Business of Casino in Nevada - Case Study Example

REGULATION 6A VS, 31 - CASINOS IN NEVADA Contents Sr. # Topic Pg Introduction 2 2. Brief Background 3 3. Discussion and Analysis 4 3 Regulation 6A 5 3.2. Title 31 7 3.3. Comparison 9 Appendices 11 1. Currency Transaction Report by Casinos - Nevada 11 References 12 1. Introduction The process of internal auditing involved in the gaming industry has, at all times subsisted in one form or the other. During the early era, dating back to the period prior to the introduction of automated slot accounting methods and secured count rooms, there was usually one individual assigned, whose only duty revolved around appraisal of the funds received and make sure that these funds were transferred safely to nearest the local bank. The entire auditing process comprised of these two key transactions: collection of funds and its safe transfer to the local banks. The function of internal audit contained within the casino setting as observed regularly in recent times, is in fact devised by three key influences within the gambling industry. The first influence comprised of the regulation of The Institute of Internal Auditors (IIA) and the International Standards for the Professional Practice of Internal Auditing (Standards) which support the effective accomplishment of the duties in accordance with the guidance laid by the acts governing them. The second influence refers to the authoritarian failure to notice, whether an obligation or a proposal from the supervisory bodies, that an official scheme of in-house controls is implemented, which takes into account the various prerequisites which a certain type of an in-house assessment task is executed at a casino. In several jurisdictions the measures adopted and implemented by the internal audit systems are exclusively governed by such directives. The third and ultimate influence refers to the sustained participation of blatantly dealt casino corporations, which fall under the directive of the Securities and Exchange Commission (SEC) as proprietors or workers of the various functions related to the casino. Given that the IIA's Standards direct all assessors, irrespective of the industry to which they belong, this paper focuses on the key influences which govern the money management and accounting part of the casino industry with respect to the Nevada casinos against the background of the regulation 6A and Title 31 acts1. 2. Brief Background Gaming is the one of the chief 'money-making' businesses in the State of Nevada which is also incidentally a major contributor of large amount of returns to the state. The economic accomplishment of the industry is hence, reliant on the successful and methodical licensing of individuals as well as institutions involved in the industry within the State. The contemporary age of gaming can be traced back to its origins in the early 1931 period, with the implementation of the "wide open gaming bill" in Nevada. During the early 1950s, the endeavors to establish strong controls over the industry were accelerated and enhanced. This involved a detailed and in-depth study of the casinos in Nevada ultimately translating into the establishment of the gaming regulatory body which was set up to sanction and manage the swiftly growing industry. The Nevada Gaming Control Board was eventually set up to legalize and sanction the day to day functions of the casinos, together with the compilation, calculation, and settlement of the day to day gaming proceeds besides upholding the veracity of the games on the casino floor2. The Nevada Gaming Commission is entrusted with the responsibility of managing punitive issues and ratifying gaming regulations within the state of Nevada3. As each state or ethnic venture has characteristically formed an authoritarian structure with the introduction of gaming, there is a simultaneous introduction of a wide range of practices and audit requirements. While every gaming regulatory organization characteristically comprises of numerous sections, there are three most important divisions with which internal audit departments by and large come in contact with. These include the research division, the enforcement/observance division, and the audit division. These three key divisions are usually pooled with other fundamental responsibilities which fall under the gamut of regulatory practices for enabling competence. A majority of the contemporary gaming regulatory bodies which exist today bear a striking resemblance, at least partly, if not wholly, to this same basic makeup. The audit division is characteristically accountable for ensuring effective observance of the practice of 'compliance auditing' of the casinos to make sure that the respective taxes are appropriately computed and dispatched, in-house controls and regulatory instructions are being duly observed and executed, and the casino is preserving satisfactory cash reserves to guarantee that the participants dues (winning amounts) are duly rewarded. The enforcement/compliance division on the other hand is normally accountable for suggesting amendments to the current policies to the central authorities, initiating corrective actions in the event of infringements, certifying institutions and workers, making available on-site regulatory administrators/ representatives, and functioning to ascertain that the casino's method of in-house controls are in full satisfaction of the requirements laid down by the respective regulatory bodies. As a result the necessity to not only deal with the issues related to conformity requirements of a range of regulators, but also to fulfill the needs of the respective administration in a business setting, various casinos have undertaken the proposal to establish their own in-house auditing divisions while others were forced to do so owing to the regulatory requirement. 3. Discussion and Analysis Regulatory bodies in Nevada were of the view that the requirement of reporting directly to the Treasury, on the part of individual casinos, was interference by the central government and should be prevented if feasible. However, the supervisory body's were victorious in influencing the Secretary of the Treasury to permit each jurisdiction, if it so preferred, to build up its own technique of putting into practice, the control measures and other similar reporting measures essential to fulfill the terms and conditions as stipulated by the Title 31. The concluding verdict by the Department of the Treasury offered each gaming jurisdiction with two key alternatives: 1. Acquire an immunity from providing express testimony to the Department of the Treasury by way of establishment its individual structure of execution, and supervising for fulfillment of the reporting requirements; or 2. Directly report to the concerned department (Department of the Treasury) depending on the requirements laid down by Title 31 of the Bank Secrecy Act, 3.1. Regulation 6A Regulation 6A entails the reporting of cash transactions involving amounts over $10,000 with respect to the amount won by its customers, by casino owners. It further requires the casino owners to log certain cash transactions so as to enable them to track and report several such multiple transactions which are over and above the $10,000 mark, within a period of 24 hours, as stipulated by the governing authorities. It requires the reporting of any doubtful action / goings on identified by the casinos and enforces its prompt reporting to the concerned authorities and also involves the banning of certain cash transactions. Casinos, in general, are not allowed to undertake any activity which involves exchange of cash transactions in excess of $3,000 or issue a check or other similar modes of payment to its customers, which involve any amount in excess of the stipulated amount. Subsequent to the passage of Regulation 6A, all Nevada non restricted licensees having annual gross gaming revenues of over $10,000,000, and table games statistical wins amounting to over $$2,000,000 are liable to observe the rules laid down by the said regulation and all such casinos who fall under this category are usually referred to as 6A licensees. All the other Nevada licensees, other than those discussed above, fall under the umbrella of the U.S. Treasury Department and are required to observe the regulations stipulated by them4. The Nevada Regulation 6A Model Prohibited Transactions: There are three major types of transactions which are severely forbidden. These include5: 1. All cash-for-cash transactions exceeding the stipulated $3,000 mark are strictly banned owing to Nevada's system which is specifically designed to obstruct certain ways of money laundering. However, this excludes exchange of chips or tokens for cash and foreign currency for U.S. currency. 2. All casinos' falling under the Nevada jurisdiction are forbidden to indulge in cash transactions exceeding $3,000, except those which involve the issuance of checks for confirmed winnings. For instance, any customer who wins a large slot jackpot is entitled to receive his/her winning amount via checks, despite the regulation, and irrespective of the amount won. 3. Any payment of the winning amount must be made in the name of the customer who won the game. Issuance of checks or payment via wire transfer to any third party is strictly prohibited. The form used to report currency transactions under Regulation 6A is called the Currency Transaction Report by Casinos - Nevada and is similar to the form used for reporting currency transactions under Title 316. As both the regulations discussed here, i.e., Title 31 and Nevada's Regulation 6A entail reporting of transactions exceeding the stipulated $10,000 amount, Regulation 6A has a specific framework to keep track of such multiple transactions called the Multiple Transaction Log or MTL. The Multiple Transaction Log is devised to make available a written documentation of all the cash transactions over $3,000 with a view to assist effective observance with the aggression requirements of Title 31. Hence, the MTL system of reporting is now widely implemented in all gaming areas and the casinos7. Regulation 6A further entails that in case of certain circumstances where transactions are below $3,000 they must be pooled and incorporated on the MTL if the combined amounts are more than $3,000. For instance, considering a hypothetical situation, whereby a slot employee pays a slot jackpot amounting to $2,000 to the winning customer and then the same slot employee, later in the same day, pays another $2,000 to the same customer. In this case, both the transactions will be combined together as they occurred within 24 hours, and hence the employee would be required to make an entry of a total of $4,000 in the name of the winning customer on the MTL, since it was an outcome of multiple transactions. 3.2. Title 31 As a solution to the progressively more universal practice of depositing huge sums of cash into financial bodies, the Currency and Foreign Transactions Reporting Act in 1970, was passed by the Congress. This act is widely known as the Bank Secrecy Act. In view of the fact that this law falls within the precincts of the United States Treasury Title 31, the gaming industry normally associates it with the term Title 31 Program or anti-money laundering policy to depict its anti-money laundering endeavors. Although all the casinos in Nevada have been exempted from Title 31 however, they are still required to strictly observe the requirements stipulated under Regulation 6A. Such regulations seek to enforce the use of the currency transaction report for casinos (CTRC) and other systems necessary to confine and account for a solitary as well as a range of similar cash transactions which are in excess of $10,000. The USA Patriot Act which was passed on October 26, 2001, widened the range of certain sections of Title 31 to incorporate the mandatory reporting of all doubtful dealings taking place within the casinos on the basis of the Suspicious Activity Report for Casinos (SARC) rule. According to this regulation all casinos and card clubs which have annual revenues of over $1 million are covered under this rule8. Key Objectives of the Act: Any auditing activity, irrespective of its size, extent or scope, is required to establish and accomplish certain goals in the absence of which it shall not be able to fulfill its desired objectives. The aiding of casinos is no different. The fundamental goals aimed to achieve by the casinos include: - Offer administration, possession, audit committee, tribal council, or board of directors with guarantee that the financial reports on which they rely on to run the casino are a factual manifestation of the authentic outcome of the casino activities. - Offer peripheral and authoritarian auditors with a supplementary level of reassurance that a self-governing appraisal of controls is being executed and the casino is self-governing. - Offer supervision, rights, audit committee, tribal council, or board of directors with reassurance that the threats associated with the casino activities, if any, are being effectively computed and dealt with in the most efficient and competent way. - Provide administration and those involved outside the casino with an inherent concern in the casino dealings with supplementary assertion that the core business practices of the casino are being adequately observed in due fulfillment of the appropriate/ relevant regulations. 3.3. Comparison: Title 31 v Regulation 69 Area Title 31 Regulation 6A Applicability All casinos in the United States other than Nevada includes Puerto Rico Nevada only Aggregation of amounts less than $10,000 Aggregate all cash amounts less than $10,000 (cash-ins combined with cash-ins, and cash-out combined with cash-outs) within a gaming day Generally, only the aggregate same type transactions within one defined area within the casino (e.g., one pit or one casino cage) in a gaming day. One exception to this is the "single visit rule". $3,000 threshold used for aggregating amounts less than $10,000. Multiple Transaction Log required Cash for Cash exchanges greater than $3,000 Not prohibited Prohibited in excess of $3,000 Suspicious Activity Reporting Effective March 25, 2003, all casinos in United States including Nevada must comply with the same requirements Effective March 25, 2003, all casinos in United States including Nevada must comply with the same requirements Compliance oversight Department of the Treasury Nevada Gaming Control Board with the exception of Suspicious Activity Reporting, which is the Department of the Treasury Currency Transaction Report Currency Transaction Report Casinos (Form 103) Currency Transaction Report Casinos Nevada (Form 8852) Appendix 1: Table a: Currency Transaction Report by Casinos - Nevada Source: Kilby, J., Fox, J., Lucas, A. F., (2004). Casino Operations Management, John Wiley and Sons, Pp.64 References: Burbank, J., (2005). License to Steal, University of Nevada Press, Pp. 80 - 84 Kilby, J., Fox, J., Lucas, A. F., (2004). Casino Operations Management, John Wiley and Sons, Pp. 63 - 82 Levy, S. M., (2003). Federal Money Laundering Regulation, Aspen Publishers, Pp. 8.19 - 8.20 State of Nevada, Gaming Control Board, Gaming Audit Procedures Manual, viewed: July 11, 2009, from: Robinson, C., (2005). The Gaming Auditorium: Auditing the Casino Floor, The Institute of Internal Auditors, Vol. 8, No. 1 Farrell, R. A., Case, C., (1995). The Black Book and the Mob, University of Wisconsin Press, Pp. 22 Nevada Gaming Control Board, (2009). Viewed: July 11, 2009 from: Read More