Addressing the New Regulatory Landscape: IT Compliance and E-Discovery at KMCO Gaming

Abstract

The advent of federal regulations such as the Sarbanes Oxley act and the amended Federal Rules for Civil Procedure guidelines, KMCO Gaming, a leading manufacturer of casino gaming systems, is grappling with managing electronic data and records in compliance with legal requirements. In the midst of a major lawsuit against a rival company, KMCO has decided to purchase an electronic discovery (E-Discovery) solution. E-Discovery is the process of finding and producing digital information needed as evidence for legal matters. To implement such a solution, KMCO would need to develop a formal governance structure, processes for electronic file storage and sharing, and technology tools to support the new E-Discovery system. This case provides an overview of the regulatory landscape that affects the management of electronic records and highlights some of the organizational challenges that may impede the ability for IT management to successfully deliver IT compliance initiatives. Names and identifying facts related to the company, key players and key events described in the case have been changed.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

Resources

Figure A1: Example Traditional Mechanical Game Systems

A photo on left (labeled “a”) shows a roll-a-top jackpot slot machine having rolls with fruit images and a box filled with coins. A photo on right (labeled “b”) shows a “Tequila Sunrise” arcade game machine.

a. Source: http://commons.wikimedia.org/wiki/File:Old_slot_machine.jpg. By Valerie Everett from Indianapolis, USA (Old slot machine) [CC-BY-SA-2.0 (www.creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons.

b. Source: http://commons.wikimedia.org/wiki/File:Slot_Machine_Tequila_Sunrise.JPG. By Stefan-Xp (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (www.creativecommons.org/licenses/by-sa/3.0/)], via Wikimedia Commons.

Figure B1: Example Server-Based Game System

Appendix C: Hurricane Katrina Insurance Losses

KMCO’s Louisiana facility was covered under both property damage and business interruption insurance. In order to file property damage insurance claims in the aftermath of Hurricane Katrina, KMCO needed to produce a record of the assets they owned, and provide a verifiable estimate of the value of the assets. Then, based on the estimate of the damage caused to the assets by the hurricane, the insurance firm would determine the amount to be paid for the claims. Similarly to file business interruption claims, KMCO had to quantify the length of time for which the business was interrupted and the consequent losses incurred, in order to receive compensation from the insurance company.

Property Damage Losses

For KMCO, the property damage claim filing process was complicated since they had minimal record of what was in their offices and buildings that were damaged by the hurricane. Additionally, KMCO equipment at several casinos was damaged but the records for leased equipment were managed at the local KMCO offices. Since they did not have immediate access to this information, they had to spend months piecing together this data from files stored on central servers and employee systems. This process cost them valuable time and money, and it also delayed the rehabilitation of their facilities and work in Louisiana.

Business Interruption Losses

To file their business interruption claim, KMCO had to track revenues and expenses for Louisiana facilities from company documents. They also had to establish the typical revenues from the Louisiana operations when it was interrupted by the hurricane, so they could claim appropriate insurance compensation.

A robust records and asset management system can help firms like KMCO track every asset across office locations and allow them to get a clear picture of the location of the assets, as well as the potential replacement costs of the assets if there is a natural disaster in that location. Typically, implementing such asset management systems also reduces insurance premiums for firms.

Appendix D: E-Discovery Tools and Expenses

There are multiple tools available to serve firms’ E-Discovery needs. Some tools provide niche functionality (e.g. GWAVA, Metalogix). Product suites are also available that cover the gamut of E-Discovery needs (e.g. Mimosa systems, Symantec, EMC).

In addition to matching internal needs, volume of data to the features provided by these tools and product suites, firms also need to consider the cost of E-Discovery process and select a delivery management that best suits their needs. One option is to install E-Discovery tools and train internal staff to handle the E-Discovery process. This option requires firms to train internal IT and legal staff in managing these requests and firms also have to budget for maintaining and upgrading their E-Discovery products. The second option is to outsource the delivery of E-Discovery process to external vendors, letting them assume responsibility to update and manage the E-Discovery products. With the exception of routine audits and monitoring, this option requires minimal internal training for handling E-Discovery. However this maybe a more expensive option for firms, especially if their volume of E-Discovery requests is small.

Sample of expenses involved in responding to E-Discovery requests:

  • Data Collection: Expenses may vary depending on whether the data is archived or in active use.
    • $250–500 per hard drive or backup tape
    • $2000–3000 per server
  • Locate, search and retrieve data using indexing and search tools
    • $1800 per hard drive (extracting data from backup tapes is more expensive)
    • $450 per email inbox
  • Collate Relevant Data
    • $750 per hard drive to prepare data for production in proper format
  • Transform data into acceptable format for legal proceeding
    • $4 per MB plus $0.10/page for Bates numbering and tiffing (converting images into ‘.tif’ format) the images

Document retention

Email archiving

Data and records management

Indexing and search

Retention and management of documents and content created across the organization, for example, pdf files, word documents, PowerPoint files, etc.

Capture, store and manage all email communications within the organization. This includes capturing communications on calendar, smart phones and deleted emails.

To capture, store and create back-ups for all applications, application data, and version changes.

Ability to index, locate, search and retrieve electronically stored information (ESI). Includes emails, attachments, files, IM and other content generated within the organization.

Figure E1: KMCO Timeline

The elements of the timeline are listed below (in ascending order)

  • 2004 – Informal SOX committee established
  • Aug 2005 – Hurricane Katrina hits the Gulf Coast
  • Sep 2006 – KMCO files lawsuit against BJH
  • Apr 2006 – Informal Committee submits E-Discovery recommendations to board
  • Dec 2006 – FRCP amendments issued
  • Aug 2007 – Org wide implementation of Cabinet begins
  • Jan 2008 – Cabinet implementation completed
  • Apr 2008 – KMCO loses lawsuit
An image shows the timeline of KMCO between years 2004 and 2008.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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