Entertainment Capital, Employee Fraud Capital

ENTERTAINMENT CAPITAL,
EMPLOYEE FRAUD CAPITAL

Million Dollar Lessons from Casino
Employee Fraud in Las Vegas
By Ralph Villanueva MBA CPA CIA CFE

LAS VEGAS

ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL
Million 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

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
15.3%
13.4%

4.5%

2011 2010 2007

Lower visitor arrivals and gaming
revenues
$10.9B
39.2M
38.9M $9.2B

2011 2007

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.

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