Casino Enterprise Management

In general, we are not big fans of regulation by checklist. Itemizing regulatory requirements can create an equality of the masses of sorts, but not all requirements hold the same importance. More importantly, checklists tend to produce a certain myopia that may conceal otherwise obvious problems or deficiencies. Checklists are often a prop that a well-trained, knowledgeable and perceptive regulator simply does not need.

That said, of course there is an exception. We have found that checklists work well in one area of casino regulation: the pre-opening inspection. The opening of a new casino, whether it is a mega-resort or a modest renovation, is a momentous event in the lives of both the owner/operator licensee and the regulatory agency. Each has a vested interest in a smooth, problem-free opening. Neither wants to endure embarrassment or revenue loss because of system failures, inept staff or any of the myriad minor catastrophes that can plague an opening day.

Naturally, no casino manager would think of opening a property to the public without a shakedown cruise. Contracted system vendors, such as surveillance and slot monitoring, will certainly test and retest operability and function. It is also common to have a series of “play days,” during which staff members simulate all casino activity from table fills to slot jackpots. Hoards of government inspectors will make their rounds to ensure public health and safety issues have been addressed in accordance with applicable codes.

The gaming regulator’s role at this juncture is optional, and the extent of involvement is typically at the jurisdiction’s discretion. Some agencies take the tack that any pre-opening inspection is the owner’s responsibility — their message might be: “Go for it! We’ll drop by in six months or so to see if you’re in compliance … heaven help you if you’re not.” Other regulatory bodies will want to know when the casino pours its foundation so they can license the cement contractor.

We believe there is a happy medium between these extremes. It’s certainly not necessary to assume the role of project manager to verify a casino will be in compliance on opening day. On the other hand, waiting until after the ribbon is cut to even tour the property is like buying a vehicle without taking a test drive. We prefer a targeted and detailed pre-opening assessment of all critical regulatory requirements. Regulators should conduct it in an organized, efficient and non-disruptive manner with the goal of supplementing and verifying a casino’s own pre-opening evaluation efforts.

This approach accomplishes several things. Most obviously, it provides a degree of assurance that regulators spot and correct potential opening day disasters in advance. It will also give regulators a relatively unhurried opportunity to become familiar with the new property and its staff. And if “eighty percent of life is just showing up,” as Woody Allen quipped, the mere presence of observant regulators will likely increase the vigilance of casino managers during their preparatory endeavors.

The Checklist
The key to an effective pre-opening inspection is a thorough checklist that provides marching orders, so to speak, for the regulatory staff. The checklist we have used with considerable success in the past is organized along functional lines. It includes several discrete topics, which we group as follows:

 ✔ Games: table games, electronic gaming devices, and related drops and counts
 ✔ Cage: money handling, including currency transaction reporting (CTR)
 ✔ Support: accounting, surveillance,  and security and information technology

Issues of employee training and preparedness, along with the physical characteristics of the property, cut across each of the above categories. For example, the checklist requires a review of the Title 31 training program and employee training records under the CTR section.

Each particular topic includes four or five to as many as 15 specific items. All items tie back to their appropriate rules or internal controls, which we cite in the checklist for easy reference.

It is important to note that checklist items do not quote the language of a particular rule or control, but rather attempt to state the requirements in plain English. The following items from the table games section of our checklist illustrate this point:

 ✔ Determine that casino employees maintain table inventories in trays covered by a transparent locking lid.
 ✔ Determine that the table inventory  slip is at least a two-part form  (“opener” and “closer”), including  required signature sequence and distribution.
 ✔ Determine that casino employees  store playing cards in a location that requires dual access, storing the keys  in a secured area (e.g. cage) that a  member of the table games department and a member of the accounting department can both access.
 ✔ Has the casino submitted the rules of  the game to the commission and were they approved?

The checklist does not attempt to include every single rule and control in a separate item. Such an approach would be cumbersome and result in wasting resources on a number of inconsequential matters. Instead, the object is to check the basic elements essential for sound casino operation. For example, rules typically contain detailed requirements for gaming chips and gaming devices. The checklist would determine if the casino obtained the appropriate approvals or certifications for those items.

The Checkers
Of course, having a good comprehensive checklist does not guarantee success. An adequate and competent regulatory staff must be organized, trained, assigned and deployed in a timely fashion. Generalists (i.e., experienced regulatory agents who are familiar with basic casino operations) can accomplish much of the checking and verification, but experts may be needed for accounting, surveillance and information technology. In some cases, it may be necessary to bring in outside assistance. We once brought in an IT specialist to perform a forensic review of a management information system we suspected was vulnerable during a pre-opening inspection at a tribal casino.

How to Check
Once appropriate regulatory staff have been identified, assigned and briefed, the timing of inspection activities becomes crucial. It doesn’t make sense to review an area or function if the casino is not ready for it. For example, checking the surveillance room before the table games arrive would certainly be unproductive. By the same token, an inspection conducted too near the projected opening does not allow adequate time to take corrective action. The only answer is careful coordination with casino management.

In this regard, it is seldom wise for regulators to show up en masse on a given day and expect to march relentlessly through the checklist. Not only would this approach be disruptive, it would result in staff fatigue and an increased opportunity for errors. We’ve found a phased approach works best. The initial inspection is basically a walk through the facility to examine the layout for security issues, such as mantraps, vault and count room construction, and location of surveillance and security rooms.

After the casino installs its tables, machines and online system, a return visit will look at the adequacy of surveillance coverage and test the device-system communication, among other infrastructure assessments.

Finally, as opening approaches and the casino commences its play days, there is an opportunity to give casino employees a “final exam.” Essentially, this is a live pop quiz during which department personnel respond to specific sets of hypothetical circumstances. For example, a regulator might ask a slot supervisor what she would do if a patron who had won $11,500 in cash in the last 24 hours refused to provide identification; a dealer to go through the procedures for closing his table; or a floor person to demonstrate the steps involved in a hand-pay jackpot. Each scenario should involve a number of checklist items; the responses will answer many questions about the casino’s preparedness to open in terms of training, system functionality and coordination between departments. Regulators should grade each response, and the staff can repeat the exercise if they fail to meet a minimum overall score (we recommend 70 percent).

Casino managers should receive all the scenarios (we have developed 100) prior to inspection, and regulators should encourage them to use the scenarios during training and play days. During our inspections, we only use a percentage of the possible scenarios, and the casino personnel doesn’t know in advance which ones we plan to use. If we discover potential weaknesses, additional scenarios may be added to probe the department or area in greater depth. In our experience, this process is highly effective in getting a casino started on the proverbial “right foot” in terms of compliance.

Not all checklist items require on-site verification. Regulators can review documentation, such as internal controls, plans, notices, game rules and necessary permits (e.g. fire marshal, public health and building), when the casino submits its forms.

Once the regulators complete the checklist, they need to submit a summary report of the results to the regulatory agency’s director and commission or board. In some jurisdictions, opening in compliance with all regulatory requirements is a condition of licensure. In such cases, the inspection report will serve as a basis for the agency’s decision in this regard. In the absence of such a requirement, the report will at least comfort the public and the jurisdiction that regulators have performed due diligence on their behalf to ensure the casino is run properly.

Your Best Bet
A pre-opening regulatory inspection will not guarantee a flawless opening, but it will certainly reduce the risk of significant problems. In an operator’s often frantic rush to open massively expensive properties, small but important details have a tendency to get overlooked. Efficient and minimally intrusive regulatory oversight can serve as a valuable check and balance.
 

Pat Leen, co-owner  of Gaming Regulatory Consultants, was a founding member of the Michigan Gaming Control Board. He can be reached at (517) 256-8619 or pleen[at]grcgaming.com.

Tom Nelson, co-owner of Gaming Regulatory Consultants, was the first Director of Licensing and Enforcement for the MGCB and served for 22 years as Michigan’s Assistant Attorney General.  He can be reached  at (719) 440-6611 or tnelson[at]grcgaming.com.