Part 1: Keep More Money within the Tribe with Strong Internal Controls
 4/14/2017
Written by James Andrus

With the changing economy, Native American tribes are looking for stable ways to diversify and increase revenue sources that will keep funds within the tribe. For example, the Quinault tribe is using the rock aggregate found on their reservation as a sand and gravel source to sell on the west coast, and the Squaxin Island tribe is making three brands of cigarettes at their own tobacco manufacturing facility instead of outsourcing the work. There are other ways that tribes can keep more money on the reservation through quality oversight, often through a partnership with a Certified Public Accountant and their audit findings.

Here are three ways to increase money to the tribe:

  • Profitability through quality oversight
  • Productivity management
  • Add tribal jobs through training and strategic alliances

This post will focus on profitability through quality oversight for Native American Tribes with gaming entities.

Profitability Through Quality Oversight

The owner of a casino once told me, “They will steal from you somehow.” The Association of Certified Fraud Examiners agrees; stating that fraud costs businesses $100,000 per occurrence on average. Forty percent of all fraud is the effect of collusion which causes losses close to five times that of an individual acting alone, with a median loss of $485,000 per occurrence. The following causes and opportunities for fraud are important to understand in working to mitigate the potential for fraud in your companies.

  1. Good Employees Go Bad – Even the best employees can succumb to pressures and do things they normally wouldn’t do. Some common pressures include stock market losses, child or spouse disability, college tuition, wedding, and other unexpected expenditures. It must be noted that these pressures can not be determined by doing a background check alone; it is important to know what is going on in your employees’ lives and work with them.
  2. Fraudulent Disbursements – Two-thirds of fraud cases involve some form of fraudulent disbursement. Some examples to be aware of include:
    • Check Tampering: Forged payee or endorsement, reissuing old outstanding checks, and wire or account transfers.
    • Billing Schemes: False vendor payments, petty cash disbursements, and misuse of credit card or ATM cards.
    • Payroll Schemes: Forged payroll checks, payroll disbursements, falsified wages, and ghost employees.
    • Expense Report Schemes: Reimbursement and distributions
  1. Casino Fraud – This type of fraud is particularly relevant in the Tribal Gaming Industry. The following tables outlines some common types of casino fraud and also some controls that can be put in places to prevent and detect the various types of fraud:

Fraud Example

Preventative Controls

Detective Controls

Player Points Name Change- Employee changes the name on a dormant account.

Segregation of duties, Supervisor approval for name changes, input of changes by independent employee.

System report generates a listing of all changes, the internal audit team reviews and verifies the report while investigating any unusual items.

Player Points Account Adjustment- Employee makes account adjustments to both active and dormant accounts.

Segregation of duties, Supervisor approval for all changes, input of changes by independent employee.

System report generates a listing of all changes, the internal audit team reviews and verifies the report while investigating any unusual items.

Comp Fraud- Supervisor signs for customer

Cashiers should get the customer’s signature, not the employee’s signature on the sale slip.

The accounting department should review all comp charges and question each signature and comp number.

Player Ratings- Casino Supervisor overstates length of play or average bet.

Card readers can be installed in the gaming pits to log the player’s start and stop times.

Internal auditors visit the surveillance department to observe and record player rating activity.

Once the areas for opportunities and causes of fraud are understood it is necessary to develop a strong internal control system with controls specially designed to fit your company’s needs and risk areas. Every effective internal control system should have these five components:

  1. A control environment
  2. Risk assessment
  3. Control activities
  4. Accounting, information and communication systems
  5. Self-assessment or monitoring

Remember that just developing and documenting the plan is not enough, employees must be fully trained and periodically tested and updated to have an effective system. The system must also be consistently monitored. The most common monitoring techniques for preventing fraud are external audits, internal audits, fraud training and hotlines and surprise audits.

Contact us for more information on a Native American gaming audit, fraud investigation or for a free consultation for your tribe. Read the next articlein our series about keeping more money within the tribe using efficient operations.

PBTK Shareholder Jim Andrus, CPA, specializes in performing attestation and consulting services for tribal governments and casinos, local governments, non-profit organizations, family-owned businesses, casino resorts and allied industries, and has increasing responsibilities with SEC companies. His government clients include three of the largest cities in Utah. He also has experience in other industries including construction and technology. He can be reached at jandrus@pbtk.com.