Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14,2007 

EXHIBIT 1 

Growth in Tribal Gaming Revenues 1995 - 2005 

82 

Breakdown of Revenues 2005 

(3 pages including cover page) 


Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14,2007 

EXHIBIT 2 

NIGC Regulations Part 542 - Minimum Internal Control Standards 

Table of Contents 

(4 pages including cover page) 
Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14,2007 

PART 542-MINIMUM INTERNAL CONTROL STANDARDS 

Section Contents 

5 542.1 What does this part cover? 

5 542.2 What are the definitions for this part? 5 542.3 How do I comply with this part? 5 542.4 How do these regulations affect minimum internal control standards established in a 

compact? 

5 542.5 How do these regulations affect state jurisdiction? 5 542.6 Does this part apply to small and charitable gaming operations? 

5 542.7 What are the minimum internal control standards for bingo? 5 542.8 What are the minimum internal control standards for pull tabs? 5 542.9 What are the minimum internal control standards for card games? 5 542.10 What are the minimum internal control standards for keno? 
Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14,2007 

PART 54LMINIMUM INTERNAL CONTROL STANDARDS 

Section Contents 

What are the minimum internal control standards for pari-mutuel wagering? 

What are the minimum internal control standards for table games? What are the minimum internal control standards for gaming machines? 

What are the minimum internal control standards for the cage? What are the minimum internal control standards for credit? 

What are the minimum internal control standards for information technology? 

What are the minimum internal control standards for complimentary services or ite

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

What is a Tier A gaming operation? 

What are the minimum internal control standards for drop and count for Tier A gam

What are the minimum internal control standards for internal audit for Tier A gami
Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14,2007 

PART 542-MINIMUM INTERNAL CONTROL STANDARDS 

Section Contents 

What are the minimum internal control standards for surveillance for Tier A gamin

What is a Tier B gaming operation? 

What are the minimum internal control standards for drop and count for Tier B gam

What are the minimum internal control standards for internal audit for Tier B gami

What are the minimum internal control standards for surveillance for Tier B gamin

What is a Tier C gaming operation? 

What are the minimum internal control standards for drop and count for Tier C gam

What are the minimum internal control standards for internal audit for Tier C gami

What are the minimum internal control standards for surveillance for a Tier C gam
Philip N. Hogen, Chairman - National Indian Gaming Commission 

Testimony before the California General Assembly - Government Organization Committee 

May 14,2007 

EXHIBIT 3 

Written Statement 

Submitted to 

U.S. Senate Committee on Indian Affairs 

September 2 1,2005 

(10 pages including cover page) 
S. m. 109-50, Pt. 4 

GAMING 

HEARING 

BEFORE THE 

COMMITTEE ON INDIAN AFFATRS 

UNITED STATES SENATE 

ONE HUNDRED NINTH CONGRESS 

FIRST SESSION 

ON 

OVERSIGHT HEARING ON THE REGU+TION OF INDIAN GAMING 

SEPTEMBER 21, 2005 

WASHINGTON, DC 

PART 4 

U.S. GOVERNMENT PRINTING OFFICE 

28-704 PDF WASHINGTON : 2005 - - -- - 

For Ids by the SupeMt4ndent of Documcnta, U.S. Gmnmmmt Printing Mce 

Internet: boolrrrtore.gpo.gov Phone: toll free (866) 512-1800; DC area (201) 512-1800 

Far: (202) 512-2260 Mail: Btop SSOP, Washingtan, DC 204OW001 
COMMITIEE ON INDIAN AFFAIRS 

JOHN McCAIN, Arizona, Choirman 

BYRON L. DORGAN, North Dakota, Vice Chairman 

PETE V. DOMEMCI, New Mexico DANIEL K INOUYE, Hawaii 

CRAIG THOMAS, Wyoming KENT CONRAD, North Dakota 

GORDON SMITH, Oregon DANIEL K. AKAKA, Hawaii 

LISA MURKOWSKI, Alaska TIM JOHNSON, South Dakota 

MICHAEL D. CRAPO, Idaho MARIA CANTWELL, Washington 

RICHARD BURR, North Carolina 

TOM COBURE;, Y.D., Oklahoma 

JEANICE BUMPU~, Mqjority Staff Director 

SARA G. GARLAND, Minority Staff Director 
CONTENTS 

Statements: 

Akaka. Hon . Daniel K. U.S. Senator from Hawaii ....................................... Conrad. Hon . Kent. U.S. Senator from North Dakota .................................. Dorgan. Hon . Byron L., U.S. Senator from North Dakota. vice chairman. 

Commit* on Indian Affairs ....................................................................... Hogen. Phll. chm. National Indian Gau+ng Comm+tsion .................... McCain. Hon . John. U.S. Senator from Anzana. buman. Committee on Indian Affairs ........................................................................................... Van Norman, Mark. executive director. National Indian Gaming Commission ................................................................................................................. Washburn, Kevin, associate professor of law, University of Minnesota ...... 

Prepared statements: 

Hogen. Phil (with attachment) ........................................................................ Van Norman. Mark .......................................................................................... Washburn. Kevin .............................................................................................. Additional material Wtted for the ttee . Allen, W . Ron, cham, Was n Indian Gaming Association and 

tribal chsuman, Jarnestown S'KI 9 lam Tribe. letter ................................. Eddy, Jr., Daniel, tribal council chairman, Colorado River Indian Tribes. 

letter ............................................................................................................... 
APPENDIX 

ADDITIONAL MA~ SUBMITTED FOR THE RECORD 

PREPARED STATEMENT OF PHILIP N. HOGEN, C-,NATIONAL INDIAN GAMING 

Co~narss~o~ 

an independent Federal regulatory authorit for Indian gamin 25 U.S,C. $2702. 

Needless to say, the Colora o River Indian Abes decision has ge potenhal to sen- ously compromise our ability to effectively regulate Indian in the manner Congress e ected and expressed in its 3eclandon of Pol& 

The NIZ considers the MlCS to be one of the most effective regulatory tools 

available to roted Indian gaming. We appear betore the committee today to seek 

mngressiond action clarifying the MGC s authmty to regulate class III g-g general2 and to romulgate and enforce our MICS regulabons for class 111 

spedRc ly. The krcc bas submitted to Congress on March 23, 2005, a.dr%?% 

that, among other thmgs, would amend IGRA to clan@ the NIGC's authoniy to reg- $ate class III aming generally, and to romulgate and enforce its MICS reyla- hons for class &I gaming spemfically. Algough the NIGC and the Department of 

Justice are considering an appeal in this case, we believe the best way to resolve 

this question and prevent a potentially serious lapse in regulatory authority created 

(23) 
b this court decision is by wa of a legislative fix--1ankuage that makes absolutely cL the NIGC'S authority witK respect to class x gammg. In this connection, let me be crystal-clear. We are not asking Coy to expand the role NIGC has pla ed in the past regarding class 111 gamin . e merely ask 

that the law be c1miie8 so that we may continue what has provet to be a very suc 

cessful coordination of tribal, State, and Federal participation in the oversight of 

class III gaming. This gaming produces four-fifths of overall tribal gaming revenue. 

i. A HISTORY AND EXPLANATION OF MINDlUM INTEFWAL CONTROL 

STANDARDS 

In the years since the Indian Gaming Regulatory Act UGW 25 U.S.C. S2701 et 

seq., was passed, Indian gammQaa gr- exponentially &om $100 million in lan- nue to over $19.4 billion in 20 . Approxmately 80 percent of thlEi revenue comes from the hi her stakes class III gaming. Revenues from Indian gaming have built 

roads, schoo5, and health centers on reservabons across the country, and greatly reduced reservation unemployment in. many areas. As knowledge and w, tribea reco the need 

for internal controls.%%ti",~~=~&l$? %%ciation p A] and the National Congress of American Indians formed a tas% force which evaluated the mini- mum internal control standards of established gaming jurisdictions such as Nevada 

and New Jersey. The task force then created a set of internal control standards 

whichntribes could choose to adopt. These standards became known as the "NGA 

MICS. 

Thro hout the counkg, kial gaming o erations and tribal gaining commissions 

benefit% from thia effort, but it was a vo&ktay arrangement. Many tnbec~ either 

&d not adopt or enact the NIGA MICS or eauivalent mted controls, or if they did, did nothquim strict adherence to them. - 

Of course, even before the NIGA MICS, there were a numbe. of tribal gaming op erations that had utilized and enforced very so histicatad mimmum internal control 

standards wh+ like1 were more strin ent & and exceeded we promulgated by the associahons. dwever, as the NI& monitored tnbal ammg operahons and 

observed the imposition of standards by States and tribes, it%ecame apparent that, 

for man tribes; actual operation did not always comport with the inG6rnal control 

standarL adopted by the tribe. The NIGC noted there were a number of places in 

Indian country where not onl were these standards not being met, but such good practices were plainly i oredl In addition, even for the tribes gaming pursuant b 

tribal-State compacts, & NIGC observed that details of the operahons of tribal 

gamin$ and its regulation was.often absent from +e negotiated compad; that in 

many instances the States' assigned role was mmd, and that in even more instances the actual partiti tion of the States in regulatory oversight of tribal gammg operabons was evencss significant. This is not to say that an arrangement whereby a tribe has the sole responsibility for the regulation of its own gaming is 

unworkable. However, when no other entity has any signiiicant ovefsight role, there 

develops the erception that the fox is watchin the hen. house. Thls percepho? can 

lead to a pub% distrust of the inte of insan g-g. In every other g-g jurisdiction, there is an oversight roe% an entity that is se ate fmm mans e- ment of the aining, and we believe that is what was intendeEd required unfer 

IGRA, and w%at has worked remarkably well since the implementation of the NIGC 

MICS. It is human nature to tend to do a better job when one knows that independent eyes occasionally fall on one's work. This is true in Indian gaming as well, 

In response, to its observations, the MGC embarked on an effort to promulgate a comprehensive set of internal control standards for tribal gaming operations in ac- cordance with acce ted gaming indust ood ractices and ursuant to the authority vested in the 8ommission by they~h. fn close cons&ation with tribes and 

with the assistance of a Tribal Advieory Committee, in 1999 the NIGC promulgated the MICS. 
fective if the emplo ees and management of a gaining operation properly implement and consistently foiow them. Therefore, it is necessary for each tribal gaming oper- ation to have pro er auditing rocedures as this ensures that the internal controls are proper1 irnpfemented and)allom the tribe to discover methods of improving them. In aBdition to the internal audit requirements, the NIGC also conducts peri- odic "M'ICS compliance audits" of Indian gaming o rations. The MICS audit en- sures that the tribe has developed internal controF at least as stringent as the 

NIGC's MICS, and that the gaming operation complies with them. Exceptions am noted and communicated to both management and the tribe. A subsequent visit to the audited aming facility is then scheduled, and the NIGC returns to ve the re ueste% corrections were made. In most cases, both the NIGC and tri n% e that are oleasel with the oroizress made because of the broved amteetion for tribal ~eaanina - - revenues and assitsRecent NIGC FCS augts have revealed.signScant interpal contrpl weaknesses 

at a number of tribal camnos. At a facility m the Great Plams, we &covered that 

the tribe was not erforming statistical ahalysis of actual to expected results; that access keys and dormation technolog~r were not adequately protected; and that the 

people handlin the money were accountable only to themselves. Another: fa$!@ in 

the Southern had faled to segregate duties such that the same mdmduals were both countmg funds removed from the gamin machines and m+niig +e 

accountability and physical possession of these funfa. This serious lapse m aecunty of the tribal gaming revenues was compounded by the lack of an internal audit system. At some operations we have discovered so many internal control deficiencies 

that we have convinced the tribes to voluntarily close the facilities unt? the roblems can be m@d. In other instances we an. prepared to close fadlites wi%out 

the tribe's cooperation due to the senousness of the mtuahon. 

of a tribal gaming facility is, fortunately, a final option we have had 

to?vo"$%y rarely, We always begin by workin with the tribe to correct the 

weaknesses found, usual1 with eat success. NIG8 au&tow found problems at a facility in the Southwest &at incgded an ineffective internal audit department, sur- veillance problems, lack of statistical game analysis, and missing documentation for 

cashier ca e accountability. This tribe submitted a plan outlhng how it intended 

to tix the feficiencies within a &month period and the NIGC confirmed through follow-up testin that the tribe had successfull remedied the deficiencies in its internal controls. %imilarlY, the.NIGC and a trige in t$e West used the same method 

to remedy NIGC au&t findmgs that Included surveillance problems; computer network security lapses; cashier cage documentation lackin emplo ee signatures and independent veriiication of transactions; and soft count s%eets fded out and signed prior to the count of funds. Comparable success stories exist throughout the Nation 

which illustrate the extent to which the NIGC MICS regulatory program has benefited tribal gaming. 

11. THE CRIT DECISION AND IT8 THREAT TO THE EFFECTIVE REGULATION OF CLASS m GAMING 

The reaeon I am here today is that a tribe engaged in class III gaming wsuaut 

to a -pact challemged the NIGC'S regulatory authority to impow the &ICS on class m arning operations and received a distnct court decision in its favor. 

The C~T de+ion resulted horn an appeal of an NIGC Final Commissi9]1 Decision and Order, issued m July 2003, which concluded that the Colorado Rver Indian Tribes [tribe or GRIT] violated NIGC regulations when it denied C+sion re resentatives access to the tribe's facility to conduct a MICS au&t of the 

trite's class m gaming ambidas. 1%UIYng e tnbe filed suit in Wepton, DC District 

Court in January 2004, allegmg that the NIGC exceeded its statutory authority under the IGRk Recently, on August 24, 2005, the District Court issued an order 

tin that the NIGC exceeded its statutory powers in romulgating and enforcing the%CS for class III aming. In issuing its decision, %e court renewed tba text, 

strud+e, purpy, and5 'slative histo of the IGU 

Desp~te our ehef that %e MICS arekdamental to the inte 'ty of Indian gaming, tibes have Ion questioned our authority to regulate the cGs IKI gaming that 

accounts for most ofthe revenue in the indus . As the NIW continues to attem t 

to eeorce class MlCS on all but the C$ it + face the threat of multipye lawsuts. The NIGC has many ongoing MICS com hance efforts that are ulready hindered b the threat of litigation. For instance, &ere are at resent 14 a'ngoing NIGC MIC& compliance audits that are at various stages of com3etion. The aming operations in question range from an operation conducting less than $5 dion in 

gross aming revenue to one producing over $1 billion in gross gamin revenue. Several ofthe tribes in question have already expressed their posltion &at, because of 

the District Court's opinion, completed audits are now moot and those tibes do not 
need to remedy any non-compliance with class 111 MICS. Also, several other tribes 

are questioning the NIWs authority to conduct MICS audits at their o rations. 

Yet other tribes have already indicated their intent to forego some ~~~Frequirementa, such as the independent annual audit of internal controls. 

The District Court opinion addressed only our authority with respect to clsss III 

gaming, not class 11 gaming. However, the MICS are not class s , and hm 

a practical standpoint it is impossible to se arate class II from c P"' ass III revenues for the entire movement of money through $e gaming operation. The MICS dictate 

procedures, not only for each game, but for cash handling, surveillance, and accountmg. Most tribal aming operations offer both class I1 and class 111 games in their 

facilities. Once t%e revenues have been collected from each game, they are nec- essarily commingled. It is not possible or practical to segre ate and maintain class 

II revenues separately. Thus, because the MICS rsag to cash hding an accounting would necessarily infringe on the class III activities of the gamin 

operation, strict adherence to the District Court decision could force a total remova? 

of the MICS from most gaming operations. Although the IGRA is replete with examplee of NIGC's dear statuto authority over class III gaming, the District Court interpreted other sections of 10% to mean that-clqs II aming is to be regulated by tribes and the NIX and that class III 

gammg is to %e regulated solely by tribes and States. Even if this were a proper interpretation, however, the reality is that, by and large, States have not taken an active role in the regulation of Indian gaming. ks illustrated by the chart attached to my written testimony, there are 22 States 

that have entered into compacts mth tribes for class III gan$ng. Of these compacts, four do not address internal control requirements at all. SIX of them reqm very limited controls, such as the display of rules of play, maintenance of liets of barred 

persons, or minimal surveillance. A compact in one Stat. provides for tribal internal 

controls reviewed by that State, and in one other State, compacts specify different 

levels of internal controls. Compacts in two States require the ado hon of State 

standards or their equivalent, and corn acts in four States set forth %orough, com- prehensive internal controls. ~ddition&y, in several States, the com act terms detailin casino controls would be eviscerated without the NIWs MIc~: compacts in 

four itates e.xpressly adopt the NIGC MICS or standards at least as stringent. From 

this review it is evident that many com acts have internal control provisions not 3 to the standards required by the MICS ?r States such 9 New Jers~yor evada. As is clear from the chart, stnct applicabon of the Distnct Court decmon 

would remove internal control requirements, where a party independent from the 

ownership and management of the tribal gaming plays a role, in several States. 

Further, even when compacts contain adequate internal control provisions, not all 

States make enforcement of violations a nority. In fact, there are several States 

with compacts that take no appreciable in the re ation of class III tribd p- ing within their borders. Thus, without NIGC MICpmd their supporbing auhts, there will effectively be no oversight re ation in those States. 

Soqe tribes have asserted that the %Ws authority to promulgate and monitor 

compliance with standards for class III gaming intrudes upon tribal sovereignty. The act recognizes and balances tribal, Federal, and State interests. The IGRA as 

written requjres tribes to debate whether they wish to cede a small portion of them 

sovereignty m order to game and thereby increase tribal funding $ canyout other 

soverei tasks. If a tribe opts to invest in gaming it must protect itself and its as- sets. 8 e Federal Government also seeks to protect this investment in tribal sov- ereignty by ensuring tribal gaming succeeds, for a scandal at one gaming fa&@ 

has the ability to negatively affect all operations. The vast mryoxity of visitors to 

the g+g faeties are non-Indian and these visitors will only continue to atranIze tnbal gammg operations if the hard-won reputation for integrity and wet-regu- lated gaming is maintained. The most effective measure of an nation's sovereignty is its ability to provide for its needs and the needs of its peopfe. Self-sufficiency for tribal nations is a stated goal of the IGRk Weakening the strong regulation of class 

lII gaming thus works against tribal sovereignty and self-rmfficiency. 

IIL CONCLUSION 

As I have previously noted, there is a long histmy of tribal challeq to our $ass 

III authority. These challenges have rompted us to appear before this committee 

in the past to ask for legislation & our authority. Now that a court has spo- ken to the issue we must again, and with renewed vigor, ask this committee to support le 'slation that eliminates any uestion regarding our le a1 authority to mon- ltor anfregulate class 111 gaming an% that clarifies that MG~ authority over class 

III gaming is as broad as it is over class 11 gaming.