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California Casino Audits a Mess

1 December 2004

CALIFORNIA – As reported by the San Diego Union-Tribune: "The compacts require that independent certified public accountants conduct annual audits of casinos for the tribes. With each payment to the state, tribes submit a report showing the number of slot machines in operation and each of their net wins.

"…When tribes signed gambling compacts with Davis in 1999, they agreed to the widely accepted American Institute of Certified Public Accountants' definition of net win. It simply states gross revenue, or net win, is 'the difference between gaming wins and losses before deducting costs and expenses.'

"The state commission won't say how many ways tribes in California are calculating net win, but it is clear from commissioners' sworn statements and interviews with tribal regulators that some deduct expenses before calculating what is owed. In fact, compacts Gov. Arnold Schwarzenegger negotiated with tribes this year redefined net win to include deductions for fees on certain slots.

"A Union-Tribune analysis shows that the $181 million tribes have paid into the Special Distribution Fund from September 2002 to June 2004 translates to a statewide average daily net win of about $275 per machine.

"…Burks Dean Shelton, whom Schwarzenegger appointed chairman of the commission in February, said the commission 'has never taken a position on what the definition of net win is.'

"Without a definition, he said, it would be difficult to audit tribes' payments.

"…The Union-Tribune repeatedly requested information on the frequency and number of audits over the past few months.

"...Last week, Qualset, who is in charge of licensing at the commission, said staff members have been auditing casino payments for more than a year, but he refused to provide specifics. He would only say they have interviewed staff and examined daily slot machine revenues of more than one casino to ensure accuracy of payments to the state.

"Candace Cates, a former agent with Division of Gambling Control, the investigative arm of the commission, sued last year, as a taxpayer, to force the state to perform audits and collect any outstanding funds. The two commissioners' depositions were part of that lawsuit. Cates has also sued her former employer, claiming she was prevented from investigating alleged corruption.

"David Ronquillo, one of Cates's attorneys, said the state commission has not been acting in the public interest while benefiting tribes and casino management companies…"

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