Subpart 1.
Minimum requirements.
The annual financial audits must be prepared on the regulatory
basis of accounting and contain, at a minimum, an opinion, financial
statements, supplemental schedules, a report on internal controls, a response
to internal controls report, and other information as noted.
Subp. 3.
Financial statements.
The financial statements must be comparative financial
statements showing the current year and previous year's financial information,
unless it is a first year engagement for the accounting firm in which case the
preparation of comparative statements is optional. The statements must be
presented in a format prescribed by and acceptable to the commissioner of
revenue. The financial statements required are as follows:
A. The statement of assets, liabilities, and
fund balance must include all assets, liabilities, and the fund balance of the
gambling operations as follows, if applicable:
(1) all game starting banks;
(2) all gambling checking accounts;
(3) all savings accounts;
(4) all certificates of deposit and other
negotiable instruments;
(5)
inventory from paper pull-tabs, tipboards, paddletickets, nonlinked bingo,
raffles, and sports-themed tipboards, in play and unused;
(6) fund losses;
(7) excess cash shortages to be
reimbursed;
(8) merchandise prize
inventory;
(9) other assets
specifically identified;
(10)
accrued taxes imposed under Minnesota Statutes, section
297E.02, subdivision
1 (net receipts tax);
(11) accrued
taxes imposed under Minnesota Statutes, section
297E.02, subdivision
6 (combined net receipts tax);
(12)
unpaid cost of games, plus sales tax;
(13) loans from all sources;
(14) other liabilities specifically
identified; and
(15) fund balance
(profit carryover).
B.
The statement of revenue and expense must include revenues and expenses from
the gambling operations and include, at a minimum:
(1) gross receipts detailed by game type,
such as nonlinked bingo, linked bingo, paper pull-tabs, electronic pull-tabs,
tipboards, paddletickets, raffles, and sports-themed tipboards, including ideal
or actual gross receipts from games found to be missing or unreported,
respectively;
(2) actual prizes
paid out detailed by game type including ideal or actual prizes from games
found to be missing or unreported, respectively;
(3) interest income;
(4) gross profit;
(5) allowable expenses;
(6) lawful purpose expenditures detailed by
tax imposed under Minnesota Statutes, section
297E.02, subdivision
1, combined net receipts tax, unrelated business income tax, federal form 730
and form 11C tax, federal and state income taxes, real estate taxes, restricted
use donations from tax savings, and donations; and
(7) board-approved expenditures.
C. The statement of changes in
fund balance must include, at a minimum:
(1)
beginning fund balance (profit carryover);
(2) profit or loss for the year;
(3) ending fund balance (profit carryover);
and
(4) other
adjustments.
D. The
annual audit must include notes to the financial statements. The notes to the
financial statements must include, at a minimum:
(1) nature of organization;
(2) basis of presentation of the financial
statements;
(3) related party
activity;
(4) restrictions on
assets;
(5) subsequent
events;
(6)
uncertainties;
(7) commitments such
as mortgages, rent, donations, or all taxes not paid or not filed, if
material;
(8) contingent
liabilities;
(9) board-approved
expenditures;
(10) games tested and
results: of the games tested, state:
(a) if
the games tested included games with unsold tickets;
(b) if games were tested from all active
sites;
(c) the types of games
tested, such as paper pull tabs and tipboards; and
(d) the manufacturer ID, part number, and
serial number of any games that could not be located; and
(11) a list of all forms of gambling
conducted by the organization which must be confirmed by the chief executive
officer
Subp.
4.
Supplemental schedule; reconciliations; physical
inventory.
A. The annual audit must
include an allowable expense comparison schedule. The schedule must include, at
a minimum, allowable expenses expended, detailed by type of expenditure as
listed on Form LG100A, which is the total amount of actual allowable expenses
from the revenue and expense statement.
B. The annual audit must include a
reconciliation of the gambling operations bank accounts to the reported profit
carryover The reconciliation must include, at a minimum:
(1) a comparison of the audited fund balance
(profit carryover) made to a confirmed Gambling Control Board fund balance
(profit carryover) as of the fiscal year end;
(2) any difference between the adjusted
gambling fund balance and the fund balance (profit carryover) is a variance;
and
(3) any or all of the items
that identify the variance if known.
C. The annual audit must include a
reconciliation between the number of paper pull-tab, paddleticket, and tipboard
games played to the number of paper pull-tab, paddleticket, and tipboard games
reported on Schedule B2, Lawful Gambling Report of Barcoded Games, for the
fiscal year audited. The schedule must include, at a minimum:
(1) the cost and number of games in beginning
inventory;
(2) the cost and number
of games purchased during the year audited;
(3) the cost and number of games available
during the year audited;
(4) the
cost and number of games in ending inventory as of the last day of the
organization's fiscal year end;
(5)
the cost and number of games used which is determined by subtracting the ending
inventory from total games available;
(6) the number of games reported on Schedule
B2, Lawful Gambling Report of Barcoded Games; and
(7) a calculation of the difference between
the games determined as played and games reported on Schedule B2, Lawful
Gambling Report of Barcoded Games.
D. A physical inventory observation and cash
count of all sites and locations must be taken as part of the annual audit
process, regardless of when the audit engagement was scheduled. A physical
inventory must be taken within 30 days of the balance sheet date or engagement
date, whichever is later, unless prior written approval of an alternate date is
obtained from the Department of Revenue. A list of the games in inventory by
manufacturer ID, part number, and serial number must be submitted to the
Department of Revenue within 30 days of the date the physical inventory was
taken. The physical inventory and cash count must be performed by:
(1) the CPA engaged to conduct the annual
audit; or
(2) two members,
officers, or employees of the organization, appointed by the organization's
board, who are not involved in the gambling activity of the organization. These
members, officers, or employees must certify to the CPA the correctness of
their physical inventory and cash count.
Subp. 5.
Sampling and testing; closed
games.
Closed games and occasions must be tested independently by the
CPA based upon criteria set by the CPA within professional standards. The
sampling and testing of tipboard, paper pull-tab, paddleticket, nonlinked
bingo, and raffle closed games must meet the following requirements:
A. When a minimum sample size is required,
the random or systematic method of sampling will be used. When a minimum sample
is expanded, the expanded portion of the sample may use random, systematic, or
haphazard methods. When a minimum sample is not required, the sample method may
be random, systematic, or haphazard. The following chart of gross receipts will
be used to determine the minimum size of a sample for closed pull-tab and
tipboard games.
| Gross Receipts |
Minimum Sample Size |
| $0 to $999,999 |
10 games |
| $1,000,000 to $2,499,999 |
20 games |
| $2,500,000 to $4,999,999 |
30 games |
| over $5,000,000 |
40 games |
There is no minimum sample size requirement for testing
paddletickets, nonlinked bingo, and raffles. Closed games and occasions will be
sampled independently by the CPA using judgment based on professional
standards.
B. Closed
tipboard and paper pull-tab games selected in the sample will be tested for the
following minimum criteria, and any differences or deficiencies must be noted
in the results of the games tested:
(1) each
game specified in the sample was available from closed-deal storage;
(2) the following items as reported on
Schedule B2, Lawful Gambling Report of Barcoded Games, must be compared against
test results for the same items, and differences shown:
(a) ideal gross receipts;
(b) ideal prizes;
(c) total value of unsold tickets;
(d) gross receipts;
(e) total value of prizes paid;
(f) net receipts;
(g) cash in hand;
(h) cash long or short; and
(i) date removed from play;
(3) each deposit ticket meets the
gambling receipt deposit requirements in Minnesota Statutes, section
349.19,
subdivision 2;
(4) each deposit was
recorded at the bank within four business days after the game was
completed;
(5) each prize receipt
form was properly completed for prizes awarded of $100 or more and for last
sale prizes of $20 or more;
(6)
the dates on the prize receipts fall within the date the game is put into play
and the date the game is removed from play, as listed on the Schedule B2 for
that game, with the exception of sports-themed tipboards whose prize receipts
can be completed seven days after the last frame of the professional sporting
event or when all prizes are claimed, whichever occurs first;
(7) each redeemed prize winning ticket was
adequately defaced;
(8) each game
fare is easily available from storage; and
(9) the serial number on the fare must be
compared to the serial number on the tickets.
C. The results of closed game sampling and
testing must be provided to the organization upon a request from the
organization.
Subp. 6.
Report on internal control structure and other matters.
A. A report about internal control structure
reportable conditions observed, or evidenced by testing, during the course of
an audit, that could affect the organization's ability to record, process,
summarize, and report financial data must be submitted. The report shall
elevate a condition to that of a material weakness when the magnitude of the
condition is considered material in relation to the financial statements being
audited. This report must include all the elements required by, and the
department adopts and incorporates by reference, AU-C section 265,
Communicating Internal Control Related Matters Identified in an Audit (AICPA,
Professional Standards, section 265, 2020). If no reportable conditions or
material weaknesses are detected, a report must be submitted stating that no
material weaknesses were detected. This report is required under subpart 1.
A list of the types of gambling audit reportable condition or
material weakness to include in this report follows in subitems (1) to (12).
This list is illustrative, and not all-inclusive:
(1) absence of appropriate segregation of
duties including a detailed explanation;
(2) inadequate provision for safeguarding of
inventory, cash, or other assets;
(3) excessive cash shortages or
overages;
(4) material delinquent
taxes due to state or federal taxing authorities;
(5) lack of required accounting records
maintained;
(6) lack of or
inaccurate preparation of bank reconciliations or gambling fund
reconciliations;
(7) material
differences between games played and games reported as played;
(8) nonuse or inaccurate use of perpetual or
physical inventories for all forms of gambling engaged in;
(9) lack of specific required identification
for tracking and accountability of deposit tickets;
(10) material underreporting or overreporting
of allowable expenses, lawful purpose expenditures, or board-approved
expenditures;
(11) failure to
properly account for and report fund losses, form LG250, Fund Loss Request for
Profit Carryover Adjustment; and
(12) inattention to and lack of correction to
prior year reportable conditions and material weaknesses.
B. A regulatory checklist questionnaire must
be included with the report from item A, on a form prescribed by the
commissioner Responses to questions on this checklist must be based on findings
and information collected during the course of the audit.
Subp. 7.
Organization's response to
report on internal control structure.
The licensed organization shall file with the Department of
Revenue a response to the reportable conditions item by item, including any
remedial action taken or proposed by the organization. This response may be
submitted with the annual audit or be filed separately within 60 days after the
due date of the annual audit. The response must include the following
items:
A. Any profit carryover
variance as shown on the reconciliation of profit carryover supplemental
schedule must be identified. All identified variances which require amendments
to tax returns must be amended and submitted to the Department of Revenue along
with supporting documentation. The auditor must, upon agreement with the
organization, assist in preparing an amended return or returns for the
organization. The response must indicate if such amendments have been submitted
to the Department of Revenue.
Variances which require adjustments instead of amendments
should be adjusted by sending a letter to the Department of Revenue requesting
an adjustment along with supporting documentation. Requests for an approved
adjustment cannot be substituted for fling amended tax returns that correct the
condition that resulted in the variance. If the variance is identified, an
amended tax return or returns must be filed.
Unidentified variances must be investigated by the organization
and identified. If after investigation an organization is unable to resolve the
variance, the organization shall contact the Department of Revenue. The
Department of Revenue will then assist the organization in resolving the
variance. Final resolution will be based upon an organization's individual
situation and can include: amended tax returns, an approved adjustment,
required reimbursement from nongambling sources, or a combination of all
three.
B. If the comparison
of games played to games reported on Schedule B2, Lawful Gambling Report of
Barcoded Games, shows a difference, the organization must respond to the
reportable conditions item by identifying and stating if the game difference
was due to the games being:
(1) missing or
lost;
(2) destroyed, with state
approval;
(3) played and
unreported; or
(4) reported in
following month.
C.
Specific items as noted on the internal control structure report must be
responded to.
If no response is received from the organization, the
organization must submit to the Department of Revenue a copy of the audit
management letter upon request.
Subp. 8.
Other.
The front page of the annual audit report must contain the
following items:
A. the organization's
legal name and licensed name, if different;
B. the organization's license
number;
C. the Minnesota ID number;
and
D. the federal ID
number
