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Proposed Rule

Minimum Internal Control Standards

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AGENCY:

National Indian Gaming Commission.

ACTION:

Proposed rule revisions.

SUMMARY:

In response to the inherent risks of gaming enterprises and the resulting need for effective internal controls in Tribal gaming operations, the National Indian Gaming Commission (Commission or NIGC) first developed Minimum Internal Control Standards (MICS) for Indian gaming in 1999, which have subsequently been revised. The Commission recognized from the outset that periodic technical adjustments and revisions would be necessary in order to keep the MICS effective in protecting Tribal gaming assets and the interests of Tribal stakeholders and the gaming public. To that end, the following proposed rule revisions contain certain proposed corrections and revisions to the Commission's existing MICS, which are necessary to clarify, improve, and update other existing MICS provisions. The purpose of these proposed MICS revisions is to address apparent shortcomings in the MICS and various changes in Tribal gaming technology and methods.

DATES:

Submit comments on or before December 30, 2005. After consideration of all received comments, the Commission will make whatever changes to the proposed revisions that it deems appropriate and then promulgate and publish the final revisions to the Commission's MICS Rule, 25 CFR part 542.

ADDRESSES:

Mail comments to “Comments Proposed MICS Rule Revisions, National Indian Gaming Commission, 1441 L Street NW., Washington, DC 20005, Attn: Acting General Counsel, Penny J. Coleman.” Comments may be transmitted by facsimile to (202) 632-7066.

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FOR FURTHER INFORMATION CONTACT:

Vice-Chairman Nelson Westrin, (202) 632-7003 (not a toll-free number).

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

Background

On January 5, 1999, the Commission first published its Minimum Internal Control Standards (MICS) as a Final Rule. As gaming Tribes and the Commission gained practical experience applying the MICS, it became apparent that some of the standards required clarification or modification to be effective, operate as the Commission had intended, and accommodate changes and advances in gaming technology and methods.

Consequently, the Commission, working with an Advisory Committee composed of Commission and nominated Tribal representatives, published the new final revised MICS rule on June 27, 2002. Based on the practical experiences of the Commission and Tribes working with the newly revised MICS, it has once again become apparent that additional corrections, clarifications, and modifications are needed to ensure that the MICS continue to be effective and operate as the Commission intended. To identify which of the current MICS need correction, clarification or modification, the Commission initially solicited input and guidance from NIGC employees, who have extensive gaming regulatory expertise and experience and work closely with Tribal gaming regulators in monitoring the implementation, operation, and effect of the MICS in Tribal gaming operations. The resulting input from NIGC staff convinced the Commission that the MICS require continuing review and prompt revision on an ongoing basis to keep them effective and up-to-date. To address this need, the Commission decided to establish a Standing MICS Advisory Committee to assist it in both identifying and developing necessary MICS revisions on an ongoing basis.

In recognition of its government-to-government relationship with Tribes, and related commitment to meaningful Tribal consultation, the Commission asked gaming Tribes in January of 2004 for nominations of Tribal representatives to serve on its Standing MICS Advisory Committee. From the twenty-seven (27) Tribal nominations that it received, the Commission selected nine (9) Tribal representatives in March 2004 to serve on the Committee. The Commission's Tribal Committee member selections were based on several factors, including the regulatory experience and background of the individuals nominated; the size(s) of their affiliated Tribal gaming operation(s); the types of games played at their affiliated Tribal gaming operation(s); and the areas of the country in which their affiliated Tribal gaming operation(s) are located. The selection process was very difficult because numerous highly qualified Tribal representatives were nominated to serve on this important Committee. As expected, the benefit of including Start Printed Page 69294Tribal representatives on the Committee, who work daily with the MICS, has been invaluable.

Tribal representatives selected to serve on the Commission's Standing MICS Advisory Committee are: Tracy Burris, Gaming Commissioner, Chickasaw Nation Gaming Commission, Chickasaw Nation of Oklahoma; Jack Crawford, Chairman, Umatilla Gaming Commission, Confederated Tribes of the Umatilla Indian Reservation; Patrick Darden, Executive Director, Chitimacha Gaming Commission, Chitimacha Indian Tribe of Louisiana; Mark N. Fox, former Compliance Director, Four Bears Casino, Three Affiliated Tribes of the Fort Berthold Reservation; Sherrilyn Kie, Senior Internal Auditor, Pueblo of Laguna Gaming Authority, Pueblo of Laguna; Patrick Lambert, Executive Director, Eastern Band of Cherokee Gaming Commission, Eastern Band of Cherokee Indians; John Meskill, Director, Mohegan Tribal Gaming Commission, Mohegan Indian Tribe; Jerome Schultze, Executive Director, Morongo Gaming Agency, Morongo Band of Mission Indians; and Lorna Skenandore, Assistant Gaming Manager, Support Services, Oneida Bingo and Casino, formerly Gaming Compliance Manager, Oneida Gaming Commission, Oneida Tribe of Indians of Wisconsin. The Advisory Committee also includes the following Commission representatives: Philip N. Hogen, Chairman; Nelson Westrin, Vice-Chairman; Cloyce V. Choney, Associate Commissioner; Joe H. Smith, Acting Director of Audits; Ken Billingsley, Region III Director; Nicole Peveler, Field Auditor; Ron Ray, Field Investigator; and Katherine Zebell, Staff Attorney, Office of General Counsel.

In the past, the MICS were comprehensively revised on a broad, wholesale basis. Such large-scale revisions proved to be difficult for Tribes to implement in a timely manner and unnecessarily disruptive to Tribal gaming operations. The purpose of the Commission's Standing Committee is to conduct a continuing review of the operation and effectiveness of the existing MICS. The primary purpose of the review is to promptly identify and develop needed revisions of the MICS on a manageable, incremental basis, in order to keep the MICS practical and effective. By making more manageable incremental changes to the MICS on an ongoing basis, the Commission hopes to be more prompt in developing needed revisions, while, at the same time, avoiding larger-scale MICS revisions which take longer to implement and can be unnecessarily disruptive to Tribal gaming operations.

In accordance with this approach, the Commission has developed the following set of proposed MICS rule revisions with the assistance of its Standing MICS Advisory Committee. In doing so, the Commission is carrying out its statutory mandate under the Indian Gaming Regulatory Act (Act or IGRA), 25 U.S.C. 2706(b)(10), to promulgate necessary and appropriate regulations to implement the provisions of the Act. In particular, the following proposed MICS rule revisions are intended to address Congress' purpose and concerns, stated in Section 2702(2) of the Act, that it “provide a statutory basis for the regulation of gaming by an Indian tribe adequate to shield it from organized crime and other corrupting influences, to ensure the Indian tribe is the primary beneficiary of the gaming operation, and to ensure the gaming is conducted fairly and honestly by both the operator and the players.”

The Commission, with the Committee's assistance, identified three specific objectives for the following proposed MICS rule revisions: (1) To ensure that the MICS are reasonably comparable to the internal control standards of established gaming jurisdictions; (2) to ensure that the interests of the Tribal stakeholders are adequately safeguarded; and (3) to ensure that the interests of the gaming public are adequately protected.

It should be noted that the NIGC's authority to issue and enforce MICS for Class III gaming was recently challenged in Federal district court in Colorado River Indian Tribes v. NIGC (CRIT), Case No. 1:04-cv-00010-JDB. The case arose after the Colorado River Indian Tribes objected to an NIGC audit of its Class III gaming operation, which led to the audit's discontinuation. The NIGC subsequently cited the Tribe for an access violation and imposed a fine. The Court ruled that the NIGC's notice of violation and imposition of a civil fine were improper, finding that, under IGRA, the NIGC lacked the authority to issue or enforce MICS for Class III gaming. While the Court held that the NIGC could not penalize the Colorado River Indian Tribes for resisting the NIGC's attempt to conduct an audit of its Class III gaming, it did not enjoin the NIGC from applying its MICS to other Class III operations, nor did the Court prohibit the NIGC from conducting audits to monitor compliance with those MICS. The CRIT decision applies only to the Colorado River Indian Tribes. A notice of appeal was recently filed in the case.

In order to uphold the integrity of Indian gaming, it is important to maintain the continuity of the system of regulation that has been in place since 1999. This system has helped ensure adequate regulation and facilitated growth and prosperity in the industry. Thus, with the exception of the gaming operations of the Colorado River Indian Tribes, the NIGC will continue to monitor Tribal compliance with the MICS with respect to Class II and III gaming, pending the results of our appeal in the CRIT case or further judicial or legislative direction.

The Advisory Committee met on January 25, 2005, May 10, 2005, and September 26, 2005, to discuss the revisions set forth in the following proposed MICS rule revisions. The input received from the Committee Members has been invaluable to the Commission in its development of the following proposed MICS rule revisions. In accordance with the Commission's established Government-to-Government Tribal Consultation Policy, the Commission provided a preliminary working draft of all of the proposed MICS rule revisions contained herein to gaming Tribes on August 26, 2005, for a thirty (30)-day informal review and comment period, before formulation of this proposed rule. In response to its requests for comments, the Commission received twenty two (22) comments from Commission and Tribal Advisory Committee members, individual Tribes, and other interested parties regarding the proposed revisions. A summary of these comments is presented below in the discussion of each proposed revision to which they relate.

General Comments to Proposed MICS Revisions

For reasons stated above in this preamble, the NIGC proposes to revise the following specific sections of its MICS rule, 25 CFR part 542. The following discussion includes the Commission's responses to general comments concerning the MICS and is followed by a discussion regarding each of the specifically proposed revisions, along with previously submitted informal comments to the proposed revisions and the Commission's responses to those comments. As noted above, prior commenters include Commission and Tribal Advisory Committee members, gaming Tribes, and others.

Comments Questioning NIGC Authority To Promulgate MICS for Class III Gaming

Many of the previous informal comments to the preliminary working draft of the MICS revisions pertained to the Commission's authority to promulgate rules governing proposed Start Printed Page 69295the conduct of Class III gaming. Positions were expressed asserting that Congress intended the NIGC's Class III gaming regulatory authority to be limited exclusively to the approval of Tribal gaming ordinances and management contracts. Similar comments were received concerning the first proposed MICS back in 1999. The Commission, at that time, determined in its publication of the original MICS in 1999 that it possessed the statutory authority to promulgate Class III MICS.

As stated in the preamble to those MICS: “The Commission believes that it does have the authority to promulgate this final rule. * * * [T]he Commission's promulgation of the MICS is consistent with its responsibilities as the Federal regulator of Indian gaming.” 64 FR 509.

The current Commission reaffirms that determination. The IGRA, which established the regulatory structure for all classes of Indian gaming, expressly provides that the Commission shall promulgate such regulations as it deems appropriate to implement the provisions of (the Act).” 25 U.S.C. 2706(b)(10). Pursuant to this clearly stated statutory duty and authority under the Act, the Commission has determined that MICS are necessary and appropriate to implement and enforce the regulatory provisions of the Act governing the conduct of both Class II and Class III gaming and accomplish the purposes of the Act.

The Commission believes that the importance of internal control systems in the casino operating environment cannot be overemphasized. While this is true of any industry, it is particularly true and relevant to the revenue-generation processes of a gaming enterprise, which, because of the physical and technical aspects of the games and their operation, and the randomness of game outcomes, makes exacting internal controls mandatory. The internal control systems and standards are the primary management procedures used to protect the operational integrity of gambling games; account for and protect gaming assets and revenues; and assure the reliability of the financial statements for Class II and III gaming operations. Consequently, internal control systems are a vitally important part of properly regulated gaming. Internal control systems govern the gaming enterprise's governing board, management, and other personnel who are responsible for providing reasonable assurances regarding the achievement of the enterprise's objectives. These objectives typically include operational integrity, effectiveness and efficiency, reliable financial statement reporting, and compliance with applicable laws and regulations.

The Commission believes that strict regulations, such as the MICS, are not only appropriate, but necessary, for it to fulfill its responsibilities under the IGRA to establish necessary baseline, or minimum, Federal standards for all Tribal gaming operations on Indian lands. 25 U.S.C. 2702(3). Although the Commission recognizes that many Tribes had sophisticated internal control standards in place prior to the Commission's original promulgation of its MICS, many tribes did not. This absence of minimum Federal internal control standards in all Tribal casinos adversely affected the adequacy of Indian gaming regulation nationwide, and reasonably threatened gaming as a means of providing the expected Tribal benefits intended by IGRA. The Commission continues to strongly believe that promulgation and revision of these standards is necessary and appropriate to effectively implement the provisions of the IGRA, and, therefore, within the Commission's clearly expressed statutory power and duty under Section 2706(b)(10) of the Act.

Comments Recommending Voluntary Tribal Compliance With MICS

Comments were also received suggesting that the NIGC should re-issue the MICS as a bulletin or guideline for Tribes to use voluntarily, at their discretion, in developing and implementing their own Tribal gaming ordinances and internal control standards.

The Commission disagrees. The MICS are common in established gaming jurisdictions, and, to be effective in establishing a minimum baseline for the internal operating procedures of Tribal gaming enterprises, the rules must be concise, explicit, and uniform for all Tribal gaming operations to which they apply. Furthermore, to nurture and promote public confidence in the integrity and regulation of Indian gaming, and ensure its adequate regulation to protect Tribal gaming assets and the interests of Tribal stakeholders and the public, the Commission's MICS regulations must be reasonably uniform in their implementation and application, and regularly monitored and enforced by Tribal regulators and the NIGC to ensure Tribal compliance.

Proposed New, Revised, or Removed Definitions in Section 542.2 of the MICS

The Commission has added or revised definitions of the following six terms in section 542.2 and has removed the following one term in § 542.2. A discussion of each new, revised, or removed definition follows in alphabetical order.

“Account Access Card”

The Commission has revised the existing MICS definition of this term to more accurately define the applicability of the referenced term. Committee members recommended that the definition of “account access card” be revised to include the reference that account access cards are not smart cards. No comments were received concerning this proposed revision.

“Cash Equivalent”

This is a new definition. Several Commission Committee members recommended that a definition of the term “cash equivalent” be added to the current MICS definitions. In conjunction with other proposed rule revisions to the MICS, which include the term and existing standards, the NIGC has determined that to ensure that the rules are clear and unambiguous, insertion of the definition in the MICS is worthwhile.

Comment was received in previous revisions recommending that the definition be added. The Commission agreed with this suggestion and developed the definition.

“Counter Game”

This is a new definition. Several Tribal and Commission Committee members recommended that a definition of the term “counter game” be added to the current MICS definitions. In conjunction with the proposal to add accounting standards to the MICS, which include the term, the NIGC has determined that to ensure that such revisions and existing rules are clear and unambiguous, insertion of the definition is worthwhile. No comments were received concerning this proposed revision.

“Common Intermediate Format”

This is a new definition. Commission Committee members recommended that a definition of the term “common intermediate format” be added to the current MICS definitions. In conjunction with the proposed rule's addition of digital surveillance standards to the MICS, which include the term, the NIGC has determined that to ensure that the revisions are clear and unambiguous, insertion of the definition is worthwhile.

“Digital Video Recording (DVR)”

This is a new definition. Commission Committee members recommended that Start Printed Page 69296a definition of the term “digital video recording (DVR)” be added to the current MICS definitions. In conjunction with the proposed rule adding digital surveillance standards to the MICS, which include the term, the NIGC has determined that to ensure the revisions and existing rule are clear and unambiguous, insertion of the definition is worthwhile. No comments were received concerning this proposed revision.

“Network Video Recording (NVR)”

This is a new definition. Commission Committee members recommended that a definition of the term “network video recording (NVR)” be added to the current MICS definitions. In conjunction with the proposed rule revisions adding digital surveillance standards to the MICS, which include the term, the NIGC has determined that to ensure that the revisions and existing rule are clear and unambiguous, insertion of the definition is worthwhile. One Commenter noted that although cameras can have IP addresses, most often it is the encoders that have IP addresses. It was recommended that the definition be changed to “utilizing individual IP addresses for each camera ‘or encoder’ on a closed network system.” The Commission disagrees and considers the additional clarification to be unnecessary.

“Sufficient Clarity”

This definition is removed. Several Tribal and Commission Committee members recommended that a definition of the term “sufficient clarity” be removed from the current MICS definitions. The term “sufficient clarity” is being replaced by a more comprehensive definition contained within the proposed revision to the surveillance section. No comments were received concerning this proposed revision.

Proposed Addition to Sections 542.7(g)(1) and 542.8(h)(1) Electronic Equipment

The Commission proposes to revise the noted regulations to clarify the intent of the existing regulation. The amendment has been proposed to explicitly state that bingo electronic systems and pull tab electronic systems utilizing patron account access cards will be required to comply with the applicable standards contained within the MICS. No comments were received concerning this proposed revision.

Proposed Addition and Revisions to Section 542.13(o)(4) Customer Account Generation Standards

The Commission proposes to revise the noted regulation to clarify the intent of the existing regulation. The amendment has been proposed which will explicitly represent that the patron's identification must be verified and the account must identify the patron's name. The standard is consistent with the Bank Secrecy Act and other gaming jurisdictions, which also requires that such patron identification information be recorded and verified at the time of setting up the account. The revision to obtaining a new PIN is intended to clarify that the Gaming Machine Information Center is a clerk who has access to a customer file for changing the PIN. No comments were received concerning this proposed revision.

Proposed Removal of Section 542.16(f)(vi) Document Storage of Original Documents Until Audited

The Commission proposes to remove the noted regulation since it is in conflict with the proposed addition of § 542.19 on accounting standards, specifically the maintenance and preservation of books, records and documents. No comments were received concerning this proposed revision.

Proposed Addition of Section 542.19 What Are the Minimum Internal Control Standards for Accounting?

The Commission proposes to add this new regulation to establish the basic required tenets for a casino accounting function. The proposed addition is common to established gaming jurisdictions. Furthermore, since the MICS were initially adopted, many questions have arisen regarding the relationship of Section 571.7 Maintenance and preservation of papers and records to the MICS. The proposed addition is also intended to clarify and define the scope of the five (5)-year record retention requirement, as the requirement relates to casino records.

One Commenter requested that “any other records specifically required to be maintained” under preparing general accounting records include more details as to the phrase “specifically required by whom.” The Commission disagrees, and considers the representation to be clear in that the language pertains to other records required by the MICS.

Proposed Revisions to the Following Sections: 542.21(f)(12) (Tier A—Drop and Count) Gaming Machine Bill Acceptor Count Standards; 542.31(f)(12) (Tier B—Drop and Count) Gaming Machine Bill Acceptor Count Standards; 542.41(f)(12) (Tier C—Drop and Count) Gaming Machine Bill Acceptor Count Standards.

The referenced standards represent a duplicate control to an identical requirement contained within each of the respective section's Gaming Machine Bill Acceptor Drop Standards, refer §§ 542.21(e)(4), 542.31(e)(5), and 542.41(e)(5). Specifically, the standard requires the bill acceptor canisters to be posted with a number corresponding to that of the machine from which it was extracted. The subject control pertains to a drop function, as opposed to the count process. Therefore, the Commission is proposing to delete the above subsections. No comments were received pertaining to the proposed revision.

Proposed Additions of: 542.23(i) Technical Standards for Surveillance Systems—Tier A; 542.33(j) Technical Standards for Surveillance Systems —Tier B; 542.43(k) Technical Standards for Surveillance Systems—Tier C.

The Commission proposes to add the referenced regulations to the MICS for the analog surveillance standard governing sufficient clarity in order to make the frame rate more consistent with industry practice. The frame-rate change is deemed necessary for critical functions performed in the gaming areas. Furthermore, with the increasing utilization of digital surveillance systems, the Commission proposes to add the referenced regulation to the MICS. The objective is to ensure uniformity commensurate with the generally accepted digital surveillance standards of established gaming jurisdictions, and to ensure that such systems will facilitate compliance with other relevant sections of the MICS. After consultation with Tribal regulators and operators experienced with digital systems, state gaming regulatory authorities, private gaming operators and digital surveillance vendors, the proposed regulation was formulated.

One Commenter suggested that the requirement of satisfying sufficient clarity for 30 FPS or 30 IPS be required for essential areas such as Table Games, Cage, Soft Count Room, Hard Count Room, etc. The Commission disagrees on adding this to the section on technical standards for surveillance systems. The MICS utilization of the term “sufficient clarity” is limited to specific functions within the gaming areas, which directly relate to the risk posed by the particular function. A general application of the 30 FPS or 30 IPS to the gambling games would be difficult for the operator and the Start Printed Page 69297regulator to measure and confirm compliance.

One Commenter suggested changing the wording of “real motion” to “live-action” in the following way: “Any area covered by cameras activated by motion detection must record ‘live-action’ at the frame rate of 30 FPS.” The Commission agrees and has changed the term used.

One Commenter suggested that the requirement under the digital systems for both audible and visual warning devices was too high of a standard, as well as cost prohibitive, and recommended it be changed to “of either an audible or visual warning device.” The Commission disagrees. Based on research performed, it has been determined that industry practice dictates that both methods of notification are needed.

One Commenter suggested that the terms “viewable” and “view” be added to the digital systems section for satisfying sufficient clarity on producing a video record. The Commission agrees and has added these terms to the section.

One Commenter suggested adding to the use of a network video recorder (NVR) system section that access to the network be limited to not only authorized personnel, but also be password protected. The Commission agrees and has added this to the use of an NVR system that requires access.

Regulatory Matters

Regulatory Flexibility Act

The Commission certifies that the proposed revisions to the Minimum Internal Control Standards contained within this regulation will not have a significant economic impact on small entities, 5 U.S.C. 605(b). The factual basis for this certification is as follows:

Of the 330 Indian gaming operations across the country, approximately 93 of the operations have gross revenues of less than $5 million. Of these, approximately 39 operations have gross revenues of under $1 million. Since the proposed revisions will not apply to gaming operations with gross revenues under $1 million, only 39 small operations may be affected. While this is a substantial number, the Commission believes that the proposed revisions will not have a significant economic impact on these operations for several reasons. Even before implementation of the original MICS, Tribes had internal controls because they are essential to gaming operations in order to protect assets. The costs involved in implementing these controls are part of the regular business costs incurred by a gaming operation. The Commission believes that many Indian gaming operation internal control standards are more stringent than those contained in these regulations. Further, these proposed rule revisions are technical and minor in nature.

Under the proposed revisions, small gaming operations grossing under $1 million are exempted from MICS compliance. Tier A facilities (those with gross revenues between $1 and $5 million) are subject to the yearly requirement that independent certified public accountant testing occur. The purpose of this testing is to measure the gaming operation's compliance with the Tribe's internal control standards. The cost of compliance with this requirement for small gaming operations is estimated at between $3,000 and $5,000. The cost of this report is relatively minimal and does not create a significant economic effect on gaming operations. What little impact exists is further offset because other regulations require yearly independent financial audits that can be conducted at the same time. For these reasons, the Commission has concluded that the proposed rule revisions will not have a significant economic impact on those small entities subject to the rule.

Small Business Regulatory Enforcement Fairness Act

These following proposed revisions do not constitute a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. The revisions will not have an annual effect on an economy of $100 million or more. The revisions also will not cause a major increase in costs or prices for consumers, individual industries, Federal, state or local government agencies or geographic regions, and do not have a significant adverse effect on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises.

Unfunded Mandates Reform Act

The Commission is an independent regulatory agency, and, as such, is not subject to the Unfunded Mandates Reform Act. Even so, the Commission has determined that the proposed rule revisions do not impose an unfunded mandate on State, local, or Tribal governments, or on the private sector, of expenditures more than $100 million per year. Thus, this is not a “significant regulatory action” under the Unfunded Mandates Reform Act, 2 U.S.C. 1501 et seq.

The Commission has, however, determined that the proposed rule revisions may have a unique effect on Tribal governments, as they apply exclusively to Tribal governments whenever they undertake the ownership, operation, regulation, or licensing of gaming facilities on Indian lands, as defined by IGRA. Thus, in accordance with Section 203 of the Unfunded Mandates Reform Act, the Commission undertook several actions to provide Tribal governments with adequate notice and opportunities for “meaningful” consultation, input, sharing of information, advice and education regarding compliance.

These actions included the formation of a Tribal Advisory Committee and the request for input from Tribal leaders. Section 204(b) of the Unfunded Mandates Reform Act exempts from the Federal Advisory Committee Act (5 U.S.C. App.) meetings with Tribal elected officials (or their designees) for the purpose of exchanging views, information, and advice concerning the implementation of intergovernmental responsibilities or administration. In selecting Committee members, consideration was placed on the applicant's experience in this area, as well as the size of the Tribe the nominee represented, the geographic location of the gaming operation, and the size and type of gaming conducted. The Commission attempted to assemble a Committee that incorporates diversity and is representative of Tribal gaming interests. The Commission will meet with the Advisory Committee to discuss the public comments that are received as a result of the publication of the following proposed MICS rule revisions, and will consider all Tribal and public comments and Committee recommendations before formulating the final rule revisions. The Commission also plans to continue its policy of providing necessary technical assistance, information, and support to enable Tribes to implement and comply with the MICS as revised.

The Commission also provided the proposed revisions to Tribal leaders for comment prior to publication of this proposed rule and considered these comments in formulating the proposed rule. 69 FR 69857.

Takings

In accordance with Executive Order 12630, the Commission has determined that the following proposed MICS rule revisions do not have significant takings implications. A takings implication assessment is not required.

Civil Justice Reform

In accordance with Executive Order 12988, the Office of General Counsel has determined that the following proposed Start Printed Page 69298MICS rule revisions do not unduly burden the judicial system and meet the requirements of sections 3(a) and 3(b)(2) of the Order.

Paperwork Reduction Act

The following proposed MICS rule revisions require information collection under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq., as did the rule it revises. There is no change to the paperwork requirements created by these proposed revisions. The Commission's OMB Control Number for this regulation is 3141-0009.

National Environmental Policy Act

The Commission has determined that the following proposed MICS rule revisions do not constitute a major Federal action significantly affecting the quality of the human environment, and that no detailed statement is required pursuant to the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.).

Start List of Subjects

List of Subjects in 25 CFR Part 542

End List of Subjects

Accordingly, for all of the reasons set forth in the foregoing preamble, the National Indian Gaming Commission proposes to amend 25 CFR part 542 as follows:

Start Part

PART 542—MINIMUM INTERNAL CONTROL STANDARDS

1. The authority citation for part 542 continues to read as follows:

Start Authority

Authority: 25 U.S.C. 2701 et seq.

End Authority

2. Amend § 542.2 to add, in alphabetical order, the definitions for “Cash Equivalent,” “Counter Game,” “Common Intermediate Format,” “Digital Video Recording (DVR),” “Network Video Recording (NVR),” by revising the definition for “Account Access Card” and by removing the definition for “Sufficient Clarity” to read as follows:

What are the definitions for this part?
* * * * *

Account access card means an instrument used to access customer accounts for wagering at a gaming machine. Account access cards are used in connection with a computerized account database. Account access cards are not smart cards.

* * * * *

Cash Equivalent means the monetary value that a gaming operation may assign to a document or anything else of representative value other than cash, tokens, or chips. A cash equivalent includes, but is not limited to, coupons, vouchers, wagering or payout slips and tickets, debit and credit card receipts, and other items to which a gaming operation has assigned an exchange value.

* * * * *

Common Intermediate Format (CIF) or Full Common Intermediate Format (FCIF) means a set of standard video formats used in DVR systems, defined by their resolution. The original CIF is also known as Full CIF (FCIF).

* * * * *

Counter Game means a game in which the gaming operation is a party to wagers and wherein the gaming operation documents all wagering activity. The term includes, but is not limited to, bingo, keno, and pari-mutuel race books. The term does not include table games, card games and gaming machines.

* * * * *

Digital video recording (DVR) system means a digital video surveillance system consisting of video cameras, monitors, recorders, video printers, computer hardware and software, switches, selectors, and other ancillary equipment used for casino surveillance. Size of gaming operation will dictate quantities of cameras, etc.

* * * * *

Network video recording (NVR) means a digital video surveillance system utilizing individual IP addresses for each camera on a closed network system.

* * * * *

3. Amend § 542.7 to add paragraph (g)(1)(iv) to read as follows:

What are the minimum internal control standards for bingo?
* * * * *

(g) Electronic equipment.

(1) * * *

* * * * *

(iv) If the electronic equipment utilizes patron account access cards for activation of play, then § 542.13(o) (as applicable) shall apply.

* * * * *

4. Amend § 542.8 to add paragraph (h)(1)(iv) to read as follows:

What are the minimum internal control standards for pull tabs?
* * * * *

(h) Electronic equipment.

(1) * * *

* * * * *

(iv) If the electronic equipment utilizes patron account access cards for activation of play, then § 542.13(o) (as applicable) shall apply.

* * * * *

5. Amend § 542.13 to redesignate paragraphs (o)(4)(ii) and (o)(4)(iii) as (o)(4)(iii) and (o)(4)(iv), add new paragraph (o)(4)(ii), and revise newly designated (o)(4)(iv) to read as follows:

What are the minimum internal control standards for gaming machines?
* * * * *

(o) * * *

(4) * * *

* * * * *

(ii) For each customer file, an employee shall:

(A) Record the customer's name and current address; and

(B) The date the account was opened.

(C) At the time the initial deposit is made, account opened, or credit extended, the identity of the customer shall be verified by examination of a valid driver's license or other reliable photographic identity credential.

* * * * *

(iv) After entering a specified number of incorrect PIN entries at the cage or player terminal, the customer shall be directed to proceed to a clerk to obtain a new PIN. If a customer forgets, misplaces or requests a change to their PIN, the customer shall proceed to a clerk for assistance.

* * * * *
[Amended]

6. Amend § 542.16 by removing paragraph (f)(1)(vi).

7. Add § 542.19 to read as follows:

What are the minimum internal control standards for accounting?

(a) Each gaming operation shall prepare accurate, complete, legible, and permanent records of all transactions pertaining to revenue and gaming activities.

(b) Each gaming operation shall prepare general accounting records according to Generally Accepted Accounting Principles on a double entry system of accounting, maintaining detailed, supporting, subsidiary records, including, but not limited to:

(1) Detailed records identifying revenues, expenses, assets, liabilities, and equity for each gaming operation;

(2) Detailed records of all markers, IOU's, returned checks, hold checks, or other similar credit instruments;

(3) Individual and statistical game records to reflect statistical drop, statistical win, and the percentage of statistical win to statistical drop by each table game, and to reflect statistical drop, statistical win, and the percentage of statistical win to statistical drop for Start Printed Page 69299each type of table game, by shift, by day, cumulative month-to-date, and cumulative year-to-date, and individual and statistical game records reflecting similar information for all other games;

(4) Gaming machine analysis reports which, by each machine, compare actual hold percentages to theoretical hold percentages;

(5) The records required by § 542 and by the Tribal internal control standards;

(6) Journal entries prepared by the gaming operation and by its independent accountants; and

(7) Any other records specifically required to be maintained.

(c) Each gaming operation shall establish administrative and accounting procedures for the purpose of determining effective control over a gaming operation's fiscal affairs. The procedures shall be designed to reasonably ensure that:

(1) Assets are safeguarded;

(2) Financial records are accurate and reliable;

(3) Transactions are performed only in accordance with management's general and specific authorization;

(4) Transactions are recorded adequately to permit proper reporting of gaming revenue and of fees and taxes, and to maintain accountability of assets;

(5) Recorded accountability for assets is compared with actual assets at reasonable intervals, and appropriate action is taken with respect to any discrepancies; and

(6) Functions, duties, and responsibilities are appropriately segregated in accordance with sound practices by competent, qualified personnel.

(d) Gross gaming revenue computations. (1) For table games, gross revenue equals the closing table bankroll, plus credit slips for cash, chips, tokens or personal/payroll checks returned to the cage, plus drop, less opening table bankroll and fills to the table, and money transfers issued from the game through the use of a cashless wagering system.

(2) For gaming machines, gross revenue equals drop, less fills, jackpot payouts and personal property awarded to patrons as gambling winnings. Additionally, the initial hopper load is not a fill and does not affect gross revenue. The difference between the initial hopper load and the total amount that is in the hopper at the end of the gaming operation's fiscal year should be adjusted accordingly as an addition to or subtraction from the drop for the year.

(3) For each counter game, gross revenue equals:

(i) The money accepted by the gaming operation on events or games that occur during the month or will occur in subsequent months, less money paid out during the month to patrons on winning wagers (“cash basis”); or

(ii) The money accepted by the gaming operation on events or games that occur during the month plus money, not previously included in gross revenue, that was accepted by the gaming operation in previous months on events or games occurring in the month, less money paid out during the month to patrons as winning wagers (“modified accrual basis”).

(4) For each card game and any other game in which the gaming operation is not a party to a wager, gross revenue equals all money received by the operation as compensation for conducting the game.

(i) A gaming operation shall not include either shill win or loss in gross revenue computations.

(ii) In computing gross revenue for gaming machines, keno and bingo, the actual cost to the gaming operation of any personal property distributed as losses to patrons may be deducted from winnings (other than costs of travel, lodging, services, food, and beverages), if the gaming operation maintains detailed documents supporting the deduction.

(e) Each gaming operation shall establish internal control systems sufficient to ensure that currency (other than tips or gratuities) received from a patron in the gaming area is promptly placed in a locked box in the table, or, in the case of a cashier, in the appropriate place in the cashier's cage, or on those games which do not have a locked drop box or on card game tables, in an appropriate place on the table, in the cash register, or other approved repository.

(f) If the gaming operation provides periodic payments to satisfy a payout resulting from a wager, the initial installment payment, when paid, and the actual cost of a payment plan that is funded by the gaming operation may be deducted from winnings. The gaming operation is required to obtain the approval of all payment plans from the Tribal gaming regulatory authority. For any funding method which merely guarantees the gaming operation's performance, and under which the gaming operation makes payments out of cash flow (e.g. irrevocable letters of credits, surety bonds, or other similar methods), the gaming operation may only deduct such payments when paid to the patron.

(g) For payouts by wide-area progressive gaming machine systems, a gaming operation may deduct from winnings only its pro rata share of a wide area gaming machine system payout.

(h) Cash-out tickets issued at a gaming machine or gaming device shall be deducted from gross revenue as jackpot payouts in the month the tickets are issued by the gaming machine or gaming device. Tickets deducted from gross revenue that are not redeemed within a period not to exceed 180 days of issuance shall be included in gross revenue. An unredeemed ticket previously included in gross revenue may be deducted from gross revenue in the month redeemed.

(i) A gaming operation may not deduct from gross revenues the unpaid balance of a credit instrument extended for purposes other than gaming.

(j) A gaming operation may deduct from gross revenue the unpaid balance of a credit instrument if the gaming operation documents or otherwise keeps detailed records of compliance with the following requirements. Such records confirming compliance shall be made available to the Tribal gaming regulatory authority or the Commission upon request:

(1) The gaming operation can document that the credit extended was for gaming purposes;

(2) The gaming operation has established procedures and relevant criteria to evaluate a patron's credit reputation or financial resources and to then determine that there is a reasonable basis for extending credit in the amount or sum placed at the patron's disposal;

(3) In the case of personal checks, the gaming operation has established procedures to examine documentation, normally acceptable as a means of identification when cashing checks, and has recorded a bank check guarantee card number or credit card number, or has satisfied paragraph (j)(2) of this section, as management may deem appropriate for the check-cashing authorization granted;

(4) In the case of third party checks for which cash, chips, or tokens have been issued to the patron, or which were accepted in payment of another credit instrument, the gaming operation has established procedures to examine documentation, normally accepted as a means of identification when cashing checks, and has, for the check's maker or drawer, satisfied paragraph (j)(2) of this section, as management may deem appropriate for the check-cashing authorization granted;

(5) In the case of guaranteed drafts, procedures should be established to ensure compliance with the issuance Start Printed Page 69300and acceptance procedures prescribed by the issuer;

(6) The gaming operation has established procedures to ensure that the credit extended is appropriately documented, not least of which would be the patron's identification and signature attesting to the authenticity of the individual credit transactions. The authorizing signature shall be obtained at the time credit is extended.

(7) The gaming operation has established procedures to effectively document its attempt to collect the full amount of the debt. Such documentation would include, but not be limited to, letters sent to the patron, logs of personal or telephone conversations, presentation of the credit instrument to the patron's bank for collection, settlement agreements, or otherwise demonstrates that it has made a good faith attempt to collect the full amount of the debt. Such records documenting collection efforts shall be made available to the Tribal gaming regulatory authority or the Commission upon request.

(k) Maintenance and preservation of books, records and documents. (1) All original books, records and documents pertaining to the conduct of wagering activities shall be retained by a gaming operation in accordance with the following schedule. A record that summarizes gaming transactions is sufficient, provided that all documents containing an original signature(s) attesting to the accuracy of a gaming related transaction are independently preserved. Original books, records or documents shall not include copies of originals, except for copies that contain original comments or notations on parts of multi-part forms. The following original books, records and documents shall be retained by a gaming operation for a minimum of five (5) years:

(i) Casino cage documents;

(ii) Documentation supporting the calculation of table game win;

(iii) Documentation supporting the calculation of gaming machine win;

(iv) Documentation supporting the calculation of revenue received from the games of keno, pari-mutuel, bingo, pull-tabs, card games, and all other gaming activities offered by the gaming operation;

(v) Table games statistical analysis reports;

(vi) Gaming machine statistical analysis reports;

(vii) Bingo, pull-tab, keno and pari-mutuel wagering statistical reports;

(viii) Internal audit documentation and reports;

(ix) Documentation supporting the write-off of gaming credit instruments and named credit instruments;

(x) All other books, records and documents pertaining to the conduct of wagering activities that contain original signature(s) attesting to the accuracy of the gaming related transaction.

(2) Unless otherwise specified in § 542, all other books, records, and documents shall be retained until such time as the accounting records have been audited by the gaming operation's independent Certified Public Accountants.

(3) The above definition shall apply without regards to the medium through which the book, record or document is generated or maintained (paper, computer generated, magnetic media, etc.).

8. Amend § 542.23 to redesignate paragraphs (i) through (r) as (j) through (s), add new paragraph (i), and revise newly redesignated paragraphs (m)(1) introductory text, (m)(2)(i), (o)(1) introductory text, and (o)(4) to read as follows:

What are the minimum internal control standards for surveillance for Tier A gaming operations?
* * * * *

(i) Technical Standards for Surveillance Systems. (1) Analog Systems:

(i) To satisfy the sufficient clarity requirement of this section, continuous movement must be recorded at the frame rate of 30 FPS (frames per second);

(ii) To satisfy the sufficient clarity requirement of this section, the resolution must be sufficient to produce a video record that is a complete, accurate and viewable representation of the activity being observed; and

(iii) Any area covered by cameras activated by motion detection must record live-action at the frame rate of 30 FPS.

(2) Digital Systems (referred to as DVR System):

(i) To satisfy the sufficient clarity requirement of this section, the DVR System must capture, record and view continuous movement at the minimum rate equivalent to 30 IPS (images per second);

(ii) To satisfy the sufficient clarity requirement of this section, the resolution must be sufficient to produce a video record that is a complete and accurate representation of the activity being observed;

(iii) The DVR System must have pre- and post-alarm activation at a minimum of five (5) seconds (before and after event) for those areas in which motion-activated cameras are allowed;

(iv) Viewing and recording size of images will be at a minimum of CIF or FCIF for all inclusive areas of the DVR System;

(v) An internal backup system must be included in the configuration to perform in the event that a hard drive failure will have negative impact on the system's ability to record video images;

(vi) The DVR System must have a failure notification function consisting, at a minimum, of both audible and visual warning devices when system failure could negatively impact the ability to record, play back, or store video images;

(vii) If the Casino Operation chooses to utilize a network (also referred to as NVR System) for the interconnection of or playback from digital recording devices, access to this network must be limited to authorized personnel and be password or code protected in order to maintain integrity and data network security;

(viii) If the Gaming Operation elects to utilize authentication/encryption code software, the software must be submitted to the Tribal Gaming Regulatory Authority (TGRA) for inspection and approval.

* * * * *

(m) Table games. (1) Operations with four (4) or more table games. Except as otherwise provided in paragraphs (m)(3), (m)(4), and (m)(5) of this section, the surveillance system of gaming operations, operating four (4) or more table games, shall provide at a minimum one (1) pan-tilt-zoom camera per two (2) tables and surveillance must be capable of taping:

* * * * *

(2) * * *

(i) Comply with the requirements of paragraph (m)(1) of this section; or

* * * * *

(o) Gaming machines. (1) Except as otherwise provided in paragraphs (o)(2) and (o)(3) of this section, gaming machines offering a payout of more than $250,000 shall be recorded by a dedicated camera(s) to provide coverage of:

* * * * *

(4) Notwithstanding paragraph (o)(1) of this section, if the gaming machine is a multi-game machine, the Tribal gaming regulatory authority, or the gaming operation subject to the approval of the Tribal gaming regulatory authority, may develop and implement alternative procedures to verify payouts.

* * * * *

9. Amend § 542.33 to redesignate paragraphs (j) through (y) as (k) through (z), add a new paragraph (j), and revise newly redesignated paragraphs (p)(1) Start Printed Page 69301introductory text, (p)(2)(i), (r)(1) introductory text, and (r)(4) to read as follows:

What are the minimum internal control standards for surveillance for Tier B gaming operations?
* * * * *

(j) Technical Standards for Surveillance Systems. (1) Analog Systems:

(i) To satisfy the sufficient clarity requirement of this section, continuous movement must be recorded at the frame rate of 30 FPS (frames per second);

(ii) To satisfy the sufficient clarity requirement of this section, the resolution must be sufficient to produce a video record that is a complete and accurate representation of the activity being observed; and

(iii) Any area covered by cameras activated by motion detection must record live-action at the frame rate of 30 FPS.

(2) Digital Systems (referred to as DVR System):

(i) To satisfy the sufficient clarity requirement of this section, the DVR System must capture, record and view continuous movement at the minimum rate equivalent to 30 IPS (images per second);

(ii) To satisfy the sufficient clarity requirement of this section, the resolution must be sufficient to produce a video record that is a complete, accurate and viewable representation of the activity being observed;

(iii) The DVR System must have pre- and post-alarm activation at a minimum of five (5) seconds (before and after event) for those areas in which motion-activated cameras are allowed;

(iv) Viewing and recording size of images will be at a minimum of CIF or FCIF for all inclusive areas of the DVR System;

(v) An internal backup system must be included in the configuration to perform in the event that a hard drive failure will have a negative impact on the system's ability to record video images;

(vi) The DVR System must have a failure notification function consisting, at a minimum, of both audible and visual warning devices when system failure could negatively impact the ability to record, play back, or store video images;

(vii) If the Casino Operation chooses to utilize a network (also referred to as NVR System) for the interconnection of or playback from digital recording devices, access to this network must be limited to authorized personnel and be password or code protected in order to maintain integrity and data network security;

(viii) If the Gaming Operation elects to utilize authentication/encryption code software, the software must be submitted to the Tribal Gaming Regulatory Authority (TGRA) for inspection and approval.

* * * * *

(p) Table games. (1) Operations with four (4) or more table games. Except as otherwise provided in paragraphs (p)(3), (p)(4), and (p)(5) of this section, the surveillance system of gaming operations, operating four (4) or more table games, shall provide at a minimum one (1) pan-tilt-zoom camera per two (2) tables and surveillance must be capable of taping:

* * * * *

(2) * * *

(i) Comply with the requirements of paragraph (p)(1) of this section; or

* * * * *

(r) Gaming machines. (1) Except as otherwise provided in paragraphs (r)(2) and (r)(3) of this section, gaming machines offering a payout of more than $250,000 shall be monitored and recorded by a dedicated camera(s) to provide coverage of:

* * * * *

(4) Notwithstanding paragraph (r)(1) of this section, if the gaming machine is a multi-game machine, the Tribal gaming regulatory authority, or the gaming operation subject to the approval of the Tribal gaming regulatory authority, may develop and implement alternative procedures to verify payouts.

* * * * *

10. Amend § 542.43 to redesignate paragraphs (k) through (z) as (l) through (aa), add a new paragraph (k), and revise newly redesignated paragraphs (q)(1) introductory text, (q)(2)(i), (s)(1) introductory text, and (s)(4) to read as follows:

What are the minimum internal control standards for surveillance for a Tier C gaming operation?
* * * * *

(k) Technical Standards for Surveillance Systems. (1) Analog Systems:

(i) To satisfy the sufficient clarity requirement of this section, continuous movement must be recorded at the frame rate of 30 FPS (frames per second);

(ii) To satisfy the sufficient clarity requirement of this section, the resolution must be sufficient to produce a video record that is a complete and accurate representation of the activity being observed; and

(iii) Any area covered by cameras activated by motion detection must record live action at the frame rate of 30 FPS.

(2) Digital Systems (referred to as DVR System):

(i) To satisfy the sufficient clarity requirement of this section, the DVR System must capture, record and view continuous movement at the minimum rate equivalent to 30 IPS (images per second);

(ii) To satisfy the sufficient clarity requirement of this section, the resolution must be sufficient to produce a video record that is a complete, accurate and viewable representation of the activity being observed;

(iii) The DVR System must have pre- and post-alarm activation at a minimum of five (5) seconds (before and after event) for those areas in which motion-activated cameras are allowed;

(iv) Viewing and recording size of images will be at a minimum of CIF or FCIF for all inclusive areas of the DVR System;

(v) An internal backup system must be included in the configuration to perform in the event that a hard drive failure will have negative impact on the system's ability to record video images;

(vi) The DVR System must have a failure notification function consisting, at a minimum, of both audible and visual warning devices when system failure could negatively impact the ability to record, play back, or store video images;

(vii) If the Casino Operation chooses to utilize a network (also referred to as NVR System) for the interconnection of or playback from digital recording devices, access to this network must be limited to authorized personnel and be password or code protected in order to maintain integrity and data network security;

(viii) If the Gaming Operation elects to utilize authentication/encryption code software, the software must be submitted to the Tribal Gaming Regulatory Authority (TGRA) for inspection and approval.

* * * * *

(q) Table games. (1) Operations with four (4) or more table games. Except as otherwise provided in paragraphs (q)(3), (q)(4), and (q)(5) of this section, the surveillance system of gaming operations, operating four (4) or more table games, shall provide at a minimum one (1) pan-tilt-zoom camera per two (2) tables and surveillance must be capable of taping:

* * * * *

(2) * * *

(i) Comply with the requirements of paragraph (q)(1) of this section; or

* * * * *
Start Printed Page 69302

(s) Gaming machines.

(1) Except as otherwise provided in paragraphs (s)(2) and (s)(3) of this section, gaming machines offering a payout of more than $250,000 shall be monitored and recorded by a dedicated camera(s) to provide coverage of:

* * * * *

(4) Notwithstanding paragraph (s)(1) of this section, if the gaming machine is a multi-game machine, the Tribal gaming regulatory authority, or the gaming operation subject to the approval of the Tribal gaming regulatory authority, may develop and implement alternative procedures to verify payouts.

* * * * *
Start Signature

Signed in Washington, DC, this 1st day of November, 2005.

Philip N. Hogen,

Chairman.

Nelson Westrin,

Vice Chairman.

Cloyce Choney,

Commissioner.

End Signature End Part End Supplemental Information

[FR Doc. 05-22506 Filed 11-14-05; 8:45 am]

BILLING CODE 7565-01-P