[Federal Register Volume 69, Number 230 (Wednesday, December 1, 2004)]
[Proposed Rules]
[Pages 69847-69863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-26041]


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NATIONAL INDIAN GAMING COMMISSION

25 CFR Part 542

RIN 3141-AA27


Minimum Internal Control Standards

AGENCY: National Indian Gaming Commission.

ACTION: Proposed rule revisions.

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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, and then later revised them in 2002. 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 correct 
erroneous citations or references in the MICS and 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. Public 
comment to these proposed MICS revisions will be received by the 
Commission for a period of forty-five (45) days after the date of their 
publication in the Federal Register. 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.

DATES: Submit comments on or before January 18, 2005.

ADDRESSES: Mail comments to ``Comments to First Proposed MICS Rule 
Revisions, National Indian Gaming Commission, 1441 L Street, NW., 
Washington, DC 20005, Attn: Vice-Chairman Nelson Westrin.'' Comments 
may be transmitted by facsimile to Vice-Chairman Westrin at (202) 632-
0045, but the original also must be submitted to the above address.

FOR FURTHER INFORMATION CONTACT: Vice-Chairman Nelson Westrin, (202) 
632-7003 (not a toll-free number).

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 operate as the Commission had intended and to 
accommodate changes and advances that had occurred over the years in 
Tribal gaming technology and methods. Consequently, the Commission, 
working with an Advisory Committee composed of Commission and Tribal 
representatives, published the new final revised MICS rule on June 27, 
2002.
    As the result of the practical experience 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 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 and revisions on an 
ongoing basis.
    In recognition of its government-to-government relationship with 
Tribes and related commitment to meaningful Tribal consultation, the 
Commission requested gaming Tribes, in January 2004, for nominations of 
Tribal representatives to serve on its Standing

[[Page 69848]]

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 Tribal representatives on the 
Committee, who work daily with the MICS, has proved to be 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 
Okalahoma; 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, 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 Sandra Ashton, Staff Attorney, Office of General Counsel.
    In the past, the MICS were comprehensively revised on a large 
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, in order to promptly identify and 
develop needed revisions of the MICS, on a manageable incremental 
basis, as they become necessary to revise and 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 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, 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 concern stated 
in Section 2702(2) of the Act, that the Act ``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.
    The Advisory Committee initially met on April 8, 2004, and then 
again on October 21, 2004, 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 June 22, 2004, 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 
approximately fifty (50) 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 National Indian 
Gaming Commission 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 proposed MICS revisions pertained to the Commission's 
authority to promulgate rules governing the 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 MICS is 
consistent with its responsibilities as the Federal regulator of Indian 
gaming.'' 64 FR 509 (Jan. 5, 1999). The current Commission reaffirms 
that determination. The Indian Gaming Regulatory Act, which established 
the regulatory structure for

[[Page 69849]]

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. 2707(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 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 assurance 
regarding the achievement of the enterprise's objectives, which 
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, the Commission also 
continues to strongly believe that promulgation and revision of these 
standards is necessary and appropriate to effectively implement the 
provisions of the Indian Gaming Regulatory Act 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 
rule 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 or Revised Definitions in Section 542.2 of the MICS

    The Commission proposes to add or revise definitions of the 
following four terms in section 542.2. A discussion of each proposed 
new or revised definition follows in alphabetical order. The text of 
the proposed new or revised definition is set forth following the 
conclusion of this preamble in which of all of the proposed revisions 
to the Commission's MICS rule, 25 CFR part 542, are discussed.

``Drop Period''

    This is a new definition. Several Tribal and Commission Committee 
members recommended that a definition of the term ``drop period'' be 
added to the current existing MICS definitions. In conjunction with 
other proposed revisions to the MICS which include this term, the NIGC 
has determined that to ensure that such revisions are clear and 
unambiguous, insertion of the definition of the term ``drop period'' 
into the MICS Definitions section 542.2 is worthwhile. This definition 
was included in the preliminary working draft sent to Tribes for 
informal review and comment prior to formulation of the proposed new 
definition, and no comments were received objecting to the definition.

``Gaming Machine''

    The Commission proposes to revise the existing MICS definition of 
this term to more accurately define the scope of the referenced term, 
as it is used in the MICS. Commission and Committee members recommended 
that the existing definition for ``gaming machine'' be revised to cover 
central server based linked gaming machines or player stations that are 
being increasingly utilized in Indian gaming. Comments were 
subsequently received supporting the proposed revision to the gaming 
machine definition, which was set forth in the preliminary working 
draft sent to the Committee and Tribes prior to formulation of the 
proposed revised definition. Comments were also received suggesting 
that the definition should differentiate Class II and Class III gaming 
machines. Comments were also received suggesting that instead of 
attempting to list all the various cash equivalents a machine might 
accept, it would be better simply to refer to the items as cash, coin 
or cash equivalents.
    The Commission disagrees with the comment that the definition 
should attempt to narrow or define the applicability of the definition 
based on game classification. The definition is intended to be broadly 
applied to all gaming machines that are not otherwise separately 
defined in the MICS, such as an electronic bingo machine.
    The Commission agrees with the suggestion that the term ``cash 
equivalents'' should be used in the definition. We believe the term is 
more representative of the various items that could be wagered, in 
addition to cash and coin. The following proposed revised definition of 
``gaming machine'' has been modified accordingly to reflect this 
recommendation.

``Promotional Progressive Pots and/or Pools''

    The Commission proposes to revise the existing MICS definition of 
this term to more accurately define the applicability of the referenced 
term. Committee members recommended that the definition of 
``promotional progressive pots and/or pools'' be revised to also apply 
to poker games. The proposed revision was included in the preliminary 
working draft sent to the Committee and Tribes for informal review and 
comment before the following proposed revised definition was 
formulated. Comments were subsequently received supporting the proposed 
revision since most progressive promotional pots are utilized in poker 
games. One commenter contended that the proposed revision to

[[Page 69850]]

the progressive promotional pots and/or pools definition would create a 
conflict with the definition of secondary jackpots. The Commission will 
further consider this comment and examine how the two referenced terms 
are used in the MICS. If necessary, we may consider in the future 
whether there is any contradiction between the two terms that requires 
modification of the definition of secondary jackpots.

``Series Number''

    This is a new definition. The referenced term is used in the 
current MICS but is not defined. Since it has been the frequent subject 
of inquiry regarding its meaning, the NIGC has determined that a 
definition of the term is warranted. Comments to the preliminary 
working draft were received from Committee members and Tribes uniformly 
supporting the addition of this proposed new definition to section 
542.2 of the MICS:

Proposed Correction of Referencing and Citation Errors in Sections 
542.7, 542.8, 542.12, and 542.13 of the MICS

    The Commission identified and proposes to correct several 
referencing and citation errors in the current MICS. The sections where 
corrective revisions are proposed include the following: Sec. Sec.  
542.7(g)(1)(i), 542.8(h)(1)(i), 542.12(i)(4), 542.12(k)(1)(v), 
542.12(k)(1)(ix), 542.12(k)(1)(xvii), and 542.13(l)(4).
    Each of the referencing and citation corrections proposed above was 
set forth in the preliminary working draft provided to the Committee 
and Tribes for informal review and comment before this proposed rule 
was formulated. No comments were received objecting to the proposed 
corrections.

Proposed Revisions to Section 542.13(h) Standards for Evaluating 
Theoretical and Actual Hold Percentages

    It is common practice in the gaming industry that gaming machine 
manufacturers provide gaming operators with a Pay Analysis Report (PAR) 
or PAR sheet for each gaming machine that they supply to the operator. 
The PAR sheet provides information regarding certain design 
specifications for the gaming machine, including the statistical 
theoretical percentage(s) that the gaming machine is designed to win or 
hold for the operator (house), based on an adequate level of wagering 
activity after payment of game winnings to players. A theoretical hold 
worksheet also accompanies the PAR sheet and provides additional 
theoretical hold information for the gaming machine, frequently 
including probability calculations of the machine's theoretical hold 
percentages for different specified levels of coin-in wagering 
activity. The converse to a gaming machine's theoretical hold 
percentage is its theoretical payback percentage, which is the 
percentage of total money wagered that the machine is designed to pay 
back to players as game winnings based on adequate levels of wagering 
activity. A gaming machine's theoretical payback percentage can be 
calculated by deducting its specified theoretical hold percentage(s) 
from one.
    Periodic statistical tracking of actual gaming machine performance, 
by comparing each machine's actual hold and payback percentages in 
relation to its theoretical hold and/or payback percentages, has become 
a necessary standard of management practice to ensure the integrity of 
gaming machine operations and safeguard related machine revenues and 
assets. To effectively monitor gaming machine operations for 
performance irregularities, whether due to machine defect, malfunction, 
embezzlement, cheating, or other improper tampering, gaming operators 
are required to periodically prepare a gaming machine analysis report 
that compares each machine's actual hold percentages to its specified 
theoretical hold percentage(s), based on the levels of coin-in wagering 
activity for each reporting period. Any material deviations between the 
actual and theoretical hold percentages must be thoroughly investigated 
by gaming machine department management and other management personnel 
independent of the gaming operation's gaming machine department. The 
ultimate objective of the gaming machine analysis report and 
investigative process is to ensure that any material uncharacteristic 
deviation between actual and theoretical hold is not due to machine 
defect, malfunction, embezzlement, cheating, or other improper 
tampering; but instead, a reasonably expected mathematical deviation 
based on the randomness of the machine's game outcome selection 
mechanism and the number of game plays and outcomes analyzed.
    The standards set forth in section 542.13(h) of the MICS are 
intended to provide a minimum benchmark for effective use of gaming 
machine performance analysis by Tribal gaming enterprises to safeguard 
the integrity of their gaming machine operations and related Tribal 
gaming assets. In establishing these standards, the Commission strives 
to keep them as practical and effective as possible for the diverse 
nature and scale of the Tribal gaming machine operations to which they 
apply. For that reason, the Commission proposes several revisions to 
section 542.13(h).

Proposed Deletion of Subsection 542.13(h)(2)

    The Commission's proposed deletion of subsection 542.13(h)(2) will 
eliminate the current requirement that Tribal operators utilize a 
weighted average calculation to adjust and determine the appropriate 
theoretical hold percentages for periodic analysis of complex gaming 
machines (excluding multi-game multi-denominational gaming machines), 
which have manufacturer's PAR or theoretical hold worksheets that 
specify multiple theoretical hold or payback percentages, with or 
without a spread of more than 4% between their minimum and maximum 
specified theoretical hold/payback percentages.
    Although the manufacturer's PAR sheets and theoretical hold 
worksheets for most gaming machines specify a single theoretical hold 
percentage, which can be reliably used for analysis of the machine's 
actual performance, there are other more complex gaming machines 
(excluding multi-gaming and multi-denominational gaming machines) that 
have multiple specified theoretical hold percentages. Identifying the 
most reliable theoretical hold percentage to use for analysis of the 
performance of these more complex gaming machines can be very difficult 
and challenging, because the most appropriate theoretical hold 
percentage is so dependent upon the different amounts of permitted 
coin-in betting wagers (e.g. 1-coin, 2-coin, 3-coin, etc.) that players 
may actually decide to make during a given reporting period. The 
weighted average calculation, which is currently required by subsection 
542.13(h)(2), essentially weighs the different permitted player 
wagering decisions, by multiplying the total amount wagered for each 
permitted coin-in wager amount times the specified theoretical hold 
percentage for that wager. Then the sum of the individual theoretical 
hold results for each permitted coin-in wager amount is divided by the 
total amount of coin-ins, to give a weighted average theoretical hold 
percentage for use in analyzing that gaming machine's overall 
performance during the reporting period.
    Based on past MICS compliance audits and consultation with other 
gaming jurisdictions, the Commission has determined that the currently 
required weighted average calculation does not necessarily produce the 
most reliable adjusted theoretical hold percentage for analyzing the

[[Page 69851]]

performance of complex gaming machines (other than multi-gaming and 
multi-denominational gaming machines) which have multiple specified 
theoretical hold percentages. Practical experience also demonstrates 
that this is also true regardless of whether the spread between the 
minimum and maximum specified theoretical hold percentages for such 
complex gaming machines exceeds 4%. Accordingly, the Commission 
proposes to delete subsection 542.13(h)(2) in its entirety.
    In particular, the Commission has determined that, excluding multi-
game and multi-denominational gaming machines, complex gaming machines 
with multiple specified theoretical hold percentages possess certain 
characteristics that generally result in most bettors making the 
maximum allowed coin-in wager. Typically, the pay tables for such 
machines provide for a disproportionately larger payout for maximum 
coin-in wagers. This naturally causes most players to bet the maximum 
allowable number of coins-in. Consequently, the weighted average 
calculation generally produces an adjusted theoretical hold percentage 
that is not significantly different than simply selecting the machine's 
most conservative or smallest specified theoretical hold percentage. 
Therefore, it is proposed that the required weighted average 
calculations in subsection 542.13(h)(2) for complex gaming machines, 
other than multi-game and multi-denomination gaming machines, be 
deleted regardless of the spread between the machines' minimum and 
maximum specified multiple theoretical hold percentages. Although no 
longer required, circumstances may still dictate use of the weighted 
average calculation for such gaming machines, instead of simply 
selecting the most conservative or smallest specified theoretical hold 
percentage for the machine. In those circumstances, it will remain the 
responsibility of Tribal gaming management, subject to Tribal Gaming 
Regulatory Authority (TGRA) oversight, to utilize appropriate weighted 
average calculations to determine the proper adjusted theoretical hold 
percentages for accurate and reliable analysis of gaming machine 
performance.

Proposed Revisions Renumbering Subsection 542.13(h)(4) as New 
Subsection 542.13(h)(2); Extending the Weighted Average Calculation 
Requirement to Both Multi-Game and Multi-Denomination Gaming Machines; 
and Deleting the 4% Theoretical Payback Spread Standard

    The Commission also proposes to revise subsection 542.13(h)(4) by 
renumbering it as the new subsection 542.13(h)(2); extending the 
required use of weighted average calculations to determine the adjusted 
theoretical hold percentage for both multi-game and multi-
denominational gaming machines; and deleting the 4% or greater spread 
criteria regarding the minimum and maximum specified theoretical 
payback percentage for such machines. While concluding that weighted 
average calculations need not be required for determining the most 
appropriate adjusted theoretical hold percentage for other complex 
gaming machines with multiple specified theoretical hold percentages, 
the Commission has determined that such calculations are essential for 
reliable analysis of the performance of multi-game and multi-
denominational gaming machines, regardless of whether the spread 
between their minimum and maximum specified theoretical hold 
percentages is more or less than 4%. Therefore, the Commission proposes 
to add multi-denominational gaming machines to the weighted average 
calculation requirement in current subsection 542.13(h)(4), and also to 
delete the current requirement that the spread between the minimum and 
maximum specified multiple theoretical hold percentages must exceed 4% 
before any weighted average calculations are required to determine the 
appropriate adjusted theoretical hold percentage for either multi-game 
or multi-denominational gaming machines. In contrast to other complex 
gaming machines with multiple specified theoretical hold percentages, 
multi-game and multi-denominational gaming machines do not possess 
common characteristics that result in reasonably predictable player 
decisions regarding the individual programmed games of the multi-game 
gaming machine they elect to play or the amount or denomination of 
their wager. Instead player wagering decisions can vary widely and 
player game/denomination selections are also highly unpredictable and 
often subject to the effects of intervening management decisions, such 
as the activation/cancellation of game options, device location, gaming 
floor mix, and paytable alternatives. Thus, to effectively identify a 
reliable adjusted theoretical hold percentage for analysis of multi-
game and multi-denominational gaming machine performance requires a 
weighted average calculation of player coins-in-wagering for each 
wager/game/denomination paytable player option. Furthermore, it is the 
Commission's considered judgment that such calculations are required 
and necessary regardless of whether the spread between the minimum and 
maximum specified multiple theoretical hold percentage for the multi-
game and/or multi-denominational gaming machine exceeds 4%.

Proposed Revisions Renumbering Subsection 542.13(h)(19) as New 
Subsection 542.13(h)(18) and Replacing the Six Month Play Threshold 
With a Threshold of at Least 100,000 Wagering Transactions for Required 
Investigation of Large Variances Between Actual and Theoretical Hold

    Based on past experience and interaction with Tribal gaming 
regulatory authorities, the Commission has determined that the current 
six (6) months play threshold in subsection 542.13(h)(19) for 
determining when a gaming machine is required to be included in the 
gaming machine analysis report is not practical or appropriate. 
Consequently, to more accurately define when the comparison and 
investigation of large variances between actual and theoretical hold is 
required, the Commission proposes to revise subsection 542.13(h)(19) by 
renumbering it as subsection 542.13(h)(18) and replacing the six (6) 
months play threshold with a play threshold of at least 100,000 
wagering transactions.

Proposed Revisions to Subsection 542.13(m)(6) and (7) Accounting/Audit 
Standards for Gaming Machines

    In recognition of the varying processes that exist in the gaming 
industry relative to the time period between currency drops for gaming 
machines, the Commission has determined that the current standard in 
subsection 542.13(m)(6) requiring weekly comparison of the bill-in 
meter readings to the total bill acceptor drop is impractical and too 
inflexible. Accordingly, the Commission proposes to delete the 
currently required weekly comparison and replace it within an every 
``drop period'' requirement. The term ``drop period'' is proposed to be 
defined in section 542.2 as the period of time between sequential 
drops.
    Furthermore, in consideration of the above proposed revision, the 
Commission also proposes to revise

[[Page 69852]]

subsection 542.13(m)(7) by deleting the current $200.00 threshold for 
required follow-up investigation of an unresolved variance between 
actual currency drop and bill-in meter reading and replacing it with a 
threshold amount that is ``both more than $25.00 and at least 3 percent 
(3%) of the actual currency drop.''

Comments Regarding Proposed Deletion of 4% Theoretical Payback Spread 
Standard and Elimination of the Weighted Average Calculation 
Requirements for Complex Gaming Machines, (Excluding Multi-Game or 
Multi-Denominational Gaming Machines), With Multiple Theoretical Hold 
Percentages

    Comments were received supporting the deletion of both standards, 
indicating that the process will potentially become simpler. Comment 
was received supporting the deletion of the standards and the 
willingness of the Commission to accept alternative methods of 
identifying the appropriate theoretical payback/hold percentage for the 
machines in question, which will often involve simply selecting the 
most conservative theoretical hold percentage within the range of 
acceptable parameters established by the game manufacturer. Such a 
procedure is founded upon the premise that patrons will generally opt 
for max coin bet. Comment was received objecting to the proposed 
striking of the weighted average calculation for complex gaming 
machines with a spread between theoretical payback percentages greater 
than 4%. It was noted that on-line computerized accounting systems for 
gaming machines capture the required data and facilitate the 
identification of an optimal theoretical payback/hold percentage for 
game analysis. Consequently, the commenter contended there is no 
compelling need to strike the standard. Comment was received 
questioning whether the standard requires the data to be collected by 
hard meter or whether soft meters are acceptable.
    The Commission concurs with the commenter that the selection of the 
most conservative hold percentage will generally produce a benchmark 
for analysis of complex gaming machines, other than multi-game and 
multi-denominational machines, that will enable the gaming machine 
analysis report to be accurate and effective. However, should such a 
procedure not be reflective of the method of play of the gaming 
operation's patrons, the weighted average calculation would become the 
desired alternative. By striking the standard, the Commission is 
deferring to the Tribal Gaming Regulatory Authority (TGRA) to ensure 
Tribal gaming management employs procedures appropriate to identify 
reliable theoretical payback/hold percentages for analyzing the 
performance of their complex gaming devices with multiple specified 
theoretical hold percentages (excluding multi-gaming and multi-
denominational gaming machines). The Commission acknowledges that 
industry standard gaming machines and current technology on-line 
accounting systems greatly aid the process of collecting data. However, 
such on-line systems are not at this time required by the MICS for all 
gaming machines. Therefore, we do not agree that the striking of the 
standard lacks compelling justification.
    The Commission refers the commenter to the MICS definitions 
regarding the question of whether hard or soft meters may be used to 
collect necessary game data and determine reliable theoretical payback/
hold percentages for game performance analysis. In accordance with 
section 542.2, the term ``meter'' is defined as either hard or soft. 
Consequently, to satisfy the standard, either method of collection is 
permissible.

Comments Regarding Proposed Extension of Weighted Average Theoretical 
Hold Calculation and Other Multi-Game Gaming Machine Analysis 
Requirements to Multi-Denominational Machines

    Comments were received acknowledging the need to extend the scope 
of the standard to include multi-denominational machines in addition to 
multi-game devices. Comment was received supporting the striking of the 
4% theoretical payback percentage spread criteria with regards to 
multi-game and multi-denomination machines. The devices in question 
generally represent only a small portion of the typical gaming floor. 
Comment was received suggesting that, instead of quarterly meter reads, 
the meters could be read annually. Comment was also received 
questioning the need to make annual adjustments to the theoretical hold 
percentage for multi-game and multi-denomination devices, since the 
recalculation of the theoretical hold percentage results in only a 
nominal change. In addition, comment was also received regarding the 
task of calculating theoretical payback and hold percentages for multi-
game machines that are also multi-denomination. The commenter 
questioned whether the necessary data could be extracted from such 
devices and, even if it could be obtained, the multi-tiered 
calculations would be exceedingly cumbersome. Finally, comment was 
received questioning whether the potential annual adjustment to 
theoretical hold required the gaming machine to be considered a new 
device for purposes of the gaming machine analysis report.
    The Commission does not concur with the commenter recommendation 
that collecting the meter data on an annual basis is acceptable. With 
regards to the collection of wagering data from multi-game and multi-
denominational gaming machines, the more data collected the greater the 
confidence in the analysis of patron betting habits and, consequently, 
the more reliable the identification of a reliable theoretical hold 
percentage. Due to the changes in machine mix and location that 
frequently occur on the gaming floor, the Commission believes the 
subject data should be collected on a quarterly basis. The Commission 
does not agree with the comment that the annual review and adjustment 
of the previously determined theoretical hold percentage is of no 
value. We agree with the premise that, if the gaming floor remained 
unaltered from one year to the next, the betting habits of the patrons 
are likely to remain constant. However, changes to the gaming floor are 
typically frequent, as management attempts to generate the greatest 
return on the square footage allocated to the gaming machine 
department. Such modifications may involve additions and removals of 
devices, movement of machines on the gaming floor, activation/
deactivation of various game options (such as bonusing), changing the 
mix of games offered or increasing or restricting the different 
denominations accepted. Each of these management decisions can impact 
the theoretical hold of the multi-game and multi-denominational gaming 
machines in question. We can certainly understand management electing 
not to make an adjustment to the theoretical hold when the amount of 
the adjustment will have no significant impact on the reliability of 
the gaming machine analysis reports. However, due to the volatility of 
the gaming floor and the potential effect such volatility can have on 
patron betting habits, we believe the annual testing of previously 
determined theoretical hold percentages to be a necessary management 
practice.
    The Commission appreciates the concern raised by a commenter 
regarding the process of determining a reliable theoretical hold 
percentage for multi-game devices that also accept multi-denomination 
wagers. The Commission acknowledges that the standard is intended to 
address either multi-game or multi-denomination but

[[Page 69853]]

is awkward in its application with regards to devices that possess both 
characteristics. The standard would imply that a multi-tiered level of 
weighted average calculations would be required. That, for each 
denomination within each game, the corresponding theoretical hold would 
be weighted by patron selection and then the resulting game weighted 
average theoretical hold would be weighted by patron game selection. 
Although the exercise would certainly produce a theoretical hold 
percentage for use in the game analysis report possessing a high level 
of confidence, we question whether such an in depth examination of the 
various theoretical percentages, weighted by patron selection, is 
necessary to identify a reasonable benchmark to measure actual game 
performance. Generally speaking, we believe it would be acceptable to 
calculate a simple weighted average of the various denominational 
theoretical hold percentages contained within each game, and then use 
that average theoretical hold percentage in the weighted average 
calculation based on patron game selection. Furthermore, to make 
additional reductions in the number of calculations, management might 
consider grouping games with similar theoretical hold percentages, i.e. 
those with a difference of less than 0.5 percentage points. In 
summation, it is important not to lose sight of the ultimate objective 
of the standards relevant to the statistical tracking of gaming 
performance, which is to employ a process that is effective in 
identifying deviations of actual performance from the manufacturer's 
specifications that warrant investigation. Such deviations may simply 
result from normal play, or be caused by gaming machine defect, 
malfunction, cheating, embezzlement, or other improper tampering. 
Relevant to this overall process is the fact that many frauds have 
occurred in Tribal gaming over the past few years involving false or 
fraudulent gaming machine payouts that could have been detected sooner, 
if the gaming operation had had an effective process for measuring the 
appropriateness of actual gaming machine performance.
    In response to the question raised by a commenter whether the 
annual adjustment to theoretical hold percentage requires a gaming 
machine to be given a new machine (asset) number for purposes of the 
gaming machine analysis report, the Commission refers the commenter to 
section 542.13(h)(16). That section explicitly exempts annual 
theoretical hold adjustments made in accordance with section 
542.13(h)(2) from the general requirement that the adjusted machine be 
treated as a new machine. Consequently, creation of a new machine 
number is not required when such adjustments occur.

Comments Regarding Proposed Deletion of ``Six Month'' Play Threshold 
and Addition of a ``100,000 Wagering Transactions'' Threshold for 
Required Analysis of Large Gaming Machine Variances Between Theoretical 
and Actual Hold

    Comment was received recommending that, instead of the Commission 
just striking the six (6) month play threshold from section 
542.13(h)(18), consideration should be given to replacing it with a 
threshold of 100,000 wagering transactions, which should be sufficient 
to trigger a gaming machine's required inclusion in the gaming machine 
analysis report. Comments were received strongly supporting the change 
from a specified time period to a fixed number of wagering 
transactions, to determine when a gaming machine should be included in 
the analysis of actual hold performance to theoretical hold. Comment 
was also received suggesting that the PAR sheets provide information 
more relevant to when a particular device has experienced sufficient 
play to be included in the gaming machine analysis process. Comment was 
also received suggesting that the recommended range of acceptable 
deviations from theoretical of +/-3 percentage points should be struck 
from the MICS. The commenter noted that it should be left up to the 
discretion of the TGRA as the primary gaming regulator to make the 
determination. Additional comment was also received recommending that 
it should also be left to the TGRA to determine when sufficient play 
exists to require the machine to be included in the gaming analysis 
report, since the performance of some devices should be examined prior 
to 100,000 wagering transactions, while others may require more play 
before any investigation of deviations between actual and theoretical 
performance is worthwhile. Finally, comment was received suggesting 
that a computerized application utilizing a volatility indexing 
mathematical program should be an acceptable alternative to the process 
required by the MICS. Such programs employ a mathematical formula that 
estimates the minimum and maximum ranges of acceptable theoretical 
payback/hold percentages for a given machine based on the following: 
(1) The theoretical payback/hold over the expected life of the machine; 
(2) the number of winning combinations; (3) the payback/hold for the 
winning combinations; and (4) the number of games played. In essence, 
the program considers the game characteristics and determines a 
tolerable range of accepted performance, which narrows as performance 
predictability increases. Typically predictability increases 
commensurate with increasing levels of wagering activity.
    The Commission concurs with the commenter's recommendation that the 
standard would be better served by replacing the specified time period 
with a minimum number of wagering transactions. The proposed revision 
to section 542.13(h)(18) has, accordingly, been modified to reflect 
that recommendation. The Commission also appreciates the suggestion 
made by the commenter that determining when sufficient data exists to 
perform the analysis of actual game performance should include 
consideration of the data contained within the PAR sheet. It is 
important to recognize that the 100,000 wagering transaction standard 
establishes a minimum threshold for devices to be included in the 
required gaming machine analysis report; however, it is also well 
understood that the investigation of unacceptable deviations between 
actual and theoretical game performance is a complex process. To 
comment on how the Commission determined the proposed 100,000 wager 
transaction threshold, a random number generator (RNG) with a ten (10) 
million cycle will produce a range between minimum and maximum 
confidence factors of approximately three (3) percentage points, which 
we believe justifies an investigation of an unacceptable deviation, 
which industry practice would identify to be +/- 3 percentage points 
between actual hold and theoretical hold. However, the analyst should 
also consider the relevant PAR sheet in determining the extent to which 
follow-up analysis and investigation is warranted. For example, a 
multi-game device, particularly if it also accepts multi-denomination, 
may in fact need more than 100,000 wagering transactions before it is 
worthwhile to review past performance, i.e. look for an abnormally 
large payout within the audit period. With such a device, the analyst 
may determine that insufficient play has occurred to perform an in 
depth review of past performance and would merely document his/her 
determination. Within reason, we would not consider such a 
determination to be noncompliant with the standard.

[[Page 69854]]

    The Commission does not agree with the commenter's suggestion that 
the recommended acceptable deviation range of +/- 3 percentage points 
be struck from the MICS. We believe the recommended range represents 
industry practice and is a reasonable threshold to ensure that the 
gaming machine analysis process will be effective. The Commission also 
disagrees with the commenter's recommendation that it should be left to 
the discretion of the TGRA to decide when a device must be included in 
the gaming machine analysis report. For the regulations governing the 
statistical tracking of gaming performance and the comparison of actual 
performance to the manufacturer's theoretical performance 
specifications to be effective, the regulation must be precise and 
reasonably uniform in defining its applicability. However, we do 
acknowledge that the analysis of the data possesses an element of 
subjectivity, which in turn necessitates that the analyst have a 
professional level of expertise. Inclusion of a gaming machine in the 
required gaming analysis report does not necessarily dictate that an in 
depth investigation of all variances is warranted, but does require 
that the gaming performance analyst/reviewer document the results of 
their determination.
    Finally, the Commission appreciates the suggestion by a commenter 
that a volatility indexing mathematical program may produce results as 
reliable as, or even more reliable, than the weighted average 
calculation required for multi-game and multi-denominational gaming 
machines in the MICS. In response, it is noteworthy that at section 
542.3(c), the TGRA is required to adopt regulations that provide a 
level of control that equals or exceeds the MICS. Although the rule 
does not condone the TGRA accepting management procedures that are in 
conflict with the MICS, it does not preclude acceptance of procedures 
or controls that are different and at least as stringent as those 
contained within the MICS. Furthermore, at section 542.13(b), 
computerized applications that provide at least the same level of 
control as the MICS are deemed to be acceptable under the current MICS. 
Based on the data provided by the commenter, it is the belief of the 
Commission that the noted mathematical formula would be an acceptable 
alternative procedure. However, it is incumbent upon management to 
adequately document the process and its effectiveness in providing the 
required level of control and reliability in analyzing game 
performance.

Comments Regarding the Proposed Revision of Section 542.13(m)(6) To 
Require Comparison of Bill-In Meter Readings With Total Bill Acceptor 
Drop Amounts for Each Drop Period Instead of Weekly

    Comments were received concurring with the proposed revision. 
Comment was also received noting that the proposed standard is 
stricter, but also acknowledging that the impact on management's gaming 
machine accounting/audit function should be nominal. Finally, comment 
was received supporting the proposed revision and noting that it should 
make the follow-up process less cumbersome.

Comments Regarding the Proposed Revision of Section 542.13(m)(7) 
Requiring Follow-Up of Unresolved Variances Between the Currency Drop 
and Bill-In Meter Readings to Amounts Greater Than $25 and 3% Instead 
of $200.00

    Comment was received suggesting language in the initially proposed 
revision to clarify the applicability of $25 or 3%. Comment was 
received objecting to the revision because it would allow variances to 
go uninvestigated that should be subjected to review. Basically, the 
commenter contends that the rule is too liberal and results in the 
control being ineffective. Comment was received recommending the 
threshold be 5% and $25.
    The Commission accepts the commenter recommendation regarding more 
explicit language and has modified the proposed revision accordingly. 
The Commission understands the commenter concern for the rule becoming 
less stringent and possibly ineffective. However, the existing rule 
requires that a variance of $200 per machine per week must be 
investigated. Assuming the Tribal gaming operation performs a daily 
drop, the average variance threshold per day would be $28.57. Because 
the drop must exceed $833.33 before the 3% criteria becomes effective, 
for all practical purposes, the vast majority of variances will be 
subject to the $25 threshold. Consequently, we do not believe the 
revision will have a material impact on the effectiveness of the 
control. However, by changing the time frame from a week to a drop 
period, we believe the standard becomes more consistent with the 
workflows of the revenue audit process. The Commission does not concur 
with the recommendation that the threshold be increased to 5% or $25. 
With regards to drop amounts, the proposed rule results in the $25 
threshold being applicable to drops of $25 to $833.33. The commenter 
recommendation would cause the $25 threshold to be applicable to drops 
of $25 to $500, which would, in effect, result in a lessening of the 
control. We do not believe there is a compelling basis for making the 
recommended change.

Proposed Revisions to Subsection 542.16(a)(1) General Controls for 
Gaming Hardware and Software

Deletion of Requirement in Vendor Software/Hardware Agreements That 
Vendors Agree To Adhere to Related Tribal Internal Controls

    Since initial adoption, this standard has often been a troublesome 
requirement for management and Tribal gaming regulatory authorities to 
implement and enforce. The NIGC is not unsympathetic to the challenges 
created by the regulation when a vendor is uncooperative. Although not 
wishing to discourage Tribal regulators or gaming operators from 
striving to ensure that vendor products are compliant with all 
applicable Tribal laws and regulations, the NIGC does not believe such 
a control contained within the part 542 is appropriate as a minimum 
standard and proposes to delete and revise the Information Technology 
Section accordingly.
    Comment was received supporting deletion of the standard, but 
noting that management should continue to be held accountable by the 
TGRA to ensure that agreements/contracts are not entered into that 
would cause the gaming operation to be noncompliant with any Tribal, 
State or Federal laws or regulations. Furthermore, the TGRA should not 
hesitate to enact and enforce such regulations of their own specific to 
vendor contract requirements. Comment was also received supporting 
deletion of the standard because it creates an undue hardship on 
management in the negotiation of vendor agreements. Additional comment 
was received supporting the deletion of the standard because violations 
by vendors are often difficult and troublesome to enforce, which causes 
the regulation to be fairly meaningless. Other comment was received 
objecting to deletion of the standard because it provides an added 
level of protection for Tribes from unscrupulous vendors in their 
gaming enterprises. Additional comment was received from a TGRA noting 
that, notwithstanding deletion of the standard from the MICS, the Tribe 
intends to keep the control in their

[[Page 69855]]

regulations, which is a Tribe's right as primary regulator under IGRA.
    The Commission does not concur with the comments objecting to 
deletion of the standard. Although it could be argued that the 
Commission should exercise greater regulatory authority over gaming 
vendors to protect the integrity of Tribal gaming, we do not believe 
the standard in question represents an appropriate and effective 
vehicle for accomplishing that objective.

Proposed Revisions to Section 542.18 Regarding the Process for 
Commission Review and Determination of Tribal Requests for a Variance 
From the MICS in Their Tribal Internal Control Standards

    To more clearly describe the current variance process, the NIGC 
proposes to revise section 542.18 of the MICS. Specifically, the 
revisions are intended to more clearly describe the authority and 
duties of the Chairman, his/her designee, and the full Commission, and 
the appeal rights of the Tribal petitioner. The proposed revisions are 
also proposed to ensure that an adequate factual investigation and 
record is developed for administrative and judicial review of the 
merits of the Chairman's decision on each variance request.
    Comment was received supporting the proposed revisions. Comment was 
also received supporting the revisions, except for that part that 
prohibits the implementation of a TGRA approved variance until after 
concurrence has been received from the Commission. Comment was received 
questioning whether the petitioner Tribe has the authority to extend 
stipulated time frames in the variance process. Additional comment was 
received questioning whether the thirty (30) day period associated with 
a review by NIGC staff of a resubmission was sufficient. Further 
comment was received questioning the potential result of a petitioner 
objecting to an extension of a stipulated time period requested by NIGC 
staff. Specifically, the concern is that refusal of such a request 
might result in summary denial of the variance request. Comment was 
also received questioning the need for extensions of the time frames 
provided. A commenter represented that the stipulated time periods 
should be sufficient. Finally, comment was received suggesting that the 
Commission should consider variance requests only after they have been 
approved by the TGRA.
    The Commission understands the commenter's objection to deferring 
implementation of a TGRA approved variance until receipt of Commission 
concurrence; however, to preserve the integrity of the MICS, the 
regulatory body responsible for its enactment must have the latitude to 
prohibit the implementation of procedures deemed to be unacceptable and 
contrary to the NIGC's MICS regulations. The Commission also recognizes 
that the variance concurrence process is one initiated by the 
petitioner. Therefore, the Commission would not be unreasonable in 
considering requests for additional time from the petitioner. It is 
noteworthy to such a position that the implementation of the proposed 
alternative procedure is precluded until after the Commission has 
concurred. The Commission acknowledges the concern expressed by a 
commenter regarding the time afforded NIGC staff to review a 
resubmission. Therefore, language has been added to enable staff to 
extend the period, subject to concurrence by the petitioner. The 
Commission understands the concern expressed by a commenter regarding a 
possible decision not to concur, if acceptance of an extension to a 
stipulated time period was not agreed. Certainly, the petitioner should 
be well aware that the investigation of pertinent facts and data 
associated with a variance request may take hours or many months, 
depending upon its complexity. Although requests for additional time 
should be reasonable and based on cause, the petitioner should also be 
well aware that the undue refusal to grant additional time may result 
in a determination different than that which would have otherwise been 
rendered, if the petitioners had agreed to the Chairman's request for 
more adequate time to investigate and decide their variance request. 
Notwithstanding the question pertaining to extension of time frames, 
the petitioner's right to appeal would continue to exist.
    The Commission disagrees with the commenter's contention that time 
period extensions are not warranted. Although some variance requests 
can be readily addressed, particularly if the staff charged with 
performing the research has past experience with similar requests, most 
will involve extensive analysis. Seldom is a petition simply responded 
to. Instead, a filing will generally initiate a back and forth exchange 
with the petitioner as staff seeks additional information or 
clarifications regarding the requested variance. Alternative procedures 
involving new technology often involve travel by staff to consult with 
manufactures and other regulators or operators. Inherent to the 
analysis of a variance request is the identification of risk and 
evaluation of compensating controls. The time periods contained within 
the regulation will generally be appropriate for the more simple 
concurrence requests; however, complex requests will typically require 
one or more extensions of the allotted time frame. The Commission 
concurs with the commenter's suggestion regarding consideration of 
variance requests only after they have been approved by the TGRA. In 
accordance with the proposed rule, a variance request received by the 
Commission lacking evidence of the TGRA approval would not be 
considered. Since such a submission would lack authority.

Proposed Revisions To Add the Following New Sections to the MICS 
Establishing Minimum Standards for Computerized Key Security Systems

    Section 542.21(t)-(w) What are the minimum internal controls for 
drop and count for Tier A gaming operations?
    Section 542.31(t)-(w) What are the minimum internal controls for 
drop and count for Tier B gaming operations?
    Section 542.41(t)-(w) What are the minimum internal controls for 
drop and count for Tier C gaming operations?
    These are proposed new MICS sections. In recognition of an 
increasing number of gaming operations utilizing or considering the 
utilization of computerized key control systems, the NIGC has 
determined that regulations addressing such systems are warranted for 
Tier A, B, and C Tribal gaming operations.
    Comment was received supporting the proposed revisions noting that 
electronic key control systems are becoming more prevalent. Comment was 
also received supporting the determination by the Commission to adopt 
standards specifically covering the use of computerized key control 
systems in Tier A, B, and C gaming operations and not rely solely on 
the general MICS regulation covering computerized applications. Comment 
was also received supporting the new regulation and noting that the 
controls also provide for an audit function. Comment was received 
supporting the new regulation, but noting that the TGRA should also 
consider more stringent standards. Comment was received recommending 
that the auditing procedures, particularly the quarterly inventory of 
keys, be performed by accounting/auditing personnel independent of the 
key control process. Additional comment was received questioning the 
need for the regulations since most of the controls are already in the 
MICS. Comment was received recommending

[[Page 69856]]

that the regulation more clearly differentiate the function of key 
custodian from system administrator. Comment was also received 
questioning the need for three persons to be involved in accessing the 
manual override key to open the box to perform repairs. It was noted 
that the persons accessing the box would not have access to the slot 
drop and count keys. For the purpose of making repairs, only two 
persons should be required to gain access to the manual override key.
    The Commission disagrees with the commenter questioning the need 
for the new regulations. Computerized key control systems have been the 
subject of several Tribal variance requests over the past few years. 
Therefore, the Commission believes it appropriate to establish minimum 
standards specific to such systems. The Commission concurs with the 
commenter recommendation that the auditing procedures be performed by 
accounting/auditing personnel independent of the key control process. 
The proposed regulation for all three tiers has been changed 
accordingly. The Commission also concurs with the commenter's 
recommendation that the key custodian functions be more clearly defined 
and noted as being separate from those of the system administrator. 
Accordingly, the proposed revisions been modified in all three new 
sections to more clearly define separation of the two functions. The 
Commission also concurs with the commenter's suggestion that only two 
people be required to access the manual override key to make repairs to 
the key control box. Such access would not include access to the coin 
drop and count keys. The proposed revisions have been modified to 
reflect the suggestion of the commenter in all three proposed new MICS 
sections.

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 such an operation. The 
Commission believes that many Indian gaming operation internal control 
standards that 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 operation is 
estimated at between $3,000 and $5,000. The cost of this report is 
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 the 
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 
does 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 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 the Indian Gaming Regulatory Act. Thus, in 
accordance with Section 203 of the Unfunded Mandates Reform Act, the 
Commission undertook several actions to provide Tribal governments with 
adequate notice, opportunity for ``meaningful'' consultation, input, 
and shared 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, 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.

[[Page 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 MICS 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).

List of Subjects in 25 CFR Part 542

    Accounting, Auditing, Gambling, Indian-lands, Indian-tribal 
government, Reporting and recordkeeping requirements.
    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:

PART 542--MINIMUM INTERNAL CONTROL STANDARDS

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

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

    2. Section 542.2 is amended by adding in alphabetical order the 
definitions for ``Drop Period'' and ``Series number'', and by revising 
the definitions for ``Gaming Machine'' and ``Promotional progressive 
pots and/or pools'' to read as follows:


Sec.  542.2  What are the definitions for this part?

* * * * *
    Drop period means the period of time that occurs between sequential 
drops.
* * * * *
    Gaming machine means an electronic or electromechanical machine 
that allows a player to play games of chance, some of which may be 
affected by skill, which contains a microprocessor with random number 
generator capability for outcome selection or computer terminal that 
accesses an outcome that is subsequently and randomly selected in 
drawings that are electronically conducted by central computer or other 
such methods of chance selection, whether mechanical or electronic. The 
machine is activated by the insertion of cash or cash equivalents and 
which awards cash, cash equivalents, merchandise, or a written 
statement of the player's accumulated credits, which written statements 
may be redeemable for cash.
* * * * *
    Promotional progressive pots and/or pools means funds contributed 
to a table game or card game by and for the benefit of players. Funds 
are distributed to players based on a predetermined event.
* * * * *
    Series number means the unique identifying number printed on each 
sheet of bingo paper that identifies the bingo paper as a series or 
packet. The series number is not the free space or center space number 
located on the bingo paper.
* * * * *
    3. Amend Sec.  542.7 by revising paragraph (g)(1)(i) to read as 
follows:


Sec.  542.7  What are the minimum internal control standards for bingo?

* * * * *
    (g) * * *
    (1) * * *
    (i) If the electronic equipment contains a bill acceptor, then 
Sec.  542.21(e) and (f), Sec.  542.31(e) and (f), or Sec.  542.41(e) 
and (f) (as applicable) shall apply.
* * * * *
    4. Revise Sec.  542.8 by revising paragraph (h)(1)(i) to read as 
follows:


Sec.  542.8  What are the minimum internal control standards for pull 
tabs?

* * * * *
    (h) * * *
    (1) * * *
    (i) If the electronic equipment contains a bill acceptor, then 
Sec.  542.21(e) and (f), Sec.  542.31(e) and (f), or Sec.  542.41(e) 
and (f) (as applicable) shall apply.
* * * * *
    5. Amend Sec.  542.12 by revising paragraphs (i)(4) and (k)(l)(v), 
(ix), and (xvii) to read as follows:


Sec.  542.12  What are the minimum internal control standards for table 
games?

* * * * *
    (i) * * *
    (4) The management in paragraph (i)(3) of this section shall 
investigate any unusual fluctuations in hold percentage with pit 
supervisory personnel.
* * * * *
    (k) * * *
    (1) * * *
* * * * *
    (v) The marker form shall be prepared in at least triplicate form 
(triplicate form being defined as three parts performing the functions 
delineated in the standard in paragraph (k)(1)(vi) of this section), 
with a preprinted or concurrently-printed marker number, and utilized 
in numerical sequence. (This requirement shall not preclude the 
distribution of batches of markers to various pits.)
* * * * *
    (ix) The forms required in paragraphs (k)(1)(v), (vi), and (viii) 
of this section shall be safeguarded, and adequate procedures shall be 
employed to control the distribution, use, and access to these forms.
* * * * *
    (xvii) When partial payments are made in the pit, the payment slip 
of the marker that was originally issued shall be properly cross-
referenced to the new marker number, completed with all information 
required by paragraph (k)(1)(xv) of this section, and inserted into the 
drop box.
* * * * *
    5. Amend Sec.  542.13 by revising paragraph (h), (1)(4), and (m)(6) 
and (7) to read as follows:


Sec.  542.13  What are the minimum internal control standards for 
gaming machines?

* * * * *
    (h) Standards for evaluating theoretical and actual hold 
percentages.
    (1) Accurate and current theoretical hold worksheets shall be 
maintained for each gaming machine.
    (2) For multi-game/multi-denominational machines, an employee or 
department independent of the gaming machine department shall:
    (i) Weekly, record the total coin-in meter;
    (ii) Quarterly, record the coin-in meters for each paytable 
contained in the machine; and
    (iii) On an annual basis, adjust the theoretical hold percentage in 
the gaming machine statistical report to a weighted average based upon 
the ratio of coin-in for each game paytable.
    (3) For those gaming operations that are unable to perform the 
weighted average calculation as required by

[[Page 69858]]

paragraph (h)(2) of this section, the following procedures shall apply:
    (i) On at least an annual basis, calculate the actual hold 
percentage for each gaming machine;
    (ii) On at least an annual basis, adjust the theoretical hold 
percentage in the gaming machine statistical report for each gaming 
machine to the previously calculated actual hold percentage; and
    (iii) The adjusted theoretical hold percentage shall be within the 
spread between the minimum and maximum theoretical payback percentages.
    (4) The adjusted theoretical hold percentage for multi-game/multi-
denominational machines may be combined for machines with exactly the 
same game mix throughout the year.
    (5) The theoretical hold percentages used in the gaming machine 
analysis reports should be within the performance standards set by the 
manufacturer.
    (6) Records shall be maintained for each machine indicating the 
dates and type of changes made and the recalculation of theoretical 
hold as a result of the changes.
    (7) Records shall be maintained for each machine that indicate the 
date the machine was placed into service, the date the machine was 
removed from operation, the date the machine was placed back into 
operation, and any changes in machine numbers and designations.
    (8) All of the gaming machines shall contain functioning meters 
that shall record coin-in or credit-in, or on-line gaming machine 
monitoring system that captures similar data.
    (9) All gaming machines with bill acceptors shall contain 
functioning bill-in meters that record the dollar amounts or number of 
bills accepted by denomination.
    (10) Gaming machine in-meter readings shall be recorded at least 
weekly (monthly for Tier A and Tier B gaming operations) immediately 
prior to or subsequent to a gaming machine drop. On-line gaming machine 
monitoring systems can satisfy this requirement. However, the time 
between readings may extend beyond one week in order for a reading to 
coincide with the end of an accounting period only if such extension is 
for no longer than six (6) days.
    (11) The employee who records the in-meter reading shall either be 
independent of the hard count team or shall be assigned on a rotating 
basis, unless the in-meter readings are randomly verified quarterly for 
all gaming machines and bill acceptors by a person other than the 
regular in-meter reader.
    (12) Upon receipt of the meter reading summary, the accounting 
department shall review all meter readings for reasonableness using 
pre-established parameters.
    (13) Prior to final preparation of statistical reports, meter 
readings that do not appear reasonable shall be reviewed with gaming 
machine department employees or other appropriate designees, and 
exceptions documented, so that meters can be repaired or clerical 
errors in the recording of meter readings can be corrected.
    (14) A report shall be produced at least monthly showing month-to-
date, year-to-date (previous twelve (12) months data preferred), and if 
practicable, life-to-date actual hold percentage computations for 
individual machines and a comparison to each machine's theoretical hold 
percentage previously discussed.
    (15) Each change to a gaming machine's theoretical hold percentage, 
including progressive percentage contributions, shall result in that 
machine being treated as a new machine in the statistical reports 
(i.e., not commingling various hold percentages), except for 
adjustments made in accordance with paragraph (h)(2) of this section.
    (16) If promotional payouts or awards are included on the gaming 
machine statistical reports, it shall be in a manner that prevents 
distorting the actual hold percentages of the affected machines.
    (17) The statistical reports shall be reviewed by both gaming 
machine department management and management employees independent of 
the gaming machine department on at least a monthly basis.
    (18) For those machines that have experienced at least 100,000 
wagering transactions, large variances (three percent (3%) recommended) 
between theoretical hold and actual hold shall be investigated and 
resolved by a department independent of the gaming machine department 
with the findings documented and provided to the Tribal gaming 
regulatory authority upon request in a timely manner.
    (19) Maintenance of the on-line gaming machine monitoring system 
data files shall be performed by a department independent of the gaming 
machine department. Alternatively, maintenance may be performed by 
gaming machine supervisory employees if sufficient documentation is 
generated and it is randomly verified on a monthly basis by employees 
independent of the gaming machine department.
    (20) Updates to the on-line gaming machine monitoring system to 
reflect additions, deletions, or movements of gaming machines shall be 
made at least weekly prior to in-meter readings and the weigh process.
* * * * *
    (l) * * *
    (4) Reports, where applicable, adequately documenting the 
procedures required in paragraph (l)(3) of this section shall be 
generated and retained.
    (m) * * *
    (6) For each drop period, accounting/auditing employees shall 
compare the bill-in meter reading to the total bill acceptor drop 
amount for the period. Discrepancies shall be resolved before the 
generation/distribution of gaming machine statistical reports.
    (7) Follow-up shall be performed for any one machine having an 
unresolved variance between actual currency drop and bill-in meter 
reading in excess of an amount that is both more than $25 and at least 
three percent (3%) of the actual currency drop. The follow-up performed 
and results of the investigation shall be documented, maintained for 
inspection, and provided to the Tribal gaming regulatory authority upon 
request.
* * * * *
    6. Amend Sec.  542.16 by revising paragraph (a)(1) introductory to 
read as follows:


Sec.  542.16  What are the minimum internal control standards for 
information technology?

    (a) * * *
    (1) Management shall take an active role in making sure that 
physical and logical security measures are implemented, maintained, and 
adhered to by personnel to prevent unauthorized access that could cause 
errors or compromise data or processing integrity.
* * * * *
    7. Revise Sec.  542.18 to read as follows:


Sec.  542.18  How does a gaming operation apply for a variance from the 
standards of the part?

    (a) Tribal gaming regulatory authority approval. (1) A Tribal 
gaming regulatory authority may approve a variance for a gaming 
operation if it has determined that the variance will achieve a level 
of control sufficient to accomplish the purpose of the standard it is 
to replace.
    (2) For each enumerated standard for which the Tribal gaming 
regulatory authority approves a variance, it shall submit to the 
Chairman of the NIGC, within thirty (30) days, a detailed report, which 
shall include the following:

[[Page 69859]]

    (i) A detailed description of the variance;
    (ii) An explanation of how the variance achieves a level of control 
sufficient to accomplish the purpose of the standard it is to replace; 
and
    (iii) Evidence that the Tribal gaming regulatory authority has 
approved the variance.
    (3) In the event that the Tribal gaming regulatory authority or the 
Tribe chooses to submit a variance request directly to the Chairman, it 
may do so without the approval requirement set forth in paragraph 
(a)(2)(iii) of this section and such request shall be deemed as having 
been approved by the Tribal gaming regulatory authority.
    (b) Review by the Chairman. (1) Following receipt of the variance 
approval, the Chairman or his or her designee shall have sixty (60) 
days to concur with or object to the approval of the variance.
    (2) Any objection raised by the Chairman shall be in the form of a 
written explanation based upon the following criteria:
    (i) There is no valid explanation of why the gaming operation 
should have received a variance approval from the Tribal gaming 
regulatory authority on the enumerated standard; or
    (ii) The variance as approved by the Tribal gaming regulatory 
authority does not provide a level of control sufficient to accomplish 
the purpose of the standard it is to replace.
    (3) If the Chairman fails to object in writing within sixty (60) 
days after the date of receipt of a complete submission, the variance 
shall be considered concurred with by the Chairman.
    (4) The 60-day deadline may be extended, provided such extension is 
mutually agreed upon by the Tribal gaming regulatory authority and the 
Chairman.
    (c) Curing Chairman's objections. (1) Following an objection by the 
Chairman to the issuance of a variance, the Tribal gaming regulatory 
authority shall have the opportunity to cure any objections noted by 
the Chairman.
    (2) A Tribal gaming regulatory authority may cure the objections 
raised by the Chairman by:
    (i) Rescinding its initial approval of the variance; or
    (ii) Rescinding its initial approval, revising the variance, 
approving it, and re-submitting it to the Chairman.
    (3) Upon any re-submission of a variance approval, the Chairman 
shall have thirty (30) days to concur with or object to the re-
submitted variance.
    (4) If the Chairman fails to object in writing within thirty (30) 
days after the date of receipt of the re-submitted variance, the re-
submitted variance shall be considered concurred with by the Chairman.
    (5) The thirty (30) day deadline may be extended, provided such 
extension is mutually agreed upon by the Tribal gaming regulatory 
authority and the Chairman.
    (d) Appeals. (1) Upon receipt of objections to a re-submission of a 
variance, the Tribal gaming regulatory authority shall be entitled to 
an appeal to the full Commission in accordance with the following 
process:
    (i) Within thirty (30) days of receiving an objection to a re-
submission, the Tribal gaming regulatory authority shall file its 
notice of appeal.
    (ii) Failure to file an appeal within the time provided by this 
section shall result in a waiver of the opportunity for an appeal.
    (iii) An appeal under this section shall specify the reasons why 
the Tribal gaming regulatory authority believes the Chairman's 
objections should be reviewed, and shall include supporting 
documentation, if any.
    (iv) The Tribal gaming regulatory authority shall be provided with 
any comments offered by the Chairman to the Commission on the substance 
of the appeal by the Tribal gaming regulatory authority and shall be 
offered the opportunity to respond to any such comments.
    (v) Within thirty (30) days after receipt of the appeal, the 
Commission shall render a decision based upon the criteria contained 
within paragraph (b)(2) of this section unless the Tribal gaming 
regulatory authority elects to wave the thirty (30) day requirement and 
to provide the Commission additional time, not to exceed an additional 
thirty (30) days, to render a decision.
    (vi) In the absence of a decision within the time provided, the 
Tribal gaming regulatory authority's re-submission shall be considered 
concurred with by the Commission and become effective.
    (2) The Tribal gaming regulatory authority may appeal the 
Chairman's objection to the approval of a variance to the full 
Commission without resubmitting the variance by filling a notice of 
appeal with the full Commission within thirty (30) days of the 
Chairman's objection and complying with the procedures described in 
paragraph (d)(1) of this section.
    (e) Effective date of variance. The gaming operation shall comply 
with standards that achieve a level of control sufficient to accomplish 
the purpose of the standard it is to replace until such time as the 
Commission objects to the Tribal gaming regulatory authority's approval 
of a variance as provided in paragraph (b) of this section. Concurrence 
in a variance by the Chairman or Commission is discretionary and 
variances will not be granted routinely. The gaming operation shall 
comply with standards at least as stringent as those set forth in this 
part until such time as the Chairman or Commission concurs with the 
Tribal gaming regulatory authority's approval of a variance.
    8. Amend Sec.  542.21 by adding paragraphs (t), (u), (v), and (w) 
to read as follows:


Sec.  542.21  What are the minimum internal controls for drop and count 
for Tier A gaming operations?

* * * * *
    (t) Gaming machine computerized key security systems. (1) 
Computerized key security systems which restrict access to the gaming 
machine drop and count keys through the use of passwords, keys or other 
means, other than a key custodian, must provide the same degree of 
control as indicated in the aforementioned key control standards; refer 
to paragraphs (l), (o), (q) and (s) of this section. Note: This 
standard does not apply to the system administrator. The system 
administrator is defined in paragraph (t)(2)(i) of this section.
    (2) For computerized key security systems, the following additional 
gaming machine key control procedures apply:
    (i) Management personnel independent of the gaming machine 
department assign and control user access to keys in the computerized 
key security system (i.e., system administrator) to ensure that gaming 
machine drop and count keys are restricted to authorized employees.
    (ii) In the event of an emergency or the key box is inoperable, 
access to the emergency manual key(s) (a.k.a. override key), used to 
access the box containing the gaming machine drop and count keys, 
requires the physical involvement of at least three persons from 
separate departments, including management. The date, time, and reason 
for access, must be documented with the signatures of all participating 
employees signing out/in the emergency manual key(s).
    (iii) The custody of the keys issued pursuant to paragraph 
(t)(2)(ii) of this section requires the presence of two persons from 
separate departments from the time of their issuance until the time of 
their return.
    (iv) Routine physical maintenance that requires accessing the 
emergency

[[Page 69860]]

manual key(s) (override key) and does not involve the accessing of the 
gaming machine drop and count keys, only requires the presence of two 
persons from separate departments. The date, time and reason for access 
must be documented with the signatures of all participating employees 
signing out/in the emergency manual key(s).
    (3) For computerized key security systems controlling access to 
gaming machine drop and count keys, accounting/audit personnel, 
independent of the system administrator, will perform the following 
procedures:
    (i) Daily, review the report generated by the computerized key 
security system indicating the transactions performed by the 
individual(s) that adds, deletes, and changes user's access within the 
system (i.e., system administrator). Determine whether the transactions 
completed by the system administrator provide an adequate control over 
the access to the gaming machine drop and count keys. Also, determine 
whether any gaming machine drop and count key(s) removed or returned to 
the key cabinet by the system administrator was properly authorized.
    (ii) For at least one day each month, review the report generated 
by the computerized key security system indicating all transactions 
performed to determine whether any unusual gaming machine drop and 
count key removals or key returns occurred.
    (iii) At least quarterly, review a sample of users that are 
assigned access to the gaming machine drop and count keys to determine 
that their access to the assigned keys is adequate relative to their 
job position.
    (iv) All noted improper transactions or unusual occurrences are 
investigated with the results documented.
    (4) Quarterly, an inventory of all count room, drop box release, 
storage rack and contents keys is performed, and reconciled to records 
of keys made, issued, and destroyed. Investigations are performed for 
all keys unaccounted for, with the investigation being documented.
    (u) Table games computerized key security systems. (1) Computerized 
key security systems which restrict access to the table game drop and 
count keys through the use of passwords, keys or other means, other 
than a key custodian, must provide the same degree of control as 
indicated in the aforementioned key control standards; refer to 
paragraphs (m), (n), (p) and (r) of this section. Note: This standard 
does not apply to the system administrator. The system administrator is 
defined in paragraph (u)(2)(ii) of this section.
    (2) For computerized key security systems, the following additional 
table game key control procedures apply:
    (i) Management personnel independent of the table game department 
assign and control user access to keys in the computerized key security 
system (i.e., system administrator) to ensure that table game drop and 
count keys are restricted to authorized employees.
    (ii) In the event of an emergency or the key box is inoperable, 
access to the emergency manual key(s) (a.k.a. override key), used to 
access the box containing the table game drop and count keys, requires 
the physical involvement of at least three persons from separate 
departments, including management. The date, time, and reason for 
access, must be documented with the signatures of all participating 
employees signing out/in the emergency manual key(s).
    (iii) The custody of the keys issued pursuant to paragraph 
(u)(2)(ii) of this section requires the presence of two persons from 
separate departments from the time of their issuance until the time of 
their return.
    (iv) Routine physical maintenance that requires accessing the 
emergency manual key(s) (override key) and does not involve the 
accessing of the table games drop and count keys, only requires the 
presence of two persons from separate departments. The date, time and 
reason for access must be documented with the signatures of all 
participating employees signing out/in the emergency manual key(s).
    (3) For computerized key security systems controlling access to 
table games drop and count keys, accounting/audit personnel, 
independent of the system administrator, will perform the following 
procedures:
    (i) Daily, review the report generated by the computerized key 
security system indicating the transactions performed by the 
individual(s) that adds, deletes, and changes user's access within the 
system (i.e., system administrator). Determine whether the transactions 
completed by the system administrator provide an adequate control over 
the access to the table games drop and count keys. Also, determine 
whether any table games drop and count key(s) removed or returned to 
the key cabinet by the system administrator was properly authorized.
    (ii) For at least one day each month, review the report generated 
by the computerized key security system indicating all transactions 
performed to determine whether any unusual table games drop and count 
key removals or key returns occurred.
    (iii) At least quarterly, review a sample of users that are 
assigned access to the table games drop and count keys to determine 
that their access to the assigned keys is adequate relative to their 
job position.
    (iv) All noted improper transactions or unusual occurrences are 
investigated with the results documented.
    (4) Quarterly, an inventory of all count room, table game drop box 
release, storage rack and contents keys is performed, and reconciled to 
records of keys made, issued, and destroyed. Investigations are 
performed for all keys unaccounted for, with the investigations being 
documented.
    (v) Emergency drop procedures. Emergency drop procedures shall be 
developed by the Tribal gaming regulatory authority, or the gaming 
operation as approved by the Tribal gaming regulatory authority.
    (w) Equipment standards for gaming machine count. (1) A weigh scale 
calibration module shall be secured so as to prevent unauthorized 
access (e.g., prenumbered seal, lock and key, etc.).
    (2) A person independent of the cage, vault, gaming machine, and 
count team functions shall be required to be present whenever the 
calibration module is accessed. Such access shall be documented and 
maintained.
    (3) If a weigh scale interface is used, it shall be adequately 
restricted so as to prevent unauthorized access (passwords, keys, 
etc.).
    (4) If the weigh scale has a zero adjustment mechanism, it shall be 
physically limited to minor adjustments (e.g., weight of a bucket) or 
physically situated such that any unnecessary adjustments to it during 
the weigh process would be observed by other count team members.
    (5) The weigh scale and weigh scale interface (if applicable) shall 
be tested by a person or persons independent of the cage, vault, and 
gaming machine departments and count team at least quarterly. At least 
annually, this test shall be performed by internal audit in accordance 
with the internal audit standards. The result of these tests shall be 
documented and signed by the person or persons performing the test.
    (6) Prior to the gaming machine count, at least two employees shall 
verify the accuracy of the weigh scale with varying weights or with 
varying amounts of previously counted coin for each denomination to 
ensure the scale is properly calibrated (varying weights/coin from drop 
to drop is acceptable).

[[Page 69861]]

    (7) If a mechanical coin counter is used (instead of a weigh 
scale), the Tribal gaming regulatory authority, or the gaming operation 
as approved by the Tribal gaming regulatory authority, shall establish 
and the gaming operation shall comply, with procedures that are 
equivalent to those described in paragraphs (u)(4), (u)(5), and (u)(6) 
of this section.
    (8) If a coin meter count machine is used, the count team member 
shall record the machine number denomination and number of coins in ink 
on a source document, unless the meter machine automatically records 
such information.
    (i) A count team member shall test the coin meter count machine 
prior to the actual count to ascertain if the metering device is 
functioning properly with a predetermined number of coins for each 
denomination.
    (ii) [Reserved]
    9. Amend Sec.  542.31 by adding paragraphs (t), (u), (v), and (w) 
to read as follows:


Sec.  542.31  What are the minimum internal controls for drop and count 
Tier B gaming operations?

* * * * *
    (t) Gaming machine computerized key security systems. (1) 
Computerized key security systems which restrict access to the gaming 
machine drop and count keys through the use of passwords, keys or other 
means, other than a key custodian, must provide the same degree of 
control as indicated in the aforementioned key control standards; refer 
to paragraphs (l), (o), (q) and (s) of this section. Note: This 
standard does not apply to the system administrator. The system 
administrator is defined in paragraph (t)(2)(i) of this section.
    (2) For computerized key security systems, the following additional 
gaming machine key control procedures apply:
    (i) Management personnel independent of the gaming machine 
department assign and control user access to keys in the computerized 
key security system (i.e., system administrator) to ensure that gaming 
machine drop and count keys are restricted to authorized employees.
    (ii) In the event of an emergency or the key box is inoperable, 
access to the emergency manual key(s) (a.k.a. override key), used to 
access the box containing the gaming machine drop and count keys, 
requires the physical involvement of at least three persons from 
separate departments, including management. The date, time, and reason 
for access, must be documented with the signatures of all participating 
employees signing out/in the emergency manual key(s).
    (iii) The custody of the keys issued pursuant to paragraph 
(t)(2)(ii) of this section, requires the presence of two persons from 
separate departments from the time of their issuance until the time of 
their return.
    (iv) Routine physical maintenance that requires accessing the 
emergency manual key(s) (override key) and does not involve the 
accessing of the gaming machine drop and count keys, only requires the 
presence of two persons from separate departments. The date, time and 
reason for access must be documented with the signatures of all 
participating employees signing out/in the emergency manual key(s).
    (3) For computerized key security systems controlling access to 
gaming machine drop and count keys, accounting/audit personnel, 
independent of the system administrator, will perform the following 
procedures:
    (i) Daily, review the report generated by the computerized key 
security system indicating the transactions performed by the 
individual(s) that adds, deletes, and changes user's access within the 
system (i.e., system administrator). Determine whether the transactions 
completed by the system administrator provide an adequate control over 
the access to the gaming machine drop and count keys. Also, determine 
whether any gaming machine drop and count key(s) removed or returned to 
the key cabinet by the system administrator was properly authorized.
    (ii) For at least one day each month, review the report generated 
by the computerized key security system indicating all transactions 
performed to determine whether any unusual gaming machine drop and 
count key removals or key returns occurred.
    (iii) At least quarterly, review a sample of users that are 
assigned access to the gaming machine drop and count keys to determine 
that their access to the assigned keys is adequate relative to their 
job position.
    (iv) All noted improper transactions or unusual occurrences are 
investigated with the results documented.
    (4) Quarterly, an inventory of all count room, drop box release, 
storage rack and contents keys is performed, and reconciled to records 
of keys made, issued, and destroyed. Investigations are performed for 
all keys unaccounted for, with the investigation being documented.
    (u) Table games computerized key security systems. (1) Computerized 
key security systems which restrict access to the table game drop and 
count keys through the use of passwords, keys or other means, other 
than a key custodian, must provide the same degree of control as 
indicated in the aforementioned key control standards; refer to 
paragraphs (m), (n), (p) and (r) of this section. Note: This standard 
does not apply to the system administrator. The system administrator is 
defined in paragraph (u)(2)(ii) of this section.
    (2) For computerized key security systems, the following additional 
table game key control procedures apply:
    (i) Management personnel independent of the table game department 
assign and control user access to keys in the computerized key security 
system (i.e., system administrator) to ensure that table game drop and 
count keys are restricted to authorized employees.
    (ii) In the event of an emergency or the key box is inoperable, 
access to the emergency manual key(s) (a.k.a. override key), used to 
access the box containing the table game drop and count keys, requires 
the physical involvement of at least three persons from separate 
departments, including management. The date, time, and reason for 
access, must be documented with the signatures of all participating 
employees signing out/in the emergency manual key(s).
    (iii) The custody of the keys issued pursuant to paragraph 
(u)(2)(ii) of this section, requires the presence of two persons from 
separate departments from the time of their issuance until the time of 
their return.
    (iv) Routine physical maintenance that requires accessing the 
emergency manual key(s) (override key) and does not involve the 
accessing of the table games drop and count keys, only requires the 
presence of two persons from separate departments. The date, time and 
reason for access must be documented with the signatures of all 
participating employees signing out/in the emergency manual key(s).
    (3) For computerized key security systems controlling access to 
table games drop and count keys, accounting/audit personnel, 
independent of the system administrator, will perform the following 
procedures:
    (i) Daily, review the report generated by the computerized key 
security system indicating the transactions performed by the 
individual(s) that adds, deletes, and changes user's access within the 
system (i.e., system administrator). Determine whether the transactions 
completed by the system administrator provide an adequate control over 
the access to the table games drop and count keys. Also,

[[Page 69862]]

determine whether any table games drop and count key(s) removed or 
returned to the key cabinet by the system administrator was properly 
authorized.
    (ii) For at least one day each month, review the report generated 
by the computerized key security system indicating all transactions 
performed to determine whether any unusual table games drop and count 
key removals or key returns occurred.
    (iii) At least quarterly, review a sample of users that are 
assigned access to the table games drop and count keys to determine 
that their access to the assigned keys is adequate relative to their 
job position.
    (iv) All noted improper transactions or unusual occurrences are 
investigated with the results documented.
    (4) Quarterly, an inventory of all count room, table game drop box 
release, storage rack and contents keys is performed, and reconciled to 
records of keys made, issued, and destroyed. Investigations are 
performed for all keys unaccounted for, with the investigations being 
documented.
    (v) Emergency drop procedures. Emergency drop procedures shall be 
developed by the Tribal gaming regulatory authority, or the gaming 
operation as approved by the Tribal gaming regulatory authority.
    (w) Equipment standards for gaming machine count. (1) A weigh scale 
calibration module shall be secured so as to prevent unauthorized 
access (e.g., prenumbered seal, lock and key, etc.).
    (2) A person independent of the cage, vault, gaming machine, and 
count team functions shall be required to be present whenever the 
calibration module is accessed. Such access shall be documented and 
maintained.
    (3) If a weigh scale interface is used, it shall be adequately 
restricted so as to prevent unauthorized access (passwords, keys, 
etc.).
    (4) If the weigh scale has a zero adjustment mechanism, it shall be 
physically limited to minor adjustments (e.g., weight of a bucket) or 
physically situated such that any unnecessary adjustments to it during 
the weigh process would be observed by other count team members.
    (5) The weigh scale and weigh scale interface (if applicable) shall 
be tested by a person or persons independent of the cage, vault, and 
gaming machine departments and count team at least quarterly. At least 
annually, this test shall be performed by internal audit in accordance 
with the internal audit standards. The result of these tests shall be 
documented and signed by the person or persons performing the test.
    (6) Prior to the gaming machine count, at least two employees shall 
verify the accuracy of the weigh scale with varying weights or with 
varying amounts of previously counted coin for each denomination to 
ensure the scale is properly calibrated (varying weights/coin from drop 
to drop is acceptable).
    (7) If a mechanical coin counter is used (instead of a weigh 
scale), the Tribal gaming regulatory authority, or the gaming operation 
as approved by the Tribal gaming regulatory authority, shall establish 
and the gaming operation shall comply, with procedures that are 
equivalent to those described in paragraphs (u)(4), (u)(5), and (u)(6) 
of this section.
    (8) If a coin meter count machine is used, the count team member 
shall record the machine number denomination and number of coins in ink 
on a source document, unless the meter machine automatically records 
such information.
    (i) A count team member shall test the coin meter count machine 
prior to the actual count to ascertain if the metering device is 
functioning properly with a predetermined number of coins for each 
denomination.
    (ii) [Reserved]
    10. Amend Sec.  542.41 by adding paragraphs (t), (u), (v), and (w) 
to read as follows:


Sec.  542.41  What are the minimum internal controls for drop and count 
for Tier C gaming operations?

* * * * *
    (t) Gaming machine computerized key security systems. (1) 
Computerized key security systems which restrict access to the gaming 
machine drop and count keys through the use of passwords, keys or other 
means, other than a key custodian, must provide the same degree of 
control as indicated in the aforementioned key control standards; refer 
to paragraphs (l), (o), (q) and (s) of this section. Note: This 
standard does not apply to the system administrator. The system 
administrator is defined in paragraph (t)(2)(i) of this section.
    (2) For computerized key security systems, the following additional 
gaming machine key control procedures apply:
    (i) Management personnel independent of the gaming machine 
department assign and control user access to keys in the computerized 
key security system (i.e., system administrator) to ensure that gaming 
machine drop and count keys are restricted to authorized employees.
    (ii) In the event of an emergency or the key box is inoperable, 
access to the emergency manual key(s) (a.k.a. override key), used to 
access the box containing the gaming machine drop and count keys, 
requires the physical involvement of at least three persons from 
separate departments, including management. The date, time, and reason 
for access, must be documented with the signatures of all participating 
employees signing out/in the emergency manual key(s).
    (iii) The custody of the keys issued pursuant to paragraph 
(t)(2)(ii) of this section requires the presence of two persons from 
separate departments from the time of their issuance until the time of 
their return.
    (iv) Routine physical maintenance that requires accessing the 
emergency manual key(s) (override key) and does not involve the 
accessing of the gaming machine drop and count keys, only requires the 
presence of two persons from separate departments. The date, time and 
reason for access must be documented with the signatures of all 
participating employees signing out/in the emergency manual key(s).
    (3) For computerized key security systems controlling access to 
gaming machine drop and count keys, accounting/audit personnel, 
independent of the system administrator, will perform the following 
procedures:
    (i) Daily, review the report generated by the computerized key 
security system indicating the transactions performed by the 
individual(s) that adds, deletes, and changes user's access within the 
system (i.e., system administrator). Determine whether the transactions 
completed by the system administrator provide an adequate control over 
the access to the gaming machine drop and count keys. Also, determine 
whether any gaming machine drop and count key(s) removed or returned to 
the key cabinet by the system administrator was properly authorized.
    (ii) For at least one day each month, review the report generated 
by the computerized key security system indicating all transactions 
performed to determine whether any unusual gaming machine drop and 
count key removals or key returns occurred.
    (iii) At least quarterly, review a sample of users that are 
assigned access to the gaming machine drop and count keys to determine 
that their access to the assigned keys is adequate relative to their 
job position.
    (iv) All noted improper transactions or unusual occurrences are 
investigated with the results documented.
    (4) Quarterly, an inventory of all count room, drop box release, 
storage rack and contents keys is performed,

[[Page 69863]]

and reconciled to records of keys made, issued, and destroyed. 
Investigations are performed for all keys unaccounted for, with the 
investigation being documented.
    (u) Table games computerized key security systems. (1) Computerized 
key security systems which restrict access to the table game drop and 
count keys through the use of passwords, keys or other means, other 
than a key custodian, must provide the same degree of control as 
indicated in the aforementioned key control standards; refer to 
paragraphs (m), (n), (p) and (r) of this section. Note: This standard 
does not apply to the system administrator. The system administrator is 
defined in paragraph (u)(2)(ii) of this section.
    (2) For computerized key security systems, the following additional 
table game key control procedures apply:
    (i) Management personnel independent of the table game department 
assign and control user access to keys in the computerized key security 
system (i.e., system administrator) to ensure that table game drop and 
count keys are restricted to authorized employees.
    (ii) In the event of an emergency or the key box is inoperable, 
access to the emergency manual key(s) (a.k.a. override key), used to 
access the box containing the table game drop and count keys, requires 
the physical involvement of at least three persons from separate 
departments, including management. The date, time, and reason for 
access, must be documented with the signatures of all participating 
employees signing out/in the emergency manual key(s).
    (iii) The custody of the keys issued pursuant to paragraph 
(u)(2)(ii) of this section requires the presence of two persons from 
separate departments from the time of their issuance until the time of 
their return.
    (iv) Routine physical maintenance that requires accessing the 
emergency manual key(s) (override key) and does not involve the 
accessing of the table games drop and count keys, only requires the 
presence of two persons from separate departments. The date, time and 
reason for access must be documented with the signatures of all 
participating employees signing out/in the emergency manual key(s).
    (3) For computerized key security systems controlling access to 
table games drop and count keys, accounting/audit personnel, 
independent of the system administrator, will perform the following 
procedures:
    (i) Daily, review the report generated by the computerized key 
security system indicating the transactions performed by the 
individual(s) that adds, deletes, and changes user's access within the 
system (i.e., system administrator). Determine whether the transactions 
completed by the system administrator provide an adequate control over 
the access to the table games drop and count keys. Also, determine 
whether any table games drop and count key(s) removed or returned to 
the key cabinet by the system administrator was properly authorized.
    (ii) For at least one day each month, review the report generated 
by the computerized key security system indicating all transactions 
performed to determine whether any unusual table games drop and count 
key removals or key returns occurred.
    (iii) At least quarterly, review a sample of users that are 
assigned access to the table games drop and count keys to determine 
that their access to the assigned keys is adequate relative to their 
job position.
    (iv) All noted improper transactions or unusual occurrences are 
investigated with the results documented.
    (4) Quarterly, an inventory of all count room, table game drop box 
release, storage rack and contents keys is performed, and reconciled to 
records of keys made, issued, and destroyed. Investigations are 
performed for all keys unaccounted for, with the investigations being 
documented.
    (v) Emergency drop procedures. Emergency drop procedures shall be 
developed by the Tribal gaming regulatory authority, or the gaming 
operation as approved by the Tribal gaming regulatory authority.
    (w) Equipment standards for gaming machine count. (1) A weigh scale 
calibration module shall be secured so as to prevent unauthorized 
access (e.g., prenumbered seal, lock and key, etc.).
    (2) A person independent of the cage, vault, gaming machine, and 
count team functions shall be required to be present whenever the 
calibration module is accessed. Such access shall be documented and 
maintained.
    (3) If a weigh scale interface is used, it shall be adequately 
restricted so as to prevent unauthorized access (passwords, keys, 
etc.).
    (4) If the weigh scale has a zero adjustment mechanism, it shall be 
physically limited to minor adjustments (e.g., weight of a bucket) or 
physically situated such that any unnecessary adjustments to it during 
the weigh process would be observed by other count team members.
    (5) The weigh scale and weigh scale interface (if applicable) shall 
be tested by a person or persons independent of the cage, vault, and 
gaming machine departments and count team at least quarterly. At least 
annually, this test shall be performed by internal audit in accordance 
with the internal audit standards. The result of these tests shall be 
documented and signed by the person or persons performing the test.
    (6) Prior to the gaming machine count, at least two employees shall 
verify the accuracy of the weigh scale with varying weights or with 
varying amounts of previously counted coin for each denomination to 
ensure the scale is properly calibrated (varying weights/coin from drop 
to drop is acceptable).
    (7) If a mechanical coin counter is used (instead of a weigh 
scale), the Tribal gaming regulatory authority, or the gaming operation 
as approved by the Tribal gaming regulatory authority, shall establish 
and the gaming operation shall comply, with procedures that are 
equivalent to those described in paragraphs (u)(4), (u)(5), and (u)(6) 
of this section.
    (8) If a coin meter count machine is used, the count team member 
shall record the machine number denomination and number of coins in ink 
on a source document, unless the meter machine automatically records 
such information.
    (i) A count team member shall test the coin meter count machine 
prior to the actual count to ascertain if the metering device is 
functioning properly with a predetermined number of coins for each 
denomination.
    (ii) [Reserved]

    Signed in Washington, DC, this 19th day of November, 2004.
Philip N. Hogen,
Chairman.
Nelson Westrin,
Vice-Chairman.
Cloyce Choney,
Commissioner.
[FR Doc. 04-26041 Filed 11-30-04; 8:45 am]
BILLING CODE 7565-01-P