Indian Gaming: Preliminary Observations on the Regulation and Oversight of Indian Gaming
Released: 2014-07-23T00:00:00

Letter

Background

Since fiscal year 1995, revenue from Indian gaming has grown from $8.2 billion to $27.9 billion in fiscal year 2012 (see fig. 1). In fiscal year 2012, about 240 of the 566 federally recognized tribes operated more than 420 Indian gaming establishments across 28 states. These establishments included a broad range of operations, from tribal bingo to multimillion dollar casino gaming facilities. Of these establishments, a few large operations account for a major portion of the revenue.

IGRA is the primary federal statute governing Indian gaming.provides, among other things, a statutory basis for the regulation of Indian gaming to shield it from corrupting influences, assure that gaming is conducted fairly and honestly by both the operators and the players, and ensure that tribes are the primary beneficiaries of gaming operations. The act establishes the following three classes of gaming.

Class I gaming consists of social gaming solely for nominal prizes or traditional gaming played in connection with tribal ceremonies or celebrations and is regulated solely by tribes and not subject to IGRA.

Class II gaming includes bingo, pull-tabs, punch boards, and certain and is regulated by the tribes and the Commission.

Class III gaming includes all other forms of gaming, including casino games and slot machines, and although both Interior and the Commission play a role in overseeing certain aspects of Class III gaming, it is regulated by the tribes and the states pursuant to compacts.

A tribe may only conduct Class III gaming activities if such activities are conducted in conformance with a compact, among other things. According to the relevant Senate committee report, IGRA was intended to provide a means by which tribal and state governments can realize their unique and individual governmental objectives. The Senate committee report also noted that the terms of each compact may vary extensively and may allocate most or all of the jurisdictional responsibility to the tribe, to the state, or to any variation in between.negotiated agreements that establish the states’ and tribes’ regulatory roles and specify the games that are allowed, among other things. IGRA specifies that compacts may include provisions related to the application of criminal and civil laws and regulations of the tribe and the state that are directly related to and necessary for the licensing and regulation of gaming, the allocation of civil and criminal jurisdiction between the tribe and the state necessary to enforce those laws and regulations, state assessments of gaming activities as necessary to defray costs of regulating gaming, tribal taxation of gaming activities, remedies for breach of contract, standards for gaming activity operations and gaming facility maintenance, and any other subjects directly related to the operation of gaming activities.

IGRA authorizes the Secretary to approve compacts and only allows the Secretary to disapprove a compact if it violates IGRA, any other federal law that does not relate to jurisdiction over gaming on Indian lands, or the trust obligation of the United States to Indians. Compacts only go into effect when a Notice of Approval from the Secretary has been published in the Federal Register.

Class II and Class III gaming may only be conducted on Indian lands in states that permit such gaming. Indian lands, as defined in IGRA, are (1) all lands within the limits of an Indian reservation; (2) lands held in trust by the United States for the benefit of an Indian tribe or individual over which the tribe exercises governmental power; and (3) lands held by an Indian tribe or individual that are subject to restriction against alienation and over which the tribe exercises governmental power.

Interior Uses a Multistep Review Process to Help Ensure That Compacts Comply with IGRA

Interior has a multistep review process that helps to ensure that compacts comply with relevant IGRA provisions and other applicable laws. While compacts approved by Interior share similar provisions, they do vary in some respects, such as the terms of “revenue sharing” arrangements between states and tribes and the extent to which the compact addresses tribal interactions with local governments. Interior cited a variety of reasons for allowing compacts to take effect without Secretarial action (deemed approved) and for disapproving compacts.

Interior’s Process for Reviewing Compacts

Interior’s Office of Indian Gaming, under the supervision of the Deputy Assistant Secretary of Indian Affairs Policy and Economic Development, is responsible for reviewing compacts. According to Office of Indian Gaming officials, on the day that a compact is received, the Office of Indian Gaming date-stamps the compact and files the original version. The Office of Indian Gaming has 10 days to conduct an initial review of the compact. During this time, they will contact the applicant tribe or state if any additional information is needed. After this initial review, the Office of Indian Gaming sends a copy of the compact to Interior’s Office of the Solicitor to conduct a legal review of the compact. The Office of the Solicitor has 10 days to review the compact. After the Office of the Solicitor’s review is complete, the Office of Indian Gaming provides a copy of the compact and a summary of relevant information to the Assistant Secretary of Indian Affairs, who has 45 days to approve or disapprove the compact. Under IGRA, if a compact is not approved or disapproved within 45 days of its submission, then the compact is considered to have been approved (referred to as “deemed approved”), but only to the extent that it is consistent with IGRA.

On June 18, 2014, the Office of Indian Gaming provided us with a list of compacts that were approved, deemed approved, disapproved, or withdrawn each year from 1998 to the present. We are in the process of verifying the accuracy of this list. Based on our preliminary analysis of this list of compacts, the Secretary received a total of 490 compacts during this time period to review. Of these, 78 percent (382) were approved; 12 percent (60) were deemed approved; 6 percent (28) were withdrawn; and 4 percent (18) were disapproved. The number of compacts submitted varied from year to year, from a high of 66 in 1999 to a low of 8 in 2006.

Variety of Provisions Contained in Compacts Approved by Interior

The compacts approved by Interior share similar provisions but vary in some respects. For example, while IGRA does not authorize states to impose a tax or fee on tribes, apart from the assessment to defray regulatory costs, the Secretary has approved compacts that contain provisions for revenue sharing with states, so long as the states provide the tribe with a comparable benefit in return—a benefit to which the tribe would not otherwise be entitled. The amount of revenue sharing varied widely in the compacts we reviewed. Some compacts do not provide for revenue sharing, such as the 1991 compact between the Fond du Lac Band of the Minnesota Chippewa Tribe and the state of Minnesota, or the 2011 compact between the Flandreau Santee Sioux Tribe and the state of South Dakota. In contrast, some compacts require the tribe to share significant portions of revenue with the state. For example, the 2010 compact between the Seminole Tribe of Florida and the state of Florida establishes percentages of net revenue that the tribe must give to the state—as much as 25 percent—based on how much revenue the tribe makes each year.

Approved compacts had provisions that varied in other ways, such as the extent to which the compacts require the tribe to enter into agreements with local governments. For example, the 2003 compact between the La Posta Band of Diegueno Mission Indians and the state of California requires the tribe to consult with the county and other relevant local governments to develop agreements to prevent and mitigate effects from any proposed gaming facility. Some compacts make no mention of agreements with local governments.

Reasons Compacts Are Deemed Approved or Disapproved

Compacts that are not approved or disapproved within 45 days are deemed approved, but only to the extent that they comply with IGRA. According to Federal Register notices or decision letters that accompany the compacts, Interior might not take action on a compact within the statutory deadline for a variety of reasons. Federal Register notices indicate that some compacts take effect without Secretarial action because they only change the expiration date of a previously approved compact and do not require additional review. According to decision letters accompanying other compacts, the compacts were deemed approved because they contained provisions that the Secretary found to be questionable but not outright objectionable. For example, the 2014 compact between the Mashpee Wampanoag Tribe and the state of Massachusetts contained terms that could provide the possibility in the future for the state to regulate certain Class II games, which IGRA does not authorize, and Interior’s letter cautioned the state and tribe against implementing the compact in a way that violated IGRA.

Of the disapproved compacts we reviewed, the reasons for disapproval varied. For example, compacts were disapproved because lands proposed to be used for gaming were not Indian lands as defined by IGRA or the compact established a management contract that did not meet the requirements of IGRA.

State and Tribal Regulation of Indian Gaming

Compacts establish the responsibilities of both tribes and states for regulating Class III gaming and identify the standards for the gaming operation and maintenance of gaming facilities, as well as the state and tribal laws and regulations that will be used to regulate the gaming, among other things. In addition, tribal gaming ordinances, which apply to Class II and Class III gaming, provide the general framework for tribal regulation of gaming facilities. The ordinances include specific procedures that must be followed by tribes and standards that they must meet, among other things. Based on our preliminary observations of ongoing work, we found that the approaches of the three states we have visited to regulating Indian gaming vary, as seen through differences in their regulatory agencies’ organization, staffing levels, and funding. For the seven tribes we have visited, each has established tribal gaming regulatory agencies that govern the day-to-day operations of their gaming facilities. These agencies perform various regulatory functions to help ensure that their gaming facilities are operated in accordance with tribal laws and regulations and, for Class III operations, the compact.

Compacts and Tribal Gaming Ordinances Establish the Roles of States and Tribes

The roles of states and tribes in regulating Indian gaming vary and are established in two key documents: (1) compacts for Class III gaming and (2) tribal ordinances for both Class II and Class III gaming. Compacts that govern Class III gaming on Indian lands lay out the responsibilities of both tribes and states for regulating gaming. For example, compacts may include, but are not limited to, provisions allowing the state to conduct inspections, certify employee licenses, and review surveillance records. They may also include tribal responsibilities to notify the state when they hire a new employee or when they make changes to their gaming regulations or rules for gaming.

In addition, IGRA requires a tribe’s governing body to adopt, and the Commission Chair to approve, a tribal gaming ordinance before a tribe can conduct Class II or Class III gaming. According to the Commission, the tribal gaming ordinances are a key part of IGRA’s regulation for tribal gaming, providing the general framework for tribal regulation of gaming facilities, and including specific procedures and standards to be met. For the Chair to approve the ordinances, they must provide, among other things, that the tribe will have sole proprietary interest in the gaming activity; gaming revenues will only be used for authorized purposes; annual independent audits of gaming operations will be provided to the construction, maintenance, and operation of the gaming facilities will be conducted in a manner that adequately protects the environment, public health and safety; and the tribe perform background investigations and the licensing of key employees and primary management officials in accordance with certain requirements.

Along with the ordinance, a tribe must also submit other documentation to the Commission, including copies of all tribal gaming regulations. The Chair has 90 days after submission of a tribal gaming ordinance to approve or disapprove it; if the Chair does not act within 90 days, the ordinance is considered to have been approved but only to the extent it is consistent with IGRA.

States Vary in Their Approaches to Regulating Class III Indian Gaming

Based on our preliminary observations, the three states that we have visited—Arizona, California, and Oklahoma—vary in their approaches to regulating Class III gaming. As illustrated in table 1, the three states differ in their organization, funding, and staffing levels. For example, California divides its regulatory responsibilities between two agencies, whereas Arizona and Oklahoma each have one agency. We also observed that state budgets for the regulation of Class III Indian gaming ranged from $1.1 million to $19.8 million and staffing levels ranged from 3 to 136 full-time equivalents.

We also observed that the three states engaged in a variety of regulatory activities, including conducting background checks on current and prospective employees, licensing gaming devices, inspecting gaming operations, and reviewing the gaming operator’s surveillance.

Tribes Are Responsible for the Day-to-Day Regulation of Indian Gaming

The Commission recognizes that tribal governments are responsible for the day-to-day regulation of gaming conducted on Indian lands. While tribal governments have the authority to engage in gaming, the Commission stresses the importance of tribes establishing a comprehensive regulatory framework for gaming. According to the Commission, comprehensive regulation by tribes is a necessary component to ensure the integrity of the games and to protect the interest of the tribe.

Each of the seven tribes we visited in Arizona, California, and Oklahoma for our preliminary observations have established tribal gaming regulatory agencies—also called tribal gaming commissions or tribal gaming agencies—that perform various regulatory functions to ensure that their gaming facilities are operated in accordance with tribal laws and regulations and, for Class III operations, the compact. For each of these tribes, the tribal gaming regulatory agency was established by the tribal government for the exclusive purpose of regulating and monitoring gaming on behalf of the tribe. In general, the regulatory functions that can be performed by tribal gaming regulatory agencies include developing licensing procedures for all employees of the gaming conducting background investigations on primary management officials and key employees, obtaining annual independent outside audits and submitting these audits to the Commission, ensuring that net revenues from any gaming activities are used for the limited purposes set forth in the gaming ordinance, promulgating tribal gaming regulations pursuant to tribal law, monitoring gaming activities to ensure compliance with tribal laws and establishing or approving minimum internal control standards or procedures for the gaming operation.

As part of our ongoing work, we plan to visit additional tribes to discuss their approaches to regulating Indian gaming, and we will summarize our findings in our final report.

The Commission’s Regulation and Oversight of Indian Gaming and Impacts of Recent Reorganization

The Commission plays an important role in regulating Class II gaming and overseeing Class III gaming to ensure compliance with IGRA and applicable federal and tribal regulations. Among other things, the Commission monitors Class II gaming, inspects Class II gaming premises, and takes enforcement actions when necessary. In 2011, the Commission implemented its Assistance, Compliance, and Enforcement (ACE) initiative, which emphasizes providing assistance to tribes to achieve compliance with IGRA. Through this initiative, the Commission has sought to provide technical assistance and training to tribes so that compliance issues may be resolved early and voluntarily without the need for a Notice of Violation, which we refer to as an enforcement action. Also in 2011, as part of a broader organizational realignment, the Commission merged its Enforcement and Audits divisions into one Compliance Division. According to Commission officials, this merger was deemed necessary, in part, to better support the Commission’s emphasis on compliance assistance under its ACE initiative.

The Commission Is Responsible for Ensuring That Gaming Facilities Comply with IGRA and Applicable Federal and Tribal Regulations

IGRA established the Commission within Interior to provide federal regulation of Class II and oversight of Class III Indian gaming. Among other things, the Commission monitors tribal Class II gaming activity; inspects Class II gaming premises; reviews licenses issued by tribes for key employees and primary management officials; audits and reviews financial records of Class II gaming operations (and Class III operations when tribal gaming ordinances provide for it); provides technical assistance and training to tribal gaming commissions and operations, and; when appropriate, undertakes enforcement actions for violations of IGRA, the Commission’s regulations and approved tribal gaming ordinances.

The Commission also monitors tribal compliance with minimum internal control standards, which specify in detail the minimum practices tribes must establish and implement for gaming activities. The Commission adopted these standards for gaming operations on Indian lands in 1999; however, in 2006, a federal circuit court ruled that IGRA did not authorize the Commission to issue regulations establishing minimum internal control standards for Class III gaming. Commission officials explained that the impact of the court’s decision is tempered by compacts requiring tribes to adopt tribal internal control standards for Class III gaming and that, in most cases, these standards are at least as stringent, if not more, than the Commission’s Class III minimum internal control standards. Specifically, as of July 2014, Commission officials said 115 compacts in six states require tribes to adopt tribal internal control standards that are at least as stringent as the Commission’s Class III standards. In addition to these compact provisions, Commission officials said that 15 tribes in California have gaming ordinances that provide for Commission enforcement of the Commission’s Class III minimum internal control standards in lieu of the tribe ensuring compliance with tribal internal control standards and state verification of that compliance. However, Commission officials expressed concern that its minimum internal control standards are out of date since the Commission does not have the authority to amend these standards for Class III gaming. For example, gaming reporting functions have improved since the Class III minimum internal control standards were promulgated in 1999, and now this reporting is in digital format rather than in the analog format that the Class III minimum internal control standards suggest.

The Commission’s Recent Initiative Seeks to Resolve Tribal Compliance Issues Voluntarily, When Possible

In 2011, the Commission implemented its ACE initiative, which emphasizes, among other things, providing assistance to tribes to achieve compliance with IGRA. Through this initiative, the Commission seeks to provide technical assistance and training to tribes so that compliance issues may be resolved voluntarily without the need for enforcement actions. However, Commission officials told us that enforcement actions will still be taken when necessary.

As part of its ACE initiative, the Commission provides guidance, technical assistance, and training to tribes to help build and sustain their capacity to prevent, respond to, and recover from internal control weaknesses and violations of IGRA and Commission regulations. To improve the technical assistance and training that the Commission offers to tribes, the Commission tracks the number of training and technical assistance events it offers, their length in hours, the number of people the training and technical assistance reaches, and satisfaction rates with the training the Commission offers. In fiscal year 2013, the Commission held 194 training and technical assistance events that provided 754 hours of training and technical assistance and reached 2,751 participants who were largely satisfied with the training and technical assistance provided, according to a Commission report (see table 2).

As indicated in table 2, the Commission has met or exceeded its goals for training and technical assistance, with the exception of the percentage of tribes attending training in fiscal year 2012.

To monitor tribal compliance with IGRA and applicable federal and tribal regulations for both Class II and Class III operations—another component of the Commission’s ACE initiative—the Commission conducts site visits and audits and evaluations of tribal gaming facilities, among other things. The Commission has developed various performance measures related to these compliance activities to help measure progress toward achieving its goals. As shown in table 3, the Commission met its goals for conducting site visits and audits in fiscal years 2011 and 2012, but it did not meet its goals for these activities in fiscal year 2013.

The Commission also tracks tribal compliance with what it defines as eight primary obligations under IGRA, which are obtaining a compact approved by Interior prior to conducting Class III submitting investigative reports and suitability determinations on each key employee and primary management official, summarizing the results of the tribal background investigation; submitting fingerprint cards to the Commission for processing; submitting gaming employee applications to the Commission at the commencement of employment; adopting a gaming ordinance for Class II or Class III gaming that has been approved by the Commission; paying a fee assessment to the Commission based on gaming issuing a separate license for each facility where gaming is conducted; and submitting an annual independent audit of each Class II gaming operation to the Commission.

In its 2012 report to the Secretary regarding tribal compliance with these obligations, the Commission stated that tribes were in compliance with most of the obligations. However, the report stated that a number of tribes did not meet established deadlines for submission of fee payments and audit reports.

In recent years, the Commission has rarely initiated enforcement actions. Our analysis of the last 10 years of publicly available Notices of Violation—documents that describe the circumstances surrounding the violation of the law, Commission regulation or tribal ordinance and measures required to correct the violation—peaked in fiscal years 2008 and 2009 (see table 4) before the implementation of the ACE initiative. Prior to fiscal year 2010, the Commission issued Notices of Violation most frequently to address untimely submissions of annual audit statements or untimely fee statements.

Commission officials attributed the decline in the Commission’s enforcement actions since fiscal year 2009 to its more proactive, preventative approach taken to help ensure compliance as called for by the ACE initiative. Specifically, the ACE initiative seeks to prevent violations from occurring since Commission officials are working collaboratively with tribal regulators. Under the ACE initiative, Commission officials said that enforcement is generally viewed as a tool of last resort. Also, the Commission modified its regulations in 2012 so that fees or quarterly statements submitted late are now subject to a fine rather than a Notice of Violation. As these were the most common enforcement action initiated prior to fiscal year 2010, some decline in enforcement actions would be expected. We are continuing to collect and analyze data related to the Commission’s regulations and oversight of Indian gaming, and we will present that information in our final report.

The Commission’s Reorganization Appears to Align with Its Emphasis on Compliance Assistance

In 2011, as part of a broader organizational realignment, the Commission merged its Enforcement and Audits divisions into one Compliance Division. According to Commission officials, this merger was deemed necessary, in part, to better support the Commission’s emphasis on compliance assistance through its ACE initiative. These officials explained that centralizing compliance, enforcement, and auditing staff into one division improves communication among these staff and allows the Commission to identify compliance issues early. Early identification of compliance issues, in turn, allows the Commission to provide assistance to tribes before an issue becomes more serious. In keeping with the ACE initiative, Commission officials said they would prefer not to let compliance issues reach the enforcement stage. We will continue to collect information on the Commission’s reorganization, and we will present this information in our final report.

Chairman Tester, Vice Chairman Barrasso, and members of the Committee, this completes my prepared statement. I would be happy to respond to any questions that you or other members of the Committee may have.

GAO Contact and Staff Acknowledgments

If you or your staff members have any questions about this testimony, please contact me at (202)-512-3841 or fennella@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Key contributors to this testimony were Jeff Malcolm (Assistant Director), Amy Bush, Jillian Cohen, John Delicath, Justin Fisher, Paul Kazemersky, Jeanette Soares, and Lisa Turner.

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