Changes in the Financial Reporting in Regards to the Sarbanes-Oxley Act - Essay Example

Changes in the Financial Reporting for Nevada Casinos in Regards to the Regulation 6A and the Sarbanes-Oxley Act Nevada Casinos' financial reportingprocedures as well as any other spheres of the gambling industry activity are subject to both general and specific industry-oriented regulations, issued by both the state and the federal government bodies. The example of Sarbanes-Oxley Act and Regulation 6A impact on the casino's financial reporting well illustrates this combination of general and specific regulations. As the casinos in Nevada are public companies they are obliged to follow all the guidelines established for the public companies operating in various sectors. However, the specific nature of the gambling business with high percentage of cash transactions involved in day-to-day operations requires specific rules to be set for this particular service industry. With this in mind, it can be stated that the influence of the Sarbanes-Oxley Act adoption in 2002 on the financial reporting of the Nevada casinos is quite comparable to that of the other public companies. On the contrary, the impact of the Regulation 6A which was put into effect in 1997 was much more specific in nature. Both of these legislative acts, however, became two more integral parts of extremely complex regulative environment the gambling industry operates in. The major requirements that explicitly affect the Nevada casinos, besides the restrictions on the audit procedures, pension funds blackout periods and restriction on loans to senior management, are corporate responsibility regulations and use of the non-GAAP financial measures in press-releases and reports. Section 302 of the Sarbanes-Oxley Act titled "Corporate Responsibility For Financial Reports" implies that: The CEO and CFO of each issuer shall prepare a statement to accompany the audit report to certify the "appropriateness of the financial statements and disclosures contained in the periodic report, and that those financial statements and disclosures fairly present, in all material respects, the operations and financial condition of the issuer." A violation of this section must be knowing and intentional to give rise to liability. (AICPA) The issue of the use of non-GAAP financial measures in information releases through mass media or corporate reports is quite important for the casinos because these channels are used not only for communicating data to the investors, but as well for the PR-purposes with the general audience. SEC Regulation G (adopted under 401(b) of the Sarbanes-Oxley Act) regulates this issue and provides that the use of non-GAAP financial measures in press releases or other public disclosures must be accompanied by a presentation of, and reconciliation to, the most directly comparable GAAP financial measure. (Martin 1) The Regulation 6A named "Cash Transactions prohibitions, reporting, and recordkeeping" closely addresses, on the other hand, the very characteristic feature of the casino business - the cash transactions. It is part of the Nevada's regulatory system for currency transaction reporting which, according to the Nevada Gaming Commission and State Control Board consists of the following: NGC Regulation 6A adopted January 1997 effective May 1, 1997 (prior version adopted and effective May 7, 1985). The regulation was amended March 20, 2003 to delete state suspicious transaction reporting requirements and was effective immediately upon adoption. NGC Regulation 6.090 Currency Transaction Reporting Minimum Internal Control Standards (6A MICS). Version 3 required compliance as of May 1, 1997. CPA 6A MICS Compliance Reporting Requirements (CPA 6A MICS Requirements). Version 1 required compliance as of November 1, 1997. Internal Audit Compliance Checklists for Currency Transaction Reporting. Version 1 required usage for any work performed for fiscal years ended April 30, 2001 and thereafter. (Currency Transaction Reporting 1) The restrictions set by the Regulation 6A on the cash transactions handling are detailed and strict. Moreover, the punishment applicable in case of the intentional or unintentional breach of the regulation's provisions can be very significant too. For instance, in September 2004 the Station Casinos, Inc. Franchise was obliged to pay a $ 2.2 million penalty to the Nevada Gaming Commission and State Control Board for failing to file currency transaction reports. It was the second-largest ever levied against a Nevada casino for violations of state anti-money laundering (AML) reporting and record-keeping requirements. The largest penalty, $ 5 million, was levied in May 2003 against The Mirage Casino for nearly the same violations (Gambling on compliance 1). Nevada casinos are handled in a different way than the casinos in other states: Outside of Nevada, U.S. casinos with annual gaming revenue of $ 1 million or more are required, under the Bank Secrecy Act (BSA), to report currency transactions of more than $ 10,000 by filing FinCEN Form 103. For Nevada, however, when the Department of the Treasury first applied currency reporting obligations to casinos in 1985, the department entered into a Memorandum of Understanding with Nevada gaming regulators, under which the state set its own rule - Regulation 6A. The regulation is comparable to the Bank Secrecy Act provisions on reporting and record-keeping, but the rule is administered and enforced by the Nevada State Gaming Commission, under the supervision and approval of FinCEN. (Gambling on compliance 1) Generally speaking, Regulation 6A requires the casinos to report cash transactions in excess of $10,000. NGC Regulation 6.090 Currency Transaction Reporting Minimum Internal Control Standards (6A MICS) require the logging by casinos of certain cash transactions conducted by patrons so that casinos may track and report "multiple" transactions that exceed $10,000 in a 24-hour period (Currency Transaction Reporting 1). Regulation 6A also defines the types of the transactions that are prohibited and exceptions to the general rule, addresses the issues of multiple transactions, recordkeeping, internal control and structured transaction. Under section 6A.020the casino is prohibited to conduct following kinds of funds transactions (with certain exceptions) if the amount of exchange is more than #3,000: 1.To exchange cash for cash with or on behalf of a patron; 2. To issue a check, other negotiable instrument, or combination thereof, to a patron; 3.To effect any transfer of funds by electronic, wire, or other method, or combination of methods, to a patron, or otherwise effect any transfer of funds by any means on behalf of a patron; Section 6A.030 of the Regulation defines the types of the transactions to be reported: 1.Cash-in transactions where an employee of the casino accepts or receives more than $10,000 in cash from a patron in any transaction including but not restricted to the following: (1) As any table game wager where the patron loses the wager; (2) As any wager which is not a table game wager; (3) In any exchange for its chips, tokens, or other gaming instrumentalities; (4) As a repayment of credit previously extended; (5) As a deposit for gaming or safekeeping purposes, including a deposit to a race/sports book account, if the 6A licensee has actual knowledge of the amount of cash deposited; 2. Cash-out transactions in the course of which an employee of the 6A licensee disburses more than $10,000 in cash to a patron in any transaction: (1) As a redemption of chips, tokens, or other gaming instrumentalities; (2) As a payment of winning wager(s); (3) As a payment of tournament or contest winnings or a promotional payout; (4) As a withdrawal of a deposit for gaming or safekeeping purposes, including a withdrawal from a race/sports book account, if the 6A licensee has actual knowledge of the amount of cash withdrawn; (5) In exchange for a check or other negotiable instrument; (6) In exchange for an electronic, wire or other transfer of funds; (7) As a credit advance; (8) For travel expenses or other complimentary expenses or for a distribution of a gaming incentive such as settlement of a gaming debt, front money discount, or other similar distribution based upon gaming activity; The report filed by the casino licensee should include the personal information and ID number of the person engaged in the reportable transaction, verified by the casino employee through the examination of the identification credential. The Regulation 6A also tackles the issues of the recordkeeping and internal control. It specifies that the accurate, complete, legible, and permanent original records with regards to the cash transactions should be created and kept for a period of five years unless the chairman approves or requires otherwise in writing. All the technical means and human resources required should be provided to assure the completeness and validity of the records. Internal control procedures should be established and followed. External control should be assured by conducting the audit of the casino licensee' records. Works Cited AICPA: Summary of Sarbanes-Oxley Act of 2002. Accessed on October 28, 2005 at the AICPA official site http://www.aicpa.org/info/sarbanes_oxley_summary.htm Currency Transaction Reporting Information. Nevada Gaming Commission and State Gaming Control Board Official Site. Accessed on October 28, 2005 at http://gaming.nv.gov/currency_trans_rptg.htm Gambling on compliance: Second casino hit with big penalty for cash-reporting lapse. Money Laundering Alert, November, 2004, vol. 16, No. 1; Pg. 4 Accessed on October 28, 2005 through LexisNexis Academic Martin, David. Compliance Obligations Under Sarbanes-Oxley Act and Related SEC Regulations. Banking & Financial Services Policy Report, June, 2005. Volume 24, Number 6; Pg. 6. Accessed on October 28, 2005 through LexisNexis Academic. Regulation 6A. Nevada Gaming Commission and State Gaming Control Board Official Site. Accessed on October 28, 2005 at http://gaming.nv.gov/stats_regs.htm#regs Read More