THE MISSISSIPPI LEGISLATURE

The Joint Committee on

Performance Evaluation and Expenditure Review

Report # 522

Gaming Regulation in Mississippi: A Progress Report

Executive Summary

Introduction

The Mississippi Legislature legalized dockside gaming in 1990 through the Mississippi Gaming Control Act (MISS. CODE ANN. Section 75-76-1 et seq. [1972]). In 1992, the Legislature legalized charitable gaming through the Charitable Bingo Law (MISS. CODE ANN. Section 97-33-50 et seq. [1972]). The Mississippi Gaming Commission (MGC) is responsible for the regulation of both casino gaming and charitable bingo.

The purpose of this review was to provide a progress report on the Mississippi Gaming Commission’s performance in regulating casino gaming and charitable bingo. The review was structured primarily as a follow-up of PEER’s previous reports (in 1996, 1997, and 2001) on the regulation of gaming in Mississippi.

Regulation of Casino Gaming

Overview

In its environmental analysis of casino gaming in Mississippi, PEER found that the casino environment has been impacted by the recent amendment to state law that allows for expansion of casino operations and by a shift to sophisticated technology on the casino floor. In addition, Hurricane Katrina and the downturn in the economy have impacted what were increasing gaming revenues in the state.

PEER found improvements in the Gaming Commission’s regulation of casino gaming since its last review (e. g., thoroughness and documentation of Corporate Securities investigations, timely issuance of work permits, frequency of compliance audits). However, MGC still has deficiencies in the following areas: show cause cases, ongoing compliance reviews, enforcement, oversight of electronic gaming devices, and approval/modification of table games.

The following are specific follow-up conclusions regarding the Gaming Commission’s regulation of casino gaming.

Conclusions

Corporate Investigations

• The Compliance Division: Corporate Securities Section now performs extensive and detailed analyses on applicants for gaming licenses, registration, or findings of suitability.
• The MGC’s Compliance Division’s Corporate Securities Section now documents its investigation procedures and maintains workpapers to show evidence that it has performed background checks, financial analyses, and other pertinent analyses of applicants for casino gaming licenses in Mississippi.

Show Cause Cases and Hearings

• Although MGC’s Legal Division now uses a show cause inventory to help the MGC ensure consistency in assessing fines for violations of the Gaming Control Act and MGC regulations, the inventory does not include information on the rationale for the fine amount or explanation when a fine is not charged.

Work Permits

• Because the MGC has moved to electronic fingerprinting and background checks, the agency now takes an average of three to four business days to process and issue employee work permits. Since processing time has decreased, MGC no longer issues permits prematurely.

Key Employees

• The MGC’s Investigations Division now uses a key employee database to track those casino employees who hold a key employee license.

Ongoing Compliance Reviews of Licensees

• The MGC Compliance Division has completed eighteen of twenty audits on the Mississippi River casinos in the past two years and is on schedule to maintain its goal of auditing licensees once every two years by the end of Calendar Year 2009.
• The content of the MGC Compliance Division’s Operations Manual is not sufficient to guide compliance auditors through the compliance audit process because it lacks some information crucial to understanding the elements of casino auditing.

Enforcement

• The MGC’s Enforcement Division still lacks a formal inspection program that would include a plan for conducting unannounced inspections of casino operations a pre-determined number of times to ensure adequate monitoring of the fair play of casino games.
• MGC does not provide adequate training for enforcement agents regarding MGC’s regulations, table games, and electronic gaming devices and equipment. Thus MGC does not ensure that enforcement agents have the knowledge, skills, and abilities necessary to ensure that gaming is conducted honestly and competitively.
• MGC’s management information system for enforcement does not maintain pertinent information related to enforcement activities and agents have no guidelines as to how to classify activities. As a result, MGC cannot effectively use the system as a managerial tool to monitor trends, target resources at specific risk areas, and assess the effectiveness of enforcement activities.

Oversight of Electronic Gaming Devices

• MGC now licenses independent testing labs that test electronic gaming devices. MGC’s Gaming Lab reviews test results and reports submitted by the independent testing labs before approving gaming devices for use in the state.
• Although changes in the gaming industry suggest a need for increased focus on electronic gaming devices, the MGC does not aggressively monitor the integrity of such games through regular, unannounced inspections of electronic gaming devices and does not use proper methodology in its inspections.
• MGC has not ensured that its district offices have the level of technical knowledge and expertise needed to monitor the integrity of electronic gaming devices prevalent in modern casinos.

Need for Additional Policies for Gaming Regulation

• Even though the MGC staff state that they have criteria for approval or modification of table games, the MGC still has not developed written criteria for approval or modification of table games.

Monitoring Socioeconomic Risks of Casino Gaming

• The MGC has not conducted a cost/benefit analysis of the casino gaming industry in Mississippi.

Implications for the Funding of Casino Gaming Regulation in Mississippi

In the 2009 Second Extraordinary Session, the Legislature eliminated general fund support to the MGC. The commission must now support regulatory activities through special funds and PEER believes that the lucrative casino gaming industry can reasonably be expected to bear the financial responsibility for regulation. The MGC should use this opportunity to bring the casino gaming regulatory structure to a level commensurate with changes in the industry.

Regulation of Charitable Bingo

Overview

In its environmental analysis of charitable bingo in Mississippi, PEER found that charitable gaming activities have declined in Mississippi as casino gaming has become more popular. While there have been few changes to the charitable gaming environment, these changes to the Charitable Bingo Law have benefited both the charities and the MGC.

While data indicates that charitable bingo operations now contribute potentially more to the charities they support than in the past, state law does not adequately address the charity fraud risk because it does not authorize the Gaming Commission to track the flow of funds to determine whether charitable causes are being supported. Also, the commission lacks written policies for granting licenses of varying lengths, as well as a database to track pertinent information related to bingo hall inspections.

The following are specific follow-up conclusions regarding the Gaming Commission’s regulation of charitable bingo.

Conclusions

Protection Against the Charity Fraud Risk

• State law does not provide the MGC with authority to inquire closely into the operations of charitable organizations and monitor their transactions to ensure that bingo halls are truly supporting charitable causes.

Contributions to Charity Accounts

• Although total gross bingo receipts declined from FY 1997 to FY 2008, the percentage of gross bingo receipts transferred to charity accounts increased during the same period, indicating that charitable bingo operations now contribute potentially more to the charities they support than they did in the past.

Written Policies Regarding Licensing Periods

• State law now authorizes the MGC to award licenses for holding, operating, or conducting bingo games for up to three years. However, MGC does not have a written policy that guides its decision-making process for determining the length of a bingo hall’s license. Thus the potential exists for licensing decisions to be subjective or inconsistent.

Management Information System

• The Charitable Gaming Division lacks a database for tracking pertinent information related to bingo hall inspections, which hinders management’s ability to analyze problem areas and to ensure compliance with bingo laws and regulations for every hall in the state.

Recommendations

Regulation of Casino Gaming

1. The MGC should continue to maintain the casino show cause inventory it has created. However, the MGC should develop and implement a penalty matrix to further assure that fines are being assessed consistently.
   

   The penalty matrix should include, but not be limited to, written explanations of the following:

   • the seriousness of the violation, including but not limited to the nature, circumstances, extent, and the gravity of the violation(s);
   • the damage caused by the violation;
   • history of previous violations;
   • the amount necessary to deter future violations; and,
   • efforts made to correct the violation.
2. The MGC Compliance Division should create a more comprehensive Operations Manual that includes written procedures and items to assist auditors in understanding the elements of casino auditing, such as representative diagrams of the casino cage and money count rooms in a casino, flow charts of casino operations and copies of documents that auditors must review during compliance review, in order to give the Compliance Division employees a better understanding of casino auditing in general.
3. The MGC should implement and document a casino inspection program that would include review of all facets of casino operations. The program should include a method for random selection of elements to be reviewed. The MGC should schedule these inspections so that every casino is subject to periodic inspection.

   This inspection program should include:

   • a rotating work schedule for enforcement personnel to provide coverage seven days per week, twenty-four hours per day for conducting surprise inspections;
   • a comprehensive inspection system that uses a detailed checklist to document which casino was inspected, when, by whom, the number of monthly inspections for the operation, the inspection results, applicable state authority (statute and regulation reference), and a short summary statement for any violation;
   • a mandated number of MGC sweep inspections for inspecting all facets of an entire casino operation simultaneously; and,
   • use of a management information database to plan and manage the inspection schedule. District personnel should document all inspection results in this system for management analysis.
4. MGC should establish a formal training program for all new enforcement agents on the regulations offered by the Legal Division. The program should include:
   
   
   • assessing the training need;
   • ensuring that agents apply what they learned from training to the job;
   • developing an evaluation plan;
   • choosing a training method; and,
   • monitoring and evaluating the training program.
5. The MGC Gaming Lab should provide formal training for all enforcement agents on existing and new gaming technology.
6. The MGC should modify its management information system so that managers can analyze data to identify risk areas and assess the agency’s performance. The system should have categories in its drop-down menu for documenting when agents have completed inspections (listed by type) and firmware audits. MGC should operationally define each category to ensure consistent entries by staff. The system should also allow for categorization of any findings of investigations or other incidents.
7. The MGC should re-evaluate its enforcement activities (e. g., jackpot verifications) in light of the current casino environment and prioritize its activities based on the highest risks in the environment. Specifically, MGC should focus more effort on establishing a formal electronic gaming device inspection program that includes regular, unannounced visits to all casinos.
8. The MGC should use a statistically valid random sample for electronic gaming device inspections and firmware audits to ensure that all devices, within the error rate, are operating fairly and honestly.
9. The MGC should verify that all devices are accounted for before selecting a statistical sample for slot inspections. To accomplish this, MGC could request a casino slot area floor plan and conduct a check to ensure that all machines are accounted for. The sample could be taken randomly from the floor plan.
10. Given the increasingly technical nature of the gaming environment, the Gaming Commission should develop a plan to transition to a technically specialized staff in critical areas of oversight. The MGC should seek appropriations authority to use fees and fines to fund the needed changes and should, through attrition, modify its current enforcement staffing plan to include knowledge and expertise in computer science, casino technology, engineering, or similar backgrounds. The MGC should fill any vacant enforcement positions with technically trained staff and, as current agents leave the MGC, each of the resulting vacancies should be evaluated for the need for specialized technical training.
11. As PEER recommended in 1996 and 2001, the Gaming Commission should develop written policies and procedures to ensure that table games and their modifications are approved in a consistent manner on a statewide basis. The policies, which should supplement the current New Table Games Policy and should be used by the training director and enforcement agents, should include:
    
    
    • criteria for the agency to use in determining whether table games are being conducted honestly and competitively according to MISS. CODE ANN. Section 75-76-3 (1972);
    • criteria for enforcement agents to determine whether to approve modifications; and,
    • policies and procedures for enforcement agents to determine how and when to approve table game modifications and when they should be forwarded to the training director for review.
12. The Legislature should consider mandating that MGC conduct a cost/benefit analysis of the state’s gaming industry to consider the industry’s position in relation to the public policy of the state. The analysis should be funded through fines and fees paid by the industry.

Regulation of Charitable Bingo

13. The Legislature should amend MISS. CODE ANN. Section 97-33-57 (1972) to authorize the MGC to:
    
    
    • require that bingo licensees submit plans to the commission detailing what charitable activity they intend to support for the period of the license;
    • audit the transfers of funds from licensees to any other entity that has one or more common officers;
    • revoke the license of any licensee that has failed to comply with the provisions of its business plans or that makes contributions to any organization failing to provide material support (as defined by the commission) for charitable activities; and,
    • ensure that revenue from charitable bingo operations is used in support of charitable purposes.
    The commission should have the authority to determine how funds generated from bingo operations and transferred to the charity account are expended. The commission should also have the authority to determine what percentage of the funds from bingo operations may be used to support a charity’s management and general expenses and how much must be used to support charitable purposes.
14. In order to ensure that the length of licenses to hold, operate, or conduct bingo games is determined in a fair and consistent way, MGC should develop written policies and guidelines that outline criteria that MGC will follow in awarding licenses.
15. The MGC should develop a database to track information related to bingo hall inspections.

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