Controls at the Bellagio Casino Resort

July 21, 2017 Music

Synopsis of the Situation The Bellagio was one of 23 properties of MGM MIRAGE, one of the world’s leading hotel and gaming companies. Located in the heart of Las Vegas, The Bellagio was widely recognized as one of the premiere casino resorts in the world. Richly decorated, the resort featured a conservancy filled with unique botanical displays, and eight-acre lake featuring over 1,000 fountains that performed a choreographed ballet of water, music, and lights, top-notch amenities and entertainment options, and 200,000 square feet of convention space.

In the casino operations area, the Bellagio operated 2,409 coin-operated gaming devices (slot machines), and 143 game tables. Approximately 1,000 people were employed in casino operations. As in most companies in this industry, the gaming (casino) and nongaming operations were run as separate profit centers. The unique feature of a casino resort organization, as compared to that in most organizations, is the relatively large size of the finance staff.

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In the Bellagio, about 1,000 of the total of approximately 4,000 employees were in the finance organization Key Issues Organizations can supplement or replace results controls with other forms of controls that serve the sames purpose: make it more likely that employ ees will act in the organization’s best interest.

The management control systems used by the Bellagio Casino Resort represent a control system that is dominated by action and personal controls, rather than result controls. While the managers interviewed for the case may seem justified in being proud of their company’s control system, one needs to keep in mind that managers are not going to be apt to openly admit to weaknesses when these interviews may be read by their competitors, government regulators, or simply a slick gambler.

Controls Action controls (involve ensuring that employees perform (do not perform) certain actions known to be beneficial (harmful) to the organization): Physical –Strict separations of duties are maintained so that there is no loss of stocks and cash; pit managers have no access to computer system so they can not add, change or delete inventory amount. –Constant observation and supervision of gaming area; careful surveillance of actions taking place with closed circuit cameras, which are powerful enough to zoom in and view details such as the date on a coin.

To ensure that surveillance is done objectively, there is strict separations of duties. –Stocks of cash and chips are stored in casino cage; different padlocks are used, neither the security guard nor the pit manager had access to keys. –Tight security and supervision in count room to secure from unauthorized access at all time; access to count room is restricted to specific members. Administrative –Daily cash counts by employees independent of casino operations –Company maintained stringent controls on the recording of all receipts and disbursements. -Strict procedure was followed when transferring cash or chips to or from non imprest funds. And daily reconciliation are performed. The respective manager has to sign the inventory sheet verifying the accuracy of the count. –Aggressively pursuing collection from customers who fail to pay their markers balance in time. Preaction reviews –Perform stringent and frequent auditing procedures, such as reconciliation of each document, proper completion of documents, checking of signatures, verifying sequential numbers of documents.

Action accountability –Timely analysis of deviations and company maintained strict controls over issuing credit and authorizing credit limits and player’s credit limits needs to be preapproved. –Documents used were serially numbered to prevent employee theft and frauds Redundancy –Back up people or machines available in case of some failure. –Recording of activities by CCTV and ensure that there is minimum of 3 persons present in count room ensures full accountability of all activities.

Personnel controls (designed to make it more likely that employees will perform the desired tasks satisfactorily on their own because, for example, the employees are experienced, honest, and hard working): –Hiring experience dealers and that have mastered the technical aspects with at least have two years of experience. –Company performs its own employment screenings, independent of the registration process. The intent is to check background and to avoid hiring people involved in crime, violations. -Licensing of casino personnel so this will ensure that the right person is employed and those who fails the registration process is not employed by casino company. –Training and retaining well qualified employees to ensure that the right type of people is employed: Company provides extensive further training to employees to standardize its activities. Cultural controls (exist to shape organizational behavioral norms and to encourage employees to monitor and influence each other’s behaviors): –Controls were legally mandated because the gaming industry is highly regulated.

Companies have to maintaining its licenses and paying gaming taxes to be allowed to continue operations. –Company is operating in highly competitive environments and competing against other companies. They were required by regulations to report suspicious activities related to money laundering and report any cash transaction in excess of $10,000. Results controls (Policies and procedures that help ensure management directives are carried out to achieve the desired result. It involves rewarding individuals for generating good results. –Monitoring of results and patterns and if desired result is not achieved than they would look at root cause of unfavorable trend. –Variance reports are generated using the estimated amount and reconciling with the actual data. Investigating for deviation on daily and monthly basis and when unusual deviations are observed then the appropriated shift mangers are questioned and if there is doubt then extra surveillance enforced. –Results measures were considered in bonuses paid to management personnel.

Most executives received annual bonuses averaging about 30% of salary based both on the bottom line performance of the casino and a set of individual performance objectives. Problem While the Bellagio employs an excellent system of controls over cash and cash-equivalent stocks and movements thereof, these internal controls, while necessary, are not sufficient to guarantee good management control. While executive management receives annual bonuses, and dealers receive shares of significant tokes, pit bosses and managers do not receive a share.

Pit bosses are accountable for quick independent estimates of the drop shift for each table in their pit, and while they are investigated if there is a significant deviation, which could be considered a punishment in terms of morale, there’s no corresponding reward or incentive for accuracy. In the table games area, there is no detailed understanding of what happens at the tables as it happens because the play cannot be tracked at the table. Management has not way to account for the inventory of cash until it actually comes to them 24 hours later.

Technologies exist to help alleviate the problem, but at this point is only about 75% accurate, and would need to be closer to 100% accurate in order to be worthwhile. Another issue is that the revenues are continuously shifting away from the casinos and toward the non-gaming sectors, so an investment in expensive technology may not be relevant. Alternative Solutions 1] Experiment with the combination of player cards and RFID technology on a small scale, i. e. introducing it at 2-3 of the blackjack tables. ] In order to track every play, a computerized system could be implemented that would scan customer money as it is deposited into the dropbox by the dealer in exchange for chips. 3] Institute some form of incentive/reward for personnel such as pit bosses and floor managers. 4] As management seems content with current controls, do nothing, continuing with the “wait and see” attitude until technology improves. Selected Solution and Expected Outcomes Bellagio should institute a combination of solutions 1, 2, and 3.

Experimentation with the combination of player cards and RFID technology on a small scale will enable the casino to get an idea of how effective the technology would be as the remaining tables would serve as controls. This solution would also allow the casino to avoid a large financial investment if it proved to not be as beneficial as needed. The computerized dropbox system would both track and reconcile, in real time, the amount of money going in and chips going out.

Incentives/rewards for personnel other than dealers would both boost employee morale as well as improve organizational culture, which is currently formed strictly due to government regulations and threat of competition. Possible negative outcomes include a general resistance to change (dealers may be reluctant to break their routine and use the new computerized dropbox, and customers may be initially apprehensive), prohibitive costs of the new technology, and resentment of remaining employees who do not qualify for the incentives system.

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