The In’s & Out’s of Slot Audit

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The In’s & Out’s of Slot Audit

Courtesy of IStock

Courtesy of IStock

Far away, in the backend of the casino, through a maze of brightly lit cubicles, there is a desk. Haphazardly scattered across this desk are dozens of computer print outs and reports. Along with reports there are myriad of forms, redeemed tickets, soft count receipts and more. On the right side of the desk you will always find a well-used adding machine, some of the numbers have been rubbed away from years of steady use. Adding machine tapes of all lengths are taped to the cubicle walls. To the left side you are likely to find a mug or cup of some sort of caffeine infused beverage….

This is the home of a casino slot auditor. The slot auditor plays a vital role in the casino operations. Often misunderstood and rarely recognized for their efforts, slot auditors are responsible to adjust for every Slot System error and fix all the problems that arise from a slot employees’ failure to follow procedures.

The responsibilities of the slot auditor fall into three major categories:

1.Insure all slot related internal controls, regulatory requirements, and other standard operating procedures are adhered to.

2.Prepare appropriate slot reports for the casino accountants and management.

3.Validate the integrity of the slot system data.

In order to insure gaming regulations and procedures are followed, the Slot Auditor usually conducts a periodic review of various procedural actions. Some of the reviews a slot auditor might do include things like:

•Check to make sure jackpots slips contain the proper signatures

•Cross-check slot machine door access logs against slot system door open alerts

•Review slot moves and game “RAM Clear” paperwork for proper authorizations

•Identify any slot machine where the actual hold percentage deviates substantially from the theoretical hold (most U.S. gaming jurisdiction have this as a regulatory requirement).

If a slot auditor finds a discrepancy in the procedures or violation of internal controls/regulatory requirements the auditor will have to report the violation to the employee’s supervisor and/or send a written warning to the employee, as well as notify his/her own supervisor.

This responsibility often creates an understandable tension between the slot operations staff, cage employees, and soft count teams. However, without the efforts of the Slot Auditor, casinos could be subjected to employee fraud or, more importantly, the casino could have various regulatory sanctions levied against them.

The slot auditor is also responsible for distributing a defined set of slot reports. Most casino operations ask the slot auditor to prepare both a morning “Flash Report” that gives the estimated slot win and the casino-wide slot hold percentage, and an afternoon Accounting Report that gives the final audited numbers for the casino slot win.

The distribution of the morning report will occasionally cause the auditor a king-sized headache. If the win numbers are below management expectations, there will be trouble. The emails will fly chaotically through cyberspace and the phone will start ringing, all of them asking the slot auditor why the casino did not win enough money. If the numbers are poor, some slot auditors will delay the distribution of the report and perform a quick audit of the meters or try to find some sort of other explanation for the low slot win before that phone starts ringing.

Another problem occurs when there is a big difference between the morning report and the audited afternoon report. This, too, can result in a demand for explanations. Sometimes there is a subtle inference that this discrepancy is somehow the auditor’s fault, after all they are the ones who distributed the reports. However, in fact, the auditor is only following one of their primary mandates: insure the integrity of the slot system data and adjust that data when necessary.

The most time-consuming portion of a slot auditor’s duty is to audit the slot system data to insure its integrity. In the Spring 2015 issue of Gaming & Leisure® magazine, we saw how slot analysis can be used to make informed business decisions about the makeup of the casino slot floor. This is not possible if we cannot rely on the slot system’s data. Further, practically all U.S. gaming jurisdictions require that a certain percentage of the slot win be paid to some governing agency. Without confidence in the casino slot win numbers how can the casino, or the regulatory agency, be certain of the amount of taxes owed?

To validate the slot system data, the auditor (or auditors) perform a series of audits, which will identify any problems with the slot system data and, when necessary, they will make adjustments to that data. These audits are designed to validate every component of the net win and machine win formulas. In the Fall 2014 issue of Gaming & Leisure® magazine we discussed how we derive net win and machine win (sometimes referred to as “actual win” or “statistical win”).

NET WIN = Total Drop – Total Expenses

Or

(Bills inserted + Tickets IN + Credits downloaded) – (All Handpays+ Ticket OUT + Credits uploaded)

MACHIINE WIN = Total Credits

Wagered – Total Credits Won

Or

COIN IN – COIN OUT

(including Hand Paid Jackpots)

How is this accomplished? How does a slot auditor identify and correct erroneous slot system data? One method that is often used to identify gross errors is to do a “reasonableness check” on the data. For each slot, we look at data that is not reasonable or is outside of what we would call “normal” operational data.

For example, if a slot is showing $991,546.00 in coin in for the day we know that this is not reasonable and further investigation is required. Another way of looking for “unreasonable” data is to compare the data in terms of the other data from that slot. For example, if we have $10,000 in Ticket In and only $5.00 in Ticket Out, that should raise suspicion in the data.

The problem with relying solely on reasonable checks to verify the data is that subtler erroneous data can be overlooked. Further, when an error is detected it is not always certain how much the data adjustment might be. To overcome these problems, another method is employed.

This method relies on comparing two independent data sources for each win component on a slot-by-slot basis. The procedure for this can be summarized in three broad steps:

1.Two data sources for each audit are compared

2.Variances between data sources are identified

3.Appropriate action is taken to resolve the variance

Each data component of the slot win equation has at least two data sources available to the auditor that can be compared (see below).

Once these data sources are selected, a comparison is done on a slot-by-slot level. This will show us all slots where the independent data sources do not match. These slots will be investigated and, if necessary, the data adjusted.

For example, let’s take bills inserted or the “Soft Count Audit”. We have two independent data sources: Game Meters and Physical Count. Most slot systems will allow the users to upload the physical count data from the currency counter. The system then allows the auditor to produce a comparison report between the metered bills in and the physical bills counted. A simple scan through the report allows the auditor to quickly identify any questionable data. Once these variances are identified, the next step is to investigate what caused the variances.

Firstly, most casinos allow for some “tolerance” in the variances. For the soft count audit, the tolerance could be anywhere from $0.00 to +/- $99.00. Any variance within this tolerance level can be discounted. The remaining variances should be investigated.

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Variances are typically cause by one (or more) of the following:

•Human error

•Slot system error

•Timing or end-of-day discrepancies between data sources

“Human errors” would include such things as accidently entering the wrong slot number when the bills are physically counted, or leaving bills in the bill acceptor that should have been removed and counted, and there is the ever-present concern that some type of employee fraud may have occurred. Usually these types of errors require a few adjustments to the physical count data. These errors may warrant a written warning and/or notification to their supervisor.

“Slot system” errors include such things as missing meter data, uploading a previous data soft count data instead of the current day, end-of-day processing errors, networking errors, etc. Unfortunately, system errors sometimes require numerous adjustments. Practically every casino in the world has had to, at least once, manually input the entire soft count data due to a system error of some kind. There is an old saying:“To err is human. To really screw things up requires a computer.”

Another major cause of variances is end-ofday timing differences between the data sources. For example, a cage cashier may end her “Gaming Day” or “Business Day” at the end of her shift at 8:00 AM, whereas, the slot system may be configured to end the day at

6:00 AM. Timing differences like this insidiously work their way into all aspects of the daily slot audit, however, all end-of-day variances have one common trait: All end-of-day variances “wash” over time. For example, assume our cage cashier processed a $1000.00 jackpot at 7:30 AM. The system, however, does not count this jackpot on today’s gaming day.

This will result in a +1000.00 variance indicating the cashier has more jackpots than the slot system. On the next day the slot system will show this $1000.00 jackpot, however, the cashier processed this jackpot yesterday. This will result in a -$1000.00 jackpot indicating the slot system has more jackpots than the cashier. Over two days the variances “wash,” leaving a total variance of $0.00.

There are two competing philosophies on how to handle these timing differences. One side argues that since these variances wash over time there is no need to adjust them out on a daily basis. The other side argues that the system data should always match the actual data and therefore these timing variances should be adjusted out each day. In either case, these end-of-day variances should be tracked to insure they are truly timing variances. If these variances don’t wash, we are dealing with some other type of variance.

Coin In, Coin Out, and to some extent Ticket Out, are difficult to audit because they have only one data source – the slot machine’s game meters. A somewhat clever way to get around this problem is to use the “Meter Validation Formula.”

The Meter Validation Formula relies on the fact there are two independent ways to calculate a slot machine’s win: Net Win and Machine (Statistical) Win. These two methods have only one component in common: jackpots. Each win calculation should result in the identical value: Net Win = Machine Win, or Net Win – Machine Win = 0, thusly the Meter Validation Formula is:

NET WIN] [MACHINE WIN]

((Bills Inserted + Ticket In + Credits down loaded) – (All Handpays + Ticket Out + Credits uploaded)) – (Coin In – Coin Out – Jackpots) = $0.00

Whenever this result returns any other value than $0.00 we can infer there is a problem with one (or more) of the formula components. A deeper look into these components, and referring to our other audit, should allow us to identify which component is in error. Of course, we always have to be watchful for those ever-present, insidious end-ofday variances.

As we have seen, slot auditors play an indispensable role in the operations of the casino. They insure all slot-related rules and regulation are followed, they distribute critical slot revenue reports, and spend their day conducting a variety of tedious audits that will insure the integrity of the slot system data.

Josh Cantrell

Josh Cantrell

Josh Cantrell is Founder of and Senior Slot Systems Consultant for Sierra Gaming Consultants (www.sierragamingconsultants.com). He specializes in slot operations, slot accounting / analysis, and slot system support. He has over 25 years of experience working in casino markets around the world including those in Canada, Mexico, Macau, South Africa, and throughout South America.

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