The cage department, one of the casino's higher risk areas, has numerous names — cash cage, main cage, cashier area, cage and vault, satellite cage, and master coin bank. But no matter what it is called, the department's function is similar at most gaming establishments. The cage area acts as the central repository for cash, coins, checks, money orders, gaming tokens, and gaming chips. Most casinos try to keep up with the latest in gaming technology, so it is common to see self-redemption coin machines and slot ticket redemption machines on gaming floors. Self-redemption kiosks also are available for players to redeem their club rewards points. Regardless of the technology used, all of these new machines have one thing in common: they contain money.

In most casinos, the cage department has the responsibility of refilling currency in the redemption machine cassettes, securing the cash cassettes, and accounting for the funds. Generally, each redemption machine has two sets of currency cassettes at a minimum, with four to five cassettes in each set. One set is placed in operation inside the machine, and the other set is stored in the cage area, ready to load into a machine when its cash cassette gets low. If a casino has 10 redemption/kiosk machines, for example, the cage may have 40 to 50 cassettes to replenish regularly.

CASH IS KING

During an audit, internal auditors should evaluate the control processes within the cage department to determine whether self-redemption machine cash is adequately secured and accounted for. An example of key areas an auditor should evaluate when reviewing the controls over self-redemption machines include: 

• Security of cash cassettes. The cage department needs adequate facilities to process and store cash cassettes.
• Cassette loading controls. Generally, cassettes should be refilled under dual control, ideally by a supervisor and cashier. Established procedures should rotate this responsibility to avoid the possibility of collusion.
• Cassette seals. An "anti-tamper plastic seal" should be placed on the filled cassettes, which prevents unauthorized access into filled cassettes. Cage management should secure unused seals, making them inaccessible to cashiers.    
• Transaction logbook. All loading-related transactions should be logged to evidence accountability.
• Accounting department review. The accounting department should perform a thorough review of the self-redemption machine balances, transaction activity, and daily inventory documentation. They should have an understanding of the operations and reports to be able to detect errors or fraud.

Because of human error and lack of supervisory control, one casino recently lost more than US $10,000 within 15 minutes when a redemption machine disbursed $100 bills, which the cashier mistakenly put into a $1 bill cassette. The casino had allowed the main cashier to replenish the cassettes under single control, without a cage supervisor present. At another casino, a cashier was caught stealing currency from unsealed cassettes that were stored in the same location with empty cassettes. When replenishing the empty cassettes — one of her daily duties — she opened the cassettes previously filled by another cashier and took some money. The accounting department did not detect the shortage immediately because they did not reconcile the cage documentation timely to the redemption machine's system report, which could have detected this foul play.

Fortunately, internal controls to mitigate such risks can be fairly simple. For example:

• Entry and exit access to the cassette refill and storage area should be controlled securely and accessible only to authorized employees.
• The cassette storage facility should have overhead cameras that capture every step of the process, including access to the doors, loading areas, and storage areas.
• Designated areas should be used to store filled cassettes, which are separated from empty cassettes.
• The top of each cassette should be labeled with the required dollar denomination to prevent the cashier from loading the cassette with the wrong denomination — a preventive control. Labeling also helps identify cassettes for surveillance purposes when filming the fill process.
• Filled cassettes should be sealed adequately and documented with the signatures of the dual control team.
• Use of a logbook — a detective control — should have the date, time, name, and signature of the employees who replenished the cassettes. A supervisor should review and sign the log book periodically to document that the log is being completed properly. 
• Key controls should be in place, such as maintaining documentation of who signed out the key to open the cassettes and the anti-tamper seals. The records also should include the time of day the key is returned, identifying the time period when the cassette fill is completed, in the event a review of surveillance tapes is necessary.
• Random checks by a cage supervisor during the course of the shift are an added control that can help deter and detect errors during cassette processing and storage. 

INVENTORY ACCOUNTABILITY

A cage inventory — currency and coin, negotiable instruments, and other cash equivalents such as gaming chips, tokens, tickets, and coupons — generally is performed daily. A key audit objective is to verify that the recorded inventory balances are accurate.

Internal auditors should review the procedures performed by cage employees at the end of the gaming day to assess the adequacy of controls over the verification of cage assets. The auditors also should perform an independent spot inventory to validate the process. To audit the process, the internal auditor should understand cage operations, including which assets are in the daily inventory count and which are not. They should ensure that the daily inventory is performed under dual control by at least two independent employees. Discrepancies should be resolved before transfer of accountability takes place.

Mutilated chips and tokens and foreign chips and tokens — items inadvertently received by the cashiers from other casinos — are examples of other types of negotiable assets that are stored in the cage. Because they may not be detail counted daily, the risk of theft or error — recycled back to the gaming floor by mistake — is greater than for assets that are piece-counted daily, especially for high denomination chips. Compensating controls include putting chips in a plastic bag, which is verified and sealed under dual control, and placing the bag in a separate area to prevent it from being reintroduced into operations. The cage department personnel then must verify that the bag is accounted for and not tampered with — i.e. there are no bag tears and the seal is in place — when performing the daily inventory.

At the end of each gaming day, the cage department will summarize its transaction activity and prepare a cage accountability report for the accounting department. Typically, the report shows inventory by denomination in one column and the movement of inventory in another column. These two columns should have the same total; if not, the cage department will show a variance, which must be explained and documented.

To perform an adequate review of the transactions, accounting employees should understand cage operations so they can review transactions for incorrect posting, erroneous calculation, and missing support documentation. Propriety of inventory sheets, inter-bank transfers, and activity summaries should be verified timely. The internal auditor should evaluate the adequacy of the accounting department's daily review to ensure completion of a true analytical review, not just clerical work.

A COMMON SENSE APPROACH

Employees, management, and internal auditors must be in tune with new technology to ensure an effective anti-fraud environment. With proper attention to security, separation of duties, and supporting documentation, auditors can ensure success in the automation of the casino.

Percival Veloro is the chief audit executive for the Twenty-Nine Palms Gaming Commission, a tribal government responsible for regulating the Spotlight 29 Casino. Veloro, a certified internal auditor and certified fraud specialist, has 10 years' experience in the gaming industry.