators. Inherent to the 
analysis of a variance request is the identification of risk and 
evaluation of compensating controls. The time periods contained within 
the regulation will generally be appropriate for the more simple 
concurrence requests; however, complex requests will typically require 
one or more extensions of the allotted time frame. The Commission 
concurs with the commenter's suggestion regarding consideration of 
variance requests only after they have been approved by the TGRA. In 
accordance with the final rule, a variance request received by the 
Commission lacking evidence of the TGRA approval would not be 
considered. Since such a submission would lack authority.

Final Revisions To Add New Sections to the MICS Establishing Minimum 
Standards for Computerized Key Security Systems

Section 542.21(t)-(w) What are the minimum internal controls for drop 
and count for Tier A gaming operations?
Section 542.31(t)-(w) What are the minimum internal controls for drop 
and count for Tier B gaming operations?
Section 542.41(t)-(w) What are the minimum internal controls for drop 
and count for Tier C gaming operations?

    Sections (t) and (u) are new MICS sections. Existing sections (t) 
and (u) are unchanged and are now designated as sections (v) and (w). 
In recognition of an increasing number of gaming operations utilizing 
or considering the utilization of computerized key control systems, the 
NIGC has determined that regulations addressing such systems are 
warranted for Tier A, B, and C Tribal gaming operations.
    Comment was received supporting the final revisions noting that 
electronic key control systems are becoming more prevalent. Comment was 
also received supporting the determination by the Commission to adopt 
standards specifically covering the use of computerized key control 
systems in Tier A, B, and C gaming operations and not rely solely on 
the general MICS regulation covering computerized applications. Comment 
was also received supporting the new regulation and noting that the 
controls also provide for an audit function.
    Comment was received supporting the new regulation, but noting that 
the TGRA should also consider more stringent standards. Comment was 
received recommending that the auditing procedures, particularly the 
quarterly inventory of keys, be performed by accounting/auditing 
personnel independent of the key control process. Additional comment 
was received questioning the need for the regulations since most of the 
controls are already in the MICS. Comment was received recommending 
that the regulation more clearly differentiate the function of key 
custodian from system administrator.
    Comment was also received questioning the need for three persons to 
be involved in accessing the manual override key to open the box to 
perform repairs. It was noted that the persons accessing the box would 
not have access

[[Page 23020]]

to the slot drop and count keys. For the purpose of making repairs, 
only two persons should be required to gain access to the manual 
override key.
    The Commission disagrees with the commenter questioning the need 
for the new regulations. Computerized key control systems have been the 
subject of several Tribal variance requests over the past few years. 
Therefore, the Commission believes it appropriate to establish minimum 
standards specific to such systems. The Commission concurs with the 
commenter recommendation that the auditing procedures be performed by 
accounting/auditing personnel independent of the key control process. 
The final regulation for all three tiers has been changed accordingly. 
The Commission also concurs with the commenter's recommendation that 
the key custodian functions be more clearly defined and noted as being 
separate from those of the system administrator. Accordingly, the final 
revisions have been modified in all three new sections to more clearly 
define separation of the two fun