Analyze Sands Hotel and Casino Case based on Accounting Information Systems

Case 3-1: Controls at the Sands H otel and Casino 105 CASE 3-1: CONTROLS AT THE SANDS HOTEL AND CASINO This case illustrates one approach to control in a high cash-transactions setting where theft is a constant threat. Although the casino industry is in some ways unique. the controls observed in the case may be applicable to other settings. As you read through this case, try to determine which of the controls used at Sands Hotel might be applicable elsewhere, and under what circumstances. Write answers to the following questions: 1) Analyze the controls at Sands Hotel and Casino using both the COSO and CoBIT Maturity Model frameworks. Organize your answer by examining the control environment and the application controls. 2) Restaurants are also high cash-transaction business. Discuss the controls at Sands Hotel and Casino that would be appropriate at a restaurant. Case 3-1 Controls at the Sands Hotel and Casino* In July 1983, Stephen F. Hyde, president of the Sands Hotel and Casino in Atlantic City, commented on his company's control system which, he was convinced, was a model of excellence: Our controls are probably as good or better than ..:.: . those in use in any other company. Most companies couldn't afford the controls we use, but we really have to have them. Inthe casino, which is our major attraction and our most lucrative business, Jeffrey M. Traynor and Professor KenMth A. MerchanJ prepared this case. Copyright o 1983 by the President and Fellows of Harvard College. Harvard Business School case 184-048 (Revised 1991) there is a lot of money changing hands. and that provides a lot of temptation for our employees and guests to try to take that money away from us. Our controls help us ensure chat we get our fair share of what is wagered. Many of our controls are legally required. as the state of New Jersey has an extensive list of regulations to make sure it gets its share. But we would have chose controls whether chey were required or not. because it makes good business sense to do so. In support of that contention, I can tell you that we used almost the same set of controls that we have here in our Las Vegas casino, even though the Nevada regulations are not nearly as stringent as those in New Jersey. Also, our 106 Chapte 3 lnrroducrion to Control Systems ,r controls exceed even the New Jersey requirements. in some cases. because we feel that despite the expense an outstanding system of controls is in the best interest of our shareholders. Gambling in New Jersey In 1976, New Jersey voters amended their state's constitution to allow casino gambling in Atlantic City. The hopes were that this once glamorous city would be rejuvenated and that taxes on gambling would provide a lucrative source of revenue for the State. To regulate the new gaming industry, the New Jersey Casino Control Commission (NJCCC) was established. The NJCCC's first action was to develop a comprehensive set of regulations that established minimum guidelines to be followed in all phases of the gaming operations. Every organization that wanted to build gaming establishments in Atlantic City had to prepare a detailed application that included an in-depth discussion of the casino layouts. strategies, and controls that would be used, and these had to be approved by the NJCCC. The gaming industry moved into Atlantic City very rapidly. The first casino (Resons International) opened in 1978, and by 1982. nine large hotel/casinos were operating under such wellknown gaming names as Harrah 's, Caesar 's World. Bally, Playboy, Tropicana. and the Sands. In 1 982, 20 million people visited Atlantic City, making it the most-visited city in the United States, and combined gambling revenue for the nine casinos was approximately $1.5 billion. After the casinos began operations, the NJCCC continued to exercise close scrutiny over them. Full-time NJCCC inspectors were required to be present on the floor of each casino and in the count rooms (where the winnings were counted) to ensure that the regulations were being followed and that the casinos were maintaining an orderly house. In addition, NJCCC personnel bad to approve ail major policy decisions made by casino management. even including bow they promoted their businesses. i The Sands The Sands Hotel and Casino was the operating unit of the Great Bay Casino Corporation (GBCC). In 1982, the Sands (and GBCC's) s gross revenue was $184 million. of which $144 million came from gaming (casino) operations and the rest from hotel operations. which included rooms. entertainmenL and food and beverage. (Exhibit 1.) The casino and hotel were run as separate profit centers. The unique feature of the organization (Exhibit 2), as compared co that in most corporations. was the relatively large size of the finance staff. Of a total of approximately 2,600 people in the organization. over 400 were in the finance organization. reporting in a direct line to the vice president-finance, Ed Sutor (Exhibit 3). Strict separation was maintained between operations and recordkeeping , and the finance organization was large because it had responsibility for cash control and recordkeeping , both important functions in the casino and food and beverage parts of the business, particularly. Thus, the finance organization included cashiers, casino change personnel, pit clerks. and count room personnel, in addition to people who were normally part of a finance organization, such as accounting clerks and financial analysts. In the casino operations area. the Sands operated l.077 coin-operated gaming devices (slot machines). 59 blackjack tables, 20 crap tables, 10 roulette wheels, 2 baccarat tables, and 2 big six wheels. The games operated on a two-shift basis-pcrated gaming I Vice President Security A.uwis Director Operations B. Stone Vice President Administration G. Saunders section provides a brief description of blackjack and che personnel involved in running iL OperalWn of Blackjack Game al Sands Casino Blackjack is a very popular card game where up to seven patrons play against the house. The players' object is to draw cards whose total is higher Lhao the dealer's total without exceeding 21. devices area. conaol was simpler because machines elurunaied the human element (dealers). Machines did. however. have 1 0 be inspected regularly for evidence of tampcnng. I I 1 08 Chapter J Introduction to Control Systems EXHIBIT 1 (concluded) Balance Sheet December 31, 1982 Property and equipmen.t Land Buildings Furniture. fixtures. and equipment Less: accumulated depreciation 1981 $ $ 77,696,000 $ 70,1 47,000 $ 1 31 ,1 ,000 $1 02.364,000 $ $ 1 1,088,000 $ 6,245.000 $ 12,243,000 2,303,000 2.026,000 2,017,000 332,000 1,200.000 $ 6.380,000 1,955,000 3,892,000 538.000 l,889,000 700,000 $ 20,1 21,000 Other assets Total assets $ $ 1 5,354,000 5,022,000 60,311,000 24.957,000 (12.594,000) 5,022.000 54,036.000 17,678,000 (6,589,000) 349,000 $ 88,989,000 Liabilities and Shareholders ' Equity Current liabilities Current ponion of long-tenn debt Accounts payable and accrued expenses: Trade accounts payable Salaries and wages Taxes and licenses Progressive jackpot accrual Interest Other Other current liabilities Total current liabilities Long-term debt Other long-term liabilities Total liabilities $ 3,010.000 s 1,241.000 $ 34,21 9,000 $ 48,108,000 $ 31 0,000 $ 22,840,000 $ 60,530,000 $ 82,637,000 $ 83,370,000 l,322,000 370,000 26,913,000 (8,508,000) 950,000 26,829,000 (22.530,000) Commirmenrs and Contingencies I . i !:/ .'11!. ,. .:1 1 '. JI !I I I l Shareholders' equity Class A common stock, S.25 par value: authorized 10,000,000 shares: issued and outstanding 5,287.642 shares in 1982 and 1.479,017 in 1981 Class B common stock, $.25 par value; authorized 5,000,000 shares: issued and outstanding -0- in 1982 and 3,800,000 in 1981 Capital in excess of par value Retained earnings (deficit) Total $hattbolders' equity Total liabilities and shareholders' equity $ 1 9,727,000 s $1 02,364,000 $ 88,989,000 5,61 9,000 I EXHIBIT I .: lncome Statement and Balance Sheet for Greate Bay Casino Corporation Income Statemenr Year Ended December 31, erating oration 3CC's) 1 $144 rations 1982 Revenues Gaming Rooms Food and beverage Other Gross revenues Less: promotional allowances Net revenues which d and :parate aniza: most of the 2.600 in the ir; to bit 3). operargani:ty for Costs and expenses Operating General and administrative Depreciation Interest Income (loss) before income taxes and extraordinary item Provision for income taxes Income (loss) before extraordinary item Extraordinary item-utilization of tax loss carryforward Net income (loss) or : er..6t: ., the ;asino room Net income (loss) per share of common stock Income (loss) before extraordinary item Extraordinary item were ch as oper(slot :s, 10 g six Average common shares outstanding -shift Current assets Cash and temporary investments Receivables Gaming Other Less: allowance for doubtful accounts $144.236.000 1 1.775,000 20.875.000 7,449.000 $184,335.000 20.899.000 $163,436.000 $ 91.614.000 $ 27.278.000 8,700.000 15.686.000 4,563,000 $120,563,000 13.031.000 $1 07,532,000 2.833,000 5.450.000 793,000 $ 36,354,000 2.802.000 $ 33,552.000 $113.178.000 17,607.000 6,005,000 11,402.000 $148,192,000 $ 79,712.000 $ 34,864,000 16,131.000 4.773.000 12,822.000 $1 3,438,000 1 9.567.000 l.816.000 2,754.000 $ 49,001,000 $ 15,244.000 $ (5,906.000) $ (15.449.000) $ (5,906. 00) 0 $(1 5,449,000) $ 14,022,000 $ (5,906.000) s (15,449.000) $1.42 1.24 $2.66 $(1.12) $(2.93) $(1.12) $(2.93) 5,279,000 5,279,000 7,783.000 $ 7,461 ,000 6,561.000 Assets total ; and .930 (Ex- 1981 5,279,000 Balance Sheet Inventories Other current assets: Prepaid advertising and promotion expenses Other prepaid expenses to d : rsey wr j Total current assets $ 8,243,000 $ 8,198,000 $ 15,044,000 $ 8,108,000 990,000 (5,633,000) $ 10,401,000 $ . 957,000 1,227,000 (1,965,000) $ 7,370,000 $ 656,000 $ 1,678,000 $ 806,000 2.258,000 1,463,000 $ 3.936,000 $ 23,537,000 $ 2,269,000 $1 8,493,000 (continued ) 1 . !I 110 Chapter 3 Introduction to Controi Systems EXHIBIT 3 Finance Organization Vice President Finance E. Sutor Corporate ControUer F.X. McCarthy.Jr. I I T I Director or Data Processing M.anager of Hotel Accounting Manager of Casino Accounting W.Bagnell Manager of Management and Financial Reporting I I I Assistant Manager Casino Accounting Casino Cage Supervisor I Casino Cage Shift Supervisor Casino Accounting Supervisor I lhrd and Son Count Supervisor Casino Accountants (11 ) r I Casino Pit Clerk Shift Supervisor Asmtant lhrd and Soft Supervisor T Slot Cashier Supervisor Assistant Cage Shift Supervisor Cage Cashier (Pit Clerk) Assistant Slot Cashier Supervisor I I lhrd Count Supervisor I I Soll Count Shift Supervisor (72) Assisla.Dt Supervisor j 1: ' 'i ' :h. 11 (84) I I Hard Count Cage Cashier Count Room Change Person Coin Cashier Clerk (92) (108) I Count Room Club (26) .= ' Ir :. i 1 f I 'I l' f Case J -1: Controls at the Sands Hotel and Casino 111 I XHIBIT 4 Casino Opcrauons Organizauon Vice President Casino Operations I ' I Casino Administration Executive Secretary Manager Slots Dlttctor Casino Operations I I I As&stant Manager Slots Mao.ager Casino Operations Casino Secretary Director Casino Credit I I Shift Supervisor Slots Chief Slot Mechanic Assistant Manager Casino Operations Supervisor Casino Scheduling Supervisor Player Rating I I I I I Supervisor Slot Attendant Lead Slot Mechanic Shift tanager Casino Clerk Player Rating (11) (6) (7) Assistant Supervisor Casino Scheduling I I I I Slot Attendant Slot Mechanic (41) (38) Auistant Shift tanager Casino Clerk Casino Scheduling I I I (4) () 8 (4) I Games Manager (5) I Pit Bo (61 ) I F1oor Person (177) Craps Other table games I Box Person (77) I I I Dealer.Relief Dealer Dealer.Relief Dealer (72) (207) (130) (347) 11.2 I; I Chapter 3 Introduction ro Control Systems In 1983. the Sands Hotel operated 89 gaming tables, 59 (66 percent) of which were for blackjack. In May 1983. the blackjack drop2 was $23 million and the win3 total was $3.2 million. These totals were the highest for any table game or type of coin-operated gambling device in the casino except for the $.25 slot machines. Each blackjack table was run by a dealer whose job was to sell chips co customers. deal tbe cards. take losing wagers. and pay winning wagers. Dealing was a skilled profession that required some training and considerable practice. Experience was valuable, as the dealer's value to the casino increased with the number of games that could be dealt within a given time period. and speed usually increased with experience. Experience was also valuable in identifying players who might be cheating. Dealers received a 20-minute break every hour. Dealers assigned to a cable worked for 40 minutes and then were replaced by a "relief dealer" during their break. Relief dealers worked at two different tables for 20 minutes each and then received their break. The frequent breaks were required because the job was mentally and physically caxingdealers were required to be standing up while they dealt: they had to maintain intense concentration, as errors in paying off bets were not tolerated: and they bad to maintain good humor under sometimes difficult conditions (e.g., dealing to players who became irritable because they were losing). Dealers were paid well. New dealers earned approximately $23,000-$25,000, including tips (which were shared among all dealers). Two levels of direct supervision were used over the blackjack cables. A ..ftoorperson" was assigned to monitor two blackjack tables. A "pit boss" supervised eight tables. 2 Drop refers to the total amount of cash and credit exchanged at gaming tables for chips.Inslot machine areas. drop refers to the total amount of monc:y removed from the drop buckcL "'The term win refcrs to the difference between gaming gains and losses before deducting costs and expenses. Control of Cash Because most of the casino business was conducted in terms of cash or cash equivalents (i.e.. chips), it was imponant to have good control over the many stocks of cash and chips that were located within the casino and to be able to move these stocks without loss. The Sands's cash control system can be described in renns of three main elements: (1) individual accountability for cash and (cash equivalent) stocks. (2) formal procedures for transfers. and (3) tight concrol in the count rooms. Individual Accountability for Cash Stocks All cash stocks-with the exception of those kept at a game table or those taken from a game or slot machine for counting-were maintained on an imprest basis. This meant that most personnel who dealt directly with cash, such as change personnel, coin redemption personnel, cashiers, and chip fill bank personnel. were held individually accountable for a specific sum of money that was charged out to them. These personnel were required torum in the exact amount of money for which they were given responsibility, and any large shortages or persistem patterns of shortages were grounds for dismissal. Formal Procedures for Transfers For cransfers of cash or chips to or from nonimprest funds (e.g., a game table), very strict procedures had to be followed. All required the creation of formal transactions signifying the transfer of accountability for the money involved. These procedures can be illustrated by describing what was required to move cash or chips to and from a blackjack table. When a blackjack table was opened for playing, the dealer and ftoorperson bad to count the inventory of chips and complete and sign an opener slip that simply provided a listing of the inventory (Exhibit 5). One copy of the opener slip 4was deposited in the incoming dealer's drop box, and 4nUs was a locked container affixed to the gaming table into which the drop was placed. Case 3-I : Controls at the Sands Hotel and CasiM EXHIBIT 5 Opener 1Blackjack Table 40. Swing Shift. 6/23/83) 0 sanas. ""'J'!'tl. ' CASINO G -_ --= 3 -= _ _ d .==-f - DATE _J :;_ = Yo GAM 5 Z3 OPENER D SHIFT DAY/SWING [8 SWING/DAO AMOUNT CHIP DENOMINATION 500 100 11 ,,........,.1c c:n $ .- - 25 20 IO o .. - 5 9o 2.50 1 .50 .25 ' TOTAL. $ \\, / : "' ) ' . t _ INCOMING CASINO --../. "" 7 ... SUPERVISOR . -...._,,,,, _,_ ./ 't' t - . i - '-f .... ll ., - I/ CC. 4-81 H ------- 113 - 114 Chaptu 3 Introduction 10 Control Systems EXHIBIT 6 Counter Check 0 sa;:ws. ....r... . ..,"" 83174-S-0012639 23:30 J6/23/83 Hazlet United Jersey Bank Hazlet/Holmdel REATE BAY HOTEL & CASINO. INC. 500 :-4 0 GAME NC> TA&..E HO. PA.Y TO THI! ORDU IOF Five Hundred and no 100 Dollars Z ?!00-1 t ' 1.CENBE HUMBER IRE'f!ESEHTTliAT A'n RECE!Vf;D CASH FOR THE ABOVE AMOUNT ANO THAT SAID AMOUNT ON DEPOSIT H I S I N I 8"'1 BANK OR TRUST CO-A.NY MY NAME. T S Flt!IE FROM C\\.MMS ANO ISSUll.JECT TO THIS CHECK. 0 N I lf f o l -1 1 William Rizzo LIHCEHSE NUMl!R ---1 a second copy was delivered to the finance department for input into the computer syscem. As the game was played, several different kinds of transaccions would take place. One involved players buying chips from the dealer for cash or credit. Cash was deposited immediately in the drop box. Credit had to be approved by checking the customer 's credit authorization limit through the use of a computer terminal located in the piL If the credit was approved, a coumer check 5 was prepared, signed by the customer, dealer, and pit boss,, and then deposited in the drop box. (Exhibit 6) Players could not make reverse exchanges (chips for cash) at the tables. They had to take their chips to the casino cage6 where this type of exchange was made. When the floorperson noticed that additional chips were needed at the table, he or she prepared a "request for fill." This request for a particular mix of chips was input into the computer terminal in the pit and relayed to the fill bank cashier in the "These wen: also lcnown as marlurs. a secure work area within the casino wllerc the casino bankroll was kept. 6nus was casino cage. The fill bank cashier would fill the order, have the compucer print out a fill slip (Exhibit 7), sign the fill slip, and have a security guard transport the chips and fill slip to the dealer. Bill Bagnell (manager of casino accounting) explained a unique fonn of control that came into play at this point: The computer keeps track of the time it taJces to consummate fill ttansactions. The security guard may be walking around the casino with $I0.000 or more in chips and it should take only a few minutes to get to the table and get the transaction completed. If the whole process talces more than x minutes, 7 a message flashes on the computer screen in the security center, and they siart looking for the guard. This is just an extra control we use to make sure the chips get to the table. When the guard arrived at the table, the dealer and floorperson both counted the chips and signed the fill slip indicating receipt, and the clerk at the computer terminal in the pit entered a code indicating that the fill transaction had been completed. 7Actual time programmed into the computer was sccrcL J Case 3-1: Controls at the Sands Hotel and Casino EXHIBIT 7 11 5 Fill Slips (Blackjack Table 40. Swing Shift 6/23/83) {,.tf - / TABLE FILL SLIP .. , FS74-S-001263R PIT-10 J40 DENI M 500 100 25 20 6i23/83 20:32 S AMOONT 5 2 1/2 1 1/2 1/4 80 OSruiOs. ti/ 80.00 w- II 1/2 1/4 i. FILL SLIP .... FS83174-S-001263R 6' 23/83 20:32 PIT-10 J40 AMOUNT DENIM S 500 L,.../ 100 25 40 l.000.00 20 500.00 5 100 2 1/2 1 TOTAL FILL The security guard made sure a copy of the fill slip was placed in the drop box and then returned the original fill slip to the fill bank cashier.8 When the dealers shift was over. the dealer and the ftoorperson counted the table inventory, and prepared and signed a closer slip (Exhibit 8), which was deposited in the outgoing dealer's drop box. In the case of a shift change, a copy of this slip would also serve as an opener for the incoming dealer. The drop box of the outgoing dealer was sealed and security personnel carried it directly to the room where the money was counted. Exhibit 9 shows a page of a summary report of the transactions that occurred at each table. The transactions illustrated in Exhibits 5-8 occurred on 1A similar procedure was followed the swing shift of blackjack table #40 on when the deaJer wished ... TABLE TOTAL FILL l. 500. 00 June 23. 1983, and a list of these transactions is shown in the middle of this page of the report. Tight Security in Count Rooms Wins (or losses) on a particular game table (or slot machine) could not be determined until the money in the drop box was counted. All counting of money from table games was done in the soft count room,9 a highly secure room located adjacent to the casino cage. NJCCC regulations required that count rooms be equipped with a metal door, alarm, closed-circuit television cameras, and audio and video taping capabilities. In the middle of the room was a "count table" constructed of clear glass or similar material. soft count room. Coins taken from !he slot machines were '\\ -.".. IO """ ..o of cl>ip> Blk Jack 10 -... Blk Jack Blk Jack IO Blk Jack Shift 33 34 34 34 35 35 35 36 36 36 37 37 37 38 38 38 39 39 39 40 40 40 41 41 41 42 42 42 Total Day Swing Total Day Swing Toial Day Swing Total Day Swing Total Day Swing Total Day Swing Total Day Swing Total Day Swing Total Day Swing Total Drop 2,099 5,962 8,06 1 1,890 4,3 19 6.209 1.680 2,447 4, 127 1,478 2,140 3,618 2,904 3,601 6,505 1,091 2,817 3,908 Win 605 91 696 479 1,782 2,261 236 106 342 957 1,1 17 2,075 97 164 261 439 1,285 1,725 Prelimi1wry M onth to Date Year 10 Date H old % Drop Win H old % Drop Win Hold % 28.82 1.53 8.63 25.34 41.27 36.42 14.05 4.35 8.30 64.78 52.22 57.35 3.34 4.55 4.01 40.28 45.63 44.14 47,559 16,897 38,345 55.242 17,633 35,324 52,957 17,386 30,207 47,593 88,998 116,715 205,7 1 3 66,344 96,090 1 62.434 64, 137 96,951 161,088 71 ,599 90,788 162,387 79.812 107,602 187,414 74,250 90,864 165, 1 14 6,721 2,927 13,457 16,384 3,634 3,01 1 6,645 -1,50 1 5, 1 16 3,614 6,415 23,3 16 29.732 10,030 10,778 20,808 13,308 19,412 32,720 7,529 18,345 25,875 1 1,836 31,754 43.590 8,2 13 24,0 17 32,230 14 .13 17.33 35.09 29.66 20.61 8.53 12.55 -8.64 16.94 7.59 7.21 19.98 1 4.45 15.12 1 1.22 12.81 20.75 20.02 20.3 1 10.52 20.21 1 5.93 14.81 29.51 23.26 1 1.06 26.43 19.52 504,474 166,774 283,698 450,472 168,301 250, 123 418.424 189,628 310,561 500, 189 6 15,023 814,801 1.429,824 493,801 655,642 1,149,443 493,189 642,658 1,135,847 533, 1 17 696,361 1 ,229,478 605,173 766,8 16 1,37 1,989 524,339 635,928 1, 160,267 62,698 26,482 44,733 71,215 3,070 45,217 48,288 9,107 62,461 71,568 103,584 143,076 246,660 57,558 136,97 1 1 94,529 68,554 1 19,755 188,310 59,239 123,855 183,094 84,04 1 144.548 228,589 98,634 151,603 250,237 12.43 15.88 15.77 15.81 1.82 1 8.08 1 1.54 4.80 20. 11 14.31 16.84 17.56 17.25 1 1 .66 20.89 16.92 13.90 18.63 16.58 1 1.1 1 17.79 1 4 89 13.89 18.85 16.66 18.81 23.84 21.57 l . ----,.--t:"- I , ; - _. .... - I EXHIBIT 11 (concluded) Run Date- 61241 83 Play Date Master Game Repon-DetaH Time-18-07 6123183-Thursday Today Pit/Game Preliminary Casino Report Year to Date M onth to Date Table 10 Blk Jack 10 Blk Jack 11 Blk Jack 11 Blk Jack ll Blk Jack II Blk Jack 11 Blk Jack 11 Blk Jack Shift Drop Win Hold % Dmp Win Hold % Dmp Wi11 Hold % 43 43 43 44 44 44 45 45 45 46 46 46 47 47 47 48 48 48 49 49 49 Day Swing To1al Day Swing Total Day Swing To1al Day Swing To1al Day Swing Tota l Day Swing Toial Day Swing To1al Day Swing Total 1,782 4,047 5,829 4,204 5,224 9,428 3,425 3.394 6,819 3,362 7,673 1 1,035 3,544 2,983 6,527 6,285 3,73 1 10,016 1,270 2,025 3,295 4,323 5.265 9,588 839 167 1,007 803 1,649 2,452 997 1,363 2,360 -402 1,267 865 -1,515 606 47.1 1 4. 14 17.28 19. 10 3 1 .58 26.01 29. 1 1 40.17 34.62 -1 1.96 16.52 7.84 -42.76 20.32 -13.93 42.58 52.00 46.09 23.25 -48.89 -21.05 57.30 -30.30 9.19 75,804 88,382 164,186 79,166 104,119 183,285 93.084 148,392 24 1,476 74,266 108,432 182,698 80,907 . 98,051 178,958 71,304 106,631 177,935 95,993 83,185 179, 178 73,-B5 78,904 152,339 10,970 15,547 26,517 9,924 10,743 20,667 15,524 23,242 38,766 2,956 13,599 16,555 5,861 23,637 29,498 5,824 24, 142 29,966 2 1,307 13,887 35, 194 12,798 9.662 22,460 14.47 17.59 16.15 12.54 10.32 1 1.28 16.68 15.66 16.05 3.98 12.54 9.06 7.24 24.11 16.48 8.17 22.64 16.84 22.20 16.69 19.64 17.43 1 2.25 14.7-4 503,059 609,689 1,1 12,748 585,815 702,022 1,287,837 669,637 838,985 1,508,622 502,424 696,141 1,198,565 494,976 647,812 1,142,788 521,703 682,084 1,203,787 577,840 643,847 1,22 1,687 506,423 555,499 1 .061 ,922 100,334 106,484 206,818 1 10,009 103,927 213,937 92,27 143,274 235,551 63,373 1 18, 120 181,493 7 1,358 141.205 2 12,563 84, 121 157,292 241 ,413 75,079 139.857 2 14,936 19.94 1 7.47 18.59 18.78 14.80 16.61 13.78 17.08 15.61 12.61 16.97 15.14 14.42 2 1.80 18.60 16.12 23.06 20.05 1 2.99 2 1.72 1 7.59 18.18 17. 16 17.65 50 50 50 -909 2,676 1,940 4,616 296 -990 -693 2,477 -1,595 881 9. ()65 95,321 1 87,386 '\\ EXHIBIT 1 Master Game Report-Summary 2 Rim Date- 61241 83 Play Date Tlme-18-07 61231 83-Thursday Casino Reporr Final Total Page Pit/Game Bl k Jack Baccarat Craps Roulette Big Six All game g Credit drop Year rn Datt: Drop Day Swing ToLal Day Swing Toial Day Swing Total Day Swing Total Day Swing Total Day Swing Total % of total drop Da ily average-credit drop and table win - M onth w Date Today Preliminary Win Hold % Drop Win Hold % Drop Wi11 Hold % 237,569 346,867 584,436 10,971 15,014 25,985 254, 164 339,832 593,996 26,042 39,986 66,028 4,553 4,583 9. 136 533,299 746,282 1,279,58 1 505,500 39.51 6'.!,395 158, 1 14 220,509 -8.7 16 -2,453 -1 1,169 1 1 ,925 16,324 28,249 10,351 15,265 25,617 2,29 1 2,329 4.621 78,247 189,580 267,827 26.26 45.58 37.73 -79.45 -16.34 42.98 4.69 4.80 4.76 39.75 38.18 38.80 50.33 50.83 50.58 14.67 25.40 20.93 7,060.82 1 8,586,885 15,647,706 797,246 1,245,670 2,042,9 1 6 7,251.450 8,596.480 15,847,930 772,208 988,944 1,761 , 152 129,600 135,2 1 7 264,8 1 7 16,01 1,325 19,553,196 35,564,52 1 13,324,095 37.46 579.308 1,055.062 1,779, 1 10 2,834, 172 88.467 97,566 186,034 783,554 1,654,7 1 1 2,438,265 231.272 228,29 1 459,563 52,843 63,312 1 16,155 2,2 1 1.198 3,822,992 6.034, 191 1-1. Dimes 71 1,160 13,500 5,513,150 8,929,121 Quaners 14,442,271 Halves Safekeeping Beginning balance Deposits made Withdrawals Ending balance 120,535 20,200 30,400 1 10,335 Dollars Total all denominations Casino Final Total Today Total win Daily average 447,870 M -T-D Y-T-D 10,890,542 473,502 68.583,941 394, 161 Daily Average Drop \\Viti Daily M-T-D Y-T-D Daily M-T-D Y-T-D Daily M-T D Y-T-D Daily M-T-D Y-T-D Daily M-T-D Y-T-D Daily 6,1 42.35 154,31 1 .80 1,240,086.25 4.115.80 98,539.90 566,698.00 147, 199.50 3,918,959.75 25,290,262.00 11,637.00 377,953.00 2,239,I 43.00 31,588.00 912,368.00 5.480,027 00 200,682.65 5,592.35 92,907.55 1,052,211.15 3,915.80 93,439.90 435,918.00 1 30,209.90 3,520,276.29 22,459,384 .48 1 1,337.00 315,759.60 l ,722, 1 15.75 28,988.00 833,968.00 3,680,753.80 1 80.043 05 153,055 129,077 M -T-D Y-T-D 5,462, l 32.45 34,816,216.25 4,856,351.34 29,360,383.18 211,146 168,738 De11ominution 4,039 6,047 4,()63 2,505 13,729 9,897 36,259 21,211 Case 3-1: Controls at the Sands Hotel and Casino .. ; . i The drop, win, and hold percentage measures were standard throughout the gaming industry, and competitive analyses were facilitated because summaries were prepared and distributed by the Atlantic City Casino Hotel Association. (Exhibit 13.) Bonuses The results measures are figured in bonuses paid to management personnel. Managers at the Sands received an annual bonus based on lhe bonom-line performance of the hotel-casino. This bonus could be doubled if the personal managemem-byobjectives (MBO) targets that were set during the annual budgeting process were met. Some of the MBO objectives were based on standard annual perfonnance measures. such as increased volume (drop), good hold percentages, and decreased costs, but as Stephen Hyde explained, these measures had to be supplemented with factors that were more difficult co quantify: The standard measures of perfonnance are imponant indicators of our success. but we try to be careful not to place too much emphasis on them. because we don't want to be encouraging our people to sacrifice everything for bottom-line growth this year. We want them to be building the company and doing everything they can to ensure that we're going to be successful three to five years from now, and even further ouL In our MBO program. we supplement the quantitative measures with factors that are usually more difficult to quantify.A good example is customer relations. If a customer has a complaint. we want our managers to make [him or her) happy, even if it costs us something today. so that [he or she) will come back. Other examples might be the successful completion of a project such as installation of a new computer system or maintenance of good employee relations. Future Controls In response to a request for a speculation as to what controls in the casino might look like in the future, Ed Sutor responded: In the gaming areas, the ultimate form of control for us would be to be able to record every transaction. .... ., .. -. 1 27 Then wed have -a good record of who has done whaL and wed be able to capture a lot of information that would be very valuable for decision-making purposes. But I can't visualize how we could record every transacuon. Over and above the direct costs that would be involved in such record keeping. there would be some perhaps sizeable indirect costs. We're in the enterta.mment business. and we can't do anything that would diminish our customers enjoyment. Funhermore. we don't want to do anything that would slow the games down too much: the number of wagers handled per hour 1s a standard measure of productivity in this business. So. unless there is some technological innovation that I can't foresee right now. I don't think the conuols would be much different from what we have right now. Control improvementS were always being made or contemplated. however. Stephen Hyde explained: We're always looking for ways to improve. This is a tough, competitive business. We continually have to make sure that the controls weve got are still working, and we have to be alert for new trends and new ruses. I'll give you a couple of examples. Right now, we are going through traming programs for all of the vanous positions. The programs have been reinsuruted. and everybody who has gone through them (some as much as two years ago) is going back through them. Theoretical ly, with the improved training, we will improve the controls in the casino. In the blackjack area. we are working on our shuffles. You may find this hard to believe, but we have found that some people seem able to track some cards through the shuffle and they can derive some advantage from it in their plays. So about every six months we have to change our shuffle. and that is one of the things we're looking at right now. We're also working on improving our infonnation systems. By the end of the year, we'll have a new computer system that will provide better information for control of credit and complirnent.aries. If,for example, a pit boss is asked for some complimen- EXHIBIT 13 Example of Industry Results Report Report 9I 500 00.00.00 % of Blackjack T ables Sands Claridge Bally Caesars Playboy % of Craps Tables 10.4 6.0 13.3 10.5 9.3 14.7 11. 9 10.7 13.2 9.2 7.2 9.1 12.1 7.5 21.6 8.8 13.4 11.2 9.3 8.1 12.8 16.3 8.1 11. 6 12.8 10.5 10.5 1 00.0 1 00.0 100.0 Resorts Harrahs Golden Nugget Tropicana Total % of Blackjack Win -- - - Sands-Atlantic City Table Game Market Share Analysis Month of May % of % of % of Craps Roulette Roulett e Win Wheels Win 10.5 7.1 12.7 16.2 6.4 12.5 10.l 14.6 10.0 100 .0 Run Date 06/141 83 % of Baccarat Tables % 7 . ' ! . I .- l. Evaluate Kewal K.rishan Nohria's (KKN) approach to control at Crompton Greaves. 2. What assumptions regarding human motivation and behavior underlie KKN's approach to control? 3. How robust is this approach to control? What are its strengths and weaknesses? Case 3-2 Crompton Greaves Ltd.* When Kewal Krishan Nohria (or KKN, as he was often called) became president and managing director of Crompton Greaves, Bombay, India, in 1985, the company's performance was at its lowest level ever. Revenues had flattened and profits had been declining sharply and steadily since 1982 (See Exhibit I for Crompton's financial performance in the 1980s). K.KN attributed this declining performance to Crompton's inability to re- copyright c 1990 by rhe President and Fellows of Harvard College. Harvard Business School case 491-074 (Revised 1992). spond to changing environmental conditions. Beginning in the early 1980s, he reasoned. the electrical equipment industry in India, from which Crompton derived most of its revenues, shifted from a "seller's market" to a "buyer's market": When we were in a seller's market. demand exceeded supply, so fi.nns in our industry were able to get away with adequate quality and high costs. Now that we arc in a buyer 's market and our supply capacity exceeds demand. we can no longer afford to ignore the demands of the customer. Nor, can we neglect our competition. Driving this shift was reduced demand from the Indian State Electricity Boards, the largest buyers