The Division of Gaming in the Department of Administration (DOA)
oversees the gaming operations of 11 tribes that have negotiated
compacts with the State. The compacts permit Indian gaming in
Wisconsin and define regulations for tribal gaming operations. The
Division also regulates pari-mutuel racing at one remaining dog track in
Wisconsin, charitable bingo and raffles, and other games that are subject
to regulation by the State. In fiscal year (FY) 2005-06, it was authorized
35.35 full-time equivalent (FTE) positions and spent $3.3 million to
regulate all types of gaming activities.
Under s. 13.94(1)(eg), Wis. Stats., the Legislative Audit Bureau is required
to conduct a biennial performance evaluation of the Division. As part of
this evaluation, we reviewed:
the State’s revenue and expenditures related to the regulation of
Indian gaming, pari-mutuel wagering, and charitable gaming,
as well as funding allocations for staff positions in the Division;
tribal revenue and expenses related to gaming activities;
oversight activities of the Division’s Office of Indian Gaming,
including the timeliness of its efforts to certify the vendors that
provide gaming-related services or equipment to casinos;
pari-mutuel racing, including racetrack attendance and amounts
wagered, the Division’s oversight at the racetrack, and its
greyhound adoption program; and
trends in charitable gaming and crane games, which are
amusement devices in which a player maneuvers a crane or
claw to obtain toys or novelties worth $5 or less.
State Gaming Revenue
State revenue from all gaming
activities regulated by the Divisionincluding Class III gaming at tribal
casinos, pari-mutuel racing, and
charitable and crane gamesincreased from $28.5 million in
FY 2002-03 to $121.3 million in
FY 2005-06, largely because of
changes to tribal-state gaming compacts
that were negotiated in 2003.
The renegotiated compacts significantly increased annual payments
due from tribes to the State.
Class III gaming is the State’s
largest source of gaming revenue.
In FY 2005-06, 10 of 11 tribes that
operate casinos made payments to
the State totaling $118.7 million.
However, a duration provision in
seven tribal-state compacts that
were signed in 2003 was invalidated
by the Wisconsin Supreme Court
in 2004. As a result, two tribes
stopped making payments to
the State.
The Potawatomi withheld $43.6 million
that was due in 2005 until
October 2006, when that tribe and
the State agreed to a compact
duration of 25 years. The Ho-Chunk
continue to withhold $30.0 million
that was due in June 2005, as well
as payments based on their share
of net tribal revenue from Class III
gaming that were due in June 2006
and June 2007. The State and the
Ho-Chunk are in litigation to
resolve the matter.
A third tribe, the Lac du Flambeau,
has not made any payments since
2004 because payments are not
required under an extension of that
tribe’s compact with the State.
Tribal Gaming Revenue
Tribes generate gaming revenue
primarily through Class III gaming,
which includes electronic gaming
devices such as slot machines and
table games such as blackjack.
Compacts require each tribe to
contract for an annual independent
audit of its gaming operations and
to submit the audit report to the
Division and our office. We may
release financial information only
in aggregated form.
In aggregate, tribal gaming revenue
from all sources increased from
$1.0 billion in 2002 to $1.3 billion
in 2006. It should be noted,
however, that while most tribes’
gaming-related revenue increased,
some tribes’ did not.
In aggregate, net tribal revenue
from Class III gaming, which
excludes amounts paid out in winnings,
increased 24.4 percent over
the five-year period we reviewed.
It totaled $1.2 billion in 2006.
Aggregate tribal gaming revenue
increased in part because the
2003 compacts authorized new
types of table games, such as
baccarat, craps, poker, and roulette.
However, electronic gaming devices
are the source of most tribal revenue
from Class III gaming.
Tribes incur gaming expenses for
general operations, including
employee salaries and fringe
benefits; promotion and marketing;
and depreciation. In aggregate,
tribal gaming expenses increased
37.9 percent during the period we
reviewed, from $558.7 million in
2002 to $770.3 million in 2006.
Tribal gaming profits, or revenue
in excess of expenses, increased
13.3 percent, from $490.8 million
in 2002 to $555.9 million in 2006.
Enforcement Efforts
Regulation of Indian gaming protects
the interests of casino patrons,
who expect the games to be fair, as
well as both the tribes and the State,
which depend on accurate accounting
of revenue from Class III gaming
activities to determine payments
required under the compacts.
The Division conducts financial and
compliance audits to ensure that the
tribes comply with provisions of
their compacts. Compacts require
tribes to identify instances in which
amounts recorded by a meter in an
electronic gaming device differ by
at least 3.0 percent and more than
$25 from amounts counted by
casino staff. When tribes identify
such differences, compacts require
them to investigate and document
the cause, because differences may
identify potential theft or fraudulent
activity at casinos.
We examined 2006 daily revenue
recorded in the State’s Data
Collection System, which stores
information on the transactions
of electronic gaming devices, and
found differences between amounts
recorded by electronic meters and
amounts counted by casino staff for
every day of the year. In discussing
this issue with the Division, we
found that it was unaware of almost
all of the differences we identified.
The Division asserts that most of
the differences we identified were
caused by programming errors in
the Data Collection System and
the casinos’ electronic accounting
systems.
Although the Division reviews
many important financial controls
implemented by casinos, it has not
routinely used the Data Collection
System to identify differences
between amounts recorded by
electronic meters in the gaming
devices and amounts collected
and counted by casino staff. These
data are important in identifying
potential irregularities in gaming
operations and financial reporting
that cannot be identified from other
controls the Division reviews.
Moreover, we found that from
March 2006 through April 2007,
the Division did not review data
maintained by casinos to determine
whether the tribes had identified,
investigated, and documented
differences between amounts
recorded by electronic meters and
amounts counted by casino staff. In
May 2007, as we were conducting
our fieldwork, the Division began
conducting these reviews again.
The compacts and statutes require
DOA to certify the vendors that
provide casinos with gaming-related
products and services. The Division
requires vendor recertification
every two years. The average time
required by the Division to complete
initial certifications increased from
14.1 months in FY 2002-03 to nearly
a full four years in FY 2004-05,
then decreased to 24.5 months in
the first half of FY 2006-07.
During the period shown, the
Division issued decisions on
117 applications, 93 of which were
approved, and collected $1.1 million
in vendor certification fees.
Other Gaming Activities
Dairyland Greyhound Park,
Wisconsin’s one remaining
racetrack, conducts live greyhound
races and broadcasts horse and
greyhound races from racetracks
in other states. The amounts
wagered at Dairyland decreased
from $69.5 million in FY 2002-03
to $58.5 million in FY 2005-06.
It is unlikely Dairyland will be able
to remain in operation if wagering
continues to decline. Declines are
expected because the market for
pari-mutuel racing continues to
diminish. State revenue from
pari-mutuel racing decreased
from $2.7 million in FY 2002-03 to
$1.9 million in FY 2005-06.
The Division also licenses charitable
organizations that conduct bingo
and raffles and registers crane
games. The State’s revenue from
bingo activities totaled $2.0 million
from FY 2002-03 through FY 2005-06.
During the same period, its revenue
from raffle license fees totaled
$772,400, and its revenue from crane
games totaled $77,600.
Recommendations
Our report includes recommendations
for the Division to report to the
Joint Legislative Audit Committee
by January 31, 2008, on steps it has
taken to:
ensure the State’s Data
Collection System and the
casinos’ electronic accounting
systems are recording and
calculating gaming revenue
correctly
(p. 27); and
continue to improve the timeliness
of vendor certifications
(p. 32);
We also include a recommendation
for the Division, in every casino
audit, to:
incorporate procedures for
determining whether tribes
are appropriately identifying,
investigating, and documenting
differences between amounts
recorded by electronic meters
and amounts counted by
casino staff
(p. 27).