when that gaming regulatory body started. He put it together and he brings a great deal of expertise to our body. We really appreciate having him on board.

Cloyce "Chuck" Choney is the other member of the Commission. Chuck is a Comanche from Oklahoma. He spent 26 years with the Federal Bureau of Investigation. He knows his way around Indian country and investigations. We are just delighted to have him part of our team. That has really strengthened our relationship with members of the Federal law enforcement family.

We want to talk about basically three areas today. We are bureaucrats so we are going to talk about our funding and our budget. We want to talk about the mission that we have and how we attempt to perform that mission. Finally, we want to talk about what we view are some shortcomings in the Indian Gaming Regulatory Act that tend to complicate our performance of that mission. Before I launch into that, I want to say that we think we know our place within the Indian gaming scheme of things. We would not be here if it were just for the Federal Government. Indian gaming was created by Indians, by leaders that brought economic development to their reservations where that was desperately needed. Without their vision and without their leadership, there would not be an industry. We would not be here.

With respect to the gaming that is occurring out there, there are several key players that perform the regulatory functions. The front line, all day, every day regulation is performed by tribal regulators. We think they do that job very well.

Our role is rather a secondary role. We support and provide oversight of that regulation, that tribal gaming commissions perform for their tribes. Of course, under the tribal-State compacts for class III gaming, States, too, can and do play supporting roles. But most of the manpower, and all of the money that is spent to regulate Indian gaming, is provided by the tribes. They are doing a commendable job. Our oversight, we hope and we think it does-tends to lend credibility to that first line regulation that tribes do.

There is a dynamic tension that exists between these levels of regulators, but we think that is to be expected in that kind of a relationship. But we think we have a good and positive relationship with tribes and their tribal regulators.

Now, getting to the funding part of the presentation, since 1997, the National Indian Gaming Commission's operations have been funded solely by tribes-fees that are collected on class II and class III gaming, as well as some lesser amounts that are collected for services, particularly the fingerprint processing that we do for tribes in cooperation with their background investigations. We also charge some fees in connection with the background investigations we conduct when we are doing management contract reviews.

The fees that we collect, of course, are capped by the statute, capped currently at $8 million. Exhibit number 2 of our written statement is a pie chart that shows that about 85 percent of the dollars that we current spend are basically fixed costs-salaries and money we spend to keep the doors open at our office here in Washington and our five field offices.

The CHAIRMAN. Is that the red portion of your chart?

Mr. HOGEN. Yes; the lion's share is basically uncontrollable, so to speak. We have to pay that whether or not we are working hard. The CHAIRMAN. You had better be working hard.

Mr. HOGEN. We absolutely try to do that.

That is the picture. Right now we are spending the full $8 million basically to do that. Of course, the industry itself, as this chart demonstrates, is on an upward trend. We do not know that it will always go at that level or at that rate, but recently that is the way it has been going. That is good. That means that puts dollars on reservations where they are supposed to go.

But it also means that we have more to do. With the same amount to do more, we have to be creative. But during this period of time, there have been more tribal gaming operations and there have been larger tribal gaming operations. We have come up with some more requirements that we have to get out there and verify, such as our minimal internal controls standards and the environment, health, and public safety provisions that we are responsible for overseeing.

The gaming itself is becoming more complex. It is a more technical industry. We have to be better at what we do. In 2001, NIGC spending to hit the ceiling. We collected all the $8 million. We could not hire any more people or do anything more. So we had to put in place a hiring freeze. We had to restrict the travel of the investigators and the auditors. We had to suspend a consultation circuit riding program where they would go out around Indian country. We have been able to only minimally upgrade equipment, training, and the technology that we utilize. We are in a bind over there.

Also appended to our testimony is a copy of our organizational chart. It shows who works for us and what they do. It also shows the vacancies. We have 19 field investigators in our five field offices and here in our Washington office. Right now, three of those positions are vacant. We have seven auditor positions; three of those positions are vacant.

The CHAIRMAN. Those are positions all in the Washington office? Mr. HOGEN. No; these are the whole team; five field offices and the Washington office.

The CHAIRMAN. The positions that are vacant. Are they out in the field are they mostly here in Washington?

Mr. HOGEN. They are both. It is probably weighted a little more to the field because that is where the people are. But if and when we get dollars to fill positions, the field positions will be the first ones that we will backfill.

We also have had some senior positions open. We currently do not have a general counsel. We do not have a director of Congressional affairs. We have folks acting in that capacity. That means that those acting folks cannot do the jobs that they were doing before.

The good news in connection with that, and the fact that there were vacancies in our positions in the Commission membership means that we saved some dollars. We were not paying those big salaries. With those savings, we were able to hire some of the people and fill some of the slots that we had not filled before.

But notwithstanding the shortage of folks that we have, we are still doing a lot of work. We made 329 "routine" site visits to field offices during 2002. We conducted 75 training sessions out at reservations or in tribal facilities. We made 226 visits that were made to address specific problems. That is not across the board because 148 of those occurred at our Tulsa office where we have struggled with where you draw the line between class II and class III gaming.

Indian gaming is extremely diverse. In some cases it is far flung and remote. Geography and special circumstances tends to influence how we distribute those field visits and so forth. If you are in Tulsa and you need to go to the Muskogee Creek facility, you are ten minutes away. If you are in the St. Paul office and you need to go to Pine Ridge, you have to spend $1,000 and a lot of time on the airplane and behind a steering wheel. So it is not all divided up the same way, so to speak.

We have a strong audit team. The audit function is probably the newest group that has been developed at the National Indian Gaming Commission. First of all, they review the audits that all tribes have to have performed and send to NIGC. Those audits are helpful, but of course, they basically show the financial position of the facility. They do not say that they have looked under every rock to see if anything was wrong. But occasionally we do that kind of an audit as well, a fraud or an investigative audit.

Most recently we have been doing minimal internal control audits which have been extremely productive. We came out with these minimum internal control standards that say things like:

When you take the money out of the slot machine you have to have somebody from security there. You have to have somebody who is going to account for the money. You have to have a witness. They all have to sign the paper.

There are things like that. You have a track record on these undocumented cash transactions. When we do a MIC audit, we go out and look at the paper trail for those things and try to see how the operation is running. This provides great oversight from our perspective. I think the tribes are extremely well served when we look at them and tell them where there are some shortcomings.

Ideally, our auditors tell us we would do one of those MICS audits at each facility about every 5 years. Last year, 2002, we were only able to do five of those. That is 5 out of 300 operations. At that rate it would be a long time to make the full circuit. We cannot do that with the staff that we currently have.

In terms of the background investigation process that the tribes initially perform and do well, we help process those fingerprints. In 2002, we processed 30,000 fingerprints, sending them on to the FBI and sending the results back to the tribes. We looked at over 24,000 employee background investigations. We are part of that team, and that keeps us busy.

We also, of course, review and approve the tribal gaming ordinances. You might think that would be something that would just be a one-time deal from each tribe, but there are changes. For example, Arizona not long ago, expanded gaming to include black jack. Each of the tribes had to revise its ordinance, send it in to us, and we reviewed it. Of course, there are new operations where they send in new ordinances. We also review and approve manage

ment contracts. That is a slow but a very thorough process. That keeps us busy. Like other agencies, we get a lot of Freedom of Information Act requests. We spend a lot of time and resources responding to the FOIA requests.

To do all of the things we are supposed to do, frankly with the growing_industry, we need more resources and we need more money. The way we are funded now is exclusively by the fees that we get from class II and class III gaming. The good news for the tribes, of course, is as those total dollars expand, the rate that they have to pay us to fund that $8 million goes down.

The first thing the three new Commissioners did when we came on board was to set the rate for calendar year 2002. You cannot do that until the end of the year because you do not know exactly how much money has been generated out there. We set the rate. We lowered the rate. It was set at 65 cents per thousand dollars. For every thousand dollars of tribal revenue out there, they sent us 65 cents.

When we set the rate for this year, 2003, because we could see the expanding industry, we were able to reduce that to 59 cents per thousand dollars. In the 2003 budget, the President had requested $2 million in appropriated taxpayer dollars to supplement our $8 million for the operation. Of course, when Congress put the budget to bed here with the Omnibus Funding Bill earlier this year, there was a deficit looming and they did not appropriate that money. We are still at the status quo, or the $8 million fee

cap level.

However, the Omnibus Funding Bill did raise the cap for 2004, raising it from $8 million to $12 million. That was the appropriators' vision or view of how to address this situation. We further understand that that was a message to you, to this committee, saying, "If you want to change or fix the way NIGC is funded, you have a window of opportunity to do this."

We understand that you folks can wave the wand. Maybe when we get to 2004, that $12 fee cap will not be there or maybe you will change the structure. As we understand the $12 million fee cap, it is a one-time deal. It is not changed forever; it is changed for 2004. You might make that permanent, or you might entirely change the formula.

That puts us in a little bit of a bind in terms of what to do when. If we go out and hire more people who we would expect to pay over the years and we spend part of $12 million, if it is not going to be there in the out years, we are in trouble. We will have to RIF those people and that would not be good.

We can buy some new equipment and get some needed training and so forth, but we are hesitant to open more doors or hire a lot more people. We want to know what the stability of that funding will be.

In terms of what we would do if we had more money, this is how we would spend the money if we had $10 million instead of $8 million. We would hire more auditors. We would hire more investigators.

The CHAIRMAN. My old eyes can barely see that chart let alone the printing on that chart. Do you have those printed up for the committee?

Mr. HOGEN. Yes; I believe it is attached to the statement.

The CHAIRMAN. We do not have any of those charts you have shown so far.

Mr. HOGEN. I apologize for that.

The CHAIRMAN. Provide those for the committee, if you would. Mr. HOGEN. We certainly will.

In addition to that, we have a copy of our budget showing how we spend it by the month and by the item. We will provide it to the committee and, of course, we have provided it to the tribes.

How can we maybe better set the rate of the fees? Here is what I think you should do. I think rather than setting a finite number there $8 million, $10 million, $12 million-set it at a percentage rate. If the industry grew, so, too, would the fees to regulate that industry. If it contracts, we need less money and it would go down. Right now the maximum for the fees is 5 percent. Well, of course, given the experience we have had since 1988, that is an outrageously high fee. We would never need that much money. If we had one-fiftieth of that; if we had one-tenth of a percent as the fee cap-that is not the budget; that is just the maximum-then if you had a $12-billion industry, then we would get $12 million. If you had a $13-million industry, we could get $13 billion.

We think that would be an approach that you might want to consider in terms of giving us some stability so that as the industry grows we could grow and we could make some long-term plans.

The last thing I want to say about that is that fee cap is just that. That is not the budget. In 2004, we have a fee cap of $12 million. I do not think we could intelligently spend that much money if we wanted to; $10 million, yes. We have a plan for that. But just because the fee cap is there, that does not mean that we would seek all of that money.

So that is our story with respect to our budget and our funding. At the conclusion of my statement, I will try to respond to any questions you might have.

Before we conclude, I want to talk about things that we think might be changed in the Indian Gaming Regulatory Act that would assist us. There are probably a couple of things that everybody who is in Indian gaming agree on with respect to IGRA. No. 1, is that it is not perfect. No. 2, everybody is afraid that if it is ever amended, it will be amended in a way they will not like. There is not much impetus to change it.

In years past, ordinarily there has been a bill introduced to amend the Indian Gaming Regulatory Act. The National Indian Gaming Commission has most often been in the reactive posture. They were asked after it was introduced, "what did we think". Typically, NIGC said, "Well, we do not like it exactly that way."

We are here to offer some suggestions that we think might be considered before a bill like that gets introduced.

First of all, with respect to the authority of the National Indian Gaming Commission with respect to class III gaming, the lion's share of Indian gaming revenue is in class III. The scenario is that there is a tribal State compact that will be negotiated which will, in part, address the structure of the regulation.

Yet, the Chairman of the National Indian Gaming Commission has the authority and the responsibility to close or to fine a facility if it is not operating correctly or in compliance with the Indian