Indian Gaming: Regulation and Oversight by the Federal Government, States, and Tribes
Released: 2015-07-22T00:00:00

Letter

Interior Uses a Multistep Review Process to Help Ensure that Tribal- State Compacts Comply with IGRA and Has Approved Most Compacts

In our June 2015 report, we found that Interior uses a multistep review process to help ensure that tribal-state compacts, and any compact amendments, comply with IGRA, other federal laws not related to jurisdiction over gaming on Indian lands, and the trust obligation of the United States to Indians. Interior’s Office of Indian Gaming is the lead agency responsible for managing the multistep process for reviewing compacts submitted by tribes and states. The Office of Indian Gaming coordinates its compact reviews with Interior’s Office of the Solicitor. The Office of Indian Gaming submits a final analysis and recommendation regarding compact approval to the Assistant Secretary of Indian Affairs, who makes a final decision on whether to approve the compact. Interior has 45 days to approve or disapprove a compact once it receives a compact package from a state and tribe. Under IGRA, any compacts Interior does not approve or disapprove within 45 days of submission are considered to have been approved (referred to as deemed approved), but only to the extent they are consistent with IGRA.

From 1998 through fiscal year 2014, Interior reviewed and approved most of the 516 compacts and compact amendments that states and tribes submitted. Specifically, 78 percent (405) were approved; 12 percent (60) were deemed approved; 6 percent (32) were withdrawn or returned; and about 4 percent (19) were disapproved.

In the decision letters we reviewed for the few disapproved compacts (19 out of 516), the most common reason for disapproval was that compacts contained revenue sharing provisions Interior found to be inconsistent with IGRA. For example, Interior found the revenue sharing payment to the state in some compacts to be a tax, fee, charge, or assessment on the tribe, which is prohibited by IGRA. For one compact, Interior found the state’s offer of support for the tribe’s application to take land into trust did not provide a quantifiable economic benefit that justified the proposed revenue sharing payments. Consequently, Interior viewed the payment to the state as a tax or other assessment in violation of IGRA. Interior also disapproved compacts for other reasons, including that compacts were signed by unauthorized state or tribal officials, included lands to be used for gaming that were not Indian lands as defined by IGRA, or included provisions that were not directly related to gaming.

Interior did not approve or disapprove 60 of the 516 compacts submitted by tribes and states within the 45-day review period. As a result, these compacts were deemed approved to the extent that they are consistent with IGRA. According to Interior officials, as a general practice, the agency only sends a decision letter to the tribes and state for deemed approved compacts to provide guidance on any provisions that raised concerns or may have potentially violated IGRA. We reviewed the decision letters for 26 of the 60 deemed approved compacts. In 19 of the 26 letters we reviewed, Interior described concerns about the compact’s revenue sharing provisions, and most of these letters also noted concerns about the inclusion of provisions not related to gaming. The remaining 7 letters we reviewed cited other concerns, such as ongoing litigation, that could affect the compact.

States and Selected Tribes Regulate Indian Gaming Based on Compacts and Tribal Ordinances, Depending on Gaming Class

As we found in our June 2015 report, the roles of states and tribes in regulating Indian gaming are established in two key documents: (1) compacts for class III gaming and (2) tribal gaming ordinances for both class II and class III gaming. Compacts lay out the responsibilities of both tribes and states for regulating class III gaming. For example, compacts may include provisions allowing states to conduct inspections of gaming operations, certify employee licenses, review surveillance records, and impose assessments on tribes to defray the state’s costs of regulating Indian gaming. Under IGRA, tribal gaming ordinances—which outline the general framework for tribes’ regulation of class II and class III gaming—must be adopted by a tribe’s governing body and approved by the Commission’s Chair before a tribe can conduct class II or class III gaming, as required under IGRA. Tribal ordinances must contain certain required provisions that provide, among other things, that the tribe will have sole proprietary interest and responsibility for the conduct of gaming activity; that net gaming revenues will only be used for authorized purposes; and that annual independent audits of gaming operations will be provided to the Commission.

IGRA allows states and tribes to agree on how each party will regulate class III gaming, and we found that regulatory roles vary among the 24 states that have class III Indian gaming operations. We identified states as having either an active, moderate, or limited role to describe their approaches in regulating class III Indian gaming, primarily based on information states provided on the extent and frequency of their monitoring activities. Monitoring activities conducted by states ranged from basic, informal observation of gaming operations to testing of gaming machine computer functions and reviews of surveillance systems and financial records. We also considered state funding and staff resources allocated for regulation of Indian gaming, among other factors, in our identification of a state’s role. Based on our analysis of states’ written responses to questions and interviews with states we found the following:

Seven states have an active regulatory role: Arizona, Connecticut, Kansas, Louisiana, New York, Oregon, and Wisconsin. These states monitor gaming operations at least weekly, with most having a daily on-site presence. Over 17 percent (71 of 406) of class III Indian gaming operations are located in these seven states, accounting for about 25 percent of gross gaming revenue in fiscal year 2013. These states perform the majority of monitoring activities, including formal and informal inspection or observation of gaming operations; review of financial report(s); review of compliance with internal control systems; audit of gaming operation records; verification of gaming machines computer functions; review of gaming operator’s surveillance; and observation of money counts.

Eleven states have a moderate regulatory role: California, Florida, Iowa, Michigan, Minnesota, Nevada, New Mexico, North Dakota, Oklahoma, South Dakota, and Washington. Most of these states monitor operations at least annually, and all collect funds from tribes to support state regulatory activities. About 75 percent (303 of 406) of class III Indian gaming operations are located in these states and generated 69 percent of all gross Indian gaming revenue in fiscal year 2013. States with a moderate regulatory role have the broadest range of regulatory approaches. For example, according to Nevada officials, Nevada conducts comprehensive inspections of gaming operations once every 2 to 3 years and performs covert inspections, as needed, based on risk. In contrast, North Dakota officials told us they conduct monthly inspections of gaming operations and an annual review of financial reports.

Six states have a limited regulatory role: Colorado, Idaho, Mississippi, Montana, North Carolina, and Wyoming. The role of these states is largely limited to negotiating compacts with tribes, and they do not incur substantial regulatory costs or regularly perform monitoring activities of class III Indian gaming operations. Eight percent (32 of 406) of class III Indian gaming operations are located in these states, and the operations accounted for about 4 percent of gross Indian gaming revenue in fiscal year 2013.

Tribes take on the primary day-to-day role of regulating Indian gaming. For example, each of the 12 tribes that we visited had established tribal gaming regulatory 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, compacts. The tribes’ regulatory agencies were similar in their approaches to regulating their gaming operations. For example, all of the tribes’ regulatory agencies had established procedures for developing licensing procedures for employees, obtaining annual independent outside audits, and establishing and monitoring gaming activities to ensure compliance with tribal laws and regulations. Among other things, representatives from tribal associations we contacted emphasized that tribal governments have worked diligently to develop regulatory systems to protect the integrity of Indian gaming and have dedicated significant resources to meet their regulatory responsibilities. For example, according to representatives of the National Indian Gaming Association, in 2013, tribal governments dedicated $422 million to regulate Indian gaming, including funding for tribal government gaming regulatory agencies, state gaming regulation, and Commission regulation and oversight of Indian gaming collected through fees required by IGRA.

The Commission Has Limited Authority for Class III Gaming, but It Provides Some Services, as Requested, Using Standards Last Updated in 2006

In our June 2015 report, a key difference we found between class II and class III gaming is that IGRA authorizes the Commission to issue and enforce minimum internal controls standards for class II gaming but not for class III gaming. Commission regulations require tribes to establish and implement internal control standards for class II gaming activities— such as requirements for surveillance and handling money—that provide a level of control that equals or exceeds the Commission’s minimum internal control standards. But, in 2006, a federal court ruled that IGRA did not authorize the Commission to issue and enforce regulations establishing minimum internal control standards for class III gaming. However, Commission regulations establishing minimum internal control standards, including standards for class III gaming, that were issued before the ruling were not struck down by the court or withdrawn by the Commission. The Commission issued these regulations in 1999 and last updated the standards in 2006, which we refer to as the 2006 regulations.gaming, the Commission continues to (1) conduct audits using the 2006 regulations at the request of tribes and (2) provide monitoring and enforcement of these regulations for 15 tribes in California with approved Since the court decision, for operations with class III tribal gaming ordinances that call for the Commission to have such a role.

The Commission plans to issue guidance with updated minimum internal control standards for class III gaming and withdraw its 2006 regulations. Commission officials told us they have authority to issue such guidance, and tribes could voluntarily adopt them as best practices. According to Commission officials, issuing such guidance would be helpful because updated standards could be changed to reflect technology introduced since the standards were last updated. Commission officials told us that before the agency can make a decision on how to proceed with issuing guidance for class III minimum internal control standards, it first needs to consult with tribes. In February 2015, the Commission notified tribes of plans to seek comments on its proposal to draft guidance for updated class III minimum internal control standards during meetings in April and May 2015.

States involved in the regulation of Indian gaming are also impacted by the Commission’s proposal to draft updated guidance and withdraw its 2006 regulations; however, the Commission’s plans for obtaining state input on this proposal are unclear. We found that many tribal-state compacts incorporate by reference the Commission’s 2006 regulations establishing minimum internal control standards. For example, three states have tribal-state compacts that require tribes to comply with the Commission’s 2006 regulations. If the Commission withdraws its 2006 regulations, it is not clear what minimum internal control standards the compacts would require tribes to meet. In addition, nine states have tribal- state compacts that require tribal internal control standards to be at least as stringent as the Commission’s 2006 regulations. If the Commission withdraws its 2006 regulations, these states and tribes would no longer have a benchmark against which to measure the stringency of tribal internal control standards. Standards for Internal Control in the Federal Government call for management to ensure that there are adequate means of communicating with, and obtaining information from, external stakeholders that may have a significant impact on the agency achieving its goals. According to a Commission official, the Commission is considering conducting outreach to the states on its proposal but did not have any specific plan for doing so. Consistent with federal internal control standards, seeking state input is important, as it could aid the Commission in making an informed decision on how to proceed with issuing such guidance and whether withdrawal of its 2006 regulations would cause complications or uncertainty under existing tribal-state compacts. As a result of this finding, we recommended that the Commission seek input from states regarding its proposal to draft updated guidance on class III minimum internal control standards and withdraw its 2006 regulations. In its comments on our draft report, the Commission concurred with this recommendation.

The Commission Performs Various Activities to Help Ensure Tribes’ Compliance with IGRA and Commission Regulations, but the Effectiveness of Some Activities Is Unclear

Commission’s Monitoring Activities

To help ensure compliance with IGRA and Commission regulations, the Commission conducts a broad array of monitoring activities—such as reviewing independent audit reports submitted annually by tribes, conducting site visits to tribal gaming operations to examine compliance with applicable Commission regulations, and assessing tribes’ compliance with minimum internal control standards as part of Commission-led audits. In addition, as required by IGRA, the Commission’s Chair reviews and approves various documents related to both class II and class III gaming operations, including tribal gaming ordinances or resolutions adopted by a tribe’s governing body.

Training and Technical Assistance

Under its ACE initiative, the Commission has emphasized providing tribes with training and technical assistance as a means to build and sustain their ability to prevent, respond to, and recover from weaknesses in internal controls and violations of IGRA and Commission regulations. For instance, the Commission hosts two regular training events in each region. Commission staff also provide one-on-one training on specific topics, as needed, during site visits and offer technical assistance in the form of guidance and advice to tribes on compliance with IGRA; Commission regulations; and day-to-day regulation of Indian gaming operations through written advisory opinions and bulletins. Commission staff also respond to questions by phone and e-mail, among other activities.

However, the effectiveness of the Commission’s training and technical assistance efforts remains unclear. The Commission’s strategic plan for fiscal years 2014 through 2018 includes two goals corresponding to its focus on training and technical assistance to achieve compliance with IGRA and Commission regulations: one for continuing its ACE initiative; and another for improving its technical assistance and training to tribes. Yet, the Commission’s performance measures for tracking progress toward achieving these two goals are largely output-oriented rather than outcome-oriented, and overall do not demonstrate the effectiveness of the Commission’s training and technical assistance efforts. Specifically, 12 of the 18 performance measures for these two goals include output-oriented measures describing the types of products or services delivered by the Commission. For example, they include the number of audits and site visits conducted and the number of training events and participants attending these training events. In prior work, we found that these types of measures do not fully provide agencies with the kind of information they need to determine how training and development efforts contribute to improved performance, reduced costs, or a greater capacity to meet new and emerging transformation challenges. In that work, we concluded that it is important for agencies to develop and use outcome-oriented performance measures to ensure accountability and assess progress toward achieving results aligned with the agency’s mission and goals. This is consistent with Office of Management and Budget guidance, which encourages agencies to use outcome performance measures—those that indicate progress toward achieving the intended result of a program— where feasible.

The Commission’s remaining 6 measures include outcome-oriented measures that track tribes’ compliance with specific requirements, including the percentage of gaming operations that submit audit reports on time and have a Chair-approved tribal gaming ordinance. They do not, however, indicate the extent to which minimum internal control standards are implemented or reflect improvements in the overall management of Indian gaming operations. In addition, they do not correlate such compliance with the Commission’s training and technical assistance efforts. Additional outcome-oriented performance measures would enable the Commission to better assess the effectiveness of its training and technical assistance efforts and its ACE initiative. Commission officials told us that they recognize they have more work to do on performance measures and are interested in taking steps to ensure that their ACE initiative is meeting its intended goals. In our June 2015 report,recommended that the Commission review and revise, as needed, its performance measures to include additional outcome-oriented measures. In its comments on our draft report, the Commission concurred with our recommendation.

Letters of Concern

The Commission amended its regulations in August 2012 to formalize an existing practice of sending letters of concern to prompt tribes to voluntarily resolve potential compliance issues. A letter of concern outlines Commission concerns about a potential compliance issue and, according to Commission regulations, is not a prerequisite to an enforcement action.concern specify a time period by which a recipient must respond but do Commission regulations require that letters of not address which compliance issues merit a letter of concern or indicate when a letter should be sent once a potential compliance issue is discovered. The Commission also has not issued guidance or documented procedures on how to implement its regulation regarding letters of concern. In our review of letters of concern sent by the Commission in fiscal years 2013 and 2014, we found that the Commission sent 16 letters of concern to 14 tribes. Six of the 16 letters of concern did not include a time period by which the recipient was to respond, as required by Commission regulations. In addition, 12 letters did not specify in the subject line, or elsewhere in the letter, that they were letters of concern. By not including a time period for a response as required by Commission regulations and not consistently identifying its correspondence as a letter of concern, the Commission may not be able to ensure timely responses, and tribes may find it difficult to discern the significance of these letters. In addition, the Commission provided us with documentation to demonstrate whether a tribe took action to address the issues described in 8 letters of concern, but it did not provide documentation for the remaining 8 letters. Under federal internal control standards, federal agencies are to clearly document transactions and other significant events, and that documentation should be readily available for examination. Without guidance or documented procedures to inform its staff about how to complete letters of concern or maintain documentation tracking tribal actions, the Commission cannot ensure consistency in the letters that it sends to tribes, and it may be difficult to measure the effectiveness of the letters in encouraging tribal actions to address potential issues. As a result of these findings, we recommended and in its comment letter the Commission in our June 2015 report,generally agreed, that the Commission should develop documented procedures and guidance for letters of concern to (1) clearly identify letters of concern as such and to specify the type of information to be contained in them, such as time periods for a response; and (2) maintain and track tribes’ responses to the Commission on potential compliance issues.

Enforcement Actions

IGRA authorizes the Commission Chair to take enforcement actions for violations of IGRA and applicable Commission regulations for both class II and class III gaming. Specifically, the Commission Chair may issue a notice of violation or a civil fine assessment for violations of IGRA, Commission regulations, or tribal ordinances and, for a substantial violation, a temporary closure order. The most common enforcement action taken by the Commission Chair in fiscal years 2005 through 2014 was a notice of violation. The Chair issued 107 notices of violations that cited 119 violations during this period. We found that the Chair issued 100 out of 107 notices of violation prior to fiscal year 2010. Since fiscal year 2010, fewer enforcement actions may have been taken because recent Commission chairs have emphasized seeking voluntary compliance with IGRA.

Chairman Barrasso, Vice Chairman Tester, and Members of the Committee, this completes my prepared statement. I would be pleased to answer any questions that you may have at this time.

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. Other individuals who made key contributions to this testimony include Jeff Malcolm (Assistant Director), Cheryl Arvidson, Amy Bush, Jillian Cohen, John Delicath, Justin Fisher, Paul Kazemersky, Dan Royer, Jeanette Soares, Kiki Theodoropoulos, Swati Sheladia Thomas, and Lisa Turner.

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