Level II Commissioner Training AGENDA December 9 – 11, 2025 – Virgin Hotels, Las Vegas, Nevada December 9, 2025
Time
Session
8:00 - 9:00 AM
Breakfast
9:00 - 10:15 AM
Tribal Sovereign Immunity Elizabeth Homer, Principal Attorney, Homer Law
10:15 - 10:30 AM
BREAK
10:30 AM - 12:00 PM
Ethics and Professionalism Elizabeth Homer, Principal Attorney, Homer Law
12:00 - 1:30 PM
LUNCH (Own your own)
1:30 - 300 PM
Internal Auditing Jamshed Kudratov, Junior Partner, Blue Bird CPA's
3:00 - 3:15 PM
BREAK
3:15 - 4:30 PM
Financial Controls Jamshed Kudratov, Junior Partner, Blue Bird CPA's December 10, 2025
8:00 - 9:00 AM
Breakfast
9:00 - 10:15 AM
Gaming Crimes Elizabeth Homer, Principal Attorney, Homer Law
10:15 - 10:30 AM
BREAK
10:30 AM - 12:00 PM
Effective Regulatory Writing Elizabeth Homer, Principal Attorney, Homer Law
12:00 - 1:30 PM
LUNCH
1:30 - 300 PM
Licensing: Key Employees & Primary Officials Julie Hackman, President & Managing Partner, INSTAHIRE
3:00 - 3:15 PM
BREAK
3:15 - 4:30 PM
Licensing: Vendors & Facilities Julie Hackman, President & Managing Partner, INSTAHIRE
December 11, 2025
8:00 – 9:00 AM
Breakfast
9:00 - 10:15 AM
Creating a New Approach to Surveillance Billy David, Bo-Co-Pa & Associates
10:15 - 10:30 AM
BREAK
10:30 AM - 12:00 PM
Surveillance Cheats & Scams Billy David, Bo-Co-Pa & Associates
11/29/22
TRIBAL SOVEREIGN IMMUNITY AND THE GAMING REGULATOR ELIZABETH L. HOMER
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¡ Sovereign immunity is a fundamental aspect of an Indian tribe’s inherent sovereignty. ¡ As noted by the Supreme Court, tribal sovereign immunity “is a necessary corollary to Indian sovereignty and self- governance.” ¡ Tribal governments are immune from lawsuits in both federal and state courts UNLESS: ¡ 1) Congress has authorized the suit; or ¡ 2) The tribe has waived its immunity ¡ Sovereign immunity also extends to commercial activities conducted by tribal entities that are “arms” of the tribe.
TRIBAL SOVEREIGN IMMUNITY: GENERAL PRINCIPLES
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TRIBAL SOVEREIGN IMMUNITY: TRIBAL OFFICIALS
¡ Sovereign immunity also protects tribal officials and tribal employees acting: ¡ 1) In their official capacity; and ¡ 2) Within the scope of their authority ¡ Why protect tribal officials? ¡ In suits against tribal officials, the sovereign entity (tribe) is the “real, substantial party in interest.” ¡ A plaintiff cannot circumvent tribal immunity simply by naming an officer of the Tribe as a defendant rather than the sovereign entity. ¡ Ultimately, relief would run against the tribe - need to protect the tribe’s treasury.
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TRIBAL SOVEREIGN IMMUNITY:TRIBAL OFFICIALS
“Individual” Acts vs “Sovereign” Acts
Individual - acts outside the scope of delegated authority are considered individual acts and not protected acts of the sovereign (tribe).
Sovereign - acts taken in official capacity and within the scope of delegated authority are protected acts of the sovereign (tribe).
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TRIBAL SOVEREIGN IMMUNITY: TRIBAL OFFICIALS
¡ How to determine whether act is within “scope of delegated authority”: ¡ Examine : Look at the enabling statute or law and determine whether the official was authorized to carry out the action at issue. ¡ Ask : Was the official empowered to do what s/he did? If so,
the action was taken pursuant to the official’s delegated authority and protected by the tribe’s sovereign immunity.
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¡ What if the official’s actions were wrong? ¡ Merely being wrong or mistaken does not take an action outside the scope of delegated authority.
TRIBAL SOVEREIGN IMMUNITY: TRIBAL OFFICIALS
¡ The scope of authority analysis turns “on the breadth of official power the official enjoys and not whether the official is charged with using that power tortuously or wrongfully.” Tenneco Oil Co. v Sac & Fox Tribe , 725 F.2d 572, 576 (10th Cir. 1984) ¡ Official action is still an action of the sovereign entity, even if the official’s actions were wrong or mistaken, so long as it does not conflict with the official’s valid authority.
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¡ HYPOTHETICAL: ¡ Gaming Commissioners revoke an employee’s gaming license. ¡ Revoked licensee sues Gaming Commissioners in their individual, personal capacities. ¡ Gaming Commissioners move to dismiss the suit on sovereign immunity grounds, arguing that the revocation action was taken in their official capacity as Gaming Commissioners and within the scope of their delegated authority. ¡ Tribe’s gaming ordinance specifically authorizes Gaming Commissioners to make licensing determinations, including suspensions and revocations. ¡ How should the court rule?
TRIBAL SOVEREIGN IMMUNITY: TRIBAL OFFICIALS
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¡ Under these circumstances, the court should dismiss the suit because: ¡ 1) The revocation was an official act of the Gaming Commission and performed by the Gaming Commissioners in their official capacities; and ¡ 2) The revocation action was taken pursuant to the Gaming Commissioners’ authority under the gaming ordinance to suspend and revoke gaming licenses.
TRIBAL SOVEREIGN IMMUNITY: TRIBAL OFFICIALS
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¡ The hypothetical is based on a state court opinion, now depublished. ¡ The state court did not find the Commissioners’ sovereign immunity claims persuasive. ¡ Contrary to the long-settled doctrine of sovereign immunity, the CA state court ruled that sovereign immunity did not apply,
TRIBAL SOVEREIGN IMMUNITY: ISSUES CONSIDERED BY COURTS
and that the Gaming Commissioners exceeded the scope of their powers by revoking the employee’s license without cause.
¡ What went wrong?
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¡ Classic Case of “Bad Facts Making Bad Law”: ¡ The licensee/plaintiff was a blackjack dealer who, after observing criminal activity on the gaming floor, became a confidential informant for the California Department of Justice. ¡ The Gaming Commissioners scheduled a private meeting with the licensee, but he was never personally notified of the scheduled meeting. After missing the meeting, he was suspended from work. ¡ The Gaming Commissioners notified him of his suspension and their intent to revoke license by letter mailed to his former address. ¡ About a month later, the licensee met with the Gaming Commissioners and was asked to disclose information about his informant activities.The licensee declined to do so. ¡ Shortly after the meeting, the licensee was notified by letter that his license had been revoked. ¡ The licensee sued Gaming Commissioners personally, claiming that the revocation was in retaliation for his informant work.
TRIBAL SOVEREIGN IMMUNITY: ISSUES CONSIDERED BY COURTS
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¡ Court’s Ruling: ¡ The Gaming Commissioners overstepped their authority by revoking the employee’s gaming license in retaliation and without cause. ¡ Sovereign immunity will not protect the Gaming Commissioners unless they can show that the license was revoked based on criteria identified in IGRA, Compact, or gaming ordinance. ¡ Nothing in the record shows that the Commissioners had the authority to revoke his license without cause or in retaliation.
TRIBAL SOVEREIGN IMMUNITY: ISSUES CONSIDERED BY COURTS
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¡ Breakdown of the Court’s (Mis)Reasoning: ¡ The court looked beyond the Commissioners’ “scope of authority” to consider the circumstances under which the Commissioners exercised that authority. ¡ The court focused on the lack of evidence/record to support the revocation decision – i.e., the Commissioners’ failure to provide evidence regarding plaintiff’s unsuitability for licensure. ¡ Without such evidence, the court simply accepted the plaintiff’s allegation that the revocation was without cause and in retaliation. ¡ Since the Commissioners did not have the authority to revoke licenses without cause or in retaliation, their conduct was outside the scope of their authority and not protected by the tribe’s sovereign immunity. ¡ In other words, the Commissioners’ act of revocation was lawful, but their motives were not, so therefore the act was outside the scope of their authority.
TRIBAL SOVEREIGN IMMUNITY: ISSUES CONSIDERED BY COURTS
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¡ Where the Court Went Wrong: ¡ State courts are not meant to have any role in tribal gaming licensing, let alone decide whether tribal officials are in compliance with their own laws. ¡ The Commissioners’ motives for carrying out an otherwise official and lawful act are irrelevant for purposes of sovereign immunity. ¡ Decision allows plaintiff to sue Commissioners individually for an action of the tribe’s government. ¡ This means tribal officials may be held personally liable simply by voting or participating in a decision to effect a sovereign act of the tribe.
TRIBAL SOVEREIGN IMMUNITY: ISSUES CONSIDERED BY COURTS
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¡ It’s Not as Bad as it Sounds: ¡ The case has been “depublished,” which means it’s non-binding and cannot be relied on as precedent. ¡ Also, bear in mind this is a state court decision. ¡ Nonetheless, the case serves as a cautionary tale for TGRA officials and employees. ¡ Key question is: what can you do to avoid finding yourself in this situation?
TRIBAL SOVEREIGN IMMUNITY: ISSUES CONSIDERED BY COURTS
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¡ In 2014, the Supreme Court decided Bay Mills , a case that reaffirmed the broad reach of tribal sovereign immunity. ¡ The vote was 5-4. ¡ The Court held that in suits involving commercial activities on nontribal land, tribes are immune from suit so long as federal law has not expressly waived sovereign immunity. ¡ The decision also noted in dicta that a state may use alternative, state-specific enforcement measures against individuals affiliated with the commercial activity ¡ Such suggestion has been interpreted by some as signaling approval of leaving the resolution of state-tribe disputes to the states.
TRIBAL SOVEREIGN IMMUNITY: MICHIGANV. BAY MILLS INDIAN COMMUNITY
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¡ The Supreme Court’s holding in Lewis v. Clarke (2017) effectively limited the scope of tribal sovereign immunity by effectuating a comparison between state and tribal sovereign immunity. ¡ That being said, the Court’s decision is relatively limited. ¡ In the opinion, Justice Sotomayer analogizes tribal sovereign immunity to state or federal immunity, acknowledging that tribal immunity is serious and legitimate in the eyes of the Court. ¡ Because it is a narrow opinion, the Lewis decision leaves many questions unanswered: ¡ Do tribal employees enjoy the same protections as their state and federal counterparts in respect to official immunity? ¡ Does tribal sovereign immunity apply when no forum will hear the case? ¡ This implication arose in Bay Mills and many hoped it would be resolved in Lewis .
TRIBAL SOVEREIGN IMMUNITY:
LEWIS V. CLARKE
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¡ Lewis was only decided in late April 2017, but it was quickly worked its way into lower court decisions that same year. ¡ Approximately two dozen lower court challenges to the extent and scope of tribal sovereign immunity have cited or relied upon the Lewis opinion.
TRIBAL SOVEREIGN IMMUNITY:
¡ So, what can we conclude? ¡ While the official and individual
LEWIS V. CLARKE
capacity tests are still the standards to determine when to bar tribal sovereign immunity, their application across different fields of law has drawn
different levels of scrutiny and consideration from the courts.
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FUNDAMENTAL PRINCIPLES FOR TGRAS
Act within the scope of your authority •TGRA may only exercise such power as it has been delegated and NO MORE
Act
Avoid arbitrary and capricious acts •There should be a rational connection between the facts examined and the action taken by the TGRA
Avoid
Interpret the law fairly and reasonably •Be unbiased (free of personal animus) •Avoid prejudging the outcome
Interpret
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PROCESS MATTERS
Fundamental Fairness:
• Fairness and consistency • Proportionality • Least adversarial means to achieve objective
Due Process Requires:
• Notice • Opportunity to be heard • Impartial adjudicator • Fair process
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¡ In other words, the affected person should always be advised of: ¡ What is happening? ¡ When and where it is happening? ¡ Why it’s happening? ¡ What could happen? ¡ And, what they can do if it does?
PROCESS MATTERS
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ADMINISTRATIVE RECORD
¡ Importance of an Administrative Record ¡ Create a paper trail documenting decision-making process and basis for agency decision. ¡ Record should reflect the following: ¡ TGRA collected the available information ¡ Considered all relevant factors ¡ Made a reasoned decision based upon credible, substantial evidence in the record ¡ The administrative record will be your greatest weapon in defending against challenges to agency actions.
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¡ Cases may be non-binding, but that doesn’t mean it can be ignored. ¡ The Supreme Court has left questions unanswered that may lead to state interpretation like the depublished opinion. ¡ Sovereign Immunity is an affirmative defense, which means the tribe or tribal official must present it when suit is filed.
FINAL THOUGHTS
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END
ELIZABETH LOHAH HOMER HOMER LAW CHARTERED 1730 RHODE ISLAND AVE NW SUITE 510 WASHINGTON, DC 20036
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Ethics and Professionalism in Tribal Gaming ELIZABETH L. HOMER HOMER LAW CHARTERED
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Ethics
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Homer Law, Chartered
Gaming is Special from the Standpoint of Ethics.
u Inherent Conflict and Appearance Issues u Nation is both owner and regulator u All Tribal members stand to benefit financially u Tribal members have close kinship ties u Cash Intensive u “Suspect” Industry u Scandal may Result in Changes in Public Perception and Public Policy
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u Integrity Key Issue u Avoid Conflicts of Interest u Avoid Appearance of Impropriety u Ensure Proper Conduct u Guide Decision Making u Guide Performance u Establishes Proper Parameters u Ensure that All Parties Understand
Why Are Standards of Conduct Important?
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Basic Principles
Tribal Gaming Operations Serve a Tribal Governmental Purpose not a Private Commercial Purpose . Government should always conduct itself in a manner that instills complete confidence in its Integrity.
Fair and Honest Government is a Basic Right of Every Citizen.
Public service is a Public Trust
Tribal Gaming Enterprises Should Always be Conducted in a Manner that Instills Complete Confidence in its Integrity. Personal financial interests of casino officials and employees should not conflict with Proper Performance of Duties
Fairness and Honesty in Tribal Gaming is a Basic Right of Tribal Government and its Citizenry Personal financial interests of government officials and Gaming Enterprise Employees Must Not Conflict with the Duty of
Public office and Positions must never be used for Private Gain.
Conscientious Performance .
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Employment and Post Employment
Contracts
Complimentary Items
What Should be Covered?
Game Play
Gifts
Outside Interests and Activities
Endorsements
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Homer Law, Chartered
All Government Officials and Employees
•Council Members • Regulators •Staff of all of the Above
Who Should Be Covered?
Casino
• Management • Employees •Vendors
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u Clash between an individual’s duties and their own private pecuniary interest u Financial interest in the outcome of a transaction u Family member or close relative has a financial interest in the outcome of a transaction
Conflict of Interest
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Homer Law, Chartered
Appearance of Conflict
Actions that may lead others to believe that an official is placing his or her personal interests above that of the public u Transactions involving, for example: u close friends u former business associates u former employers u former clients u future employers
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Appearance of Conflict Issues
Should be addressed by rules and standards addressing, for example:
Nepotism Cronyism Gifts Complimentary items Game Play Outside Interests or Activities Contracting
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Homer Law, Chartered
Actual Conflicts
Should always be avoided
Should be subject to rules governing disclosure and recusal
Violations constitute grounds for removal or termination
Subject to Sanctions and Penalties
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Ethics Rules Should Be: u Simple u Straightforward u Written in plain language u Easy to apply u Easy to follow u Necessary procedures should be clearly spelled out (e.g. notice, recusal, process for hearing, and appeal)
u Penalties and Sanctions Identified
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u As a general matter should be prohibited. u Gifts to the TGRA from the Gaming Operation. u Gifts to the TGRA or Operation from Vendors. u Gifts from Vendors to Casino Employees. u Provide Definition of Gift u Exceptions, if any, should be Identified u Limits should be Clearly Specified u Gaming Operation should not provide direct or in-kind services to TGRA (travel, extravagant meals, use of credit cards, etc.) u Define prohibited sources (vendors, contractors, manufacturers, etc)
Gifts & Donations
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u TGRA should not game at operations they regulate u Recusal Policy regarding Contracting, Licensing, Adjudications u (avoid nepotism and favoritism, establish limits on contracting authority, establish approval process) u Council or TGRA (or operation with TGRA approval) should establish Policy Governing Gifts u Outside Employment Policy u Disclosure Policy u If an official or employee has any questions about an actual or potential conflict of potential interest, the employee should discuss the matter with his or her supervisor.
Activities
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Endorsements
u TGRA may classify electronic items, but never endorse a product or vendor u TGRA should not appear in advertisements u Casino Staff should not Endorse Gaming Products u This General Policy Need Not Restrict Advertising Campaigns for the Gaming Enterprise.
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Invaluable
Affects the “bottom line”
Reduces the risk of enforcement issues
Reputation for Integrity
Promotes political stability
Increases public confidence
Increases confidence of membership
Decreases conflicts and disputes.
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Homer Law, Chartered
Hypothetical – Part I
u Sam, a tribal member, was appointed to the Tribal Gaming Commission two years ago. He is considered an excellent choice because he is an attorney and because of his previous experience in Casino Security and as a law enforcement officer. u Sam keeps long hours at his office is in the Casino, so he is well- acquainted with the entire staff from the General Manager to the housekeepers. About three months ago, Sam started dating Betty, the hostess for the Casino Steakhouse. Two weeks ago, Betty threw Sam a 40th birthday bash in the private room of the steakhouse. Almost the entire staffs of the casino, gaming commission, and tribal council attended. Betty’s boss gave Betty a 60% discount on each plate and donated two bottles of wine for each table, a red and a white. As with all private parties at the Steakhouse, the General Manager provided each guest a goodie bag, containing coupons for five slot tokens, a keychain, a deck of cards, and some chocolate coins.
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Hypothetical – Questions I
1. Identify the ethical issues raised in this hypothetical.
2. Should Betty have hosted Sam’s birthday party in the casino?
3. Are there any ethical problems with accepting the bottles of wine?
4. Should Sam pay back the 60% discount to the Steakhouse? Why? Why not?
5. Is it permissible for Sam to receive a “goodie bag” at the party? Why? Why not?
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Hypothetical – Part II u Sam received some wonderful presents: an expensive bottle of French champagne from Betty’s boss; some official Audubon Society binoculars from his staff, which had taken up a collection; and a beautiful Pendleton blanket from the Council. u The next morning at work, Sam got on the computer to e-mail a thank you notes. So many people attended that it took him nearly an hour to get the notes out. It was a good thing that he came in early, he thought to himself. He spent the rest of the morning reviewing a stack of pending appeals. He noted that one was filed by a distant cousin. Sam had never met the fellow, but he couldn’t help feeling a little sorry for him. Unfortunately, he had waited too long to file his appeal, so Sam prepared the letter informing him the appeal was denied on the basis of timeliness. Sam signed and mailed the letter just before going to lunch.
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Hypothetical – Questions II
1. Which of the gifts received by Sam pose ethical concerns? Why?
2. Should Sam have returned any of the gifts?
3. Did Sam misuse the Tribe’s computer by sending personal thank you notes?
6. Should Sam have recused himself from handling his cousin’s appeal?
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Hypothetical – Part III u Sam had lunch with Connie, the Director of Licensing and Compliance. Sam and Connie had a good working relationship and he had grown to respect her judgment. Sam liked to joke around with Connie, especially since she had such a good sense of humor. “Hey,” he said, “I just spent my morning going over all the trouble you’ve made; is there anyone who isn’t appealing one of your decisions?” “No,” said Connie, “I think every one of them is sitting on your desk right now, and I’m counting on you to do the right thing.” “I always do the right thing,” Sam replied. “By the way,” Connie added, “Super Tech just dropped off the brand new Super Duper Bingo or Bust game this morning and will be demonstrating it after lunch; want to drop in?” “Sure,” he said, “let’s go.” u When they arrived, the Super Tech reps hurried over to shake hands. “You’re going to love this game,” they said, “it’s the best.” He added, “in fact, we’d really be happy if you all would be our guest at headquarters and let us show you the whole process, we could fly you down in the corporate plane, and have you home by dinner time.”
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Hypothetical – Questions III
u How should Sam & Connie respond to Super Tech’s offer?
u Should Sam discuss the appeals he’s reviewing with Connie in this manner?
u Was Connie and Sam’s conversation about doing “the right thing” ethically appropriate?
u Are there any other ethical issues in this hypothetical?
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Homer Law, Chartered
Questions?
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Professionalism
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Homer Law, Chartered
Regulatory agencies are responsible for effecting compliance with the laws, rules, regulations, standards, polices, and procedures under its jurisdiction by those subject to its regulatory authority through oversight, monitoring and enforcement.
These are important responsibilities, which, in turn, create a duty on the agency’s part to carry out these responsibilities professionally and in accordance with principles of professionalism.
Professionalism
To be effective, the TGRA must not only hold those regulated to a high standard of integrity, the TGRA must also hold itself to such standard.
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Professionalism in TGRAs
Be objective and unbiased in the performance of your duties and with regard to the interpretation of the laws, regulations, rules, standards and procedures they enforce.
Be Objective and Unbiased
Be Transparent with Expectations and Requirements
Part of maintaining a working relationship with gaming operations is making information as accessible and understandable as possible. It is much easier to acknowledge and follow guidelines when they are clearly disseminated.
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Professionalism in TGRAs
Communicate Clearly and Proactively
If you notice or are put on notice of a potential violation or misstep, contact the gaming operation sooner rather than later. Waiting for an issue to become a larger problem promotes a system of mistrust.
Regulatory Professionals have a duty to be fair and equitable when applying legal and regulatory standards and carrying out their regulatory duties and functions.
Be Fair and Equitable.
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Professionalism in TGRAs
Uphold the Integrity and Independence of the TGRA.
Base your decisions on factual information free of undue influence, personal feelings, and conflicts of interest, and to ensure that information and communication, whether verbal or written, are complete, accurate, and truthful.
Act in a calm, courteous, and respectful manner when carrying out your regulatory duties and functions.
Maintain Respectful and Ethical Professional Relationships.
Strive to build constructive relationships with others by ensuring mutual respect, candor, confidentiality, and understanding.
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Homer Law, Chartered
Professionalism in Gaming Operations u Perform Duties Competently and Diligently. u Be competent in the performance of your duties by acquiring and maintaining the knowledge, skills, and abilities essential to the performance of your assigned functions in the continually evolving regulatory environment.
u Respect the Authority of TGRAs u Regulatory authorities work to maintain a
balanced system that promotes the goals and needs of the Tribe while also considering the goals and needs of the gaming operations and licensees.
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Professionalism in Gaming Operations u Do Not Hide Mistakes u You must act diligently in the exercise of your duties and be candid and forthcoming about honest mistakes to permit swift and timely correction. u Be Proactive with Concerns u While regulatory and statutory provisions should clearly indicate what is required of the gaming operation, asking for clarification at any point is a great way to keep lines uncrossed.
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Professionalism in Gaming Operations u Complete Reports Accurately and Timely u Gaming operations are required to keep and produce accurate reports throughout operation and at the request of TGRAs. These reports are vital to maintaining a functional relationship between agencies and operations. u Address Violations Swiftly u If a violation should occur, take all necessary steps to quickly address and rectify the situation.
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u Communication in the workplace and gaming world is not only inevitable; it is key. u Effective communication allows for working relationships between TGRAs and gaming operations to run smoothly and efficiently. u A vital part of effective communication is maintaining professionalism.
Communication
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u Professionalism in communication includes: u Clarity and concision u Respect
u Feedback u Promptness
Communication
u Don’t let communications linger unaddressed
u Keeping channels of communication open
u Ideas and thoughts will not align 100% of the time. Shutting down communication is not a solution.
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Oral
Communication
Visual
Written
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Homer Law, Chartered
Communication
Written Memos Reports Letters and Emails
Oral Interviews Meetings
Visual Signs Presentations
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Confidentiality
The TGRA should protect confidential information.
Confidential information includes personal information and data regarding licensees, license applicants, and vendors, as well as non- public information concerning gaming operations.
TGRA employees should take all necessary and proper precautions to appropriately protect confidentiality in their day- to-day use of confidential information.
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u Limit Collection of Confidential Information u Limit Use of Confidential Information u Limit Access to Confidential Information u Limit Disclosure of Confidential Information u Maintain Confidential Information in a Secure Manner u Protect Confidential Information from Unauthorized Modification and Destruction
Confidentiality
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A Fraternization policy should clarify the importance of maintaining professional relationships with individuals licensed by the TGRA.
In carrying out its regulatory functions and duties, the TGRA relies upon the professional integrity of relationships between employees and licensees of the TGRA. When TGRA employees develop close personal relationships with licensees subject to the regulatory jurisdiction of the TGRA, they risk undermining the public’s trust and confidence in the unbiased implementation of the regulatory mission.
Fraternization
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Fraternization
u Avoid conduct that may cross or blur professional boundaries and understand the following potential conflicts of professional interest which may arise: u Potential for Complaints of Favoritism
u Potential for Loss of Objectivity u Potential for Abuse of Authority u Potential to Undermine Authority
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END
Homer Law, Chartered 1730 Rhode Island Ave., N.W. Suite 501 Washington, D.C. 20036 (202) 955-5601 (202) 955-5605 (fax)
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Internal Audit What is Required? & How Should It Be Approached?
Ryan Burns, CPA Partner, BlueBird CPAs
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What is an Internal Audit? • An independent appraisal function to examine and evaluate the organization’s activities as a service to the organization
• Monitoring how management is achieving their objectives on an on-going basis
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BlueBird CPAs
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Compliance Audits • NIGC MICS • Title 31 • IRS Reporting • Tribal Regulations • System of Internal Control
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Audit Charter • Defines the role of the internal auditor within the organization
• Forms the basis for his/her authority
• Must be defined in a formal document and be adopted, usually by the Tribal Council or the Tribal Gaming Commission
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BlueBird CPAs
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Audit Charter
• Internal audit should have access to all areas of the Casino without any limitation on the information or areas subject to audit. This includes access to the:
o Financial statements, o General ledger detail, o Revenue Audit documentation, o Departmental budgets, o Annual audit results, o Payroll, o Expenses (especially credit cards and travel costs), and o Non-gaming revenue centers.
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Internal Auditor Communication & Independence • Internal auditors can communicate anything but surprise observations or when a special investigation is in progress, such as: o Audit plans o Timing of audit fieldwork • Communicate findings to management prior to the issuance of a report • Document the results of work performed • Timing of management responses • For independence, report to Tribal Council/Gaming Commission, Audit Committee or Board
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BlueBird CPAs
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Internal Auditor Required Testing • All Gaming & • Relevant Support Areas
Should be tested at least once a year (or more frequently based on internal requirements.)
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Internal Audit Standards (IIA) • Independence o Organization status o Objectivity • Professional proficiency • Scope of work • Performance of audit • Management of internal audit department
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BlueBird CPAs
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Five Steps of Internal Audits First, let’s look at the five steps for performing internal audits.
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Performance of Audit Work • Planning • Developing/customizing master plan • Performing the fieldwork (checklist, audit program)
• Evaluating and documenting evidence • Communicating results & follow-up
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BlueBird CPAs
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Step 1: Planning • Evaluate overall control environment • Risk assessment & monitoring • Evaluate the written policies and procedures • Evaluate communication process
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Audit Planning - Obtain An Understanding
• Regulatory Environment - Working Knowledge of Industry, Tribal- State Gaming Compact, Tribal Gaming Ordinance, and applicable Tribal Minimum Internal Control Standards (TMICS).
• Operating Environment – Type and Volume of Transactions, Management Attitude, Computer Information Systems, Data Flow, Documented Control Systems, etc.
• External Environment – Regulators, Lenders, Tribal Membership, Competitive Environment, etc.
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BlueBird CPAs
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Audit Planning – Risk Assessment
• What can go wrong? – Who is relying on the numbers? • Which accounts have more risk? • What controls are in place? • Which compliance areas are most important or subject to scrutiny? • Potential for fraud? • Materiality of account? • Assess the level of risk (Low, Medium, High)
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Inherent Risk - Indicators • Prior audit compliance findings, prior areas that required adjustment.
• Changing environments (industry conditions, regulatory requirements, political, management, accounting policies).
• Non-routine transactions, complex calculations, change in estimates or accounting principles.
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BlueBird CPAs
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Inherent Risk • Common examples:
o Complex Accounting Cycles (Gaming Revenue) o State Fees, Management Fees, Interfund Accounts o Related Party Transactions (Management Company) o Complex Regulations or Accounting Standards o Prior unresponsiveness to identified control weaknesses • Importance of follow-up of risk monitoring and assessment • Prioritizing corrective action based on significance / likelihood of occurrence
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Fraud Risk Assessment TWO TYPES OF FRAUD RISK: o RISK OF FRAUDULENT FINANCIAL REPORTING (Cooking the Books) o RISK OF MISAPPROPRIATION OF ASSETS (Stealing Company Assets)
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BlueBird CPAs
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Fraud Risk Factors 3 RISK FACTORS: • Incentive / Pressure to Commit Fraud • Opportunity (Lack of Controls, Override, Collusion) • Rationalization
AS ANY ONE FACTOR GROWS – THE RISK OF FRAUD INCREASES
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Red Flag Warnings • Audit requested items concealed by withholding evidence, requested items. • Misrepresentation (aka – lying) • False or Altered Documents • Reports of Alleged Fraud • Ratios / performance different than industry norms or past performance (Analytics)
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BlueBird CPAs
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Fraud Indicators • Questions of integrity and competence • Unusual pressure within or on the entity • Unusual transactions • Problems in obtaining sufficient and appropriate audit evidence • Factors unique to information technology
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Control Risk - Assessment & Testing
• Determine major transaction cycles (for example: gaming revenues).
• Walkthroughs of transactions – inception to recording to reconciliation.
• Compliance with documented control systems.
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BlueBird CPAs
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Control Risk - Continued • Inquiry alone is not sufficient to test controls.
• Determine if control system design satisfies general segregation of duties (Authorization, Recording, Custody).
• Perform tests of transactions.
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Gaining an Understanding…
NIGC, State………… NIGC MICS
State Compact
Step 1
Tribal Gaming
Tribal MICS
Regulatory Authority
Or TICS
Step 2
Implement Internal Control System (SICS) including Title 31
Tribal Gaming Operations……………
Step 3 Auditor verify SICS is in substantial compliance with Tribal MICS As soon as Step 2 is done
Internal Auditor………………………..
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Gaining an Understanding
Step 4
Verify the Gaming Operation implemented SICS and is in substantial compliance with SICS As soon as Step 3 is done or in conjunction with the
Internal Auditor………………………….
annual audits
Step 5
CPA prepare a report of findings to the Tribe &
CPA ………………………………….
Management (542.3 (f)/543.23)
Step 6
Submit a copy of the CPAs report to the NIGC by 120 days after the fiscal
Tribal Gaming
Regulatory Authority ……
year end
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Step 2: Developing/Monitoring Master Plan • Establishing objectives • Establishing criteria & scope of work • Determining nature of testing o Substantive, attribute, compliance
o Reliance on internal controls o Testing of internal controls
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Prioritize Audit Work • Compliance with NIGC MICS, Tribal MICS, & Compact
• Risk Based Selection of Audit Areas
• Assist External Audit
• Special Projects (Rotation of Cycles)
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Step 3: Performing the Fieldwork • Using checklists & audit programs • Use professional skepticism • Sampling consideration o Statistical vs. Judgmental o Sample size • Gathering evidence (quality and quantity of evidence) • Conclusion
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Attribute Sampling • Is the most common for Internal Auditors - usually concerns yes/no or error/non-error propositions
• It tests the effectiveness of controls because it can estimate a rate of occurrence of control deviations in a population
• Attribute sampling requires the existence of evidence indicating performance of the control being tested
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Sampling Based On NIGC Checklist Within the checklists provided by the NIGC, unless specified otherwise, the standard document testing for gaming machines and table games involves a sample size of two (2) days, all shifts. One test date should be selected from the first six (6) months of the audit period and the second test date selected from the six (6) month period immediately preceding the examination.
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Sampling Based On NIGC Checklist • Standard document testing for all other areas involves a sample selection of one (1) day, all shifts, from the twelve (12) month period immediately preceding the audit.
• The days are to be randomly selected.
• Where monthly testing is required, the months used will be the months that include the selected test dates.
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Sampling Based On NIGC Checklist • “Review supporting documentation” means to test the most recent documents to the standard.
• “Examination of records” means to use the sample test dates, unless an expansion of scope is justified by the auditor.
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Sampling Based On NIGC Checklist • “Review policies and procedures” (or SICS) means to examine written internal controls or policies and procedures of the gaming operation. • “Review TGRA approval” means to complete the following: o Review TGRA approval o Review supporting documentation of the gaming operations submission to the TGRA o Review TGRA’s policy for approval or disapproval.
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Sampling Based On NIGC Checklist • “Inquiry” means to question personnel knowledgeable of the standard.
• “Observation” means to physically observe the performance of the standard.
• “Review other” means to review/test named documents.
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Quality Control • Workpaper documentation
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Step 4: Evaluating & Documenting Evidence • Materiality vs. Significance • Quantify • Fraud Indicators • Finding Worksheet
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Step 5: Communicating Results & Follow-Up • Verbal & written • Interim vs. final • Levels of management involved in communication • Whom to report to • Management responses • Encyclopedic coverage not desirable
35
Findings should include: • What should be? (criteria)
• What is? (statement of condition)
• So what? (effect)
• Why did it happen? (cause)
• What should be done? (recommendation)
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Report Writing Techniques • The NIGC Guidelines recommend that the following information be included in the internal audit report: • Audit objectives. • Audit procedures and scope. • A narrative description of the noncompliance, including the number of exceptions. • The citation of the applicable National Indian Gaming Commission Minimum Internal Control Standard, Tribal Internal Control Standard, and State Compact, as applicable, for which the instance of noncompliance was noted. • Recommendations, if applicable. 37
Report Writing Techniques
• The NIGC Guidelines recommend that the following information be included in the internal audit report (cont.): • Management’s responses to the noted instances of noncompliance. • If the instance of noncompliance is determined to be immaterial, a broad management response acknowledging the instances of immaterial noncompliance is acceptable. The immaterial instances of noncompliance may be disclosed as a separate section of the report. • Instances in which the written system of internal control does not reflect the actual control procedures in effect as they relate to compliance with the NIGC MICS and approved MICS variances.
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Advice to a New Internal Auditor • Present the audit as a tool to help all people within the organization.
• Discuss preliminary audit findings prior to report issuance – clear up misunderstandings.
• Try to avoid adversarial relationships.
39
Ryan Burns, Partner rburns@bluebirdcpas.com Thank you!
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Financial Controls & Accounting Standards
Ryan Burns, CPA Partner, BlueBird CPAs
1
Session Agenda • Financial Statements - Financial Controls • Accounting Standards • Gaming Audit & Accounting Guide
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Various Financial Statements • External Financial Statements – Lenders, Regulatory Agencies (NIGC, Compacts), Tribal Council & Tribal Gaming Commissions • Internal Financial Statements - Property Management for Analysis (Flash Reports, P/L Summaries, Condensed Financial Information)
3
Financial Statements & Financial Controls
Ryan Burns, CPA Partner, BlueBird CPAs
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BlueBird CPAs
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Enterprise Financial Statements • Management’s Discussion & Analysis (RSI) • Balance Sheets / Statement of Net Position • Statement of Revenues, Expenses, and Changes in Net Position • Cash Flow Statement • Notes to Financial Statements • Combining Financial Statements (SI)
5
Balance Sheet (aka the Statement of Net Position) • Assets - Things of value owned by the entity • Liabilities - Things of value owed by the entity • Equity = Assets – Liabilities
• Equity Classifications (Invested in Capital Assets, Net of Related Debt, Restricted, Unrestricted)
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Balance Sheets – Appendix B
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Balance Sheets – Appendix B Continued
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Statement of Revenues, Expenses, and Changes in Net Position • The connection between the current year balance sheet and previous year balance sheet.
• Shows how and why tribal equity changed from what it was last year to what it is this year.
• Why did the business get richer or poorer?
9
Income Statement GASB Structure • Revenues o Direct operating expenses o General and administrative operating expenses • Equals Operating Income o -/+ Non operating Items (Interest) • Equals Net Income o Transfers to the Tribe • Equals Net Change in Net Position
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Statements of Revenues, Expenses, and Changes in Net Position – App. B
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Statements of Revenues, Expenses, and Changes in Net Position – App. B
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The Statement of Cash Flows • Where the cash came from and where it went o Cash flow from operating activities o Cash flow from non capital investing activities o Cash flow from capital and related financing o Cash flow from investing activities
13
Income Statement vs. Cash Flow • Accrual vs. Cash • Where the cash comes from & goes • Big differences: o Depreciation, Loss on Disposal, etc.
o Cash needed to replace assets o Cash needed to pay off loans o Cash received from loans o Cash loaned/transferred to Tribe
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Statements of Cash Flows – Appendix B
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Statements of Cash Flows – Appendix B Continued
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What is unique about Tribal Casino Accounting? • GAAP Issues (Net Win, State Fees, GASB, etc.) • Layers of Regulations (TRGC, State, NIGC) • Cage/Vault Accountability • 24-Hour Operations / Staggered Drop • Volume of Cash Transactions • No source revenue documentation (invoice, shipping document, etc.)
• Reliance on Computer Systems • Tribal Government Transactions
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Accounting Issues Specific to Gaming Operations • Cage Accountability – The central artery system of your daily financial accountability and recording processes.
• Revenue Audit – Independent verification of gaming departments’ sources and uses. (Matching transfers, verifying actual to meters, over / short review, etc.)
• Casino Bankroll – Cash, Chips, Tokens, Preprinted Tickets, Redemption Machines, Uncounted Drop Proceeds, Etc.
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Accounting Issues Specific to Gaming Operations – Cont’d • Progressive Jackpots – In House vs. Externally Funded / Wide Area
• Players’ Club – Accounting for Free Play, Cash & Coupons
• Accounting for Complimentary Items
• Reliance on Controls & Computer Systems
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Common Internal Control Weaknesses – A/P • Stale Policies and Procedures – Purchasing/Procurement, Payable Processing, Processing Payments, Maintaining Vendor Master Files. • Training and Staff Development • Improper Timing and Routing of Purchase Orders • Paying from Invoice Duplicates (copies) • Inadequate Segregation of Duties (ARC-Authorization, Recording, Custody)
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Common Internal Control Weaknesses – Payroll • Stale Policies and Procedures – Timekeeping System & Payroll Preparation Policies, HR Policies, Payroll Distribution • Training and Staff Development • PTO Authorization and Perpetual Tracking System • Inadequate Segregation of Duties (ARC-Authorization, Recording, Custody)- HR & Payroll Functions
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Common Internal Control Weaknesses – Financial Reporting • Stale Policies and Procedures • General Ledger Access Controls • Training and Staff Development • Untimely Account Reconciliations
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Common Internal Control Weaknesses – Financial Reporting • Recognition of Unique Events or Transactions (Asset Impairments, Losses Due to Asset Disposals, Natural Disasters, Insurance Recoveries, Derivatives, Long-Term Financing Arrangements, New Acquisitions or Business Lines) • Inadequate Segregation of Duties (ARC-Authorization, Recording, Custody)
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CAGE PAPERWORK
BANK STATEMENT
GENERAL JOURNAL
PAYROLL REGISTER
CHECK REGISTER
THE GENERAL LEDGER
THE TRIAL BALANCE
COMPUTER SLOT SYSTEM
ADJUSTMENTS
FINANCIAL STATEMENTS
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Accounting Standards
Ryan Burns, CPA Partner, BlueBird CPAs
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What is GAAP? • What is GAAP?
• Who establishes GAAP?
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Governing Structure of Standard- Setting Boards
Fi nanci al Account i ngFoundat i on (FAF)
Financial Account ing Standards Advi sory Counci l
Financial Account ing Standards Board(FASB)
Government al Account ing Standards Board(GASB)
Government al Account ing Standards Advi sory Counci l
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Financial Reporting – Different GAAP for Different Folks • Type of Entity: GAAP Set By: • Government GASB • Business FASB • Non-Profits FASB • Public Companies PCAOB / FASB
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Why Are Tribes Considered Gov’ts for Financial Reporting? • Power to Enact and Enforce a Tax Levy? • Established via Governmental Legislation? • Provide Services in Lieu of Another Government? • Ability to Issue Tax-Exempt Debt? • Tribes are considered Sovereign entities, similar to state governments by the United States Federal Government.
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Tribal Entities – GASB Applies to All!
• Tribal Enterprises (Casinos, Hotel, Retail, Mini-Mart, Tobacco, Etc.) • Tribal Government • Tribally Sponsored Benefit Plans • Component Units
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