Top 10 control issues in Indian gaming: Part two of three
TRIBAL NATIONS QUARTERLY |
In our Winter 2012 edition, we presented the first in a three-part series detailing the top-ten most common control issues McGladrey identified over the past year. This quarter we count down numbers seven and six.
7. Fixed assets
Keeping track of a casino's assets, from the buildings that house the casino floor to the computers used to conduct transactions in the cage, can add up to a significant task. New technology and more complex operations continue to create challenges in the accurate (and efficient) maintenance of fixed assets.
Fixed assets are items of durable nature and used in the regular operation of the business with an estimated life greater than one year. Accuracy of your fixed assets records is important for all of the financial statement assertions, including:
- Existence (for example, assets exist as of a point in time)
- Occurrence (for example, controls exist to ensure that fictitious or duplicate transactions are not included in the records)
- Completeness and accuracy (assets are recorded at the appropriate amounts)
- Valuation or measurement (for example, assets are recorded at the appropriate amounts)
- Safeguarding (for example, physical assets are adequately protected from misappropriation)
- Rights or obligations (for example, the entity has legal title to recorded assets)
- Presentation and disclosure (for example, items in the statements are properly described and classified as well as fairly presented)
Inaccurate records can result in overstatement or understatement of assets. Likewise, impairments may exist, of which management may not be aware.
To address the accuracy of your fixed assets records we recommend the following steps:
- Determine the current completeness and accuracy of your fixed asset listing
- Evaluate the current processes and technology used to update and maintain your fixed asset listing
- Review your roll-forward schedule
Determine the current completeness and accuracy: Perform a property-wide inventory of your property. You can perform this on a sample basis if you have historically good records, or you can rotate through different departments each month. This can be a time-consuming process, but we can provide you the level of support you need to determine the accuracy and completeness of your fixed-asset listing more quickly.
Evaluate the current processes and technology: There are some key steps necessary for evaluating the current processes and technology.
- Start with your capital expenditure budgeting process. Is the decision-making for your capital expenditures integrated into your strategic planning process? Significant dollars are often spent on fixed assets, and ensuring that these expenditures are tied into the strategy will help facilitate both the approval process at the board or council level as well as the prioritization at the management level of limited resources.
- Review your approval process for the purchase of capital expenditures. Ensure that appropriate approvals have been established, and that they are functioning.
- Review your purchasing and receiving process. Although recording fixed assets are the responsibility of the accounting department, the purchasing and receiving functions have a significant impact on the success of recording process. Many fixed asset issues start with poor communications by purchasing and receiving to accounting.
- Fixed assets should be recorded by accounting upon receipt. In order to facilitate this, fixed assets should be tagged for tracking and maintenance when received. You should evaluate which fixed assets should be tagged and tracked.
- Ensure the update of your fixed asset roll-forward schedule is consistently performed. Also, review your useful lives to ensure that they are consistency with your policies. This will often include updating your accounting system's fixed asset module. We would expect an asset roll-forward schedule to include the beginning balance, reclassifications, additions, disposals and ending balance for assets and accumulated depreciation.
- Confirm that month-end activities are performed, including reconciliations with appropriate support.
- Review the transfers and disposals process, and ensure that the procedures are understood, performed, and all parts of the calculations are accurate, including any gain or loss components.
We can assist you in flowcharting the process, and ensuring that procedures optimize the use of technology available, or in drafting procedures to facilitate this process.
6. Accuracy of slot files
The buzz in the industry is leveraging analytics, but the analytics can be significantly altered by inaccurate data files. Ensuring that your slot files are accurate and complete not only addresses minimum internal control standards, but also helps create a strong foundation for your analytics. Items that should be correct within your slot file:
- EPROM (Erasable Programmable Read-Only Memory) or other equivalent software, which is becoming more common
- Software or logic board specifics
- Game name or theme
- Location on floor
For this article, we will focus on the EPROMs and software accuracy. EPROMs and software devices come in a variety of forms, such as a chip, flashcard, or removable drive. The EPROM and software is designed to achieve a set par value, or theoretical hold. The theoretical hold percentage is used to evaluate machine performance, with revenue audit reviewing the actual hold compared to the theoretical hold and investigating variances of greater than 3 percent.
So what can go wrong when dealing with EPROMs?
- EPROMs and software must have supporting gaming laboratory certification; often we find outdated software that is no longer certified or outdated, but still installed in machines.
- Par sheets are the documentation that is received from the vendor to evidence the established theoretical hold percentage of the machine. These par sheets should match the actual ERPOM and software that is placed in the machine, but we often find that they do not correspond.
- Pay tables: The pay tables are found at the gaming machine itself, and are derived from the EPROM or software. Pay tables do not always match the par sheets or the statistical reports.
- Statistical reports are generated from the slot accounting system, and are used to compare the actual to theoretical hold percentage. The theoretical hold percentage in the statistical report comes from what is manually entered into the slot file, typically by the slot tech. We often find that the theoretical hold percentage per the slot file sometimes does not match the par sheets (as provided by the vendors) or does not match the machine that is physically on the floor (pay tables).
Please watch for future in this series. For further information on this topic, please contact Theresa Kain.