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Surveillance Special Report - The Internal Incubator for Fraud

How to battle employee theft and dishonesty

Surveillance Special Report - The Internal Incubator for Fraud

In 1986, I caught a slot employee stealing money from inside a slot machine. I was lucky-right place at the right time. It was exciting, and I couldn’t wait to catch someone else. For the next several years, I caught one employee after another. Along the way, I became curious about what had made these employees steal from the casino.

In the beginning, I believed that employees stole from the company because they needed the money or because they wanted something and couldn’t pay for it. In time, through experience and research, I learned that many other factors contributed to counterproductive behavior in the workplace.

The “Fraud Triangle” is a very succinct way to describe how the process works:

  • Financial Pressure/Motivation-the reason the employee commits the act.

Think of the four “Bs”:  Beer, Boobs, Betting and Borrowing. The pressure is often created by one or more of these items. Alcohol addiction, sex addiction, gambling addiction and spending addiction.

This is not applicable during a recession, and we must consider the real financial impact that employees are facing.

  • Rationalization-the mindset of the employee that justifies the commission of the act.
    Never underestimate the ability of the mind to rationalize anything.
  • Opportunity-the situation that enables the act to occur, often a result of complacency.

This is one area that the company has the ability to control. Opportunity is the means to steal, whether it be a lack of physical security like cameras and locks or an ineffective internal control and segregation of duties.

There is an adage that suggests 10 percent of the population is very honest. They will not lie, cheat or steal, no matter what. Another 10 percent have larceny in their hearts and should be behind bars. The remaining 80 percent are on the fence, and given the right circumstances and the right opportunity, they will behave unethically.

In today’s economic climate, that 80 percent should be the greatest focus of concern.

Factors that Impact
When thinking about the factors that impact a casino employee’s decision to steal, some are shocking and others not so shocking. A lot seem to come in cycles.

Seasonal Cycles: In Northern Nevada, our business dropped dramatically in the winter months. The feeder market was California, and very few people wanted to make that trip over the mountain and risk getting caught up in a snowstorm. In southwest Louisiana, it’s the “damn months”-too damn hot and too damn humid.

Complacency Cycles: This is an area perhaps more prevalent than any other. Business is good and everyone is happy, so no one is paying attention to what is going on around them. This is where occasional fraud occurs, and the perpetrator doesn’t seem to have any real motive to commit the act, but the act is rationalized by the fact that business is doing well.

Economic Cycles: The national economy is currently being impacted by the recession and, as a result, there are fewer people traveling and fewer people gambling. This has an effect on the local economy as well, and the day-trippers will curtail the number of visits they make.

More important is the cause and effect that the economy has on the behavior of employees in the casino industry. Fewer customers equal slower business. Slower business equals reduced hours and fewer tips. A reduction in hours and fewer tips equals less money in the employee’s pocket. Less money equals motivation and rationalization. The uncertainty of the future is a significant driving force behind employee theft and fraud, and 2009 has been a big year for theft and fraud across the United States.

The casino industry is especially vulnerable to fraud and theft during these times and when employees have motivation, and when they can rationalize the act they will ultimately find the opportunity to commit the act. We also have to remember that it’s not just employees who are stealing during these times, but also our guests. This is complicated further by guests stealing from other guests. We want to retain our good guests, so a lot of effort goes into making them happy. As a result, more time is spent investigating these incidents.

Putting It In Perspective
One might argue that a person would have to be crazy to try and steal from a casino, with all the surveillance cameras and internal controls designed to deter theft. Right?

The Four Bs Casino has 50 table games, 1,000 slot machines, three restaurants, two retail shops and a 500-room hotel. Four Bs employs 1,000 people (100 honest, 100 dishonest and 800 on the fence). A casino of this size will conduct hundreds, if not thousands, of cash and credit card transactions per day. No one could possibly be looking at every one of these transactions. The second part of this is the simple fact that an internal control or procedure is only as good as the person who follows it.

Most surveillance professionals suggest we are only catching 10 percent to 30 percent of the crime that occurs in our organizations. Some I have spoken with have stated they believe the number to be as low as 5 percent, but none have suggested that it is higher than 30 percent.

The Four Bs Surveillance Department employs 15 people (five per shift), is 20 percent effective and has an average of 20 employee theft incidents per year. This means there are an additional 80 incidents that went unnoticed or unreported during a normal year. This also means that each person is watching 10 table games, 200 slot machines, one outlet, 100 hotel guests, a few hundred regular guests and a little less than 100 employees.

Due to the economic condition, they are seeing a very conservative 20 percent increase in overall employee theft that was actually caught or reported (24 incidents). This means there were 96 additional incidents that went unnoticed or unreported.

So how does your casino stack up to these numbers? The numbers are probably a lot worse than you think. Why? Because most national surveys suggest that internal theft and fraud is up by 60 percent. Because security and surveillance jobs are also subject to cuts, and investments in these areas are not high on the priority list. Because training dollars are also cut back, and in some cases the surveillance department has never been exposed to some of the methods of theft being used in your casino. Because in uncertain times, it is very difficult to maintain a culture of integrity.

Making a Difference
So what can surveillance do about it right now? Sometimes surveillance is like a junkyard dog in a room full of hubcaps-we just run around and bark at everything. Sometimes we are more like a hunting dog-focused on the task at hand with purpose. It’s all about patience and being methodical.

Audit-Based Surveillance
I have been conducting audit-based surveillance since 1995. I started out with pen-to-paper checklists that were based on each department’s policies and procedures and applicable internal controls. We also threw in some customer service-related items for a complete measurement of performance and execution.

Today, we are using software that not only has the checklist but retains the data associated with every single audit we conduct. We can run reports by a variety of criteria and, more importantly, we can identify trends that lead to internal theft and fraud. This has been the cornerstone of our success for many years because it is focused with purpose. Remember what we said earlier: An internal control is only as good as the person who follows it.

Audits create real-time accountability. They let the employee know that someone is watching and that they are paying attention. While this method can’t impact a person’s perceived pressure, it can certainly impact rationalization to a degree, and will definitely create doubt concerning the opportunity to get away with it.

Audits also address weaknesses in the operation by identifying ineffective internal controls or procedures. They are also a great training tool or coaching opportunity for management. It lets the employees know that management is vested in their success and engaged in the process. They create opportunities for communication and this reduces complacency on everyone’s part. I have learned that when you tell people what the expectations are and hold them accountable to those expectations, they will generally respond positively in their actions.

Integrity Culture
We have all heard the phrase, “It all starts at the top.” This means we do as our bosses do. If the executive-level management has a culture of integrity, then so will the employees. This is also called leading by example, being honest about your expectations and holding yourself to those expectations as well.

Any casino can make itself an incubator for disgruntled employees primed for crime, or it can recognize the problem and proactively create an environment in which employees thrive and the business prospers.

Be transparent, not invisible. When times are tough, management sometimes has the tendency to avoid confronting the issue with the staff. An environment of honesty is much healthier for everyone involved, and creates a level of understanding so the staff isn’t always guessing about what is going to happen next. 

Be the voice of reason. We have all had a couple of employees who love to stir things up based on rumors and speculation. These are the people down in the cafeteria doing all the talking and getting their co-workers angry at management. If you aren’t the one doing the talking and setting things straight, then it is only natural for employees to become suspicious of your lack of communication-and they will listen to the person who doesn’t have all the facts.


A few years ago, our casino got hit with a false-shuffle scam. The supervisor on duty called me at 5 a.m. and told me something was wrong on the game, but he couldn’t figure it out. I woke myself and drove to the casino, and within five minutes I realized what had happened. The supervisor felt bad because he didn’t recognize the scam. This guy had 10 years experience, and I took it for granted that he must have known what a false shuffle looked liked. I was wrong. His 10 years experience was in a market that was never trained and had never been exposed to a false shuffle.

There is a significant difference between time on the job and experience. Experience comes from training and having an understanding of the different issues we are asked to investigate. This is especially true with internal theft and fraud. When surveillance and management are trained on what to look for, it becomes a lot easier to recognize.

The casino industry is stretched very thin with experienced management, and it only stands to reason that they haven’t been exposed to the many methods an employee will use to commit fraud and theft. The return on investment in this area is also very significant.

The Four Bs Buffet does an average of 500 covers for dinner. Each dinner is valued at $20. The cashier, Bill, has a taste for the ladies and ends up at the local strip joint three times a week (“Boobs”). To support his evening activities, he steals $100 a day, or five covers (1 percent). That is an annual loss of $25,000 just for Bill, and he is not alone. Think of the training you could get for $25,000, and what that buys in terms of peace of mind and keeping that 80 percent honest.

Technology Initiatives
There is another survey that suggests high-tech fraud goes unreported or unnoticed 90 percent of the time. So how can surveillance possibly catch high-tech fraud?

The short answer is we can’t. We can’t because most casino organizations haven’t done enough to make this a priority. Think about all of the different systems a casino uses-slot system, table games system, point-of-sale system, hotel system, time and attendance system, surveillance system, etc. Who is watching all of these electronic transactions? Do they make sense based upon what is actually happening in the real world environment?

Bringing these systems together and creating analytics that help identify internal theft and fraud will go a long way in pushing the numbers closer. For some casinos this is a technology initiative for 2010 and, in my opinion, will be the future of casino surveillance: analysts looking at data and comparing that data against the actual event caught on CCTV, and creating actionable intelligence.

Darrin Hoke is the director of surveillance at L’Auberge du Lac Hotel & Casino in Lake Charles, Louisiana. Hoke has also held various positions in security management, investigations and law enforcement, and has developed a number of surveillance classes and programs over the past 10 years. He has been a regular instructor with the University of Nevada, Reno gaming management division as well as a guest lecturer at the 2007 World Game Protection Conference.


  • We cannot stop it, we can only manage it.
  • Implement audit-based surveillance programs. This is the single most proactive thing you can do right  now.
  • Create an environment of integrity. This must come from the top and be consistent.
  • Be a great communicator and
  • listener. We learn more from
  • listening than we do by talking.
  • Train the management team in theft and fraud awareness and introduce the concept of integrity culture.
  • Implement technology initiatives that focus on identifying internal theft and fraud.
  • Track the progress. Circle back and review how effective a particular training session was or how effective a new initiative was.
  • Track the investigations. Examine how much the incident cost the organization, what could have been done better, what could have been  done to prevent it from happening and what you can do to prevent it from happening again.

Darrin Hoke is the director of surveillance at L'Auberge du Lac Hotel & Casino in Lake Charles, Louisiana. Hoke has also held various positions in security management, investigations and law enforcement, and  has developed a number of surveillance classes and programs over the past 10 years as a regular instructor with the University of Nevada, Reno gaming management division.  

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