State auditor finds long delays in licenses, permits by gambling agencies cause problems to gaming industry, casino owners

SACRAMENTO –After a six-month investigation, the state auditor concluded that inefficiency in the Bureau of Gambling Control (BGC) and the California Gambling Commission (CGCC) is causing problems to the gaming industry, casino owners and workers, particularly the long delays in licenses, work permits and, approval of new games.

It urged that the legislature deny permanent funding for additional staff previously approved for the Bureau until it adopts changes to improve its performance and clears its huge backlog of pending license applications.

California State Auditor Elaine Howle recently released the results of a wide-ranging audit of the BGC and CGCC confirming concerns in the gaming industry that the regulatory practices of both agencies were the reasons for the extended delays in the licensing of casinos and the applications of employees.

Although the report did not find any misuse in the Gambling Fund which is expected to reach over $97 million in 2020 from $61 million in June 2018, it nonetheless found the fees charged to card room owners and third party owners excessive. The surplus, which has doubled over the past fiscal years, was more than five times the combined annual expenses of the Bureau and the Commission.

The report said there was no formal plan to clear the backlog of applications and no guidelines in the processing of applications resulting in long delays asking for supporting documents from applicants.

It also suggested that the Bureau could improve its performance by devoting more time to review the applications and to conduct background investigation than focusing on unrelated activities.

The review identified inefficiencies in its processes and concerns about how staff report spend their time, the report said. For instance, the Bureau’s licensing staff reported spending nearly half of their time on activities not related to background investigations, such as attending training, answering emails, voicemail and break time.

With its present staff the Bureau can clear its existing backlogged license applications by the end of fiscal year 2021 if it addresses its inefficiencies, the report said. It urged the Bureau to come up with a formal plan by November 2019 for completing its review of the remaining pending applications.

Despite its increased staffing and funding, the Bureau has failed to clear its backlog of pending license applications. As of June 2018, over 1,800 applications for licenses are still under review although that number has decreased considerably from 2,700 in June 2015.

In the past five years, the BGC has exceeded the 180-day limit for processing gaming license applications for about 70 percent of the applications it received from January 2014 through December 2018. Some applications are still under review after more than six years, the report noted.

Also, the backlog remains high despite the fact that the number of cardrooms supervised by the Bureau has gone down to top less than half its size in 1997.

“The delays owners and potential owners face mean they may miss opportunities to acquire card rooms or lose revenue while waiting for the licenses that would allow them to operate the card rooms,” the report stated.

“The Bureau’s and Commission’s incomplete and inconsistent procedures have contributed to delays and backlogs for gaming license applicants and have resulted in unequal treatment for applicants and licensees,” Howle said in her report.

BGC Director Stephanie Shimazu said her office has already implemented many of the recommendations in the report.

In response, the state auditor said, “the changes it describes are very recent — some as recent as the period of the Bureau’s review of our draft report.”

The audit was conducted on orders of the Joint Legislative Audit Committee acting on a request by Assemblymen Rob Bonta and David Chiu.

The two lawmakers sought the audit after meeting with members of the Asian Pacific Islander (API) community who own six out of existing card rooms.

The casino owners and their representatives complained they were being unfairly treated by gaming regulators saying that 40 percent of the license applications that undergo further review are from members of the API community.

Bonta told the audit committee both the Commission and the Board needed to be audited in order to, among others,

  • Assess whether all applicants for licenses are treated the same despite their race, national origin or, gender,
  • Ensure that API applicants are not treated disparately,
  • Stop Board resources from being wasted in fruitless prosecutions,
  • Determine whether the fees paid to the Fund should be reduced or refunded,
  • Whether the Fund is being used for any improper purposes, such as employees performing non-BGC tasks.

Addressing, the issue of racial bias, the auditors said the review of individual applicant files did not find proof of discrimination on the basis of ethnicity or other related characteristics because neither the Bureau nor the Commission track the ethnicity of the applicants and license holders.

No New Games

For three years, the Bureau has not issued any decisions on card rooms’ applications for certain types of table games known as California games. Instead, according to its records as of March 2019, it had a backlog of 99 such applications.

The Bureau’s failure to act on new requests for California games — as well as its delay in issuing regulations — has placed some card rooms at an economic disadvantage because they cannot offer games previously approved for other establishments before the current suspension. Therefore, these card rooms’ competitors may offer games that they do not.

Because such a significant amount of time has passed since the Bureau stopped issuing decisions on California games, it is critical for the Bureau to act as quickly as possible to provide card room owners with equal access to approved games.  (George Nerves)