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Audit Text

Auditor General Jack Wagner Calls For General Assembly To Clarify Flaw in Gaming Industry’s Background Checks

Awarding of Mount Airy slot license highlighted issue of jurisdictional struggles

HARRISBURG, PA., May 28, 2009 – Auditor General Jack Wagner said today that the Pennsylvania Gaming Control Board should get the General Assembly to amend the state’s slots casino law to clearly define the roles and responsibilities of investigative agencies in sharing background information about casino owners and employees.

In a special performance audit released today, Wagner said that confusion over how a slots casino license was awarded to a Lackawanna County businessman, and the ensuing public controversy, has damaged public confidence in the Gaming Control Board and its vetting process.

“The Louis DeNaples case identified a flaw in the system that needs to be fixed,” Wagner said. Noting that two slots licenses are still to be awarded, Wagner added, “The General Assembly should explicitly spell out how law enforcement agencies share information with the Gaming Control Board for the purpose of conducting background checks. Despite an interagency agreement between the state police and the Gaming Control Board, jurisdictional gray areas must be eliminated to reassure the public that Pennsylvania’s gaming industry is the cleanest and most professional in the nation.”

Although the audit did not focus on the Mount Airy license, Wagner said it highlighted a flaw in the overlapping roles of investigating agencies. The Gaming Act designates the Gaming Control Board’s Bureau of Investigations and Enforcement as a “criminal justice agency,” but the Pennsylvania State Police and the FBI do not recognize that designation and instead have said they cannot share all their information with Gaming Control Board investigators. As a result, Wagner said, the Gaming Control Board could be licensing casino owners and gaming employees without possessing all relevant information.

In the Mount Airy case, the former chairman of the Gaming Control Board accused the Pennsylvania State Police of not sharing information about a criminal investigation involving the Lackawanna County businessman before the board voted to accept his bid for a casino license for the Mount Airy Casino Resort. The former head of the state police, in turn, said that the seven-member gaming board should have been aware of a pending perjury investigation of DeNaples because it was the board’s own investigators who had referred the matter to state police for investigation.

Perjury charges were dropped against DeNaples after he agreed to transfer ownership of the casino to his daughter.

“The system simply must be fixed so that a situation like this does not occur in the future,” Wagner said.

His report covered the period from July 2004 through August 2008, with updates through May 2009, and is available to the public at www.auditorgen.state.pa.us. The performance audit has 6 findings and makes 20 recommendations, and includes the Gaming Control Board’s response.

Casino revenue is subject to Pennsylvania’s 55-percent tax rate on gross terminal revenue and the resulting proceeds are to be deposited into the State Gaming Fund, the Pennsylvania Race Horse Development Fund, and the Pennsylvania Economic Development and Tourism Fund. For every net dollar that a slot machine generates, 55 cents should be returned to Pennsylvanians and designated for property tax relief, economic development and tourism, local community support, compulsive and problem gambling, and the horse racing industry. Gov. Rendell set a goal of $1 billion a year in property tax relief from gaming revenues. Pennsylvanians first began to receive statewide property tax reductions from revenues generated through gaming in 2008.

The Gaming Control Board reported that, by the end of calendar year 2008, the state’s gaming industry generated more than $2 billion since the first casino opened in 2006. As of May 2009, eight casinos were in operation, and 12 of 14 possible licenses were awarded. Four licensed casinos have not yet opened, and the two remaining licenses are not yet awarded.

One of the main objectives of Wagner’s special performance audit was to determine whether Pennsylvanians were hired for most casino jobs, and whether there was racial and gender diversity. As of Dec. 31, 2008, the board reported that 94 percent of casino employees were state residents; 49 percent were women; and 18 percent were minorities.

Wagner said the Gaming Control Board itself also hired state residents and promoted diversity. He found that 93.6 percent of board employees as of May 10, 2007, were commonwealth residents at the time of hiring. More recently, as of Dec. 31, 2008, the board reported that 44 percent of its employees were women, and 13 percent were minority employees.

“My department will continue to aggressively monitor to ensure that all Pennsylvanians are benefitting from the opportunities promised by gaming supporters,” Wagner said.

Wagner noted that more than 15,000 new jobs have been added to Pennsylvania’s economy by the new casinos, and that approximately $1.2 billion in property tax relief was provided to Pennsylvania residents from gaming revenues. The American Gaming Association recently reported that casino revenues in Pennsylvania grew by 48.3 percent in 2008, with $1.6 billion in revenue, which far exceeded revenues of any other commercial casino state.

Wagner’s audit also found that the Gaming Control Board’s seven voting members had combined salaries exceeding more than $1 million, and that their compensation exceeded that paid to similar board members in six other states -- even though the Pennsylvania appointments are considered part-time positions that permit board members to hold full-time jobs elsewhere.

Wagner’s report further noted that the Gaming Control Board had the highest percentage of employees earning more than $100,000 in 2007, at 11.6 percent, compared to less than 6 percent for 25 other state agencies. More recent information obtained by auditors for April 2009 shows that 7.6 percent of the board’s employees made more than $100,000. The lower percentage likely resulted from more employees overall – 264 in April 2009, compared with 217 in 2007.

For the 2007-08 fiscal year, Wagner said the board paid $21.3 million in personnel costs, including $15.7 million for salaries and wages.

Wagner called for an amendment to the Gaming Act to prohibit board members from holding outside employment and to require them to work a minimum number of hours. He also called for staff salaries to be more in line with those at other state agencies.

“With the level of compensation paid to Gaming Control Board members, it is critical to taxpayers that salaries are commensurate to the job and that board members devote themselves full
time to their important job responsibilities,” Wagner said.

Wagner completed this first performance audit of the Gaming Control Board without being reimbursed for related expenses. He has the responsibility to make sure that legalized gaming is working as intended and that the commonwealth and taxpayers are getting their fair share of gaming revenues, but state law does not provide funding for all of these audits. In February testimony before the House Appropriations Committee, Wagner called for a change in law to require gaming entities to pay for all of his audits. He noted that the attorney general is compensated for its law-enforcement services that have resulted from the gaming industry coming to Pennsylvania.

“As auditor general I will remain vigilant in my oversight of the Gaming Control Board and gaming in Pennsylvania. With continued monitoring, my department will keep taxpayers informed and their interests protected by reviewing topics such as travel-related expenses, automobile usage, and contracts for professional services in future audits,” Wagner said.

Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly. He is the Commonwealth’s elected independent fiscal watchdog, conducting financial audits, performance audits and special investigations. The Department of the Auditor General conducts more than 5,000 audits per year. To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department’s Web site at www.auditorgen.state.pa.us.

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