Below you will find the GCB response (unedited by ACM) to the letter that ACM President Jaranson sent to GCB Chair Goede on 06/21/2018.
We value the role of the Gambling Control Board. We all agree that bad apples need to be found and expunged from charitable gaming in Minnesota. At the same time, we all make mistakes and benefit from assistance on occasion. The role of the GCB is as much mentor as regulator, and we would hope that the GCB would assist organizations in solving minor as well as significant problems. We believe that getting a struggling organization back on track is far superior to letting it fail.
It is true that ACM has been critical of the state in the recent years. We would challenge you to find a charity that has grown their donations at a higher percentage than their taxes and fees since FY2012. In FY2017, charities as a whole paid more in taxes and fees than was available for our communities and missions. We understand that we are a part of the fabric of the state and need to pay taxes, but not at the disproportionate rates we are paying today.
We all see the needs in our local communities across our great state growing by the day. With the current combined receipt tax rates and the ever increasing costs of running a charitable gaming organization, our ability to help others is diminishing. Charitable gaming has been a safety net in many communities for over 73 years, but as our mission dollars decline, so will the programs and services that we support. Allied Charities has fought tirelessly for tax reform, and we will continue to challenge those in positions of power to listen to us and provide all Minnesota licensed charities with much needed tax relief.
Dear Chair Goede: 06/21/2018
We wish to bring several items to your attention that are of concern to Allied Charities of MN and licensed gaming charities statewide. All of the information related below was brought to us directly by charities or their members. As an organization representing those charities, we believe it is our obligation to relate their concerns to you and ask that you take all necessary and appropriate action.
A charitable gaming organization that had a bar operation of electronic gaming turned in their license due to mismanagement. We are told that the Board was aware of the mismanagement (by both the site and the charity) for months, but chose to do nothing until there was no recourse for the charity other than to turn in their license. What would be the purpose of letting this continue once the Board was aware of the issue? Was it possible that earlier intervention could have resulted in a better outcome for the charity?
GCB Response: We were aware of the issues with this organization and in fact worked very closely with their leadership in terms of trying to resolve the accounting problems based on their monthly reports submitted to the Gambling Control Board. We’d be happy to share our case file records regarding this instance but the fact of the matter is, due to poor internal controls and lack of oversight by the charity, a bar owner was grossly underreporting the actual sales activity for electronic games and the gambling manager failed to properly account for these sales. By the time the actual theft was discovered, investigated and total amount determined, the organization communicated it was unable to recover the missing funds and reimburse the gambling account.
A charitable gaming organization that suspected theft in their operation contacted the Board (at the urging of ACM), not once, not twice, but three times (up to and including the Director) for help. They were told each time that Gambling Control is not “free labor”. They were told that the charity would need to figure it out on their own and report the findings to the Board for possible sanctions, fines and penalties. With several million dollars of reserves in the dedicated Gambling Control fund directly from charities, we believe that the Board has the resources and the OBLIGATION to provide assistance to charities to prevent and detect theft, mismanagement and other such issues. We view the role of the Board to include assistance when the charity does not know how to determine whether or not theft has occurred. We are currently reviewing whether or not to tell charities to contact their compliance officer when they call us with similar issues.
GCB Response: Yes, we did talk with the organization’s CEO about a possible theft and unfortunately they suspected the gambling manager and one of his sellers. The organization’s CEO could not provide any specific details and had no first-hand knowledge of the operations but suspected “something was wrong”. Knowing the possible theft was focused on the seller and gambling manager, our compliance specialist recommended that the CEO/Post Commander bring in an accountant to audit the games specific to that site/seller. When the CEO called again to talk with one of the GCB investigators, we provided the same recommendation to have someone do an audit of the games to determine proper accounting and provide credible evidence of theft. When Mr. Lund asked me to look into the matter, my email confirmed to Mr. Lund what direction was given to the organization. I made no such comment about “free labor” and to my knowledge, the organization was able to resolve their issues internally. If there was a theft, a fund loss report was never filed with the Board.
We will continue to encourage charities to contact the Gambling Control Board if there is a potential problem or credible indication of theft but it is not the mission of Board staff to take over the accounting and internal controls of an organization’s charitable gaming operation to resolve their accounting deficiencies.
The Board has been asked repeatedly by charitable organizations to stop for-profit entities (bars, distributors and manufacturers) from meeting to discuss gambling options, usually electronic gaming, without the knowledge or inclusion of any charitable organization. This is not education or training. Actual deals are being made among the for-profit entities that the charitable gaming organizations are then forced to comply with or lose the site. This was offered for inclusion in the most recent rules update but was denied.
GCB Response: If such activity (discussing electronic gaming options) is not education or training, then let’s call it marketing or selling. Manufacturers, linked bingo game vendors, distributors, and distributor salespersons are all licensed by the board to conduct business related to charitable gambling and that license does allow these “for-profit” entities the opportunity to educate, train, market and sell their products. But it still remains the licensed charity’s ultimate decision of what to buy or not buy and with regard to electronic games, only the charity can enter into an agreement (“deals”) for electronic games. There is no similar restriction when it comes to the purchase of paper pull-tabs or other games and we recognize that bar owners also act as agents of the charities when accepting games delivered by a distributor – with or without the consent of the charitable organization.
Bars that have electronic gaming are required by statute to have paper pull tabs available for sale. Bars that do not want to sell paper pull tabs are keeping them out of sight and not making them available to customers. It has been reported to us that Gambling Control is ignoring the statute.
GCB Response: The Board has not received one complaint or allegation with regard to sites not making paper games available to customers. If we get a complaint we can certainly look into it but we also believe a charity has the right to determine for itself what games to offer or not. This is similar to one charity offering 4 different pull-tab games and another charity across the street offering 8 pull-tab games – in this situation, the Board does not take a position how many games should be offered for sale by a charity.
The electronic pull tab systems have been allowed to be designed to include an auto-close feature that consistently closes games above 85%. When in use the auto-close feature is a defacto posting of games as players are aware that games in play have large prizes remaining. There is no reason that an auto-close feature cannot be programmed to close games at 85% or less. In fact, we believe that allowing this feature without requiring it to close games at 85%
may violate the statute. We proposed a rule amendment to require the auto-close feature to be designed to close games at no more than 85%, but our request was denied.
GCB Response: Your request was not denied. Based on our review of game activity, sites that utilize the auto-close feature are NOT consistently closing above 85%. When we looked at more detail it is apparent that the charities that closely monitor their game activity, including auto-close games, do very well in managing their electronic game sales. In fact, electronic games close at a percentage much closer to the ideal net receipts than what we see at most sites for paper games. At the most recent Rules Committee meeting this issue was again presented by representatives of Allied Charities and the Board asked if the auto-close feature should be available for use by the charities. There was no opposition including from Allied Charities to allow the auto-close feature. The next question was, would the manufacturers be willing to design other auto-close options that could provide the charities with more options with regard to prizepayout limits and the response from manufacturers present that they were willing to program more options. But regardless of options available, it is still paramount that the choice and decision lies with each charity to manage its games and to decide whether to engage or not to engage an auto-close feature. It appears your concern is what game information is available to the player and, when auto-close is engaged, should that information be available to the player.
For as long as anyone on the ACM Board can remember, the Gambling Control Board has held their November meeting at the ACM annual convention. It appears that this year, that long tradition will end. The decision to not have the Board attend the November ACM annual convention in Bemidji is troubling to us. It would seem that the decision is not based on monetary considerations given the millions of dollars of surplus funds in the dedicated account. Charitable gaming organizations exist all throughout our state and no one area is more deserving of the Gambling Control Board’s presence than another. Perhaps you can shed light on the factors that what went into making this decision? If the final decision is not to have the full board attend, perhaps you, the Director, and other key personnel can attend and hold a panel discussion to allow charities to ask the questions that they would otherwise not be able to ask?
GCB Response: Representatives of Allied Charities have become much more critical in recent years of our regulatory efforts and have also been very critical of the governor’s administration and legislative leaders’ actions or inactions involving charitable gambling. We recognize the importance and existence of a trade association such as Allied Charities in standing for what is important to its members but we also realized the need to minimize our direct involvement in the business function of trade associations. With that said, we remain committed to providing Board staff for training and educational purposes as planned for your convention scheduled for later this year.
Although we are told Gambling Control personnel will be in attendance at the ACM convention, their seminar schedule has been cut from 10 to 5 classes. The three day ACM convention typically provides the annual CEU credit requirement to 25% of the gambling managers in the state. There is no other event in the state that does this or even comes close to doing this. Since Gambling Control personnel are going to be in attendance, why cut the number of course offerings?
GCB Response: Based on the actual class schedule from last year, the Gambling Control Board conducted 8 (not 10) continuing education (CE) classes at the Allied Charities convention. This is in addition to the other 45 CE classes Board staff conducted statewide over the past year. After conferring with our state counterparts (Revenue and Public Safety) it was determined that we would commit to a smaller number of classes knowing that Revenue and Public Safety would continue with the same level as before and knowing that attendance at the ACM convention has also dropped over the years. Additionally, we launched our online training classes and have received tremendous response to this effort. Our online classes were created in response to the charities’ need to reduce or minimize expenses and has already proven to be very efficient and cost effective for the charities.
I would welcome the opportunity to discuss these issues with you in person or by phone at your earliest convenience. While we serve different roles, cooperation between ACM and the Board serves the best interests of the charities and the State. Our industry is facing many challenges. Together we can meet those challenges and ensure a future for the many worthwhile beneficiaries of charitable gaming.