Reprinted with permission of the Institute of Management Accountants, from Management Accounting, May 1996; permission conveyed through Copyright Clearance Center, Inc.
Imagine issuing a purchase order every time you rolled the dice at a craps table!
Twenty-one states now have casino gambling operations within their borders, including 11 owned by Native American groups. The glitter and excitement of an expanding gambling industry attract more and more patrons hoping to strike it rich, but they also encourage some risk takers to try and beat the odds—illegally. This larcenous tendency creates an accountant’s nightmare because of the lack of traditional source documents in the gaming industry.
Thanks to the required accounting documentation that is standard business practice, internal controls are relatively simple for most companies. But a business that deals mainly in cash transactions has to install and implement unique safeguards to forestall theft. Out of necessity, the gaming industry has been a pioneer in establishing control standards for cash basis industries.
A review of the types of controls that have been implemented in the gaming industry offers general guidelines for other cash-based enterprises. The accounting and control practices described here are based on the control standards implemented in Nevada, but most other gaming jurisdictions also have issued control standards that incorporate the Nevada model.
The Nevada Gaming Control Board has held down staff and expenditures by the implementation of minimum internal control standards (MICS) for the gaming industry.1 The Board has followed up this policy by implementing minimum external audit compliance testing of the MICS.2 Such an approach places a large amount of the compliance requirements on internal audit staffs and their external audit CPAs.
How Casinos Control Cash
John B. Gambler sits down at a blackjack table, pulls out a $100 bill, and asks for chips. The dealer exchanges the $100 bill for $100 of chips and stuffs the $100 bill into a slotted box. At the end of the shift, a drop team exchanges the drop box containing the $100 bill for an empty drop box to be used by the next shift. This box is then taken to the "soft count room" and is locked up until a count team comes in, usually in the morning. The soft count team empties the table drop boxes and records the amount of the drop on a table summary sheet. The money is turned over to the cashier, and the table games summary sheet is given to the accounting department where it is reviewed and entered into the system as gaming revenues.
The scenario above is repeated millions of times, and it capsules the basic elements of control for the gaming industry. Casino managers rely on physical controls (lock boxes), human (several individuals witnessing transactions) controls, and some traditional document controls.
Paper controls leave a trail of documentary evidence that can be tested for compliance by the inspection of transaction documents and records along with appropriate signatures and stamps. Physical safeguards such as safes and cashiers’ cages provide self-evident controls. People controls represent activities such as supervision or accountability for transactions.
The table games revenue recognition process outlined in the illustration above (it’s the same for slot machines) passes through many hands before it actually is recorded, providing many opportunities for skimming those cash flows. Before minimal controls were put in place, funds, in fact, did disappear. The simplest scams ranged from the guards pulling cash out of the drop boxes before the boxes reached the count room to the count team members slipping cash into their own pockets. In other instances, the pit boss or dealer palmed chips from the table and cashed them later at the cashier’s cage, or the cashier would accept the cash from the count team and then change the document numbers for some lesser amount while pocketing the difference.
Physical controls are designed to limit access in a casino to those areas that have cash and chips or where cash and chips are stored: the playing tables, drop boxes, count rooms, and the cashier or vault. Controls are implemented by limiting access to the areas by locks and keys and limiting access to the keys.
The drop box keys, the count room keys, and the drop box cabinet keys are maintained by a department independent of the gaming department. Because the cashier’s cage is centrally located, the most common place for control over these keys is the cashier’s cage. The keys are contained in a locked box that is securely attached and clearly visible within the cashier’s cage with access limited to those persons specified in writing. Signature cards for each employee with signature authority must be on file and verified before access is allowed to the appropriate key. A keys control log is maintained to substantiate control over the keys.
When players exchange cash for chips, the currency is inserted into a locked container called a drop box, which has two locks. The first lock secures the drop box to the table, and when it is removed, a panel automatically slides across the entry slot. The second key opens the hinged side of the box so that the contents of the box may be examined and counted. Access to the first key is limited to the drop team personnel, while access to the second key is limited to the count team personnel.
Many casinos use a drop box cart that can be locked, preventing access to the drop boxes until the count team opens the drop box cart. This procedure was instituted because members of the drop team were able to find ingenious means for opening the drop box and removing cash before the boxes reached the count room.
Cameras are located in all casino areas where cash transactions take place, and these cameras are capable of focusing on specific tables and zooming in to identify cards and bets. The cameras are monitored by a surveillance team that pays extra attention to an area when a gaming supervisor notices suspicious actions by a dealer or a player.
Ubiquitous cameras also track the drop team from the time it picks up the cash until it is delivered to the count rooms. Controls in the count room usually consist of several cameras that pan the room from different angles and one-way mirrors for closeup observations.
People and Paper Controls
Strict procedures controlling the actions of casino employees who handle cash require the use of two or more people involved in a transaction and a separation of duties of these personnel. These procedures come into play in three places where exchanges or counting of funds take place that require people verification: the cashier’s cage, tables area, and count room.
The most common casino transaction between departments is transfers between the cage and the gaming area. "Table fills" refer to the transfer of chips from the casino cage to the gaming table, while "table credits" reflect the removal of the excessive chips from a gaming table by transferring the chips to the casino cage. In this process three different departments—cashier, security, and gaming—handle the chips.
When the cashier receives notice that the pit needs chips, the cashier gathers the proper amount, fills out a three-part copy, signs all three copies of the fill/credit slip, and then gives it to the security person to deliver to the pit. The security person, in turn, verifies the amount of the chips and compares it to the fill/credit slip and signs all three parts of the fill/credit slip in the presence of the cashier.
Then the cashier gives the security person the first copy of the fill/credit slip and the actual fill chips to take back to the proper table. When the security person gives the chips and the slip to the gaming supervisor, he verifies the fill and compares it to the fill/credit slip. The gaming supervisor accompanied by the security person takes the items to the table designated on the fill/credit slip. The pit supervisor signs the slip in the presence of the dealer, who counts the amount of the fill, puts the chips on the table tray, and signs the fill slip. The dealer then drops the fill slip into the table drop box.
This process involves four individuals who verify that the fill/credit slip agrees with a fiscal count of the chips and that these chips have been transferred successfully. Their signatures on the transfer slip attest to the transfer. There is additional verification when accounting personnel review all three copies for agreement on dollar amounts.
The Counting Room
The transfer of cash from the gaming area to the count room has received the most emphasis in terms of minimum internal controls. There is no actual paper documentation from the time players make their cash exchange until the count team does an actual count in the count room. Both physical and human controls must be monitored properly to provide assurance of the reasonableness of the actual count when the cash is moved to the count room.
Most gaming jurisdictions, for example, require each casino to specify in writing to the gaming regulatory agencies the time that actual table and slot drops take place. This procedure allows the gaming agencies as well as internal and external auditors to verify that proper procedures are being followed. These groups usually test the procedures for compliance on a surprise basis.
Slot drops usually are performed once a day, early in the morning when there is the least amount of patron traffic. Table drops are done on a shift basis and take place at the end of a casino’s designated shift. The drop team includes the drop team leader and one or two security guards. Casinos routinely assign different combinations of security guards to the drop box team so that the same people rarely will be teamed together. This policy reduces the likelihood that a team of guards will attempt to steal from the drop boxes. The use of several persons on the drop team along with surveillance and the drop box cart have reduced opportunities for theft.
One very effective control procedure ensures that no one individual can gain access to the count room. All the count team must be present before access is given, and once the count team is in the count room no one else can come into or leave the count room. Reasoning that the more employees involved in the count procedure, the less likely the opportunity for collusion, casinos require the soft count to be performed by a minimum of three persons. The soft count team cannot consist of the same members as the drop team, and some casinos even have different count teams for each count.
In the counting room the drop boxes are emptied onto the table. Standard procedures require that a second person verify that a drop box is emptied completely. The cash contents are stacked in the center of the count table before sorting. One member of the team then sorts all the currency by denomination. The stacks of currency are then counted and recorded on the soft count document by a second count team member—the recorder. The count is recorded on the count sheet in ink or other permanent form of recording.
A third count team member counts the currency and compares the result to the figures on the soft count card. If the two amounts agree, the amount for that drop box and table is recorded on the master games sheet. After the master games sheet has been reconciled, all members of the count team attest by signature to the accuracy of the games drop count.
Three verifying signatures on the count sheet are adequate if all additional count team personnel sign a supplement document indicating their involvement in the count process. All monies and money equivalents that were counted are turned over to the cage cashier, who is independent of the count team, or to an individual independent of the revenue generation and the count process for verification. The cage cashier certifies by signature as to the accuracy of monies delivered and received.
Cash-based industries lack proper documentation of revenue-generating transactions. As a result, greater reliance must be placed on other controls such as people and physical controls. The casino industry has developed a series of minimum procedures and standards along with compliance tests that can be developed and implemented in other cash-based industries. A management accountant with a thorough grasp of these cash controls can be an extremely valuable asset who can improve, as well as control, an operation that is basically a cash enterprise.