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Tribal Gaming Regulation

Article Author
Sarah Klaphake Cords
Publish Date
April 1, 2011
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Author: 
Sarah Klaphake Cords

Each and every move casino staff make while running their operation is part of a well-designed plan, like a play in football that is constantly being judged for how well the players follow the coach’s play book. There are required steps and processes to make the game meet standards, and extra steps that make the team even better, taking it to a whole new level.

If one person fails, the entire team suffers. In the case of tribal gaming, the entire community suffers. That is why gaming regulation is taken so seriously in Native American gaming. It has to be. If the rules aren’t followed, a tribe’s reputation and well-being are put at risk.

The basis of tribal gaming regulations and rules stems from minimum internal control standards, or MICS, which detail every required step of an operation. Jerry Schultze, executive director of the Morongo Gaming Agency, describes the MICS as “How to run a casino 101.”

MICS tell operators how to count money, how many verifiers are required for certain processes, how many signatures are needed when chips are filled at a table and much more. MICS also cover requirements for emergency evacuation and robbery plans. The National Indian Gaming Commission (NIGC) MICS were written after reviewing MICS from various states and are very similar to MICS followed by non-tribal casinos. Schultze says most tribes do go above and beyond the MICS, adopting much stronger policies and procedures for their own casinos.

Regulation is not an afterthought in tribal casino operations. Major resources are devoted to regulation at operations, including those of Norm DesRosiers at San Manuel, Jerry Shultze at Morongo and Jamie Hummingbird at the Cherokee Nation. There is an elaborate system of checks and balances within a regulation department. From surveillance and security to investigations teams to gaming commissioners themselves, each team plays a role in making sure the operation is being managed correctly. Schultze explains, “As tribes have gotten more seasoned in the business, their commissions, their surveillance departments have really improved.”

To help clarify just how tribal gaming regulation works on a daily basis, let’s take a closer look at what each of the regulators featured this month do in relation to regulation. Each tribe does things a bit differently, since each tribe is a sovereign nation. Three examples from different tribal operations will give us a good snapshot of how tribal gaming is regulated.

Jamie Hummingbird is the director of the Cherokee Nation Gaming Commission (CNGC). The CNGC has five members that serve three-year terms and employs 47 people. Many of them work in compliance; 13 are auditors and another seven are devoted to licensing. As director, Hummingbird oversees nine facilities that house 5,500 gaming machines and 124 tables. They are all owned and operated by Cherokee Nation Entertainment, a wholly-owned tribal corporation.

 The commission is responsible for ensuring compliance with the Indian Gaming Regulatory Act (IGRA), NIGC regulations and the tribal-state compact between the Cherokee Nation and the State of Oklahoma. It’s Hummingbird’s job to make sure the tribe is complying with all federal, tribal and state regulations as they pertain to gaming. “That includes everything from conducting background investigations on all of the employees at the casino enterprises, approving all the games, whether they are electronic games, card games, bingo games, pull tabs, whatever the case may be, to licensing of venders, to facility inspections and safety inspections,” Hummingbird explains. This commission looks at pretty much everything that happens within the four walls of the gaming facility, including marketing efforts related to games.

One main goal of the commission is to ensure tribal assets are protected and the correct revenues are returned to the tribe for use and services. The commission does background investigations on employees and vendors, with dedicated license agents looking into everyone to be sure they’re of a quality character and can be trusted to safeguard and protect tribal assets.

To make sure the money brought into the casino ends up where it is supposed to, internal and external audits are done. “We actually take a look at the books, as you would call it, to make sure that all of the revenues are being reported properly—the expenses, fees, everything that is payable by the operations is being taken care of properly,” Hummingbird says.

Of course, the commission looks into all the games casinos want to offer. Most of that work is done for electronic games. “Not only do we look at the game play and make sure it’s going to be legal, but then we also look all the other ancillary things that go with electronic games—player tracking, any connectivity to any other back-of-house systems for accounting, promotional items, really anything that can be used for gaming purposes,” Hummingbird explains. The commission also looks at the rules, policies and procedures related to card and table games. This fulfills the commission’s second main goal, which is to ensure the legality, safety and integrity of games to be sure the casino is offering a legal and fair game to players.

 

Norm DesRosiers is the commissioner of the San Manuel Tribal Gaming Commission. Like Hummingbird, his job is to enforce compliance with federal, state and tribal gaming laws and regulations.

His commission conducts background investigations and licensing for all 3,200 employees at San Manuel Indian Bingo & Casino. At San Manuel, every employee, down to the dishwasher, is checked out extensively before hiring. DesRosiers also oversees the compliance department that tests, certifies and inspects slot machines to make sure they have the software and hardware that has been approved by the independent test labs to meet his jurisdiction’s regulations. San Manuel has more than 3,000 Class III slot machines, a 2500 seat bingo hall and a poker room.

DesRosiers says his commission is in constant audit mode, with internal audits of compliance with MICS and external audits performed by an independent CPA firm. Those results are given to the NIGC and the state.

At San Manuel, the surveillance department also falls within the tribal gaming agency’s supervision. DesRosiers believes this is true at about 70 percent of tribal gaming operations. He describes his surveillance department, saying: “We’ve got about 65 personnel to keep track of more than 4,000 cameras and probably 6,000 to 8,000 visitors a day and 3,200 employees. It’s a lot to watch.”

San Manuel dedicates sufficient resources to regulation to employ, train and equip more than 110 people in the tribal gaming commission. “That’s more people than most state regulatory agencies have,” DesRosiers says. “We have as many people on our staff as the entire National Indian Gaming Commission has coast to coast.”

 

Jerry Schultze, executive director at Morongo Gaming Agency, has a situation different than DesRosiers and Hummingbird. “I’m the gaming commission—me,” he says. “And I’m also the executive director of the gaming agency, and for the last year I’ve been the security director on top of that.” Instead of numerous part-time gaming commissioners, Schultze is the sole, full-time commissioner, which allows him to be very hands-on and knowledgeable. He says Morongo regulations are tougher than some states, but not as tough as others like New Jersey, which is concerned about the possibility of organized crime like the industry faced in Nevada.

Schultze has taken his job extremely seriously since he was hired. He recalls: “Our chair said, ‘Jerry, we have to do it cleaner and better than anyone.’ And I said, ‘If we don’t I’m out of here because all I’ve got is my reputation.’ I’m a retired police lieutenant, was there for 27 years. And so we’ve done it that way, and they basically leave me alone and let me run the gaming side.”

The Morongo Band of Mission Indians operates Morongo Casino Resort & Spa, which features a 150,000 square-foot casino gaming floor with 2,100 Class III machines and 25 Class II gaming system player interfaces. It also operates 41 Class II gaming system player interfaces at a travel center and another six at a bowling alley.

Since Class II gaming systems are bingo-based games that run off a server, Shultze’s gaming officers keep a close watch on the server. “If the company wants to come in and do anything with it, they have to have one of our gaming officers with them.”

Gaming officers are on the Morongo casino floor at all times. Schultze is proud of his team. His officers all have at least 10 years of experience and have been through numerous training events and supplier schools.

When it comes to Class III games at Morongo, mechanics can’t even get into the machines unless they have a gaming officer with them. Schultze says, “They can’t touch the seals that cover the EPROMs. We get those delivered directly to us; the casino doesn’t get them. We install them with the slot people, but we’re there the whole time.”

Schultze’s gaming agency approves all the rules and regulations of card games as well as audits the dealers to be sure they’re following the rules. The agency even audits cocktail servers, bartenders and cooks to be sure they’re doing their jobs safely.

The Morongo tribe also puts high priority on surveillance, with roughly $8 million worth of equipment that it is looking to upgrade.

 

How it Works

Hummingbird believes that people do not understand how a gaming commission works in relation to tribal government and casino operations. To help, he compares it to a state. In accordance with federal law, tribes are treated the same as states. Tribal governments have many of the same agencies as states.

Hummingbird explains: “As a part of state government you have a state auditor. You have other governmental regulatory agencies that go out and assess the various aspects regarding state operations and its programs. In that sense, we are very much identical to the state in that the tribal government has us set up as the regulatory body over gaming. Much like you would have a lottery commission looking after a state lottery, you have a tribal gaming commission looking over its gaming facilities. We have the same responsibilities on the tribal side. Making sure that everything is being done in accordance with the law that has been adopted by our respective government. We do our reporting to both the elected officials. In our case it would be the chief level, versus the governor level, and our tribal council versus the state legislature level.”

Unfortunately, DesRosiers says even some politicians and state regulators don’t understand that tribal governments are like states in that they’re both sovereign governments. He says, “There’s a tendency with state authorities to think that tribal operations and tribal regulators are subordinate to them and that in fact, absolutely is not true.”

In fact, DesRosiers says tribal regulators do the bulk of the heavy lifting, as they should as primary regulators of tribal gaming. At San Manuel, he says, “At all the levels, we’re demonstrating the highest level of competency and skill. And we need to; we know we need to. We should and we have to. We know we’re under a microscope. We want to be able to prove to the skeptics, media and legislators, here is what we are, here is what we do and here is our clean bill of health.”

DesRosiers says another thing the public does not understand is that tribal casinos can’t just change the machines to pay players back any amount they want, at any given time. “Every jurisdiction has technical specifications for electronic games,” he explains. “And those specifications dictate at least a minimum payback. Here in our jurisdiction, that’s 80 percent. The point is, the public needs to know that those standards are set, by law, and we’re testing software to guarantee that it meets those specifications.”

As an example of the work done by tribal gaming regulators, DesRosiers says virtually every single arrest and prosecution in Indian gaming comes from cases that tribal regulators have spotted and investigated. He says: “When we hand the case to federal prosecutors or the local district attorney, we hand these cases over all wrapped up with a red bow on them and they don’t have to do anything except go out and make the arrest. And, of course, nine times out of 10 the evidence we put together is so good that they plead guilty and don’t even have to go to trial. And that happens every day in Indian country.”

Schultze says the most important point to make to critics of tribal gaming regulation is that tribal regulators and casino operators are business people. “If you run a sloppy organization and you don’t treat your customers right, they don’t come,” he says. “People still have a lot of old stereotype ideas. Tribal regulators aren’t dumb. One of our tribal members has an MBA from Stanford. It’s not like the old days.”

Ernie Stevens Jr., chairman of the National Indian Gaming Association, says people who carry out these checks and balances in tribal gaming regulation take the responsibility very seriously. “It starts with our community; those are the people that continue to hold us to higher standards. It boils down to a responsibility to our community. We have a lot of very powerful folks looking over our shoulders.”

Tribal gaming regulators are the primary regulators of Class II gaming systems, Class III games and table games. Their work, in relation to Class II gaming systems, is checked by the NIGC, which is an oversight agency at the federal level that makes sure tribes are doing what’s needed to protect the industry and the players. The NIGC approves tribal gaming ordinances and looks at audits, licensing files and more. It also publishes MICS for Class II gaming, which tribes meet and often exceed.

Each tribe has a different relationship with the NIGC. Hummingbird says: “We at Cherokee Nation have always had a very good relationship with our NIGC office, because we have good communication and a good dialogue with our regional staff. We relay things to them in the timeframes that we’re required to do, and we go over things with them. They know our operations and how we run our gaming regulatory office and also how we run our gaming facilities.”

Schultze describes Morongo’s relationship with the NIGC, “We basically co-regulate with the NIGC. In fact I was just talking to an NIGC investigator in my office. He was on a site visit.” The NIGC field reps will also help tribes with any issues they are having. Schultze says he’s impressed with the new NIGC members because they have a lot of experience and are interested in hearing from the tribes about issues that affect them.

When it comes to Class III games, including slot machines, state agencies check the tribal regulators’ work, in accordance with compact agreements reached by tribes and states. DesRosiers says that at San Manuel, “We do all the testing and they come in once or twice a year and randomly inspect some machines.”

Schultze says the state does field visits throughout the month to ensure players are being protected and the tribe is giving the correct amount of money to the state, as agreed on in its compact. “They’ll come out and do machine inspections, check the hard drive and we’re with them, of course, and they can check up to five percent of the floor,” he explains.

 

Further Enhancing Tribal Gaming Regulation

Many tribal gaming regulators are appointed or elected by members of their tribe. This can cause high rates of turnover, which can be challenging. That’s why leading regulators teamed up in the 1990s to create an association dedicated to educating tribal gaming regulators, the National Tribal Gaming Commissioners and Regulators association. Hummingbird is the NTGC/R’s current chairman. DesRosiers was one of the founders and previous chairman of NTGC/R, and continues to be an active member. Schultze is an active supporter of the association. NTGC/R currently has 63 member tribes with an even higher number of tribes represented at its semi-annual conferences and trade shows.

Hummingbird says the NTGC/R is working to teach new regulators as much as they can in the shortest amount of time possible and take the knowledge of those who are experienced to a higher level. He says, “We’re out there trying to provide information and education in a number of areas of audit, from surveillance to information technology, to general gaming commission responsibilities.” The NTGC/R also works to bring timely information about hot topics to its members so that they can be prepared for the future.

DesRosiers, who says it seems like he’s devoted his life to tribal gaming regulation, says it’s all about educating fellow regulators. “It’s a constant schooling process of new regulators getting trained so that we can keep getting that bar higher and higher and build the respect that they deserve from outside eyes.”

Schultze himself ends up helping new and young regulators and commissioners. He says, “We’ve hosted tribes before they’ve opened, helped set up their gaming commissions, referred them to people and given them our policies and procedures.”

NIGA also devotes time during its events to educating regulators. It offers a commissioner training course that covers how to do background and surveillance investigations and more.

Stevens says he will continue working to raise awareness of the NTGC/R and support the group’s activities. He is proud of the work being done by tribal gaming regulators and tribal operations, large and small. He says: “There are so many shining lights throughout this country, whether it’s regulation, operation or trying to make ends meet in terms of the economy. We’re proud of Indian country.”

Schultze says tribes are dedicated to helping each other by communicating known issues and networking. And even new regulators and commissioners have a devotion to running clean operations. He says, “They’re all enthusiastic, they want to do the right thing, they’re eager for training and they don’t hesitate to call you if they have any questions.”

Currently, when tribal gaming regulators get together, they are talking about whether the NIGC will continue to maintain and upgrade MICS for Class III gaming. This has been a main topic of debate for a few years, and Hummingbird says it will continue to dominate conversation when regulators get together.

The Colorado River Indian Tribes decision is making it hard for the NIGC to declare that it will maintain and upgrade Class III MICS. DesRosiers, who is also the former vice chairman of the NIGC, explains: “Judges have upheld the tribe’s assertion that NIGC does not have authority to promulgate or enforce Class III MICS. Of course, these MICS are still sitting there today and are in dire need of upgrading.”

The fact that the NIGC has no oversight or enforcement authority over Class III gaming is undisputed among tribal regulators. However, tribes like San Manuel, Morongo and many in California, along with all tribes in Arizona and many others, need to follow NIGC’s Class III MICS in order to comply with their compact with the state.

Schultze was on the MICS advisory committee from 2001 to 2008. He is working to convince the NIGC that it needs to continue with advisory panels for Class III MICS. DesRosiers is trying to raise awareness of what the implications of ignored NIGC Class III MICS may be. “So if those go away, a couple of things are going to happen,” he says. “How do we comply with our compacts? Are the states going to want to go back and renegotiate or amend those compacts? And I don’t want to go there.”

Hummingbird is also interested in self-regulation. He believes the NIGC needs to revamp its criteria and process for making self-regulation determinations. He says, “I’m not sure if it’s a vital topic for the NIGC to tackle, but it has gotten a lot of attention over the last few months.” He hopes changes would make the process of applying for a self-regulation certificate easier. At this point, Hummingbird says tribes are reluctant to pursue this certification because it takes a lot of time and energy. Certification does reduce NIGC oversight and, in turn, cuts the amount of fees a tribe pays to the NIGC in half. However, Hummingbird says, “I think a lot of tribes see it as putting in a lot of effort for very little revenue return. But I think the non-monetary benefits may be more important.”

Hummingbird believes that a simplified process would allow more tribes to showcase the fact that their regulation efforts are on the same level with, if not higher than, other regulatory jurisdictions in the country.

Hummingbird says continued education, working together and talking about the strengths of tribal gaming regulation are needed at this point in time. “There are a lot of people that don’t trust tribal governments to regulate gaming,” he explains. “I think that’s because they don’t understand all the steps that we go through to protect this industry.”

 Stevens says the integrity of tribal gaming regulation is vital to the livelihood of Native American communities. He explains: “It really just boils down to community, and that’s what we’re here for. We’re trying to build a future for our young folks, and at the same time trying to hold up the integrity of what our elders handed down to us. There’s so much responsibility that we have looking forward.”

 

Editor’s Note: Do you have questions or comments for Norm DesRosiers or Jamie Hummingbird? Both will be attending CasinoFest 9 in Tulsa, Okla. May 16-19. For more information, go to www.CasinoFest.org.

 

 

Q&A with the CGCC:

Stephanie Shimazu, Acting Chairwoman of the California Gambling Control Commission

 

How do you explain, to people new to the gaming industry, what the CGCC’s role is in tribal gaming regulation oversight?

The California Gambling Control Commission is jointly responsible with tribes for establishing uniform compact regulations, conducting compact financial tribal audits and concurrent internal controls inspections and issuing findings of suitability for gaming employees and vendors. The commission also acts as the administrator of gaming revenues deposited into the Indian Gaming Special Distribution Fund (SDF) and serves as the trustee over revenues deposited into the Indian Gaming Revenue Sharing Trust Fund (RSTF). All tasks and responsibilities are carried out under the provisions of the Gambling Control Act (Business and Professions Code Section 19800 et seq. Articles 1 thru 17) and the tribal-state gaming compacts. 

 

What are the top priorities of the CGCC right now?

The commission’s main goal and objective is to protect the integrity of California’s gambling environment.

We have about 80 employees to carry out that objective in positions that include auditing, legal, technical, analytical and support functions. The commission also has the added responsibility of licensing non-tribal gambling establishments (card rooms) and their personnel throughout the state, as well as overseeing the remote caller bingo program for approval and licensing.

The Department of Justice, Bureau of Gambling Control, is a close partner in the pursuit of our mutual goal. The bureau conducts background investigations for employment in the gaming industry that the commission uses in its decision making process, and performs other vital functions under the Compacts and Gambling Control Act including auditing, inspecting and law enforcement.

In addition, new legislation and government mandates, as well as constantly evolving industry issues, require continual adaption to meet and achieve our goals and objectives. The commission strives to work with competing interests to develop mutually beneficial solutions.

 

What is being done to further enhance regulation in tribal gaming?

Over the past three years, we have promulgated several regulations to protect the integrity of the gambling industry in the state. In regard to tribal gaming, the commission, in conjunction with tribes and the bureau, worked extensively on Uniform Tribal Gaming Regulation CGCC-8, pertaining to tribal internal control standards. While it was by no means a quick or an easy undertaking, in the end the commission, tribes and the bureau were able to adopt a regulation via the Tribal-State Association process outlined in the compacts. Not only was the adoption of that regulation historic, but I think the process improved the pathways of communication between us all and developed the foundation for a more cooperative working relationship moving forward. 

We also worked on key regulations for card rooms that include minimum internal control standards. These regulations address the maintenance of accurate records, recording of all income, safeguarding of establishment assets and records, promotion of operational efficiency and integrity, and adherence to prescribed policies and procedures. Additionally, the commission adopted regulations to reduce the burden on card room licensees by converting licenses from an annual license to a two-year licensing cycle and establishing portable, personal key employee licenses that make it easier for key employees to change their place of employment.

Anything else you would like to highlight for our readers? 

Gambling is an activity that draws diverse and often conflicting opinions from individuals, interest groups, and the tribal and card room industry. As a result of the defined commission role in the tribal gaming compacts and the Gambling Control Act, commissioners and commission employees sometimes must walk a fine line respecting these opinions while simultaneously working diligently to protect the interests of the people of California.

 

CGCC Fast Facts

•           Federally recognized California tribes: 108

•           There are 58 tribal casinos operated by 57 tribes

•           Tribes with effective state gaming compacts: 68

•           Tribes contributing to the general fund: 14

•           Tribes making contributions to the Indian Gaming Special Distribution Fund: 21

•           Tribes eligible to receive money from the Indian Gaming Revenue Sharing Trust Fund: 71

 

Sarah Klaphake Cords is the New Media Editor for Casino Enterprise Management. She can be reached at editor3[at]aceme.org.

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