Minimum Internal Control Standards, 27385-27394 [06-4276]

Agencies

• DEPARTMENT OF THE INTERIOR
• National Indian Gaming Commission

[Federal Register Volume 71, Number 91 (Thursday, May 11, 2006)]
[Rules and Regulations]
[Pages 27385-27394]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-4276]


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DEPARTMENT OF THE INTERIOR

National Indian Gaming Commission

25 CFR Part 542

RIN 3141-AA27


Minimum Internal Control Standards

AGENCY: National Indian Gaming Commission.

ACTION: Final rule revisions.

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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, which have subsequently been revised several times. The 
Commission recognized from the outset that periodic technical 
adjustments and revisions would be necessary in order to keep the MICS 
effective in protecting Tribal gaming assets, the interests of Tribal 
stakeholders and the gaming public. To that end, the following final 
rule revisions contain certain corrections

[[Page 27386]]

and revisions, which are necessary to clarify, improve, and update the 
Commission's existing MICS. The purpose of these final MICS revisions 
is to address apparent shortcomings in the MICS and various changes in 
Tribal gaming technology and methods. Public comments on these final 
MICS revisions were received by the Commission for a period of 45 days 
after their publication in the Federal Register as a proposed rule on 
November 15, 2005. After consideration of all received comments, the 
Commission has made whatever changes to the proposed revisions that it 
deemed appropriate, and is now promulgating and publishing the final 
revisions to the Commission's MICS Rule, 25 CFR part 542.

EFFECTIVE DATES: May 11, 2006.
    Compliance Date: On or before July 10, 2006, the Tribal gaming 
regulatory authority (TGRA) shall: (1) In accordance with the Tribal 
gaming ordinance, establish and implement Tribal internal control 
standards that shall provide a level of control that equals or exceeds 
the revised standards set forth herein; and (2) establish a deadline no 
later than September 8, 2006, by which a gaming operation must come 
into compliance with the Tribal internal control standards. However, 
the TGRA may extend the deadline by an additional 60 days if written 
notice is provided to the Commission no later than September 8, 2006. 
Such notification must cite the specific revisions to which the 
extension pertains.

FOR FURTHER INFORMATION CONTACT: Chief of Staff, Joseph Valandra (202) 
632-7003 (not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    On January 5, 1999 (64 FR 590, Jan. 5, 1999), the Commission first 
published its Minimum Internal Control Standards (MICS) as a final 
rule. As gaming Tribes and the Commission gained practical experience 
applying the MICS, it became apparent that some of the standards 
required clarification or modification to be effective, operate as the 
Commission had intended, and accommodate changes and advances in gaming 
technology and methods. Consequently, the Commission, working with an 
Advisory Committee composed of the Commission, NIGS staff and nominated 
Tribal representatives, published a new, final revised MICS rule on 
June 27, 2002.
    Based on the practical experiences of the Commission and Tribes 
working with the revised MICS, it has again become apparent that 
additional corrections, clarifications and modifications are needed to 
ensure that the MICS continue to be effective and operate as the 
Commission intended. To identify which of the current MICS need 
correction, clarification or modification, the Commission initially 
solicited input and guidance from NIGC employees, who have extensive 
gaming regulatory expertise and experience, and work closely with 
Tribal gaming regulators in monitoring the implementations, operation 
and effect of the MICS in Tribal gaming operations. The resulting input 
from NIGC staff convinced the Commission that the MICS require 
continuing review and revision to keep them effective and up-to-date. 
To address this need, the Commission established a Standing MICS 
Advisory Committee to assist it in both identifying and developing 
necessary MICS revisions on an ongoing basis.
    In recognition of its government-to-government relationship with 
Tribes, and its related commitment to meaningful Tribal consultation, 
the Commission asked gaming Tribes in January of 2004 for nominations 
of Tribal representatives to serve on its Standing MICS Advisory 
Commission. From the twenty-seven (27) Tribal nominations that it 
received, the Commission selected nine (9) Tribal representatives in 
March 2004 to serve on the Committee. The Commission's Tribal Committee 
member selections were based on several factors, including the 
regulatory experience and background of the individuals nominated; the 
size(s) of their affiliated Tribal gaming operation(s); the types of 
games played at their affiliated Tribal gaming operation(s); and the 
areas of the country in which their affiliated gaming operation(s) are 
located. The selection process was very difficult because numerous 
highly qualified Tribal representatives were nominated to serve on this 
important Committee.
    As expected, the benefits of including Tribal representatives on 
the Committee, who work daily with the MICS, have been invaluable. The 
Tribal representatives selected to serve on the Commission's Standing 
MICS Advisory Committee are: Tracy Burris, Gaming Commissioner, 
Chickasaw Nation Gaming Commission, Chickasaw Nation of Oklahoma; Jack 
Crawford, Chairman, Umatilla Gaming Commission, Confederated Tribes of 
the Umatilla Indian Reservation; Patrick Darden, Executive Director, 
Chitimacha Gaming Commission, Chitimacha Indian Tribe of Louisiana; 
Mark N. Fox, former Compliance Director, Four Bears Casino, Three 
Affiliated Tribes of the Fort Berthold Reservation; Sherrilyn Kie, 
Senior Internal Auditor, Pueblo of Laguna Gaming Authority, Pueblo of 
Laguna; Patrick Lambert, Executive Director, Eastern Band of Cherokee 
Gaming Commission, Eastern Band of Cherokee Indians; John Meskill, 
Director, Mohegan Tribal Gaming Commission, Mohegan Indian Tribe; 
Jerome Schultze, Executive Director, Morongo Gaming Agency, Morongo 
Band of Mission Indians; and Lorna Skenandore, Assistant Gaming 
Manager, Support Services, Oneida Bingo and Casino, formerly Gaming 
Compliance Manager, Oneida Gaming Commission, Oneida Tribe of Indians 
of Wisconsin. The Advisory Committee also includes the following 
Commission representatives: Philip N. Hogen, Chairman; Cloyce V. 
Choney, Associate Commissioner; Joe H. Smith, Acting Director of 
Audits; Ken Billingsley, Region III Director; Nicole Peveler, Field 
Auditor; Ron Ray, Field Investigator; and Katherine Zebell, Staff 
Attorney, Office of General Counsel. Nelson Westrin, former Vice-
Chairman of the Commission, was part of the Standing MICS Advisory 
Committee from its inception through December of 2005.
    In the past, the MICS were comprehensively revised on a broad, 
wholesale basis. Such large-scale revisions proved to be difficult for 
Tribes to implement in a timely manner and were often unnecessarily 
disruptive to Tribal gaming operations. The purpose of the Commission's 
Standing Committee is to conduct a continuing review of the operation 
and effectiveness of the existing MICS. The primary purpose of the 
review is to promptly identify and develop needed revisions of the MICS 
on a manageable, incremental basis, in order to keep the MICS practical 
and effective. By making more manageable, incremental changes to the 
MICS on an ongoing basis, the Commission hopes to be more prompt in 
developing needed revisions, while, at the same time, avoiding larger-
scale MICS revisions that take longer to implement and can be 
unnecessarily disruptive to Tribal gaming operations.
    In accordance with the above-described approach, the Commission has 
developed the following set of final MICS rule revisions with the 
assistance of its Standing MICS Advisory Committee. In doing so, the 
Commission is carrying out its statutory mandate under the Indian 
Gaming Regulatory Act (Act or IGRA), 25 U.S.C. 2706(b)(10), to 
promulgate necessary and appropriate regulations to implement the 
provisions of the Act. In particular, the following final MICS rule 
revisions are intended to address Congress' purpose and concerns, 
stated in Section 2702(2) of

[[Page 27387]]

the Act, that it ``provide a statutory basis for the regulation of 
gaming by an Indian tribe adequate to shield it from organized crime 
and other corrupting influences, to ensure that the Indian tribe is the 
primary beneficiary of the gaming operations, and to assure that the 
gaming is conducted fairly and honestly by both the operator and the 
players.'' The Commission, with the Committee's assistance, identified 
three specific objectives for the following final MICS rule revisions: 
(1) To ensure that the MICS are reasonably comparable to the internal 
control standards of established gaming jurisdiction; (2) to ensure 
that the interests of the Tribal stakeholders are adequately 
safeguarded; and (3) to ensure that the interests of the gaming public 
are adequately protected.
    It should be noted that the NIGC's authority to issue and enforce 
MICS for Class III gaming was recently challenged in Federal district 
court in Colorado River Indian Tribes v. NIGC (CRIT), 383 F. Supp. 2d 
123 (D.D.C. 2005); 2005 U.S. Dist. LEXIS 17722. The case arose after 
the Colorado River Indian Tribes objected to an NIGC audit of its Class 
III gaming operation, which led to the audit's discontinuation. The 
NIGC subsequently cited the Tribe for an access violation and imposed a 
fine. the Court ruled that the NIGC's notice of violation and 
imposition of a civil fine were improper, finding that, under IGRA, the 
NIGC lacked the authority to issue or enforce MICS for Class III 
gaming. While the Court held that the NIGC could not penalize the 
Colorado River Indian Tribes for resisting the NIGC's attempt to 
conduct an audit of its Class III gaming, it did not enjoin the NIGC 
from applying its MICS to other Class III operations, nor did the Court 
prohibit the NIGC from conducting audits to monitor compliance with 
those MICS. The CRIT decision applies only to the Colorado River Indian 
Tribes. The decision is currently on appeal.
    In order to uphold the integrity of Indian gaming, it is important 
to maintain the continuity of the system of regulation that has been in 
place since 1999. This system has helped ensure adequate regulation and 
has facilitated growth and prosperity in the industry. Thus, with the 
exception of the gaming operations of the Colorado River Indian Tribes, 
the NIGC will continue to monitor Tribal compliance with the MICS with 
respect to Class II and III gaming, pending the results of our appeal 
in the CRIT case or further judicial or legislative direction.
    The Advisory Committee met in person on January 25, 2005, May 10, 
2005, and September 26, 2005, and by teleconference on March 13, 2006, 
to discuss the changes set forth in the following final MICS rule 
revisions. The input received from Committee members has been 
invaluable to the Commission in its development of the revisions. In 
accordance with the Commission's established government-to-government 
Tribal consultation policy, before formulation of the final rule 
revisions contained herein, the Commission provided a preliminary 
working draft of the revisions to gaming Tribes on August 26, 2005, for 
a thirty (30)-day informal review and public comment period. 
Furthermore, on November 15, 2005, the Commission published the 
proposed rule revisions in the Federal Register for public comment. 
Responses were received for a period of 45 days following publication. 
In response to its requests for comments, the Commission received 18 
comments from Tribal Advisory Committee members, individual Tribes and 
Tribal gaming commissions, and other interested parties regarding the 
proposed revisions. A summary of these comments is presented below in 
the discussion of each final revision to which they relate.

General Comments to Final MICS Revisions

    For the reasons stated above in this preamble, the NIGC is revising 
the following specific sections of its MICS rules, 25 CFR part 542. The 
following discussion addresses each of the final rule revisions and 
includes the Commission's response to public comments concerning the 
MICS.

Comments Questioning MIGC Authority To Promulgate MICS for Class III 
Gaming

    Many of the comments to the preliminary working draft of the MICS 
revisions pertained to the Commission's authority to promulgate rules 
governing the conduct of Class III gaming. Positions were expressed 
asserting that Congress intended the NIGC's Class III gaming regulatory 
authority to be limited exclusively to the approval of Tribal gaming 
ordinances and management contracts. Similar comments were received 
concerning the first proposed MICS back in 1999. The Commission, at 
that time, determined, in its publication of the original MICS in 1999, 
that it possessed the statutory authority to promulgate Class III MICS. 
As stated in the preamble to those MICS: ``The Commission believes that 
it does have the authority to promulgate this final rule. * * * [T]he 
Commission's promulgation of the MICS is consistent with its 
responsibilities as the Federal regulator of Indian gaming.'' 64 FR 
590, Jan. 5, 1999).
    The current Commission reaffirms that determination. IGRA, which 
established the regulatory structure for all classes of Indian gaming, 
expressly provides that the Commission ``shall promulgate such 
regulations as it deems appropriate to implement the provisions of (the 
Act).'' 25 U.S.C. 2706(b)(10). Pursuant to this clearly stated 
statutory duty and authority under the Act, the Commission has 
determined that minimum internal control standards are necessary and 
appropriate to implement and enforce the regulatory provisions of the 
Act governing the conduct of both Class II and Class III gaming and to 
accomplish the purposes of the Act. The Commission believes that the 
importance of internal control systems in the casino operating 
environment cannot be overemphasized. While this is true of any 
industry, it is particularly true and relevant to the revenue-
generation processes of a gaming enterprise, which, because of the 
physical and technical aspects of the games and their operation, and 
the randomness of game outcomes, makes exacting internal controls 
mandatory. The internal control systems and standards are the primary 
management procedures used to protect the operational integrity of 
gambling games; account for and protect gaming assets and revenues; and 
assure the reliability of the financial statements for Class II and III 
gaming operations. Consequently, internal control systems are a vitally 
important part of properly regulated gaming. Internal control systems 
establish a regulatory framework for the gaming enterprise's governing 
board, management and other personnel who are responsible for providing 
reasonable assurances regarding achievement of the enterprise's 
objectives. These objectives typically include operational integrity, 
effectiveness and efficiency; reliable financial statement reporting; 
and compliance with applicable laws and regulations.
    The Commission believes that strict regulations, such as the MICS, 
are not only appropriate, but necessary, for it to fulfill its 
responsibilities under IGRA to establish necessary baseline, or 
minimum, Federal internal control standards for all Tribal gaming 
operations on Indian lands. 25 U.S.C. 2702(3). Although the Commission 
recognizes that many Tribes had sophisticated internal control 
standards in place prior to the Commission's original promulgation of 
its MICS, many Tribes did not. This absence of minimum Federal internal 
control

[[Page 27388]]

standards in all Tribal casinos adversely affected the adequacy of 
Indian gaming regulation nationwide, and threatened gaming as a means 
of providing the expected Tribal benefits intended by IGRA. The 
Commission continues to strongly believe that the promulgation and 
revisions of IGRA, and is within the Commission's clearly expressed 
statutory power and duty under Section 2706(b)(10) of the Act.

Comments Recommending Voluntary Tribal Compliance With MICS

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

Final New or Revised Definitions in Section 542.2 of the MICS

     The Commission has added or revised definitions of the following 
five terms in Sec.  542.2. A discussion of each new or revised 
definition follows in alphabetical order.

``Account Access Card''

    The Commission has revised the existing MICS definition to more 
accurately define the applicability of the term. Committee members 
recommended that the definition of ``account access card'' be revised 
to include the reference that account access cards are not ``smart 
cards.''
    No comments were received concerning this final rule revision.

``Counter Game''

    This is a new definition. Several Committee members recommended 
that a definition of the term ``counter game'' be added to the current 
MICS definitions. In conjunction with the proposal to add accounting 
standards to the MICS, which include the term, the NIGC has determined 
that, to ensure that such revisions and existing rules are clear and 
unambiguous, insertion of the definition is worthwhile. One comment was 
received questioning the need for the definition, since the MICS 
already addresses each of the relevant games. As noted, the term is 
pertinent to its use in the minimum internal control standards for 
accounting, which are added in conjunction with this final rule at 
Sec.  542.19.

``Statistical Drop''

    This is a new definition. Based on a comment received, the 
definition is being added to the current MICS definitions. In 
conjunction with other final rule revisions to the MICS, which include 
the term, the NIGC has determined that, to ensure that the rules are 
clear and unambiguous, insertion of the definition in the MICS is 
worthwhile.

``Statistical Win''

    This is a new definition. Based on a comment received, the 
definition is being added to the current MICS definitions. In 
conjunction with other final rule revisions to the MICS, which include 
the term, the NIGC has determined that, to ensure that the rules are 
clear and unambiguous, insertion of the definition in the MICS is 
worthwhile.

Final Addition to Sections 542.7(g)(1) and 542.8(h)(1) Electronic 
Equipment

    The Commission is revising the current standards to clarify the 
intent of the existing regulation. The amendment is to explicitly state 
that bingo electronic systems and pull-tab electronic systems utilizing 
patron account access cards will be required to comply with the 
applicable standards contained within the MICS. One comment was 
received concerning this final revision. The commenter put forth the 
position that it is confusing to apply Class III requirements to Class 
II games. The Commission disagrees, and notes that the MICS are not 
game-classification specific; instead, the regulations are pertinent to 
a game or activity without regard to the class distinction of the game 
or the relevancy of an activity to the game.
    Additionally, the commenter noted that the regulation fails to 
explicitly identify the specific elements of Sec.  542.13(o) that would 
be applicable to bingo and pull-tab games utilizing account access 
cards. It was recommended that the account access card standards, which 
are pertinent to bingo and pull-tabs, be added to the respective 
regulations. The Commission disagrees. The standards incorporated by 
reference from the gaming machine section represent minimum controls 
for games relying on a back-of-the-house server, in which the patrons 
place front money and use a magnetic card to gain access to their 
account. Because of the variations that exist in the industry, to amend 
the bingo and pull-tab sections would simply involve a reprint of the 
rules referenced in the gaming machine section. With regard to the 
revision referring to the account access controls that are relevant 
(``as applicable''), the Commission disagrees that management would be 
challenged to identify which rules pertain to their gaming facility. 
Other MICS use qualifying terms, and, from a compliance perspective, it 
has not proven to be problematic.

Final Addition and Revisions to Section 542.13(o)(4) Customer Account 
Generation Standards

    The Commission is revising the noted regulation to clarify the 
intent of the existing rule. The amendment will explicitly represent 
that a patron's identification must be verified and that an account 
must identify a patron's name. The Commission believes this standard is 
not inconsistent with Section 103.36 of the Bank Secrecy Act and the 
regulations of other gaming jurisdictions, which also require that 
patron identification information be recorded and verified at the time 
an account is established. The intent of the clarification is to ensure 
that management is well aware that establishing cash accounts, which 
are identified only by a number or a fictitious identifier, such as 
Mickey Mouse, is explicitly prohibited by the MICS. The revision to the 
standards governing the obtaining of a new personal identification 
number (PIN) is intended to clarify that the Gaming Machine Information 
Center is a clerk who has access to the customer's file for the purpose 
of changing the PIN. A commenter noted that the revision fails to 
address a situation in which the system is utilized by casino personnel 
to track buy-in when a customer is approaching the $10,000 cash-
reporting threshold of the Internal Revenue Service.
    As a point of clarification, the Commission notes that, although it 
is not uncommon for the MICS to echo Bank Secrecy Act regulations, it 
is the intent of the NIGC rule to establish a minimum baseline for 
casino internal control systems. The Declaration of Policy Section of 
IGRA provides

[[Page 27389]]

guidance to the NIGC in the formulation of its regulations. The 
specific intent of the MICS is to ensure that the investment of a Tribe 
is appropriately safeguarded for the benefit of Tribal stakeholders and 
that the interests of the gaming public are adequately protected. The 
revisions in question possess the rather narrow objective of assuring 
that there is an exact accounting of the funds advanced by patrons for 
the purpose of wagering. The Bank Secrecy Act is motivated by other 
objectives, not least of which is the deterrence of money-laundering 
activities. Although patron-account records may be utilized by the 
gaming operation to identify and track in/out cash transactions, it is 
not the intent of the Commission to satisfy any specific rule contained 
within the Bank Secrecy Act, which, nonetheless, is still an obligation 
of casino management. Notwithstanding the overall objectives of the 
MICS, Tribal gaming regulators and operators should be well aware that 
542.3(C)(2) requires Tribal internal controls standards for currency-
transaction reporting that comply with 31 CFR part 103. The Commission 
stresses that Tribal gaming enterprises must fully comply with the Bank 
Secrecy Act.
    One commenter questioned the applicability of the revision to 
player club accounts. To clarify, the rule is pertinent to patron 
accounts established by patrons via the deposit of monies for the 
purpose of performing wagering transactions. The rule is not applicable 
to player-tracking systems that reward patrons for their patronage 
based on their level of wagering activity. The commission refers the 
commenter to Sec.  542.13(j) for standards governing player-tracking 
systems.
    Comments were received recommending that the revision not require 
that the alternative identification be photographic. The basis for the 
recommendation is founded upon the premise that the requirement is 
inconsistent with industry practice and generally accepted gaming 
regulatory standards. The Commission agrees and has amended the final 
revision.
    One commenter recommended that the revision address what factors 
should be considered when evaluating the validity of an identification 
document. The Commission disagrees, since reliance upon casino 
personnel to exercise due professional care in examining the 
identifying documents should be sufficient. However, the most obvious 
criteria would be whether a document matched the individual proffering 
the document. Other factors to consider would be whether the document 
appears to have been altered or whether data on multiple documents is 
inconsistent.
    One commenter recommended that the revision require that gaming 
operations obtain a patron's social security number, which is a 
requirement of the Bank Secrecy Act. Although the Commission recognizes 
that casinos are required to obtain the information when establishing 
patron accounts, as previously noted, the NIGC's objective is to ensure 
that internal control systems are developed which are sufficient to 
safeguard the Tribal stakeholder and protect the public. Therefore, the 
Commission disagrees with the recommendation.

Final Removal of Section 542.16(f)(vi); Document Storage of Original 
Documents Until Audited

    The Commission is removing the noted regulation, since it is in 
conflict with the final revision adding Sec.  542.19 which pertains to 
accounting standards, specifically the maintenance and preservation of 
books, records and documents. No comments were received concerning this 
final revision.

Final Addition of Section 542.19; What Are the Minimum Internal Control 
Standards for Accounting?

    The Commission is adding this new regulation to establish the basic 
tenets required of a casino accounting function. The standards are 
common to established gaming jurisdictions. Over the past few years, 
the Commission has become increasingly concerned about the number of 
financial statements received in which the independent accountant has 
been unable to render a ``clean'' opinion. Furthermore, since the MICS 
were initially adopted, many questions have arisen regarding the 
relationship of Section 571.7, Maintenance and preservation of papers 
and records, to part 542, Minimum Internal Control Standards. The final 
revision is also intended to clarify and define the scope of the five 
(5)-year record retention requirement as it relates to casino records.
    One commenter requested that the part of the provision that reads 
``any other records specifically required to be maintained'' identify 
who or what is establishing the retention requirement. The Commission 
disagrees, and considers the representation to be clear in that it 
pertains to other records required by the MICS.
    One commenter recommended that the requirement that general 
accounting records be prepared according to GAAP on a double-entry 
system of accounting, maintaining detailed supporting and subsidiary 
records, not apply to records required by theTribal internal control 
standards. The basis for this recommendation is founded upon the 
premise that the regulation will allow the NIGC to audit the gaming 
operation for compliance with the Tribe's internal control standards as 
well as with the Federal rule. The Commission disagrees with the 
recommendation because, as warranted, the NIGC reserves the right to 
utilize the Tribe's internal control standards, particularly those 
adopted as gaming regulations of the regulatory entity, in the course 
of an audit, and expand the scope of the audit when justified. For 
example, under Sec.  542.3(c)(3), a Tribe is required to develop 
internal controls for games not addressed in the MICS. With regard to 
such games, the Commission could rely on the Tribal internal controls 
to test for compliance. Although it has been the practice of the 
Commission to report those Tribal internal control compliance 
exceptions that do not represent a MICS' exception as merely an 
advisory comment, should a finding pose a material risk to operational 
integrity, follow-up by the Commission to verify the effectiveness of 
remedial action would be likely.
    One commenter recommended that the standards addressing the 
maintenance and preservation of internal audit documentation and 
reports should be addressed in Sec. Sec.  542.22, 542.32 and 542.42, 
What are the minimum internal controls for internal audit? The 
Commission appreciates the recommendation, but believes that the MICS 
would be better served to centralize the retention of all documents and 
records at one location.
    One commenter questioned the need to have a regulation that 
addresses the process of calculating gross gaming revenue for 
individual games, since the result is relevant only to the 
determination of tier. The Commission disagrees. As previously noted, 
the identification of minimum internal controls for accounting is a 
common element of the regulations of established gaming jurisdictions. 
Furthermore, past experience has demonstrated a lack of consistency in 
the calculation of gross gaming revenue, which has often resulted in 
miscalculations of NIGC fees. The determination of gross revenue by 
game can be a complex process. The final rule is intended to provide 
additional guidance; however, the Commission also recognizes that more 
issues remain, such as when it is permissible to adjust handle for 
promotional items. It is anticipated that, at a minimum, bulletins are 
likely to follow which specifically address the

[[Page 27390]]

type of transaction noted. For informational purposes, the Commission 
has taken the position that items such as free-play coupons are 
acceptable adjustments, if there is a direct audit trail to the drop/
count and there is appropriate accounting for, and controls over, the 
coupons.
    One commenter noted that in jurisdicitions which require unredeemed 
property to be turned over to the state, the standards specific to the 
reversal of a cash-out ticket payout entry for items not redeemed 
could, or would, be in conflict with state law or regulation. State law 
or regulation only applies if made applicable by a Tribal-State 
compact. If there is a conflict between the Tribal-State compact and 
the revision in Sec.  542.19(h), then Sec.  542.4, which discusses how 
these regulations affect minimum internal control standards established 
in a Tribal-State compact, controls.
    One commenter questioned the need to have regulations governing the 
calculation of gross gaming revenue since it is already addressed by 
FASB and GAAP pronouncements. The Commission disagrees. Although the 
referenced professional pronouncements do provide conceptual guidance 
relevant to the determination of casino revenues, they do not provide 
the specificity necessary to ensure uniformity in the Tribal gaming 
industry. Therefore, it is the position of the Commission that the 
final rule is warranted.
    One commenter requested an explanation of statistical drop and 
statistical win for table games. Accordingly, the Commission has added 
definitions of both ``statistical drop'' and ``statistical win'' to 
Sec.  542.2.
    One commenter suggested that the terms ``reasonably ensure'' and 
``reasonable intervals'' be defined. The Commission disagrees. The 
obligation of management to reasonably ensure that assets are 
safeguarded, financial records are accurate and reliable, and 
transactions are appropriately authorized, for example, necessitates 
the exercise of professional judgment by management. From a conceptual 
perspective, the requirement is pertinent to the users of the data. The 
information provided to owners, regulators and other interested parties 
should be sufficiently fair in its representation that a misstatement 
would not result in a flawed perspective or determination. Materiality 
to the overal data, such as total assets, risk of misstatement--such as 
what might be associated with accounts receivable or accounts payable--
and past compliance exceptions, would influence the extent of the 
procedures employed by management to satisfy the obligation to 
reasonable ensure.
    With regard to the obligation that booked assets be compared to 
actual assets at reasonable intervals, the position of the Commission 
is the same as expressed above. Essentially, management should confirm 
the existence of recorded assets with such frequency that confidence 
can be had in the financial data reported. For example, fixed assets 
should be tested on an annual basis; however, absolute verifiction is 
generally not necessary. The data will typically be analyzed from a 
risk of misstatement and a risk of loss perspective. In other words, 
management may determine that items particularly vulnerable to 
misappropriation or devaluation--for example, tools or assets 
possessing a useful life that is difficult to predict--may warrant 
verification more frequently than once a year.
    One commenter questioned whether the ability to adjust gross 
revenues for uncollected credit issued pertains to the general ledger 
account or taxable revenues. To clarify, the standard pertains to the 
calculation of gross gaming revenues, as determined according to NIGC 
regulations, which would be relevant to the general ledger. With regard 
to the NIGC fee calculation, which is based on assessable gaming 
revenues, the calculation begins with gross gaming revenues and then 
adjustments are made thereto. When revenue has been included that was 
derived from the extension of credit to a patron and the patron's debt 
is deemed to be uncollectible, or is settled for a lesser amount, it is 
the position of the Commission that the facility should have the 
latitude of reducing current gross gaming revenue accordingly.
    One commenter expressed the position that the reference in the MICS 
to ``gaming operation'' fails to recognize that gaming enterprises also 
include ancillary activities such as hotels, restautrants, parking 
garages and the like, which may, and often do, represent separate, but 
interrelated, revenue centers. The Commission disagrees with the 
commenter's interpretation of the term ``gaming operation'' as being 
too narrow. The term ``gaming operation'' relates to the entity 
licensed by the Tribe to conduct gaming, which would include all 
interrelated and dependent activities and revenue centers.
    One commenter recommended that the requirement that gaming 
operations establish administrative and accounting procedures for the 
purpose of exercising effective control over its fiscal affairs lacks 
specificity and should include exacting standards. The Commission 
disagrees. Inherent to the regulation is the obligation of management 
to exercise professional judgment in accomplishing the well-recognized 
objective of ensuring the reliability of the financial data reported. 
An attempt by the Commission to codify specific procedures could result 
in the regulation being overly intrusive and burdensome for some 
operations and insufficient for others. The Commission's perspective is 
founded upon the premise that providing reasonable assurances regarding 
the reliability of the data reported has a direct correlation to 
materiality, risk of compromise, and past performance, and will vary 
from one casino to another, depending on these factors.

Final Revisions to the Following Sections: 542.21(f)(12) (Tier A--Drop 
and Count) Gaming

Machine Bill--Acceptor Count Standards; 542.31(f)(12) (Tier B--Drop and 
Count) Gaming

Machine Bill--Acceptor Count Standards; 542.41(f)(12) (Tier C--Drop and 
Count) Gaming

Machine Bill--Acceptor Count Standards

    The referenced standards represent a duplicate control to an 
identical requirement contained within each of the respective Tier 
section's Gaming Machine Bill-Acceptor Drop Standards, refer to 
Sec. Sec.  542.21(e)(4), 542.31(e)(5), and 542.41(e)(5). Specifically, 
the standard requires the bill-acceptor canisters to be posted with a 
number corresponding to that of the machine from which it was 
extracted. The subject control pertains to a drop function, as opposed 
to the count process. Therefore, the Commission is deleting the above 
subsections. No comments were received pertaining to the final 
revision.

Regulatory Matters

Regulatory Flexibility Act

    The Commission certifies that the final revisions to the Minimum 
Internal Control Standards contained within this regulation will not 
have a significant economic impact on small entities, 5 U.S.C. 605(b). 
The factual basis for this certification is as follows:
    Of the 330 Indian gaming operations across the country, 
approximately 93 of the operations have gross revenues of less than $5 
million. Of these, approximately 39 operations have gross revenues of 
under $1 million. Since the final revisions will not apply to gaming 
operations with gross revenues under $1 million, only 39 small 
operations may

[[Page 27391]]

be affected. While this is a substantial number, the Commission 
believes that the final revisions will not have a significant economic 
impact on these operations for several reasons. Even before 
implementation of the original MICS, Tribes had internal controls 
because they are essential to gaming operations in order to protect 
assets. The costs involved in implementing these controls are part of 
the regular business costs incurred by a gaming operation. The 
Commission believes that many Indian gaming operation internal control 
standards are more stringent than those contained in these regulations. 
Further, these final rule revisions are technical and minor in nature.
    Under the final revisions, small gaming operations grossing under 
$1 million are exempted from MICS compliance. Tier A facilities (those 
with gross revenues between $1 and $5 million) are subject to the 
yearly requirement that independent, certified pubic accountant testing 
occur. The purpose of this testing is to measure the gaming operation's 
compliance with the Tribe's internal control standards. The cost of 
compliance with this requirement for small gaming operations is 
estimated at between $3,000 and $5,000. This cost is relatively minimal 
and does not create a significant economic effect on gaming operations. 
What little impact exists is further offset because other regulations 
require yearly independent financial audits that can be conducted at 
the same time. For these reasons, the Commission has concluded that the 
final rule revisions will not have a significant economic impact on 
those small entities subject to the rule.

Small Business Regulatory Enforcement Fairness Act

    The following final revisions do not constitute a major rule under 
5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness 
Act. The revisions will not have an annual effect on an economy of $100 
million or more. The revisions also will not cause a major increase in 
costs or prices for consumers, individual industries, Federal, state or 
local government agencies or geographic regions, and do not have a 
significant adverse effect on competition, employment, investment, 
productivity, innovation, or the ability of U.S.-based enterprises to 
compete with foreign-based enterprises.

Unfunded Mandates Reform Act

    The Commission is an independent regulatory agency, and, as such, 
is not subject to the Unfunded Mandates Reform Act. Even so, the 
Commission has determined that the final rule revisions do not impose 
an unfunded mandate on State, local or Tribal governments, or on the 
private sector, of expenditures of more than $100 million per year. 
Thus, this is not a ``significant regulatory action'' under the 
Unfunded Mandates Reform Act, 2 U.S.C. 1501 et seq.
    The Commission has, however, determined that the final rule 
revisions may have a unique effect on Tribal governments, as they apply 
exclusively to Tribal governments whenever they undertake the 
ownership, operation, regulation, or licensing of gaming facilities on 
Indian lands, as defined by IGRA. Thus, in accordance with Section 203 
of the Unfunded Mandates Reform Act, the Commission undertook several 
actions to provide Tribal governments with adequate notice and 
opportunities for ``meaningful'' consultation, input, sharing of 
information, advice and education regarding compliance.
    These actions included the formation of a Standing MICS Tribal 
Advisory Committee and the request for input from Tribal leaders. 
Section 204(b) of the Unfunded Mandates Reform Act exempts from the 
Federal Advisory Committee Act (5 U.S.C. App.) meetings with Tribal 
elected officials (or their designees) for the purpose of exchanging 
views, information, and advice concerning the implementation of 
intergovernmental responsibilities or administration. In selecting 
Committee members, consideration was given to the applicant's 
experience in this area, as well as the size of the Tribe the nominee 
represented, the geographic location of the gaming operation, and the 
size and type of gaming being conducted. The Commission attempted to 
assemble a Committee that incorporates diversity and is representative 
of Tribal gaming interests. The Commission met with the Advisory 
Committee and discussed the pubic comments that were received as a 
result of the publication of the proposed MICS rule revisions, and 
considered all Tribal and public comments and Committee recommendations 
before formulating the final rule revisions. The Commission also plans 
to continue its policy of providing necessary technical assistance, 
information, and support to enable Tribes to implement and comply with 
the MICS as revised.
    The Commission also provided the proposed revisions to Tribal 
leaders for comment prior to publication of this final rule and 
considered these comments in formulating the final rule (70 FR 69293, 
Nov. 15, 2005).

Takings

    In accordance with Executive Order 12630, the Commission has 
determined that the following final MICS rule revisions do not have 
significant takings implications. A takings implication assessment is 
not required.

Civil Justice Reform

    In accordance with Executive Order 12988, the Office of General 
Counsel has determined that the following final MICS rule revisions do 
not unduly burden the judicial system and meet the requirements of 
sections 3(a) and 3(b)(2) of the Order.

Paperwork Reduction Act

    The following final MICS rule revisions require information 
collection under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq., 
as did the rule it revises. There is no change to the paperwork 
requirements created by these final revisions. The Commission's OMB 
Control Number for this regulation is 3141-0009.

National Environmental Policy Act

    The Commission has determined that the following final MICS rule 
revisions do not constitute a major Federal action significantly 
affecting the quality of the human environment, and that no detailed 
statement is required pursuant to the National Environmental Policy Act 
of 1969 (42 U.S.C. 4321 et seq.).

List of Subjects in 25 CFR Part 542

    Accounting, Auditing, Gambling, Indian-lands, Indian-tribal 
government, Reporting and recordkeeping requirements.


0
Accordingly, for all of the reasons set forth in the foregoing 
preamble, the National Indian Gaming Commission amends 25 CFR part 542 
as follows:

PART 542--MINIMUM INTERNAL CONTROL STANDARDS

0
1. The authority citation for part 542 continues to read as follows:

    Authority: 25 U.S.C. 2701 et seq.


0
2. Amend Sec.  542.2 to add, in alphabetical order, the definitions for 
``Counter Game,'' ``Statistical Drop,'' ``Statistical Win''; by 
revising the definition for ``Account Access Card'' to read as follows:


Sec.  542.2  What are the definitions for this part?

* * * * *
    Account access card means an instrument used to access customer 
accounts for wagering at a gaming machine. Account access cards are 
used

[[Page 27392]]

in connection with a computerized account database. Account access 
cards are not ``smart cards.''
* * * * *
    Counter Game means a game in which the gaming operation is a party 
to wagers and wherein the gaming operation documents all wagering 
activity. The term includes, but is not limited to, bingo, keno, and 
pari-mutuel race books. The term does not include table games, card 
games and gaming machines.
* * * * *
    Statistical drop means total amount of money, chips and tokens 
contained in the drop boxes, plus pit credit issued, minus pit credit 
payments in cash in the pit.
    Statistical win means closing bankroll, plus credit slips for cash, 
chips or tokens returned to the cage, plus drop, minus opening 
bankroll, minus fills to the table, plus marker credits.
* * * * *

0
3. Amend Sec.  542.7 to add paragraph (g)(1)(iv) to read as follows:


Sec.  542.7  What are the minimum internal control standards for bingo?

* * * * *
    (g) Electronic equipment.
    (1) * * *
* * * * *
    (iv) If the electronic equipment utilizes patron account access 
cards for activation of play, then Sec.  542.13(o) (as applicable) 
shall apply.
* * * * *

0
4. Amend Sec.  542.8 to add paragraph (h)(1)(iv) to read as follows:


Sec.  542.8  What are the minimum internal control standards for pull 
tabs?

* * * * *
    (h) Electronic equipment.
    (1) * * *
* * * * *
    (iv) If the electronic equipment utilizes patron account access 
cards for activation of play, then Sec.  542.13(o) (as applicable) 
shall apply.
* * * * *

0
5. Amend Sec.  542.13 to redesignate paragraphs (o)(4)(ii) and 
(o)(4)(iii) as (o)(4)(iii) and (o)(4)(iv), add new paragraph 
(o)(4)(ii), and revise newly designated (o)(4)(iv) to read as follows:


Sec.  542.13  What are the minimum internal control standards for 
gaming machines?

* * * * *
    (o) * * *
    (4) * * *
* * * * *
    (ii) For each customer file, an employee shall:
    (A) Record the customer's name and current address;
    (B) The date the account was opened; and
    (C) At the time the initial deposit is made, account opened, or 
credit extended, the identity of the customer shall be verified by 
examination of a valid driver's license or other reliable identity 
credential.
* * * * *
    (iv) After entering a specified number of incorrect PIN entries at 
the cage or player terminal, the customer shall be directed to proceed 
to a clerk to obtain a new PIN. If a customer forgets, misplaces or 
requests a change to their PIN, the customer shall proceed to a clerk 
for assistance.
* * * * *


Sec.  542.16  [Amended]

0
6. Amend Sec.  542.16 by removing paragraph (f)(1)(vi).

0
7. Add Sec.  542.19 to read as follows:


Sec.  542.19  What are the minimum internal control standards for 
accounting?

    (a) Each gaming operation shall prepare accurate, complete, 
legible, and permanent records of all transactions pertaining to 
revenue and gaming activities.
    (b) Each gaming operation shall prepare general accounting records 
according to Generally Accepted Accounting Principles on a double-entry 
system of accounting, maintaining detailed, supporting, subsidiary 
records, including, but not limited to:
    (1) Detailed records identifying revenues, expenses, assets, 
liabilities, and equity for each gaming operation;
    (2) Detailed records of all markers, IOU's, returned checks, hold 
checks, or other similar credit instruments;
    (3) Individual and statistical game records to reflect statistical 
drop, statistical win, and the percentage of statistical win to 
statistical drop by each table game, and to reflect statistical drop, 
statistical win, and the percentage of statistical win to statistical 
drop for each type of table game, by shift, by day, cumulative month-
to-date and year-to-date, and individual and statistical game records 
reflecting similar information for all other games;
    (4) Gaming machine analysis reports which, by each machine, compare 
actual hold percentages to theoretical hold percentages;
    (5) The records required by this part and by the Tribal internal 
control standards;
    (6) Journal entries prepared by the gaming operation and by its 
independent accountants; and
    (7) Any other records specifically required to be maintained.
    (c) Each gaming operation shall establish administrative and 
accounting procedures for the purpose of determining effective control 
over a gaming operation's fiscal affairs. The procedures shall be 
designed to reasonably ensure that:
    (1) Assets are safeguarded;
    (2) Financial records are accurate and reliable;
    (3) Transactions are performed only in accordance with management's 
general and specific authorization;
    (4) Transactions are recorded adequately to permit proper reporting 
of gaming revenue and of fees and taxes, and to maintain accountability 
of assets;
    (5) Recorded accountability for assets is compared with actual 
assets at reasonable intervals, and appropriate action is taken with 
respect to any discrepancies; and
    (6) Functions, duties, and responsibilities are appropriately 
segregated in accordance with sound business practices.
    (d) Gross gaming revenue computations. (1) For table games, gross 
revenue equals the closing table bankroll, plus credit slips for cash, 
chips, tokens or personal/payroll checks returned to the cage, plus 
drop, less opening table bankroll and fills to the table, and money 
transfers issued from the game through the use of a cashless wagering 
system.
    (2) For gaming machines, gross revenue equals drop, less fills, 
jackpot payouts and personal property awarded to patrons as gambling 
winnings. Additionally, the initial hopper load is not a fill and does 
not affect gross revenue. The difference between the initial hopper 
load and the total amount that is in the hopper at the end of the 
gaming operation's fiscal year should be adjusted accordingly as an 
addition to or subtraction from the drop for the year.
    (3) For each counter game, gross revenue equals:
    (i) The money accepted by the gaming operation on events or games 
that occur during the month or will occur in subsequent months, less 
money paid out during the month to patrons on winning wagers (``cash 
basis''); or
    (ii) The money accepted by the gaming operation on events or games 
that occur during the month, plus money, not previously included in 
gross revenue, that was accepted by the gaming operation in previous 
months on events or games occurring in the month, less money paid out 
during the month to patrons as winning wagers (``modified accrual 
basis'').

[[Page 27393]]

    (4) For each card game and any other game in which the gaming 
operation is not a party to a wager, gross revenue equals all money 
received by the operation as compensation for conducting the game.
    (i) A gaming operation shall not include either shill win or loss 
in gross revenue computations.
    (ii) In computing gross revenue for gaming machines, keno and 
bingo, the actual cost to the gaming operation of any personal property 
distributed as losses to patrons may be deducted from winnings (other 
than costs of travel, lodging, services, food, and beverages), if the 
gaming operation maintains detailed documents supporting the deduction.
    (e) Each gaming operation shall establish internal control systems 
sufficient to ensure that currency (other than tips or gratuities) 
received from a patron in the gaming area is promptly placed in a 
locked box in the table, or, in the case of a cashier, in the 
appropriate place in the cashier's cage, or on those games which do not 
have a locked drop box, or on card game tables, in an appropriate place 
on the table, in the cash register or in another approved repository.
    (f) If the gaming operation provides periodic payments to satisfy a 
payout resulting from a wager, the initial installment payment, when 
paid, and the actual cost of a payment plan, which is funded by the 
gaming operation, may be deducted from winnings. The gaming operation 
is required to obtain the approval of all payment plans from the TGRA. 
For any funding method which merely guarantees the gaming operation's 
performance, and under which the gaming operation makes payments out of 
cash flow (e.g. irrevocable letters of credits, surety bonds, or other 
similar methods), the gaming operation may only deduct such payments 
when paid to the patron.
    (g) For payouts by wide-area progressive gaming machine systems, a 
gaming operation may deduct from winnings only its pro rata share of a 
wide-area gaming machine system payout.
    (h) Cash-out tickets issued at a gaming machine or gaming device 
shall be deducted from gross revenue as jackpot payouts in the month 
the tickets are issued by the gaming machine or gaming device. Tickets 
deducted from gross revenue that are not redeemed within a period, not 
to exceed 180 days of issuance, shall be included in gross revenue. An 
unredeemed ticket previously included in gross revenue may be deducted 
from gross revenue in the month redeemed.
    (i) A gaming operation may not deduct from gross revenues the 
unpaid balance of a credit instrument extended for purposes other than 
gaming.
    (j) A gaming operation may deduct from gross revenue the unpaid 
balance of a credit instrument if the gaming operation documents, or 
otherwise keeps detailed records of, compliance with the following 
requirements. Such records confirming compliance shall be made 
available to the TGRA or the Commission upon request:
    (1) The gaming operation can document that the credit extended was 
for gaming purposes;
    (2) The gaming operation has established procedures and relevant 
criteria to evaluate a patron's credit reputation or financial 
resources and to then determine that there is a reasonable basis for 
extending credit in the amount or sum placed at the patron's disposal;
    (3) In the case of personal checks, the gaming operation has 
established procedures to examine documentation, which would normally 
be acceptable as a type of identification when cashing checks, and has 
recorded the patron's bank check guarantee card number or credit card 
number, or has satisfied paragraph (j)(2) of this section, as 
management may deem appropriate for the check-cashing authorization 
granted;
    (4) In the case of third-party checks for which cash, chips, or 
tokens have been issued to the patron, or which were accepted in 
payment of another credit instrument, the gaming operation has 
established procedures to examine documentation, normally accepted as a 
means of identification when cashing checks, and has, for the check's 
maker or drawer, satisfied paragraph (j)(2) of this section, as 
management may deem appropriate for the check-cashing authorization 
granted;
    (5) In the case of guaranteed drafts, procedures should be 
established to ensure compliance with the issuance and acceptance 
procedures prescribed by the issuer;
    (6) The gaming operation has established procedures to ensure that 
the credit extended is appropriately documented, not least of which 
would be the patron's identification and signature attesting to the 
authenticity of the individual credit transactions. The authorizing 
signature shall be obtained at the time credit is extended.
    (7) The gaming operation has established procedures to effectively 
document its attempt to collect the full amount of the debt. Such 
documentation would include, but not be limited to, letters sent to the 
patron, logs of personal or telephone conversations, proof of 
presentation of the credit instrument to the patron's bank for 
collection, settlement agreements, or other documents which demonstrate 
that the gaming operation has made a good faith attempt to collect the 
full amount of the debt. Such records documenting collection efforts 
shall be made available to the TGRA or the commission upon request.
    (k) Maintenance and preservation of books, records and documents. 
(1) All original books, records and documents pertaining to the conduct 
of wagering activities shall be retained by a gaming operation in 
accordance with the following schedule. A record that summarizes gaming 
transactions is sufficient, provided that all documents containing an 
original signature(s) attesting to the accuracy of a gaming related 
transaction are independently preserved. Original books, records or 
documents shall not include copies of originals, except for copies that 
contain original comments or notations on parts of multi-part forms. 
The following original books, records and documents shall be retained 
by a gaming operation for a minimum of five (5) years:
    (i) Casino cage documents;
    (ii) Documentation supporting the calculation of table game win;
    (iii) Documentation supporting the calculation of gaming machine 
win;
    (iv) Documentation supporting the calculation of revenue received 
from the games of keno, pari-mutuel, bingo, pull-tabs, card games, and 
all other gaming activities offered by the gaming operation;
    (v) Table games statistical analysis reports;
    (vi) Gaming machine statistical analysis reports;
    (vii) Bingo, pull-tab, keno and pari-mutuel wagering statistical 
reports;
    (viii) Internal audit documentation and reports;
    (ix) Documentation supporting the write-off of gaming credit 
instruments and named credit instruments;
    (x) All other books, records and documents pertaining to the 
conduct of wagering activities that contain original signature(s) 
attesting to the accuracy of the gaming related transaction.
    (2) Unless otherwise specified in this part, all other books, 
records, and documents shall be retained until such time as the 
accounting records have been audited by the gaming operation's 
independent certified public accountants.
    (3) The above definition shall apply without regards to the medium 
by which the book, record or document is generated or maintained 
(paper, computer-generated, magnetic media, etc.).


[[Page 27394]]


    Signed in Washington, DC, this 2nd day of May, 2006.
Philip N. Hogen,
Chairman.
Cloyce Choney,
Commissioner.
[FR Doc. 06-4276 Filed 5-10-06; 8:45 am]
BILLING CODE 7565-01-M