Macau regulators will soon carry out the first ever audit of internal controls in the city’s casinos. It is designed to keep gaming clean and ensure the stability of the city The March announcement by Chief Executive Fernando Chui Sai that Macau would conduct its first internal-controls audit on casinos is set to become a reality in the second half of this year. The goal is to evaluate – and in the future try to ensure – their compliance with basic internal control procedures. It is the first audit since the Gaming Inspection and Coordination Bureau (DICJ) issued the Minimum Internal Control Requirements (MICR) in August 2006, with a six-month grace period for compliance. The MICR sets the government’s minimum expectations for internal control systems. The MICR covers a broad spectrum of risks. Concessionaires must establish and maintain an adequately resourced internal audit capability, to enable frequent and thorough testing of the adequacy of internal controls. No cause for alarm The director of the DICJ, Joaquim Manuel das Neves says the audit decision is not connected with any systemic defects or weaknesses. The audit was initially scheduled to take place two years after the MICR went into effect, but was postponed. Neves tells Macau Business that the MICR introduced a string of proceedings impacting everything from slot-machines to chip management, so gaming operators needed extra time to comply. Now, it is time to check how things are going: the audit will cover all gaming concessionaires and the DICJ’s goal is to have it finished by the end of this year, the director says. MICR revision The audit is just the first stage, as later the DICJ wants to update the MICR. “The objective is to understand if there are some requirements and proceedings that can be improved,” the DICJ director explains. The updating aims to cope with the recent cap imposed on the commissions of gaming promoters. Neves assures us everything is “going ok,” although there were some initial bumps while implementing the cap. The cap came into effect in September 2009, but a gentlemen’s agreement meant it really only kicked in properly two months later, in December. This was because the gaming operators asked the government for some extra time so they could change their agreements with gaming promoters. To check how the cap is being implemented, the DICJ plans to complete meetings with gaming operators and promoters during the first half of 2010, says Neves. In control Internal control procedures allow both gaming operators and the government to better control what happens inside casinos. Among other things, they allow the recording of the amount wagered on each gaming table and the amount paid to players. Most jurisdictions require casinos to have a documented set of internal controls over almost every aspect of a casino’s operations. Others require the regulator to approve these while some require the documented controls to meet a set of specified standards – this is the case with Macau. Good internal control procedures in Macau’s casinos are essential to ensure a sound set of public finances. Government revenue is hostage to the gaming operators’ performance: in the first quarter of 2010, direct taxes from gaming totalled MOP14 billion, representing 86 percent of the public finance revenue, provisional data from the Finance Services Bureau shows. Generally speaking, the internal control policies and procedures should include: table game management; cash and chips management; gaming inventory management; management of gaming promoters; and financial closing and reporting. Cleaning up the laundry Internal controls are also important for preventing money laundering. A 2006 guideline, issued by the DICJ, specifically requires casinos to report gaming transactions equal to or exceeding MOP500,000, or the equivalent in other currencies to the DICJ, and all suspicious activities, to the Financial Intelligence Office (GIF). The results are already there: Macau’s casinos were responsible for 1,585 reports of suspected money laundering between 2007 and 2009 – this represents 58.3 percent of the total reports handled by GIF. To make things easier in future, the DICJ wants to integrate all the anti-money laundering requirements in the MICR. “One of the objectives of revising the MICR is to concentrate all the minimum requirements in only one set of guidelines,” explains Neves. One step ahead But gaming operators are not waiting for the government to update their own internal control proceedings. Wynn Macau’s audit committee reviewed the internal control system last month and “considered the system effective and adequate,” the company’s annual reports says. Sands China carries out an annual review of the effectiveness of its internal control system. This includes financial, operational and compliance controls, and risk management functions of the company’s business operations. At Sociedade de Jogos de Macau (SJM), the internal audit department provides quarterly reports with findings and recommendations to improve the effectiveness of the internal control system. No change The Gaming Inspection and Coordination Bureau (DICJ) has no plans to review the minimum financial reporting requirements for gaming operators. Its director Joaquim Manuel das Neves tells Macau Business: “Gaming operators are already obliged to have their financial statements audited by external auditors,” adding that there is no need for improvements. Economist Albano Martins agrees. “This follows the best international practices,” he says. Martins stresses, however, that there is a huge difference between the short reports gaming concessionaires are obliged to publish in the local press and the information they need to hand in to the Financial Services Bureau. “The government has perfect knowledge of the financial status of each gaming operator,” he says. For Martins, the real issue is on how the government uses the information provided. “There could be a specialised working group in charge of only analysing the financial statements presented by gaming companies,” he suggests.