Entertainment Capital, Employee Fraud Capital

ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL

Million Dollar Lessons from Casino Employee Fraud in Las

VegasBy Ralph Villanueva MBA CPA CIA

CFE

LAS VEGAS

ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITALMillion Dollar Lessons from Casino Employee Fraud in Las Vegas

The Entertainment Capital of the World


The metropolis of slot machines


The mecca of baccarat lovers


The oasis of race and sports aficionados


Monthly bets on a

• Baccarat table = $3,405,000• Twenty one table = $ 434,000• 25 cent slot machine = $ 47,700• Horse race = $ 404,000• Basketball = $ 3,147,000• American football = $ 1,570,000• Baseball = $600,600

From Nevada Gaming Board 2011 report


HOW MUCH IS LOST TO EMPLOYEE THEFT?

6% Total gaming

revenue in Nevada for 2011

$10.7 BILLION ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL

Million Dollar Lessons from Casino Employee Fraud in Las Vegas

Some of the reasons for that missing 6%

• Sports book theft = $500,000• Soft count theft = $800,000• Player card point fraud =

$800,000• Slot machine fraud = $1,000,000


But first, a quick tour of some of the gaming area – race and sports


Slot machine area


Table Games Area


And now, a quick tour of the soft count room


But don’t forget that everyone is always under surveillance


Now time to talk about casino internal controls


• MICS or Minimum Internal Controls• Mandated by the Nevada Gaming

Control Board• Spans 11 gaming areas from Bingo to

Slots• 1,081 MICS regulations• 181 pages • 1 objective

Some aspects of the MICS


• Documentation • Specify responsibility for each aspect of casino

operation• Segregation of duties• Adequate supervision• Management controls• Hardware and software security

Basic Internal Control Concepts


• Directive• Preventive• Detective

Risk Intelligence Pyramid


From Deloitte LLC

But why did these frauds still happen?


The Fraud Triangle


From ACFE

Sports Book Theft for $500,000


• When: 1992• Where: Star Dust• Who: Trusted Race and Sports

employee Bill Brennan• How: Stuffed cash and

chips in rucksack

Soft Count Theft for $800,000


• When: March 2009• Where: Hard Rock• Who: Trusted Count Staff Jhirmal

Earl Winfield and Sammy Sampson• How: Stole cash from drop boxes

before counting

Player Card Point Fraud for $800,000


• When: July 2009 to July 2010• Where: MGM • Who: Trusted Player club Officer Tony

Ahn and 4 accomplices• How: Transferred unused free play

points to bogus player cards• How: Accomplices used

bogus player cards to get cash

Slot Machine Fraud for $1,000,000


• When: September 2006• Where: Orleans • Who: Four trusted Slot Technicians led

by Seferino Romero and 2 accomplices• How: Printed bogus slot machine

tickets and accomplices cashed

out bogus tickets

Contributing factors


• Human factor• Too much trust• Lack of adequate supervision• Lack of segregation of duties• Absence of internal controls• MICS not strictly observed• Less employees doing more work



Economic factors such as Las Vegas unemployment

13.4%15.3%

4.5%

2011 2010 2007



Lower visitor arrivals and gaming revenues

38.9M

2011 2007

$9.2B39.2M

$10.9B



Dominant industry is still tourism

Relevance to non-gaming or non-gambling industries


Relevance to non-gaming or non-gambling industries


• Sports book theft = asset misappropriation such as theft of cash receipts or inventory

• Soft count theft = asset misappropriation such as cash larceny, skimming or write-off schemes

• Player card fraud = conflicts of interest

• Slot machine fraud = conflicts of interest

Per 2012 Global Fraud Study on Occupational Fraud


• 5% = revenue lost each year• $140,000 = median loss • $1,000,000 = loss in 20% of occupational fraud• 87% = lost due to asset misappropriation schemes• $573,000 = fraud committed by executives• $180,000 = fraud committed by managers• 77% = percentage of fraud by employees in

accounting, operations, sales, upper management, customer service and purchasing

• 18 months = before fraud is detected

From ACFE or Association of Certified Fraud Examiner’

Some hard lessons from casino employee fraud


• Never trust so much• Segregation of duties• Risk management policies and internal controls• Know your employees, co-workers or new hire• Use the Fraud Triangle• Take note of economic conditions• Common sense

About the speaker


Ralph Villanueva is a Certified Public Accountant (PH), Certified Internal Auditor and Certified Fraud Examiner with over 20 years’ professional experience in accounting, auditing, financial management and fraud examination in the US, Philippines and other Asia-Pacific countries. He is currently an IT Security and Compliance Analyst at The LVH–Las Vegas Hotel and Casino (formerly the Las Vegas Hilton) and an officer of PICPA International and the Las Vegas chapters of the Association of Certified Fraud Examiners, Institute of Management Accountants and Institute of Internal Auditors. Ralph is also a Competent Communicator and public speaker with the Las Vegas Toastmasters Club.

Documents

Entertainment Capital, Employee Fraud Capital