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Entertainment Capital, Employee Fraud Capital

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Discussion of publicized casino employee fraud and how the lessons learned applies even to non-gaming organizations.

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Entertainment Capital, Employee Fraud Capital

  1. 1. ENTERTAINMENT CAPITAL,EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas By Ralph Villanueva MBA CPA CIA CFE
  2. 2. LAS VEGAS ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITALMillion Dollar Lessons from Casino Employee Fraud in Las Vegas
  3. 3. The Entertainment Capital of the World ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  4. 4. The metropolis of slot machines ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITALMillion Dollar Lessons from Casino Employee Fraud in Las Vegas
  5. 5. The mecca of baccarat lovers ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  6. 6. The oasis of race and sports aficionados ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  7. 7. 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 = $600,600From Nevada Gaming Board 2011 report ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  8. 8. 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
  9. 9. 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 ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  10. 10. But first, a quick tour of some of the gaming area – race and sports ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  11. 11. Slot machine area ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITALMillion Dollar Lessons from Casino Employee Fraud in Las Vegas
  12. 12. Table Games Area ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITALMillion Dollar Lessons from Casino Employee Fraud in Las Vegas
  13. 13. And now, a quick tour of the soft count room ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  14. 14. But don’t forget that everyone is always under surveillance ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  15. 15. 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 ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  16. 16. 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 ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  17. 17. Basic Internal Control Concepts• Directive• Preventive• Detective ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  18. 18. Risk Intelligence Pyramid From Deloitte LLC ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITALMillion Dollar Lessons from Casino Employee Fraud in Las Vegas
  19. 19. But why did these frauds still happen? ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  20. 20. The Fraud Triangle From ACFE ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITALMillion Dollar Lessons from Casino Employee Fraud in Las Vegas
  21. 21. 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 ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  22. 22. 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 ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  23. 23. 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 ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  24. 24. 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 ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  25. 25. 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 ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  26. 26. Contributing factorsEconomic factors such as Las Vegasunemployment 15.3% 13.4% 4.5% 2011 2010 2007 ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  27. 27. Contributing factorsLower visitor arrivals and gamingrevenues $10.9B 39.2M 38.9M $9.2B 2011 2007 ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  28. 28. Contributing factorsDominant industry is still tourism ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  29. 29. Relevance to non-gaming or non-gambling industries ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITALMillion Dollar Lessons from Casino Employee Fraud in Las Vegas
  30. 30. 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 ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  31. 31. 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’ ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  32. 32. 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 ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas
  33. 33. About the speakerRalph Villanueva is a Certified Public Accountant (PH),Certified Internal Auditor and Certified Fraud Examinerwith over 20 years’ professional experience in accounting,auditing, financial management and fraud examination inthe US, Philippines and other Asia-Pacific countries. He iscurrently an IT Security and Compliance Analyst at TheLVH–Las Vegas Hotel and Casino (formerly the LasVegas Hilton) and an officer of PICPA International andthe Las Vegas chapters of the Association of CertifiedFraud Examiners, Institute of Management Accountantsand Institute of Internal Auditors. Ralph is also aCompetent Communicator and public speaker with theLas Vegas Toastmasters Club. ENTERTAINMENT CAPITAL, EMPLOYEE FRAUD CAPITAL Million Dollar Lessons from Casino Employee Fraud in Las Vegas

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