Gambling Control Agencies Overcharge Fee-Payers, Auditor Reports.

Two state entities responsible for regulating legal gambling in California have given preferential treatment to some establishments, and have overcharged fee-payers, the state auditor reported May 16.

The California Department of Justice’s Bureau of Gambling Control and the California Gambling Control Commission have responsibilities for a range of licensing and enforcement activities related to gaming businesses, primarily card rooms. Generally speaking, the bureau is responsible for performing background investigations of applicants seeking licenses to own or work in gaming businesses and for enforcing gaming laws and regulations. The commission is an independent body that makes licensing decisions in consideration of the bureau’s recommendations and, when applicable, takes or upholds disciplinary actions against licensees, such as license revocation.

The auditor found several major problems within the two bodies:

  • “The bureau and the commission have established regulatory fees that do not align with the actual costs that they incur when performing oversight activities. These fees – which applicants and gaming business owners pay – raise questions about the legality and fairness of the current fee structure.”

  • In part because some of the fees are higher than necessary, the balance in the fund that pays for the entities’ activities has doubled over the past five years. If the fund reaches its projected level of $97 million by June 2020, “it will represent a surplus of more than five times the combined annual operating expenditures of the bureau and commission,” the auditor noted.

  • The bureau has engaged in “inconsistent billing and time-management practices.” Many applicants have not paid for the actual costs of their background investigations. “Further, bureau licensing staff have reported spending the majority of their time on activities that may not be productive or even directly related to license applications,” the auditor stated.

  • “The bureau and commission have not ensured that their regulations and practices treat all applicants consistently and fairly. Specifically, the commission’s regulations create unjustified differences in terms of the time frames in which individuals must submit applications, the circumstances under which they may hold temporary licenses, and the notifications they receive about their application status, among other issues.”

  • · “The commission lacks procedures to ensure that it allows applicants to withdraw from the hearing process, and as a result, it publishes decisions that include unnecessary negative information about some applicants.”

  • “Our review of 23 gaming license applications found that the bureau regularly exceeded the statutory time frame of 180 days for completing its review of applications. Although the bureau cited a lack of available resources as a factor in the delays, we question its efficiency given that temporary funding it received from the Legislature for 32 additional positions has more than doubled its licensing staff since fiscal year 2015-16. … Despite its increased staffing, the bureau still has a backlog of almost 1,000 applications, likely in part because its productivity has diminished since it hired its new staff.”

California Tax Foundation   |   1215 K Street, Sacramento, CA 95814   |   916.441.0490   |