GAMBLERS MAY THINK the house always wins, but the recession is giving gaming establishments a drubbing. That makes it all the more important for security to find a way to stem employee theft, which was growing even before the economy faltered and which is now a major drain on casinos’ revenue.

Incidents of employee theft have become both more numerous and more costly. For example, in 2008, an employee of the Desert Diamond Casino in Tucson, Arizona, pleaded guilty to the largest case of employee theft in the state’s history. The employee used fraudulently obtained supervisor passwords to create fake jackpot tickets that allowed him to pocket nearly $650,000.

To prevent this kind of drain on proceeds already slowed by the recession, security and loss prevention should implement policies and procedures that limit the opportunity for employee theft. Among the measures needed are strong security policies and procedures that discourage and prevent employees from stealing, coupled with auditing of programs to ensure compliance and detect signs of misconduct.

Worst of Times

The American Gaming Association has reported that national gross gaming revenues for 2008 were down more than 3.5 percent from 2007. Gross gaming revenues have declined every month since July 2008. The commercial casino industry already has had to make difficult choices to cut costs in the current environment, including reducing staff, pay, and hours, as well as halting development and expansion projects that would have injected jobs and revenue into their communities.

One gaming mecca that has been hard hit is Lake Tahoe, Nevada. Both Harrah’s Entertainment, Inc., and Tropicana Entertainment, LLC, which own multiple casinos in Lake Tahoe, have reduced staff by consolidating duties to give individuals responsibilities at multiple locations. Another Lake Tahoe casino has reduced its work force by 26 percent since July 2008.

For the remaining employees of many casinos, the drop in customers has meant significantly lower tips, which can have a serious impact, given that tips can constitute up to 80 percent of an employee’s income.

Fear of further layoffs, wage cuts, or loss of hours is epidemic, leaving employees both angry and concerned for their future. As a result, casinos have seen an increase in pilferage of physical property from retail shops; from internal divisions such as housekeeping, facilities, and food and beverage; and in corporate offices.

In one case, on weekends, an engineering relief supervisor stole paint, brass pipes and fittings, tools, and other items to support his off-duty self-employment as a handy man. In another case, housekeepers kept property accidentally left behind in rooms. This was easier for them to do than in the past because supervisory staff had been cut due to the economic downturn.

Jerry Markling, chief of enforcement for the Nevada Gaming Control Board, has been evaluating the statistical data for employee theft and criminal investigations for more than a decade. During the last four years, the number of employee arrests increased by 6.4 percent, and “the percentage of employee arrests to all arrests has gone from 33 percent in 2005 to 40 percent last year. So far this year, the percentage is holding at around 40 percent,” he says. (see chart)

Cash and other monetary goods present the biggest temptation. The unusual working environment in the gaming industry, naturally awash with cash, credit cards, marketing programs, giveaways, and prizes, makes it rich with opportunities for employee theft.

Markling notes that the largest areas of increased criminal activity have been in promotions, including players clubs, and in table games. The manipulation of player ratings or points, primarily by employees, has increased considerably.

For example, a VIP coordinator whose job was to assist high-end players defrauded the casino by comping hotel stays and then collecting cash for the stay. The coordinator would tell the guest that if he or she paid in cash, there would be a discount on the hotel room rate. He then used a casino executive host’s comp number to zero out the account. The fraud was detected during a review of comp reports, and the employee was eventually determined to have stolen approximately $15,000 in services.

The most noticeable change, however, has been that the dollar amounts of the employee thefts have increased. For example, at one Las Vegas casino, three slot technicians found a way to generate false slot jackpots. Before they were apprehended, it is estimated they stole more than $1 million.

Embezzlements involving hundreds of thousands of dollars are much more common than they used to be. The average employee theft was approximately $4,000 in 2008, says Markling. “So far this year, that amount is more than $11,000, and what we catch is probably only a drop in the bucket compared to what is actually taken,” he says. “We are also seeing a greater number of supervisors, managers, and executives being involved in thefts or embezzlements.”

In one recent case, an employee of the Agua Caliente Casino in Rancho Mirage, California, was arrested for embezzling more than $400,000. Investigating authorities believed the man was aided in the theft by an insider, a cash-cage supervisor.

When there is collusion between employees and outside agents, losses can be even more drastic. A “false shuffle” scheme orchestrated between bribed card dealers and one criminal enterprise resulted in the loss of an estimated $18 million to casinos across the country and in Canada. The fees paid to the dealers to buy their assistance were between $1,500 and $5,000 each.

Policies

The first step in defeating employee theft is the implementation of security policies that discourage and prevent employees from removing property, stock, or supplies from the casino.

Internal controls. Most employee theft cases involve violations of policies or procedures. These violations, which have the effect of subverting internal controls, are usually discovered after the fact. A gaming establishment can turn that around and deter or quickly detect a significant amount of employee theft by strictly enforcing existing controls.

Consider the growing number of employee-theft cases that involve the use of the company’s own computers. To commit the crime, the employee typically gains unauthorized access to higher level functions or programs, violating company policies. In one case, for example, a bartender was able to use the cash register void function because he had obtained the supervisor’s password in violation of the company’s internal controls. As a result, he was able to carry out a scheme whereby he routinely voided out sales and pocketed the money that customers paid.

In another case, a clerk at a gaming property who was responsible for opening new player accounts obtained access to her supervisor’s computer logon and password. She used the supervisor’s access to edit existing player accounts, changing their names to her name, thus taking ownership of the accounts and their values. The employee managed to steal more than $100,000 before she was detected through exception reports.

Access control. In addition to controlling access to systems and functions, gaming establishments need to control where employees go and what they bring into and carry out of the facility. If a facility does not currently control employee entry and egress, then it needs to implement such a plan.

All employees should be required to enter and exit through one primary entrance. A security officer should be stationed at the entrance checking employee identification for those entering and conducting bag and package checks of all employees exiting the facility.

All casinos should implement a “package pass” system. Under this process, before an employee can carry anything out of the facility, that person’s manager must sign a written pass indicating that the worker is authorized to remove the package. The pass should then be presented to security at the employee entrance before the employee is allowed to take the package off the property.

For this system to work, however, managers must be diligent about examining what is being removed before signing the passes, security officers must examine packages at the door, and employees’ requirement to leave by designated checkpoints must be enforced.

To supplement those procedures, casino security and surveillance at some properties have joined forces to schedule surprise inspections at exits. During the inspection period, the surveillance team monitors each door and reports to security any employee leaving through an unauthorized exit point. Employees are stopped by security officers and informed of the importance of using authorized exits.

Repeat offenders are subject to discipline. Those exiting with packages are taken to the security station, and the packages are checked.

All doors not used by the public should be equipped with an access control system that alarms to a security monitoring system, alerting security when a door is opened. Ideally, the doors should be tied to cameras and audio so that security can instantly identify who has opened the door and surveillance officers can remotely speak to them.

If a facility does not have an access control system, the doors need to be kept locked and checked periodically by security patrols, but exits must be able to automatically be opened in an emergency in accordance with fire codes. Access to master keys should be limited.

Gaming establishments also need good visitor control policies. These may include requiring the use of temporary badges and providing an escort for visitors within nonpublic areas of the facility.

CCTV. Cameras should be dedicated to monitoring nongaming areas, such as hallways, doors, and any out-of-the-way spots that may represent opportunities for theft or that may be used to store stolen goods.

One example of the results of increased CCTV coverage occurred at a casino that was suffering thefts from its kitchens and food storage areas. After surveillance cameras were installed in these locations, kitchen employees were seen on more than one occasion preparing and eating lobster burritos and Chilean sea bass. Other employees were observed entering meat storage lockers to steal premium items such as prime rib and shrimp, which were sold on the street to augment the employees’ incomes.

Auditing

To help prevent and reduce employee theft, there needs to be proactive auditing of the system—including its programs, internal controls, policies, and procedures—to ensure compliance and honesty. This means that every system, every program, and every department must be checked and reviewed on a routine basis.

Each department or support function performs key duties; policies and procedures are likely in place to ensure that these duties are carried out in a way that limits the opportunity for theft, but if no one monitors whether those policies are adhered to, the safeguards likely will be subverted.

For example, if the chef fails to inspect and verify the contents of cases of lobster delivered to receiving personnel, the opportunity exists for the receiving employees, the kitchen staff, or both to steal the product.

Exception reports, which show when something out of the norm occurs, and other statistical information should be closely monitored, as most employee theft or fraud can be detected by a careful review of these numbers. Negative trends (losses) can often be traced back to their source departments and individuals.

For example, while reviewing a series of void exception reports, one surveillance department identified a bartender who had rung up about 100 voids per week, as opposed to the other bartenders, who routinely had 10 per week. It was determined that the bartender was using the void key to negate legitimate paid transactions while pocketing the payments as tips.

Background Checks

Thorough background checks reduce the likelihood of hiring people who steal. Although this seems obvious, the number of gaming properties that do not conduct meaningful checks is surprisingly high. Special attention should be paid to the background investigation of anyone with access to assets or sensitive information. Further, if possible, key activities of newly hired individuals should be monitored at a higher level during their probationary period.

Criminal Prosecution

In cases where evidence merits it, prosecutions should be undertaken. This means that a package of documentation about the crime should be assembled so that law enforcement can submit that evidence to a prosecutor to file criminal charges. Neither law enforcement nor the prosecutor has the time or motivation to do the follow-ups and leg work necessary for investigating financial crimes at casinos.

The gaming industry must redouble its efforts to fight employee theft during this economic downturn. But having strong security policies and enforcing them makes sense not just when the chips are down but also when fortune smiles again. To do anything less is to leave profits to chance.

This article was a collaborative effort of members of the ASIS International Gaming and Wagering Protection Council. Contributors included Derk J. Boss, CPP, president/ owner of D. J. Boss and Associates of Henderson, Nevada. He is vice chair of the council. Tommy Burns, CPP, is a consultant with Burns and Associates of Henderson, Nevada, and chair of the council. John Chuvala, CPP, is an associate professor at Western Illinois University in Macomb, Illinois. Douglas L. Florence, Sr., CPP, is director, gaming sector, NiceVision/Nice Systems Inc. of Las Vegas, Nevada. Jerry Higginson, CPP, PCI, is director of compliance at Mont Bleu Resort Casino & Spa, Stateline, Nevada. Chuvala, Florence, and Higginson are members of the council