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The past two years have been rough. There is no question about that. The challenges we have faced have come in a variety of forms. For my family, many of those challenges came in the form of making choices for my 10-year-old daughter. She has a slew of health issues that causes her to be considered “high-risk.” As a result, trying to decide if we should send her to school, make her wear a mask in Walmart, or allow her to spend the night at a friend’s house took a lot of time and energy. All that to say – so far, she has avoided getting sick. We may never be completely out of the woods, but we will continue to evaluate each risk and try to make the best decision for her. We have so much to be thankful for.
I use this as an illustration because I could not think of a better example of risk analysis. It is something we do daily in life and in the business world, sometimes intentionally and other times without much thought. Either way, we must analyze risk consistently and meaningfully to ensure that we are making appropriate business decisions. Risk – like it or not – plays a huge role in the Tribal casino industry. Understanding types of risk and how to mitigate those risks goes a long way in ensuring operational success.
Inherent Risk
Inherent risk – as its name suggests – are the elements of business that you have little or no control over. The location of your casino, number of tables games in the operation, or even the weather are examples of things that could impact inherent risks. The first step to mitigating inherent risk is simply recognizing it. Because these components of business are often “part of life,” we are not quick to view them as risks. As a result, we learn to deal with them and potentially handicap business success in the process. To be clear, it may be determined that having tables on your gaming floor creates risk for a different method of committing fraud or there is a risk that your slot revenue will decrease. We call these inherent risks because they are natural consequences of having tables on your gaming floor. Obviously, you can remove the table games and you remove the risk; however, if you have tables, then you inherently have new risks to deal with.
This does not mean that everyone should get rid of table games – everything you do has some inherent risks! Risk analysis is the process of understanding those risks to find new ways of mitigating the potential negative impacts. Once we’ve come to terms with the inherent risks and recognize their potential impact, step two is to implement regular and routine checks to ensure the benefits of these decisions outweigh the costs. In other words, is a risk so high that it is not worth having table games on your floor? There is no magical formula for this. It takes discernment, experience, and good data to know how to measure the risks and the associated costs (including money, resources, time and compliance, to name a few).
Control Risk
Good news! We are not as helpless when it comes to control risk. Essentially, control risks are the risks in your operation that are there because you don’t have effective internal controls in place. For auditors, this is specifically the risk of mistakes on your financial report due to lack of internal controls. For the sake of this article, let’s apply that logic globally. When effective internal controls are not in place, your risk potential increases exponentially. Not just for misstatements on financial statements, but also for fraud, inefficiency, and general non-compliance.
Minimizing control risk is not difficult – it is as simple as creating and implementing effective internal controls for the operation. This may happen through updating policies and procedures. It may mean a new form or log is implemented. In 2022, it often comes through technological resources that can be utilized. Can you automate some tasks to eliminate the potential for human error? Determining which internal controls to implement really comes down to understanding the cost benefit versus cost risk. In other words, it may be worth spending a little extra to mitigate the risk of losing a lot more.
Summary
Risk is inevitable. We will never be able to eliminate it completely. Instead, we need to embrace it and do our best to understand it, then make business decisions that minimize that risk. One of the simplest ways of getting started is a risk assessment. Having an independent third party come in and evaluate risk is a great way to get started on mitigating the risks at your property. Let me know if I can help!
Article Contributed by Doug Parker, Compliance Department, Finley and Cook
