“SELF-REPORTING” OF INCOME BY TRACKS—AN AUDITOR’S NIGHTMARE
Besides elaborating on the fairly well-known facts that New Mexico races kill twice as many horses as the rest of the country per race, and test for drug abuse of horses about half as many times per race as most of the country, the Legislative Finance Committee (LFC) revealed the shocking information that most track reporting of income and taxes is not subject to accurate state auditing.
There are three gambling opportunities at the tracks that generate net income, all of which generates taxes to the government, generally at 26% of net income for all three gambling opportunities.
CASINO: The casino arm of the racetracks, or “racino,” generates money by the playing of slot machines. Reporting of income here is very straight-forward. All racino slot machines are hard-wired into a central computer at the Gaming Control Board (GCB) in Albuquerque. Raw data is immediately available to government regulators. Data from the other two opportunities are clouded in ambiguity.
PARI-MUTUEL LIVE RACES: New Mexico compares poorly to other states in the number of inspectors that monitor racing operations, and time spent at the operations. On page 16 of the LFC report, the GCB is reported to have five investigators and a supervisor inspecting five racetrack casinos, 55 non-profit gaming operations, and 104 bingo operations, averaging 27.3 operations apiece, although two of the investigators positions are vacant. The report compares this to the state of Arizona, which has ten investigators to oversee 21 tribal casinos only, for an average of 2.1 operations to oversee. The LFC report further reveals that New Mexico has about half the number of inspectors at live races that California has.
Then the news gets dramatically worse: On page 9 of the LFC report it says, “Pari-mutuel wagering taxes paid to the state by racetracks are self-reported, and are not audited by the NMRC on a regular basis.” Similar to tribal casinos, the pari-mutuel racing is on an honor system where state officials are expected to believe the “self-reported” audit without live data to corroborate it.
PARI-MUTUEL SIMULCAST RACES: These are races broadcast with electronic media from live races around the country. Page 35 of the report states, “The NMRC only requires audits of revenues and taxes from racetracks during live racing meets.” And further, “between 2007 and 2011, simulcast only race days accounted for 81percent of total pari-mutuel wagering days…Simulcast wagering revenues in 2011 alone accounted for 57 percent of total wagering revenues.” This translates into the fact that there is virtually no auditing being done on simulcast-only wagering. Confirming that during the LFC meeting, Sheryl Edgar, an Albuquerque CPA, who previously had been a race track controller, reported that there were “gaping holes in the audit process” of the revenue at the tracks. She went on to say, “We need real internal controls and real audits for the maintenance of integrity and safeguarding of all of this money,” Without accurate audits of hard data in live and simulcast racing, millions of tax dollars could easily be misappropriated and withheld from the state.
The Gaming Control Board went into defensive mode in the report and said, “the suggestion that the integrity of the gaming industry was ever compromised is simply an incorrect statement…” It is clear that the GCB is either unaware or unconcerned about the gaping holes in the racetrack auditing process. The regulators have become all too cozy with the industry they are supposed to regulate.
The tracks don’t have 35-year compacts that are very difficult to amend. The solution to this problem could be quick and relatively easy. The legislature could mandate Minimum Internal Control Standards for the state racing “industry,” and demand proper auditing and enforcement. Or the Gaming Control Board could simply enact policy changes that could accomplish the same thing. Neither will happen unless the citizens of the state and the media demand constructive changes.
Stop Predatory Gambling New Mexico promises to champion these changes.
Dr. Guy C. Clark, chairman
Stop Predatory Gambling New Mexico
