CASE 5.3 Caesars Entertainment Corporation The gambling known as business looks

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CASE 5.3 Caesars Entertainment Corporation The gambling known as business looks with austere disfavor upon the business known as gambling. Ambrose Bierce In the early 1930s, the Great Depression forced engineering student William Harrah to drop out of UCLA. Known as a "hustler" by his friends, Harrah began operating a bingo parlor to support himself. After repeated confrontations with law enforcement authorities that centered on the legality of his bingo games, Harrah moved his busi- ness operations to Nevada, which had less restrictive gambling laws than California. Over the next several decades, the resourceful and enigmatic entrepreneur assem- bled an impressive collection of gaming properties.! Harrah eventually took his com- pany public in 1971 to raise the funds he needed to build the crown jewel of his business empire, the five-star hotel and gaming resort Harrah's Lake Tahoe. In 1973, William Harrah registered Harrah's Inc. with the New York Stock Exchange, making it the first gaming company listed on the Big Board. In 2005, long after its founders death, the renamed Harrah's Entertainment Inc.,.became the nation's largest gaming company when it acquired the opulent Caesars Palace in Las Vegas and doz- ens of other major gaming properties operated by one of its primary competitors. The company's executives eventually renamed the firm Caesars Entertainment Corporation and listed its common stock on the NASDAQ under the ticker symbol CZR. Over the years, Caesars and its predecessors have had more than their fair share of run-ins with regulatory authorities due to the company's aggressive business prac- tices. In early 2013, the Securities and Exchange Commission (SEC) launched an investigation involving Caesars. Ironically, the investigation was not prompted by any actions or decisions by the company's executives but rather by the conduct of James T. Adams, a former partner of the company's audit firm, Deloitte & Touche (Deloitte).2 Adams had served as the advisory partner on Deloitte's 2008 and 2009 audits of Caesars. During 2009, Adams had allegedly engaged in certain "gaming activities at a Caesars casino that made the SEC question Deloitte's independence during the 2009 audit. Exhibit 1 presents the one-paragraph disclosure made by Caesars of the SEC investigation while it was in progress. As noted in Exhibit 1, Caesars and Deloitte performed their own independent investigations and concluded that Adams actions had not impaired Deloitte's independence. Also notice Caesars reported that if a contrary conclusion was ulti- mately reached by the SEC, there could be "material adverse" consequences for the company 1. In addition to accumulating gaming properties, Harrah eventually collected more than 1,000 vintage cars-cach of which he insisted on driving at least one mile every year-and six exwives. He was mar ried to his seventh wife when he died in 1978. 2. Caesars became a Deloitte audit client in May 2002 shortly after the company dismissed Andersen &

Explanation / Answer

EXPLANATION --

The case puts the student in the shoes of a newly minted MBA who is employed as a credit analyst at a hedge fund. She is asked by her Portfolio Manager to consider an investment in the bank debt or bonds of Caesar's Entertainment Corporation.

Caesar’s internal audit department immediately embraced ACL and challenged team members to

develop several tests that would improve audit procedures. Staff first created an ACL script that verifies

slot machines recently upgraded by vendors are operating. In the past, auditors could only perform

random sampling on machines in a specific denomination (such as 25 cents, $50 or $100) to ensure the

machines were functioning properly. This new test quickly gave the team compete data coverage and

more confidence in reporting upgrade testing results to regulators.

Team members also developed tests to compare casino systems access with HR data. The test ensures

that all individuals with access to company systems - including casino operations, hotel systems, loyalty

card programs and more - are current employees in good standing with appropriate access levels. The

test quickly identifies individuals who may have left the company but still (mistakenly) retain access to

internal systems. Auditors developed a similar investigation to pinpoint customers who inappropriately

received free meals or drinks. This analysis not only reveals procedural anomalies for further investigation,

but also creates a tighter control environment for staff at all Caesars locations.

Caesars Entertainment relies on ACL technology to achieve:

Efficiency and productivity gains.

Full coverage of critical customer and financial data.

Greater confidence and more complete regulatory reporting capabilities.

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