State didn’t catch gambling discrepancies

By Todd Richmond
Madison, Wisconsin (AP) 9-07

State gambling officials didn’t realize their computer tracking system had recorded daily discrepancies in tribal gaming revenue for months and didn’t check on whether tribes were investigating, a state audit released September 19th found.

Failure to track casino revenue discrepancies can allow theft and fraud to go undetected.

State gaming officials blamed the differences on computer error, and Deputy State Auditor Paul Stuiber said the variances are so large and frequent that most likely aren’t due to fraud.

The state won’t know for sure until corrections in the system are made, but Stuiber said the tribes’ internal checks should have caught any legitimate problems.

Still, the audit shows the state isn’t using key tools that could help uncover wrongdoing, he said.

“What it clearly indicated was the system is not working and someone needs to take a closer look at it,” Stuiber said.

Tribal gambling is a billion-dollar-plus industry in Wisconsin. Eleven tribes run 25 casinos in the state.

The state guarantees the tribes the exclusive right to offer gambling. In exchange, the tribes pay the state tens of millions of dollars annually under deals known as compacts.

The Gaming Division set up a computer system in 2000 to track slot machine revenue and payouts. Casinos transmit data to the system weekly.

State auditors reviewed 2006 system data. They found daily instances that year in which electronic counts of the machines’ revenue didn’t match physical counts.

Gaming Division officials were unaware of almost all the discrepancies, the audit said.

The report also found that between March 2006 and April 2007 the state didn’t review whether the tribes had identified, investigated and documented the differences, as required in the compacts.

Those checks resumed in May 2007 after auditors pointed out the shortcoming to the division, State Auditor Jan Mueller said.

The report didn’t release a total dollar figure for the discrepancies.

Linda Barth, a spokeswoman with the Department of Administration, which oversees the gaming division, said the data collection system tracks nearly 200 bits of information from each of the 15,000 or so slot machines in the state. Variance data wasn’t showing up in the system because the information was being sent to an unused spreadsheet field.

Gaming Division Administrator Robert Sloey said no one noticed the discrepancies because they were focused on portions of the tracking system that chart revenue, net win and payout percentages.

Division staff focused heavily on casinos’ physical money-counting procedures rather than reviewing and verifying tribal investigations, he said.

He stressed tracking discrepancies is just part of multiple checks on casinos, including regular audits by the tribes, third parties and the state.

“Together, looking at all of this, we’re very confident in our system,” Sloey said.

State Rep. Suzanne Jeskewitz, R-Menonomee Falls, co-chairwoman of the Joint Legislative Audit Committee, issued a statement saying she was disturbed the division was unaware of the “programming flaws” but optimistic they’d been corrected.

Sen. Jim Sullivan, D-Wauwatosa, the audit committee’s other co-chairman, said the audit bureau and the committee will have to keep a close eye on the division’s reviews.

The audit also found the Gaming Division discovered ten instances in which tribes overpaid or underpaid the state because of mistaken revenue calculations in 2005 and 2006.

Ken Walsh, a spokesman for the Forest County Potawatomi, one of the biggest players in Wisconsin tribal gambling, said he was still reviewing the report. Ho-Chunk Nation spokeswoman Sherry Wilson didn’t immediately return a message Friday afternoon.

Other findings in the audit included:

– The tribes collected $1.3 billion in gambling revenue in 2006, up from $1 billion in 2002. The report did not offer tribe-by-tribe breakdowns.

– State revenue from tribal gaming grew from $28.5 million to $121.3 million between the 2002-03 and 2005-06 fiscal years. The audit credited new compacts that allow the tribes to offer Las Vegas-style card games in exchange for higher payments to the state.

– Wisconsin’s estimated $112.6 million in annual tribal payments ranks third among the states that collect them. Connecticut is first at $445 million and California second at $317.4 million.

– The Lac Du Flambeau is the only one of the 11 Wisconsin tribes offering gambling that isn’t required to pay the state anything under its compact. The state and the tribe are currently negotiating an amended compact.

– The state also remains in litigation with the Ho-Chunk. Gaming officials contend the tribe has withheld more than $70 million in payments.

The state Supreme Court ruled in a 2004 case involving the Potawatomi tribe that Gov. Jim Doyle exceeded his authority by signing an agreement that was perpetual, waived the state’s immunity from lawsuits and allowed new games. In 2006, the court partially reversed itself and said Doyle could approve new games.

The Ho-Chunk stopped offering the new games and held off on payments to the state after the 2004 ruling, saying they were waiting for a new deal to be signed.

– Wagering at Dairyland Greyhound Park, the state’s lone remaining race track, fell from $69 million in fiscal year 2002-03 to about $58 million in fiscal year 2005-06.