THE MISSISSIPPI LEGISLATURE

The Joint Committee on
Performance Evaluation and Expenditure Review



Report # 344

A Review of the Adequacy of the Mississippi Gaming Commission's

Regulation of Legalized Gambling in Mississippi


September 11, 1996


Overview

In June 1990, the Legislature passed the Mississippi Gaming Control Act, which legalized dockside gambling. In less than six years, Mississippi has become the third largest gambling jurisdiction in the United States in terms of revenues (totaling $1.7 billion, annually) and the second largest in terms of gambling space, with twenty-nine casinos housing 1.2 million square feet of gambling space. By April 1996, Mississippi's casinos had generated over half a billion dollars in gaming tax revenues paid to the state and local governments.

Part of the reason that the industry has grown so rapidly is that the state entity charged with regulating the industry, the Mississippi Gaming Commission (MGC), has assumed an economic development role not contemplated or authorized by the Gaming Control Act. In its efforts to assist in development of the industry, the Gaming Commission began licensing gaming establishments before its regulatory infrastructure was fully in place.

While the Gaming Commission has recently begun to fill some of its rather substantial regulatory gaps, such as pre-license investigations of public corporations and ongoing auditing of licensees for compliance with applicable laws and regulations, the consequences of its failure to conduct more thorough audits and investigations heretofore may not be fully known until its own audit staff has the opportunity to complete its first audit cycle of Mississippi's casinos. Further, MGC has no established audit program for monitoring the play of casino games, and continues to be deficient in its monitoring of the social costs of legalized gambling and its pre-licensing financial investigations of individuals and private corporations.

With respect to regulation of charitable bingo, PEER found that MGC does not have an adequate system in place to determine industry compliance with the provisions of the Charitable Bingo Law. Also, the law itself provides no assurances that any of the proceeds from operation of a licensed bingo establishment will be received by a legitimate charity.

Recommendations

Casino Gambling

Licensing and Background Investigations

1. MGC should ensure that the necessary regulatory infrastructure is in place to carry out its licensing and background investigation functions adequately, particularly the financial expertise and analytical plan needed to investigate adequately the backgrounds of individuals and private corporations. MGC should obtain and review at least five years of financial background information in order to afford a reasonable basis for conclusions concerning the character, ethics, and business quality of individuals and private corporations. Also, MGC's analysis of the information obtained during the pre-license background investigations should be more in-depth, including thorough analysis of the sources and uses of all funds. MGC should subject private corporations to the same level of financial investigation as individuals.

2. MGC should proceed with the planned work of its Compliance Division to conduct thorough financial pre-licensing investigations of public corporations and ongoing audits of licensees for compliance with gaming laws and regulations.

3. MGC should continue to expedite the background check process by reducing the time involved in all procedures which are under the commission's control-e.g., improving the readability of fingerprints submitted to the FBI.

Also, the Legislature should amend MISS. CODE ANN. Section 75-76-131 to authorize the Mississippi Gaming Commission to issue temporary work permits, which the Executive Director may revoke without pre-revocation notice and hearing. The legislation should grant a post-revocation hearing within fifteen days of the revocation. See Appendix G, page 73, for recommended legislation.

4. MGC should continue using existing resources to obtain the investigatory services needed to complete a higher percentage of key employee investigations.

Monitoring of the Games

5. MGC should define and establish criteria for monitoring the "honest and competitive" conduct of table games and electronic games.

6. MGC should develop written criteria for approval of new table games.

7. MGC should develop a written audit program for monitoring the play of the games in compliance with gaming laws and regulations.

8. MGC should revise its training requirements for enforcement agents to include a minimum number of required hours of training related specifically to the detection of cheating on games. MGC should not rely on the casinos to provide this training.

9. MGC should obtain and distribute to all Mississippi casinos the names of persons maintained on exclusion lists from other gambling jurisdictions (particularly Nevada and New Jersey).

10. MGC should maintain in its permanent records any motion and order, or any other document, denoting the reasoning and outcome for all show cause hearings as evidenced by the Executive Director.

11. MGC should standardize its fines for violations of the Gaming Control Act and regulations.

12. MGC should include monitoring of casino compliance with legal requirements governing the handling of patron disputes as part of its ongoing casino audit program.

13. The Gaming Commission regulations or statutes should require casinos to file a one-page incident report each time they eject any patron for any reason. The law should require that these reports be made available to law enforcement agencies. Ongoing Auditing of Licensees

14. The Legislature should amend MISS. CODE ANN. Sections 75-76-45 and -51 to provide that the Mississippi Gaming Commission and the State Tax Commission jointly develop and promulgate for the casinos a single set of minimum internal control standards and rules for defining gross revenue.

Such rules should be the only rules each of the agencies use in determining licensees' gross revenue, and such minimum internal control standards should be the only minimum internal control standards enforceable by the two regulatory agencies. Such rules and standards should become effective January 1, 1998. When any material differences in the interpretation or application of the single set of rules or minimum internal control standards arise, staff of the Mississippi Gaming Commission and the State Tax Commission should meet jointly to develop a joint resolution of the differences in a timely manner.

In the event that the Mississippi Gaming Commission and the State Tax Commission cannot agree on the content or necessity of a proposed rule or minimum internal control standard or subsequent interpretation of adopted rules and minimum internal control standards, the agencies should submit such differences in writing to the State Auditor for arbitration. The State Auditor may resolve the differences by selecting a proposal of the Mississippi Gaming Commission or the State Tax Commission or by developing a proposal based on the positions of the two agencies. The Mississippi Gaming Commission and the State Tax Commission should be required to adopt in rule form any arbitration decisions developed by the State Auditor.

The Mississippi Gaming Commission and the State Tax Commission should meet annually by April 1 to discuss the need for new rules and minimum internal control standards or revision of existing rules and minimum internal control standards. The two agencies' revisions of the single set of rules and minimum internal control standards should be completed each year by May 15 for initial comment by the licensees. Conflicts between the two agencies should be referred in writing to the State Auditor for resolution as provided for above. When developing the initial set of rules and minimum internal control standards and revising the rules and minimum internal control standards annually, the Mississippi Gaming Commission and the State Tax Commission should comply with provisions of the state's Administrative Procedures Act. See Appendix G, page 73, for recommended legislation.

15. The Legislature should amend MISS. CODE ANN. Section 75-76-17 by deleting the prohibition against the Mississippi Gaming Commission's establishment of an audit division. See Appendix G, page 73, for recommended legislation.

16. The Legislature should amend MISS. CODE ANN. Sections 75-76-81 and 75-76-87 to require that information collected by either MGC or the State Tax Commission during the course of their audits and investigations be made available to the other party. See Appendix G, page 73, for recommended legislation.

17. The Legislature should require that casinos prepare a duplicate copy of each Currency Transaction Report (Title 31) and file it with the Gaming Commission. The law should require the commission to make copies of the forms available to law enforcement agencies. See Appendix G, page 73, for recommended legislation.

Monitoring Negative Social Consequences

18. Using existing resources, MGC should conduct an ongoing cost/benefit analysis of Mississippi's legalized gambling industry and report its findings to the Legislature, industry, and the general public. The analysis should monitor such relevant factors as the percentage of gamblers who are in-state versus out-of-state, the socioeconomic profile of these gamblers, and the incidence and associated costs of casino-related problems such as compulsive gambling and white collar crime. MGC should develop strategies for reducing the incidence of any serious problems identified through its analysis.

19. MGC should eliminate the language in its mission statement directing it to work with the legalized gambling industry to "promote economic development." Such language places the commission in the conflicting roles of industry regulator and industry developer.

Charitable Bingo

20. MGC should develop a bingo enforcement system governed by a written audit program including steps for conducting systematic, detailed inspections of bingo operations. The commission should also standardize its fines for violations of the Charitable Bingo Law and regulations, as well as its patron complaint system.

21. The Legislature should consider amending the Charitable Bingo Law to require that a certain percentage of proceeds from operation of a licensed bingo establishment be given to charity and to grant MGC the authority to audit the flow of bingo hall revenues to ensure that they are being channeled into legitimate charities. See Appendix G, page 73, for recommended legislation.

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