20.1 Accounting and Security Records
(a) Each Franchise Holder shall maintain complete, accurate, and legible records of all Transactions pertaining to the revenues and costs for each establishment.
(b) General accounting records shall be maintained on a double entry system of accounting with Transactions recorded on the accrual basis. Detailed, supporting, subsidiary records sufficient to meet the requirements of (c) below shall also be maintained in accordance with the requirements of this section.
i. The Franchise Holder will submit to the Commission for its approval a chart of accounts and accounting classification in order to insure consistency, comparability, and effective disclosure of financial information.
ii. The chart of accounts shall provide the classifications necessary to prepare the standard financial statements required by Section 20.4.
iii. The prescribed chart of accounts shall be the minimum level of detail to be maintained for each accounting classification by the Franchise Holder.
iv. The Franchise Holder shall not use other than the prescribed chart of accounts but may, with the permission of the Commission, expand the level of detail for some or all accounting classifications and/or alter the account numbering system. In such instances, the Franchise Holder shall provide to the Commission, upon request, a cross-reference from the prescribed chart of accounts.
(c) The detailed, supporting, and subsidiary records shall include, but not necessarily be limited to:
i. Records supporting the accumulation of the costs and number of persons, by category of service, for regulated complimentary services.
ii. Records of all investments, advances, loans and receivable balances, due to the establishment.
iii. Records related to investments in property and equipment.
iv. Records which identify the Gross Wagering Revenue, payout, win amounts and percentages will be reported daily, and theoretical win amounts and percentages, and differences between theoretical and actual win amounts and percentages, for each EGS periodically, as requested by the Commission.
v. Records of all loans and other amounts payable by the establishment.
vi. Records provided for in the system of internal accounting controls submitted to the Commission.
20.2 Franchise Holder’s System of Internal Controls to be Submitted to the Commission
(a) Each Franchise Holder shall submit to the Commission a narrative description of its system of internal procedures and administrative and accounting controls (“internal controls”), or modifications to previously approved internal controls, at least 30 days before the Franchise Holder’s EGS operations are to commence, unless otherwise directed by the Commission. Each submission shall be accompanied by a certification by the Franchise Holder’s Chief Financial Officer or equivalent that the submitted internal controls are adequate, effective and establish a consistent overall system of internal controls, and conform to generally accepted accounting principles. The initial submission shall be accompanied by a report of an independent certified public accountant licensed to practice in Arkansas or other state acceptable by the Commission, stating that the submitted system conforms in all respects to the standards of internal control set forth in the Commission's rules or in what respects the system does not conform. Except as otherwise provided in this section, a Franchise Holder may, upon submission to the Commission of a narrative description of a change in its system of internal controls and the two original signed certifications described above, implement the change on the 16th calendar day following the completed submission. Any submission received by the Commission after 3:00 P.M. shall be considered to have been submitted on the next business day. Each submission by a licensee or applicant shall include, as applicable and without limitation, the following:
i. Administrative controls which include, without limitation, the procedures and records that are concerned with the decision making processes leading to management's authorization of Transactions;
ii. Accounting controls which have as their primary objectives the safeguarding of assets and the reliability of financial records and are consequently designed to provide reasonable assurance that:
(1) Transactions are executed in accordance with management's general and specific authorization;
(2) Transactions are recorded to permit preparation of financial statements in conformity with generally accepted accounting principles and Section 20.4, and to maintain accountability for assets;
(3) Access to assets is permitted only in accordance with management authorization; and
iii. The recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences;
iv. A list of persons assigned to the repairing and maintenance of EGS and bill acceptors, participating in the filling of payout reserve containers and payment of jackpots or any other job duty involving the operation of the EGS. This information does not have to be submitted to the Commission however, must be available for auditing by the EGS Section. Nothing in this section shall be construed to limit a Franchise Holder from utilizing personnel in addition to those described herein nor shall anything in this section be construed to limit the discretion of the Commission to order the utilization of additional personnel by the Franchise Holder necessary for the proper conduct and effective supervision of gaming in an establishment;
v. Records regarding Franchise Holder ownership;
vi. Procedures for patron signature files used for identifying a person or validity of a signature, if applicable;
vii. Maintain internal controls for the authorization and issuance of complimentary services and items, including cash and non-cash gifts. Such internal controls shall include, without limitation, the procedures by which the Franchise Holder delegates to its employees the authority to approve the issuance of complimentary services and items for EGS patrons and the procedures by which conditions or limits, if any, which may apply to such authority are established and modified, including limits based on relationships between the authorizer and recipient, and shall further include effective provisions for audit purposes.
viii. Procedures on overall reconciliation of all documents including jackpot payout slips, ticket redemption terminal fills, receipts generated by cashiers, change persons and attendants along with the conforming soft count room receipt;
ix. Develop a plan that defines handling of the receipt of chips from the manufacturer, inventory of chips at the Franchise Holder and the destruction of the chips by the Franchise Holder, where applicable.
(b) The Commission shall review a submission made pursuant to 20.2 (a) above and information made available to the Commission pursuant to 20.2A(a) and determine whether the internal controls conform to the requirements of the Commission and provides adequate and effective controls for the operations of the Franchise Holder. No applicant for a license shall commence wagering on EGS until the Franchise Holder’s system of internal controls is approved by the Commission.
(c) If, during its review of a Franchise Holder’s internal controls the Commission determines that a procedure in the internal controls contains a substantial and material insufficiency likely to have a direct and materially adverse impact on the integrity of gaming or the control of gross revenue, the Commission, by written notice to the Franchise Holder, shall:
i. Specify the precise nature of the insufficiency and when possible, an acceptable alternative procedure;
ii. Schedule a hearing before the Commission no later than 15 calendar days after the date of such written notice to determine whether the internal controls are insufficient; and
iii. Direct that any internal controls in issue not be implemented until approved by the Commission.
(d) Examples of procedures that the Commission may, under appropriate circumstances, determine to contain a substantial and material insufficiency likely to have a direct and materially adverse impact on the integrity of gaming or the control of gross revenue shall include, without limitation, the following:
i. Procedures that fail to provide an adequate audit trail that would permit the review of the Franchise Holders EGS operations or the reconstruction of gross revenue of Transactions;
ii. Procedures that fail to provide for the segregation of Incompatible Functions so that no employee is in a position both to commit an error or to perpetrate a fraud and to conceal the error or fraud in the normal course of his or her duties;
iii. Procedures that do not include forms or other materials referenced in the submission or required by the regulations that are essential elements of the internal controls and prevent a meaningful review of the submission;
iv. Procedures that would implement accounting procedures not yet authorized by the regulations of the Commission; and
v. Procedures that are dependent upon the use of equipment or related devices or software not yet approved by the Commission, unless such procedures are required as part of an authorized test of the equipment or related device or software.
(e) If a Franchise Holder is notified pursuant to (c) above that a particular internal control procedure contains a substantial and material insufficiency and that a hearing on the procedure has been scheduled before the Commission on a specific date, the 20-day review period for any revision to those internal control procedures after receipt of the Commission’s notice shall not commence unless the revision is accompanied by the two certifications required (a) above.
(f) A current version of the internal controls of a Franchise Holder shall be maintained in, or made available through secure computer access to, the accounting department and surveillance department of the Franchise Holder. The Franchise Holder shall also maintain a copy of any superseded changes to its internal control procedures and the two certifications required for each change for a minimum of five years in a location approved by the Commission. Each page of the internal controls shall indicate, as applicable, the date on which it was submitted to the Commission and the date on which it was either approved by the Commission or implemented pursuant to (a) above or immediate changes to internal controls which shall include the date on which it was filed internally and implemented by the Franchise Holder.
i. Notwithstanding any other provision of this section to the contrary, the two certifications otherwise required by (a) above shall not be required for changes to the jobs compendium of a Franchise Holder other than the licensed categories, job codes, job functions, reporting lines (including but not limited to new positions and deleted positions) or job titles as provided within the organizational structure.
(g) Nothing contained herein would preclude any Franchise Holder from implementing procedures which constitute an acceptable alternative to the specific standards set forth herein. Any such alternative procedure would have to be submitted to the Commission in accordance with the procedures set forth in this section and would have to be reviewed and approved by the Commission.
20.2A Franchise Holder’s System of Internal Controls Not Required To Be Submitted To the Commission
(a) Each Franchise Holder offering gaming operations shall make available to the Commission for inspection and approval, which are not required to be submitted to the commission, as applicable and without limitation, the following:
i. An organizational structure which is designed to preserve the integrity of the Franchise Holder. This information does not have to be submitted to the Commission however, must be available for auditing by the EGS Section;
ii. The design, construction, location and security of the count room, currency vault, Cashier Booths and Cashier Cages. This information does not have to be submitted to the Commission however, must be available for auditing by the EGS Section;
iii. The names of persons possessing access to the currency bank, security keys and those that are authorized to access the alarm system. This information does not have to be submitted to the Commission however, must be available for auditing by the EGS Section;
iv. Removal, transportation and count of cash storage boxes including the signature procedures. This information does not have to be submitted to the Commission however, must be available for auditing by the EGS Section;
v. The Franchise Holder’s Surveillance System plan, including the Surveillance System location(s). This information does not have to be submitted to the Commission however, must be available for auditing by the EGS Section;
vi. Policies and procedures that allows and tracks those individuals who request to be “excluded” from the facility that are voluntarily agreeing to be excluded from all EGS gaming activities and to be prohibited from collecting any winnings or recovering any losses at all eligible facilities. This information does not have to be submitted to the Commission however, must be available for auditing by the EGS Section;
(b) This information will be assessed by the Commission in conjunction with the submitted system of internal controls, as outlined within section 20.2 to ensure the Franchise Holder is operating with adequate and effective controls.
20.3 Records Regarding Ownership
(a) In addition to other records and information required by this regulation, each Franchise Holder shall maintain the following records regarding the equity structure and owners:
i. If a corporation:
(1) A certified copy of articles of incorporation and any amendments thereto;
(2) A copy of by-laws and amendments thereto;
(3) A current list of officers and directors;
(4) Minutes of all meetings of stockholders and directors;
(5) A current list of all stockholders and stockholders of Affiliates, including their names and the names of beneficial owners of shares held in street or other name where any beneficial owner has a beneficial interest in two percent or more of the outstanding shares of any class, addresses and the number of shares held by each and the date acquired;
(6) A complete record of all transfers of stock;
(b) All records regarding ownership shall be located on the premises of the establishment, unless a specific exemption is allowed to the Franchise Holder by the Racing Commission.
(c) Each Franchise Holder or applicant shall, upon request by the Racing Commission, provide a list of all record holders of any or all classes of publicly traded securities issued by any holding company or by any other affiliated entity which is required to qualify as a financial source.
20.4 Standard Financial and Statistical Reports
(a) Each Franchise Holder, unless specifically exempted by the Commission, shall file annual reports of financial and statistical data as required by the Commission. The data may be used by the Commission to evaluate the financial position and operating performance of individual Franchise Holders and compile information regarding the performance and trends of the industry in the State of Arkansas.
(b) The Commission shall periodically prescribe a set of standard reporting forms and instructions to be used by each Franchise Holder in filing the reports.
(c) Each report to the EGS Section shall be received or postmarked not later than the required filing date unless specific approval for an extension is granted to the Franchise Holder. Requests for a filing extension must be submitted to the EGS Section in writing prior to the required filing date.
i. Annual reports shall be due not later than March 31 for greyhound franchise holder and June 1 for thoroughbred franchise holder of the following year.
Franchise Holders shall report to the Commission essential details of any loans, borrowings, significant installment contracts with a value of over $25,000 per year, guarantees, leases, or capital contributions at least annually.
20.5 Annual audit and other reports
(a) Each Franchise Holder, unless specifically exempted by the Commission, shall, at its own expense, cause its annual financial statements to be audited in accordance with generally accepted auditing standards by an independent certified public accountant licensed to practice in the State of Arkansas.
(b) The annual financial statements shall be prepared for the current year and shall present financial position and results of operations in conformity with generally accepted accounting principles.
(c) The financial statements required by this section shall include a footnote reconciling and explaining any differences between the financial statements included in the Franchise Holder's annual report, filed in conformity with Section 20.4 of this regulation, and the audited financial statements. Such footnote shall, at a minimum, disclose the effect of such adjustments on:
i. Revenues from the EGS ;
ii. Revenues net of complimentary services;
iii. Total costs and expenses;
iv. Income before extraordinary items; and
v. Net income.
(d) Two copies of the annual audited financial statements, together with the report thereon of the Franchise Holder's independent certified public accountant, shall be filed with the Commission, not later than June 1 following the end of the calendar year.
(e) Each Franchise Holder shall require its independent certified public accountant to render the following additional reports:
i. Report on material weaknesses in internal accounting control. Whenever in the opinion of the independent certified public accountant there exists no material weaknesses in internal accounting control, the report shall so state.
ii. Whenever, in the opinion of the independent certified public accountant, the Franchise Holder has materially deviated from the system of internal accounting control approved by the Commission or the accounts, records, and control procedures examined are not maintained by the Franchise Holder in accordance with the this document, the report shall enumerate such deviations and such areas of the system no longer considered effective, and shall make recommendations regarding improvements in the system of internal accounting control.
iii. The Franchise Holder shall prepare a written response to the independent certified public accountant's reports required by (e)(i) and (ii) above. The response shall indicate, in detail, the corrective actions taken. Such response shall be submitted to the Commission within 90 days from receipt of the independent certified public accountant's reports.
(f) Two copies of the reports required by (e) above, and two copies of any other reports on internal accounting control, administrative controls, or other matters relative to the Franchise Holder's accounting or operating procedures rendered by the Franchise Holder's independent certified public accountant, shall be filed with the Commission by the Franchise Holder by June 1 following the end of the calendar year or upon receipt, whichever is earlier.
(g) If the Franchise Holder or any of its Affiliates is publicly held, the Commission may require the Affiliate to submit five copies to the Commission of any report, including but not limited to forms S-1, 8-K, 10-Q and 10-K, proxy or information statements and all registration statements, required to be filed by such Franchise Holder or Affiliates with the Securities and Exchange Commission or other domestic or foreign securities regulatory agency, at the time of filing with such agency.
(h) If an independent certified public accountant who was previously engaged as the principal accountant to audit the Franchise Holder's financial statements resigns or is dismissed as the Franchise Holder's principal accountant, or another independent certified public accountant is engaged as principal accountant, the Franchise Holder shall file a report with the Commission within ten days following the end of the month in which such event occurs, setting forth the following:
i. The date of such resignation, dismissal, or engagement.
ii. Whether in connection with the audits of the two most recent years preceding such resignation, dismissal, or engagement there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of the former accountant would have caused him to make reference in connection with his report to the subject matter of the disagreement, including a description of each such disagreement. The disagreements to be reported include those resolved and those not resolved.
iii. Whether the principal accountant's report on the financial statements for any of the past two years contained an adverse opinion or a disclaimer of opinion or was qualified. The nature of such adverse opinion, disclaimer of opinion, or qualification shall be described.
iv. The Franchise Holder shall request the former accountant to furnish to the Franchise Holder a letter addressed to the Commission, stating whether he/she agrees with the statements made by the Franchise Holder in response to (i) of this section. Such letter shall be filed with the Commission as an exhibit to the report required by (i) of this section.
20.6 Retention, Storage and Destruction of Books, Records and Documents
(a) All original books, records and documents pertaining to the Franchise Holder's operations shall be:
i. Prepared and maintained in a complete, accurate and legible form;
ii. Retained on site or at another secure location approved for the time period specified in (c) below;
iii. Held immediately available for inspection by agents of the Commission during all hours of operation;
iv. Organized and indexed in such a manner so as to provide immediate accessibility to agents of the Commission; and
v. Destroyed only after:
1. Expiration of the minimum retention period specified in (c) below, except that the Commission may, upon the written petition of any Franchise Holder and for good cause shown, permit such destruction at an earlier date;
2. Written notice has been received by the Commission;
3. In conformance with Arkansas Code Annotated 19-4-1108, the records, as outlined within (b) below, of the Franchises must be kept a minimum of three years after the review and filing of audits by the Legislative Joint Auditing committee of the records of the Racing Division and the Gaming section, however, they may not be destroyed without concurrence from the Commission’s Gaming Section.
(b) For the purposes of this section, "books, records and documents" shall be defined as any book, record or document pertaining to, prepared in or generated by the operation of the Franchise Holder including, but not limited to, all forms, reports, accounting records, ledgers, subsidiary records, computer generated data, internal audit records, correspondence and personnel records. This definition shall apply without regard to the medium through which the record is generated or maintained, for example, paper, magnetic media or encoded disk.
(c) All original books, records and documents shall be retained by a Franchise Holder in accordance with the following schedules. For purposes of this subsection, "original books, records or documents" shall not include copies of originals, except for copies which contain original comments or notations or parts of multi-part forms.
i. The following original books, records and documents shall be retained indefinitely unless destruction is requested by the Franchise Holder and approved by the Commission:
(1) Corporate records required by Section 20.2;
(2) Records of corporate investigations and due diligence procedures;
(3) Current employee personnel files; and
(4) A record of any original book, record or document destroyed, identifying the particular book, record or document, the period of retention and the date of destruction.
ii. All other original books, records and documents shall be retained by a Franchise Holder for a minimum of five (5) years unless destruction is requested by the Franchise Holder and approved by the Commission.