Report 2021-102
August 25, 2022

Indian Gaming Special Distribution Fund
The State Could Better Manage Its Distribution Fund and Its Problem Gambling Programs

August 25, 2022

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

In our office's audit of the management and use of the Indian Gaming Special Distribution Fund (distribution fund) we determined that the State has not effectively managed the distribution fund, and it has allowed the fund to accumulate an excessive reserve. To reach this conclusion, we reviewed records and processes at the California Gambling Control Commission (Gambling Commission), the Department of Finance (Finance), the California Department of Justice (Justice), and the California Department of Public Health (Public Health).

The Gambling Commission and Finance have not determined what constitutes a prudent reserve for the fund and its current reserve would cover nearly four years' expenditures, much more than what a best practice indicates is appropriate. This excessive fund reserve has grown, in part, because the State has not aligned the distribution fund fees that it collects with the State's costs to regulate tribal gaming.

Furthermore, Justice has not reimbursed the distribution fund for more than half of the hours that we identified in a previous audit as having been inappropriately charged to the distribution fund. We also found that Justice continues to improperly charge the distribution fund for nontribal regulatory activities, and Public Health has not demonstrated that it effectively monitors or evaluates the problem gambling prevention and treatment programs for which the distribution fund pays.

Respectfully submitted,

Acting California State Auditor

GFOA Government Finance Officers Association
RSTF Revenue Sharing Trust Fund
SAM State Administrative Manual
SCO State Controller's Office


The Indian Gaming Special Distribution Fund (distribution fund) exists to pay for specific activities related to tribal gaming, such as regulating tribal casinos and providing services to individuals suffering from problem gambling. Tribes that engage in gaming activities pay fees into the distribution fund, and these fees must be used by the State for specific activities.We use the term distribution fund fees to describe the payments tribes pay to the State pursuant to approved compacts. The California Gambling Control Commission (Gambling Commission), the California Department of Justice (Justice), and the California Department of Public Health (Public Health) each have significant responsibilities that the distribution fund financially supports.

The State Has Not Effectively Managed the Distribution Fund

The State has allowed the distribution fund to accumulate an excessive reserve. As of June 2022, the distribution fund's balance of $127 million was enough to pay for nearly four years of expenditures, significantly higher than the level suggested by a Government Finance Officers Association best practice. Further, the State has not repaid nearly $2 million plus interest from a loan from the distribution fund that has been outstanding for 13 years, preventing either the use of these funds to regulate tribal gaming or their return to the tribes that paid distribution fund fees. Finally, Justice and Public Health have not appropriately used some distribution funds. Justice inappropriately charged staff time to the distribution fund for activities that were not related to its tribal gaming regulatory activities. Public Health incurred catering costs for two training conferences without demonstrating that it performed proper due diligence to ensure that the costs were reasonable.

The State Has Not Ensured That Tribal Payments Align With Its Regulatory Costs

In 2021 the State collected $34 million more in distribution fund fees from tribes than it spent on regulatory costs, contributing to the distribution fund's excessive reserve. The disparity between the amount the State collected and the amount it spent is in part caused by the fact that its agreements with tribes specify different formulas for calculating the distribution fees the tribes owe. Although some of these formulas are based on the State's regulatory costs, others are not. Different formulas have also led to tribes with similarly sized gaming operations paying significantly different distribution fund fees. Finally, some tribes' agreements with the State require them to pay additional fees until the fund reaches solvency; three tribes continue to make these additional payments despite the fund's excessive balance.

Public Health Has Not Demonstrated That It Is Effectively Monitoring Its Problem Gambling Prevention and Treatment Programs

Public Health's Office of Problem Gambling has not effectively evaluated its programs. Because the Office of Problem Gambling has not incorporated into its program evaluation the use of strategic planning best practices, such as creating measurable goals and frequently monitoring progress toward meeting these goals, the office is unable to identify whether it is providing effective services. Further, the office does not have data on the number of individuals who are currently suffering or who have recently suffered from problem gambling—information that would help it better identify which populations need problem gambling prevention or treatment services and the factors that contribute to problem gambling. Until it obtains more current data, the office could take additional steps to assess the reach of its services.

Agency Comments

The Department of Finance and Justice did not state whether they agreed with our recommendations, but indicated that they would implement them. Public Health agreed with our recommendations and indicated that it would implement them.