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National Indian Gaming Commission 

Philip N. Hogen, Chairman 

Testimony before the California General Assembly 

Government Organization Committee 

May 14, 2007 

Good afternoon Chairman Torrico and members of the Committee. 

My name is Phil Hogen, and I am a member of the Oglala Sioux tribe from South 

Dakota. I have chaired the National Indian Gaming Commission (NIGC) since 

December of 2002. Thank you for inviting me to discuss the impact of the Colorado 

River Indian Tribes court decision on the regulation of the tribal gaming industry 

nationwide and in particular in California. 

For the past dozen years I have had the high privilege of working closely with Indian 

tribes throughout the United States. The tribal gaming industry has grown rapidly over 

that time with revenues of $5.5 billion in 1995 growing to more than $22.5 billion in 

2005. These revenues are enabling tribal economic development and raising tribal 

standards of living as nothing else has done (Exhibit 1). I have watched tribes use 

gaming to escape the depths of poverty and social deprivation and offer – for the first 

time – a quality standard of living for their members. 

Like many of my counterparts in the Federal family, before I began this work I had little 

reason to study or know much about the gambling industry, its history and development, 

and the challenges which face those responsible for regulating the industry. 

I quickly discovered that California’s neighbor, the State of Nevada, wrote the book with 

respect to the regulation of legalized gambling, and in many respects, it learned the hard 

way. Historically, casino gaming has been a target for illicit influences. It was not until 

Nevada established a strong, autonomous regulatory structure utilizing techniques such as 

full-time surveillance of the gaming operations that most potentialities for criminal 

involvement were eliminated from the gaming industry there. Only after creation of a 

gaming regulatory authority separate from the ownership and operations of the casinos 
Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14, 2007

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did oversight of the industry have an impact on criminal activity. Thereafter, significant 

progress was made into the identification and removal of individuals and entities intent 

upon exploitation and corruption. 

Nevada’s structures and procedures have become the model for effective gaming 

regulation throughout the United States. Nevada’s regulatory efforts are focused in three 

areas: 1) ensuring the suitability of those engaged in gaming (licensing and background 

investigations), 2) ensuring the gaming proceeds flow to the intended beneficiaries 

(tracking money to assure taxes are paid and the owners and investors get the profits), 

and 3) ensuring the fairness of play (verifying that casinos don’t cheat players and players 

don’t cheat the casinos). 

Although many factors contributed to corrupting influences in Nevada, one aspect stood 

out. At the time gaming was legalized in Nevada, the regulatory ability of the local 

governments tasked with oversight was compromised. These governments were in a 

rather deprived financial position and were also dependent on the potential revenues this 

growing gaming industry could provide. When regulatory authority shifted to the State 

this ceased to be an issue and effective oversight began. The Nevada experience 

demonstrates a critical structural fact of gaming regulation: as the government charged 

with regulation becomes increasingly dependent upon the profitability of the industry 

being regulated, the effectiveness of the regulatory effort may be increasingly challenged. 

When Congress enacted the Indian Gaming Regulatory Act (IGRA) in 1988, it allocated 

the regulation of gaming activities to different entities depending on the class of gaming 

conducted. Clearly, Congress said that the tribes themselves should play the primary role 

in the regulation of all gaming. Tribal gaming exists in a structure whereby the lines of 

demarcation between ownership, operation and regulation can become unclear because of 

the nature of tribal governance. Perhaps out of concern for this situation Congress 

created and gave the NIGC an important oversight role. 
Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14, 2007

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We are here today as you consider the implementation of more sophisticated gaming, 

known as Class III or Las Vegas style gaming, which Congress said could only be 

conducted if a tribe and a state enter into a compact. Congress provided that tribes may 

play the primary role in this regulation, but, provision was made for those less directly 

linked to the operation to participate. IGRA was less explicit with respect to NIGC’s 

oversight role of this Class III gaming. 

In this process, it may be useful to look at how the structure of Class III gaming 

regulation has evolved since IGRA’s enactment. Although Congress may have expected 

that there would be a dramatic change in the games tribes would offer, I think it is 

reasonable to assume that many expected tribal gaming would continue to be primarily 

Class II gaming, such as bingo, pull-tabs and non-house-banked card games. After 1988, 

when tribes and states began negotiating compacts for casinos with slot machines and 

house-banked card games, most states had little or no experience in regulating full-time 

casino operations. Michigan, for example, entered compacts with some tribes in 1993, 

but did not create its own Gaming Control Board or authorize commercial gaming until 

the end of 1996. Minnesota first signed compacts with tribes in 1990 and to this day has 

no non-Indian casinos within its borders. 

A review of compacts approved since 1989 shows that the more recent compacts often 

address the mechanics of the oversight and regulation of gaming quite specifically. 

Earlier compacts, however, many of which were entered into in perpetuity, do not address 

these issues at all. Further, the dispute resolution provisions in the compacts often 

employ cumbersome and time-consuming procedures such as mediation or arbitration 

that do not necessarily advance effective regulation. 

It was in this environment that NIGC sought to enhance the regulation of a rapidly 

growing industry. The NIGC needed the appropriate tools to implement its oversight 

responsibilities. We lacked, however, a rulebook for the conduct of professional gaming 

operations and a yardstick by which the operation and regulation of tribal gaming could 

be measured. Some in Congress expressed concerns that uniform internal control 
Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14, 2007

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standards, which were by then common in other established gaming jurisdictions such as 

Nevada and New Jersey, were lacking in tribal gaming. The tribal gaming industry was 

also sensitive and responsive to these concerns and a joint National Indian Gaming 

Association (NIGA) – National Congress of American Indians (NCAI) task force 

recommended a model set of internal control standards. 

In 1996, NIGC assembled a tribal advisory committee to assist us in drafting Minimum 

Internal Control Standards (MICS) applicable to Class II and Class III gaming. These 

standards were first proposed on August 11, 1998, and eventually became effective on 

February 4, 1999. With the adoption of the NIGC’s MICS, all tribes were required to 

meet or exceed the standards therein, and the vast majority of the tribes acted to do so. 

The NIGC’s approach during that time was to assist and educate tribes in this regard and 

not to be punitive. When shortcomings were encountered by NIGC at tribal operations, 

our assistance was offered and grace periods were established to permit operations to 

come into compliance. 

It was also about this time that Congress, recognizing that the Indian gaming industry 

was growing rapidly and that NIGC’s funding was inadequate to the task, amended IGRA 

to allow NIGC to assess fees on both Class II and III operations instead of only on Class 

II. The NIGC viewed this action, in part, as an endorsement of these added steps it had 

taken to impose its oversight Class III gaming. 

I served as an Associate Commissioner of NIGC from 1995 until 1999, and I participated 

in the decision to adopt and implement the MICS. I have served as the Chairman since 

December of 2002. It is my confirmed view that the MICS were the most effective tool 

that our Federal oversight body had to ensure professionalism and integrity in tribal 

gaming. This was due to the strong efforts of tribes to meet and exceed the MICS and the 

inspections and audits that the NIGC conducted to ensure compliance. The NIGC MICS 

were embraced by state regulators and several adopted or incorporated the NIGC MICS 

or compliance therewith into tribal-state compacts. 
Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14, 2007

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Furthermore, for six years NIGC oversight of Class II and Class III gaming with the use 

of the MICS went quite smoothly. When necessary, NIGC revised its MICS with the 

assistance of tribal advisory committees. Each time, though, there were expressions of 

concern by tribes that NIGC was reaching beyond its jurisdiction under IGRA. The 

tribes argued that the regulation of Class III gaming was to be addressed in the tribal-state 

compacts, not by NIGC. We carefully considered these arguments but ultimately rejected 

them based on various mandates from Congress. At the time the MICS were adopted, of 

course, many tribal gaming operations and tribal regulatory bodies were already far ahead 

of the standards set forth in the MICS. Other tribes, however, had no such standards, and 

for the first time they had the necessary rule book by which to operate. 

Overview of NIGC MICS

The MICS provide, in considerable detail, minimum standards that tribes must follow 

when conducting Class II and Class III gaming and are intended to represent accepted 

practices of the gaming industry. For example, the MICS prescribe a method for 

removing money from games and counting it so as best to prevent theft; they prescribe a 

method for the storage and use of playing cards so as best to prevent fraud and cheating; 

and they prescribe minimum resolutions and floor area coverage for casino surveillance 

cameras. The MICS ensure that gaming transactions are appropriately authorized, 

recognized and recorded. Attached is a copy of the MICS table of contents, which 

provides a more detailed overview of their comprehensive scope (Exhibit 2). 

The NIGC employed three methods of monitoring tribal compliance with the MICS. 

First, tribes were required to engage an independent certified public accountant to 

perform Agreed Upon Procedures annually and evaluate each gaming operation’s 

compliance with the MICS. The results were provided to the tribe and the NIGC within 

120 days of the gaming operation’s fiscal year end. Second, NIGC investigators and 

auditors visited tribal gaming facilities on a regular basis and spot check tribal 

compliance. Third, NIGC auditors conducted a comprehensive MICS audit at a number 

of tribal facilities each year. The audits identified instances where tribes were not in 
Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14, 2007

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compliance with specific MICS, and the NIGC then worked with the operation to correct 

deficiencies. 

I have presented testimony to committees of the United States Congress attempting to set 

forth NIGC’s considerable experience in monitoring the operation and regulation of tribal 

gaming generally and compliance with the NIGC MICS in particular. Rather than 

attempting to restate our experience and concerns in that regard, attached is a copy of my 

statement to the Senate Indian Affairs Committee at a hearing held on September 21, 

2005 (Exhibit 3). Therein I have gone into considerable detail with respect to the extent 

and nature of non-compliance with the standards that our oversight disclosed. 

Colorado River Indian Tribes Case

In early 2001, NIGC attempted to audit a Class II and III gaming operation owned by the 

Colorado River Indian Tribes (CRIT). CRIT refused to give NIGC access to its Class III 

gaming records. The NIGC Chairman responded with a notice of violation and civil fine. 

CRIT appealed, but the Commission upheld the Chairman’s actions. On appeal, the 

District Court for the District of Columbia granted summary judgment in favor of CRIT, 

finding that IGRA does not confer upon NIGC the authority to issue or enforce MICS for 

Class III gaming. The District Court found that while IGRA grants NIGC authority over 

certain aspects of Class III gaming, MICS are not among them. 

On October 20, 2006, the U.S. Court of Appeals for the District of Columbia ruled that 

the NIGC lacks the statutory authority to issue MICS for Class III gaming operations. 

The decision affirmed the summary judgment granted by the District Court. 

What, then, are the implications for the regulation of Class III gaming in the wake of the 

CRIT ruling, which displaces what had become the established presence of NIGC in the 

segment of tribal gaming which accounts for nearly 90% of the over $22 billion in gross 

gaming revenues? 
Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14, 2007

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Typical gaming regulatory activities are structured to emphasize preemptive action. In 

this preemptive role, tribal regulators screen individuals and organizations that will be 

responsible for conducting gaming activity. They also screen any external entities with 

which their managers will be interacting. They verify the functionality of gaming 

equipment and perform audits of their gaming operations’ internal control systems to 

confirm policies and procedures are consistent with established industry best practices. 

NIGC MICS - Pre-CRIT:

It is my belief that the lack of effective internal control systems will inevitably lead to 

internal control irregularities which will disadvantage tribal members and the gaming 

public. For MICS to have a meaningful impact there must be a reliable method of 

monitoring to measure compliance. 

MICS audits must have a comprehensive scope because an organization’s internal 

controls represent an interactive set of procedures in which the control of risk in one area 

may be influenced by controls residing in other areas of the overall regulation. The 

NIGC audit program examined the previous year’s activities along with real-time testing, 

inquiries and observations, and all gaming-related documents and activities are examined. 

Such scope and testing is necessary to sift the isolated incident of noncompliance from 

pervasive control weakness. 

The comprehensive nature of the audit process and the scope of the remedial actions 

typically produce two fundamental changes in how business is conducted by the gaming 

property. First, management becomes better informed regarding accepted industry 

practice and acquires a better appreciation for the need for effective internal control 

systems. Second, the tribal gaming regulatory authority acquires a heightened level of 

importance within the hierarchy of governmental departments. Although enforcement 

actions are occasionally necessary, NIGC is acutely aware that the success of its 

regulatory oversight depends to a large degree upon voluntary compliance. 
Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14, 2007

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NIGC MICS - Post-CRIT:

Since the CRIT decision in December 2006, the NIGC has virtually abandoned all efforts 

to measure compliance with the MICS in Class III gaming. I am concerned that 

removing the risk of an NIGC audit may result in a deterioration of the quality of overall 

tribal gaming regulation. The findings of approximately sixty compliance audits 

performed since the MICS were adopted have demonstrated that the majority of audited 

operations were not in compliance with industry best practices. Experience has shown 

that when comprehensive oversight is removed, the allocation of tribal resources moves 

away from regulation to grow the bottom line. 

Currently, the resources of NIGC have been redirected towards investigating allegations 

of misconduct. Essentially, instead of acting preemptively to deter integrity violations, 

NIGC staff is now acting in a reactive posture. With each passing day that the question 

of NIGC authority remains unresolved, the consequence of ineffective internal control 

systems becomes more problematic. 

The future of Indian gaming regulation

I am of the opinion that the integrity of the regulation of tribal gaming is less secure now 

than before the CRIT ruling. I believe that the Indian gaming industry would be better 

served if IGRA were amended to clarify that NIGC has the authority for MICS oversight. 

I want to be clear that I do not think there is any danger that immediate calamity will 

befall the industry or the gaming public. With or without the mandate of Federal 

regulations, most tribes will continue to do a high-quality job of regulating the gaming on 

their Indian lands and will devote adequate resources to that task, keeping the necessary 

separation between the management and operation of the facilities and their regulation. 

Some tribes had not achieved consistently effective internal controls before NIGC 

promulgated the MICS. If they did so afterwards, it was because of NIGC’s efforts. The 

paramount reason for this was not that the MICS were Federal requirements but rather 

that they were good business. They protect tribal assets and revenues and instill greater 

confidence in the customers that all is secure and everyone gets a fair shake. 
Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14, 2007

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Indian Gaming in California

Since the beginning of this year I have had the pleasure of welcoming Norm DesRosiers 

as an NIGC Associate Commissioner. Working with Norm has given me greater 

confidence in the quality of California’s tribal regulation. When Secretary Kempthorne 

nominated Norm to serve on the NIGC, Norm was Executive Director of the Viejas 

Tribal Gaming Commission, which oversees a large, well-run gaming facility in Southern 

California. Norm knows first-hand the challenges that all-day, every-day, on-the-floor 

gaming regulators face, and he has been a leader developing secure, efficient tools that 

tribes may use to maintain the integrity of the operation and regulation of their gaming 

facilities. When selected for his post on the Commission, Norm was serving as the Chair 

of the National Tribal Gaming Commissioner/Regulators Association and had built that 

organization into a vital, broad-based network of tribal regulators throughout the country, 

representing all of the vast diversity which exists in Indian gaming. 

Every day Norm DesRosiers contributes invaluable insight regarding the challenges 

gaming regulation faces and the solutions it employs to address them. This insight is 

proving invaluable as we seek to achieve our mission. I know that not all tribal 

regulators in California possess Norm’s experience and insight, but I think his service 

exemplifies the seriousness with which California tribes approach their regulatory tasks 

and the professionalism which can be attained at that level, and I am comforted by that. 

While I expect it can be risky to generalize, I think that the five tribes whose compacts 

are now before you are leaders among tribes nationally in the resources they devote to the 

regulation of their gaming, and as I have observed it, it would appear that they utilize 

those regulatory resources effectively. Given the scrutiny which is attending the State of 

California’s consideration of these compacts, at this time, I think that the risk that this 

would change in the future is not significant. 

My optimism in this regard is greatest in the near term, however. I reiterate that I feel the 

model existing before the D.C. Circuit invalidated the NIGC MICS’ application to Class 

III gaming was most useful, that a Congressional enactment to restore it is desirable, and 
Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14, 2007

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that perhaps such action would allay a number of concerns this Committee may have in 

connection with the proposed compacts. 

Further, it is important to bear in mind that although the CRIT decision removed a vital 

piece of NIGC’s hands-on oversight, NIGC continues to have significant responsibilities 

with respect to Class III gaming activity. The Commission has the authority to issue civil 

fines or closure orders against any tribal gaming operator or management contractor that 

violates the terms of IGRA, NIGC’s implementing regulations, approved tribal 

ordinances, or tribal-state gaming compacts. The IGRA further requires that the 

Chairman approve all Class III management contracts. To that end, the Commission 

may impose fines or closure orders when a company manages without an approved 

contract. 

Additionally each tribe must enact a gaming ordinance and have it approved by the NIGC 

Chairman before gaming may commence. Class II and III ordinances must require that: 

• net gaming revenues are used as outlined in IGRA; 

• the tribe has the sole proprietary interest in the gaming activity; 

• the tribe annually has an outside entity conduct a financial audit of its gaming 

operations and provides a copy of that audit to the NIGC; 

• all contracts related to gaming operations that are over $25,000 annually are 

subject to independent audits; 

• each gaming facility is constructed, maintained and operated in a manner that 

adequately protects the environment, public health, and safety; 

• there is an adequate system for background investigations of primary management 

officials and key employees (including suitability criteria) and that oversight of 

such officials and their management is conducted on an ongoing basis; and 

• NIGC is notified of the issuance of licenses and the results of background checks; 

• net revenues are used to make per capita payments only when done in compliance 

with a revenue allocation plan approved by the Secretary of the Interior. 
Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14, 2007

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If these requirements are not included in the ordinance, the NIGC Chairman can 

disapprove the ordinance. More importantly, when the ordinance is approved, a tribe’s 

failure to abide by the ordinance can be subject to a civil fine or closure order issued by 

the Chairman. 

While many of these authorities go beyond the immediate operational gaming aspects of 

tribal gaming, they demonstrate that NIGC is by no means now disinterested in Class III 

gaming activity. 

A number of these ongoing powers of NIGC might provide a means of attaining some of 

the protections the NIGC MICS provided. For example, adherence to minimum internal 

control standards would not be an inappropriate provision for inclusion in a tribal gaming 

ordinance. If so included, in monitoring ordinance compliance, NIGC might similarly 

monitor compliance with the MICS. There would, no doubt, be shortcomings to this 

approach, such as a likely lack of standardization and the ability of tribes to amend their 

ordinances and escape NIGC scrutiny, but further consideration might be warranted. At 

the end of the day, of course, the idea would need to be read together with the Courts’ 

mandates in the CRIT decision, which could limit the effectiveness of this option. 

Similarly, NIGC has a mandate to consider enforcement action for violation of tribalState compacts. Therefore, incorporating internal control standards into compacts 

themselves could facilitate NIGC entry into the area, although the jurisdiction and 

authority of the several participants in such an arrangement would need to be carefully 

structured and agreed to by all concerned. The reservations I expressed above relating to 

ordinances would likewise apply here. 

It has also been suggested that the NIGC create a voluntary compliance program whereby 

tribes, although not otherwise legally required to meet NIGC MICS, voluntarily agree to 

submit to their application and to NIGC sanctions for non-compliance. While such an 

approach would be superior to no outside standards or oversight, a voluntary 

arrangement, likely terminable at will, might not be a proper footing for a MICS regime. 

Again, compatibility with the CRIT holdings would merit close examination. 
Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14, 2007

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Given the sea change brought to NIGC’s oversight of tribal gaming by the CRIT 

decision, no doubt creativity will be useful and all available methods of enhancing the 

security of tribal assets and the integrity of tribal gaming operations, consistent with 

IGRA are worthy of consideration. 

Conclusion

For the many reasons stated above and the continued dramatic growth in Indian gaming, 

it seems abundantly clear that Indian gaming needs broad and effective oversight in order 

to continue benefiting Indian communities. Unfortunately, viewed nationally, the future 

without the NIGC’s Class III MICS will be a time of some uncertainty and doubt. 

While many tribes will maintain strong controls, others will not. Operations without 

effective internal controls and oversight will once again become obvious targets for the 

unscrupulous. Those tribes, and their members, will lose millions of dollars and will 

often not realize that it has happened until years later. 

We can expect that the CRIT decision will continue to serve as the basis for 

disagreements with some tribes over the NIGC’s Class III authority. In the meantime, the 

Federal government will continue to seek a legislative clarification to resolve those 

disagreements. The NIGC will continue to update its MICS pending that legislative 

clarification to assure that tribal-state compacts and Secretarial procedures that 

incorporated the NIGC MICS will stay up to date. 

I hope that these views will be useful to your Committee as you endeavor to 

accommodate compacted arrangements which prove positive for California’s gaming 

Tribes and the State of California.