(a) Mandatory annual submission. The Authority must submit a proposed annual budget to the Commission every year, irrespective of whether there is a “proposed increase in the amount required” under 15 U.S.C. 3052(f)(1)(C)(iv). The submission of the proposed budget for the following year must be made by August 1 of the current year, following the procedures set forth in § 1.143. The Authority's annual budget will use the calendar year as its fiscal year.

(b) Consideration of public comments. Before submitting its proposed budget to the Commission in August, the Authority must post the proposed budget on its website as early as practicable, with an invitation to the public to submit comments to the Authority on any aspect of the proposed budget. The Authority must post any pertinent comments it receives on its website, and it must review them to ascertain whether to revise the proposed budget in light of them.

(c) Contents of submission. The Authority's proposed budget submission to the Commission must include the following:

(1) Indication of Board vote. The Authority's proposed budget must be approved by a majority of its Board of Directors, or, in the case of a budget that exceeds the preceding year's budget by 5 percent or more, a two-thirds supermajority. The Authority's submission to the Commission must state the Board vote on the motion to approve the budget.

(2) Revenue information. The proposed budget must identify both the estimated amount required from each State racing commission as calculated under 15 U.S.C. 3052(f) and all other sources of Authority revenue as well as any loans proposed to be obtained by the Authority.

(3) Expenditure information. The proposed budget must identify expenditures separately for:

(i) The racetrack safety program;

(ii) The anti-doping and medication control program;

(iii) All other programmatic expenditures other than for racetrack safety and anti-doping and medication control, such as the administration of the Authority or its technological needs;

(iv) Repayment of any loans; and

(v) Any funding shortfall incurred.

(4) Line items. For both revenue and expenditure information, the Authority's proposed budget must provide sufficient information, by line item, as would be required for members of the Authority's Board of Directors to exercise their fiduciary duty of care. For example, the proposed budget's expenditure information for anti-doping and medication control might include separate line items for in-house salaries, the costs of testing of laboratory samples, the costs of arbitrators, and all the costs associated with contracting with an anti-doping and medication control enforcement agency. The proposed budget must include a narrative component that provides a brief explanation of each line item's utility in carrying out the purposes of the Horseracing Integrity and Safety Act.

(5) Comparison of approved budget to actual revenues and expenditures. For each approved line item, the proposed budget must provide a comparison showing the actual revenues and expenditures for the current year along with a narrative component explaining why any line item is anticipated to deviate by 10 percent or more during the current year.

(6) Public comments received and the Authority's response. The Authority must include with its submission all of the public comments that it received after posting the proposed budget on its website. The Authority must also provide an assessment of public comments relevant to the Commission's evaluation of the proposed budget. The Authority must also identify any changes made to the proposed budget in response to the comments received.

(d) Publication of the proposed budget in the Federal Register. If the Secretary concludes that the Authority's submission complies with § 1.150(c), then the Secretary will publish the Authority's proposed budget in the Federal Register with supporting materials available on regulations.gov. Members of the public will have 14 days after the date of publication in which to file comments on the proposed budget. Public comments should provide commenters' views as to the decisional criteria set forth in § 1.151(c) and whether any line items should be modified.

(a) Commission approval required. The Authority's proposed budget takes effect only if approved by the Commission. The Commission will approve or disapprove the proposed budget after considering the public comments filed and the Commission's internal review of the Authority's submissions pursuant to § 1.150. The Commission may, in its discretion, require the Authority to submit additional information to the Commission before the Commission approves or disapproves the proposed budget. The Commission will vote on the Authority's proposed budget no later than November 1, or as soon thereafter as practicable.

(b) Conditional collection of fees allowed. The notice required to be sent to State racing commissions estimating the amount required from each State for the subsequent year must state that the amount required is based on the proposed annual budget, as approved by the Board of Directors, which takes effect only if approved by the Commission. State racing commissions (or covered persons in States that do not elect to remit fees) may nevertheless elect to remit fees, and the Authority may conditionally collect them, even before the Commission approves the proposed budget. If the Commission makes any modifications to line items under paragraph (d) of this section that have the net effect of reducing the budget, the Authority must, within 30 days, refund the proportionate amount owed to any State racing commission or covered person that has conditionally paid. If the Commission makes any modifications to line items under paragraph (d) of this section that have the net effect of increasing the budget, the Authority may obtain loans to make up the difference or may account for the difference as a funding shortfall incurred in the subsequent year's proposed budget.

(c) Decisional criteria. The Commission will approve the proposed budget if the Commission determines that, on balance, the proposed budget is consistent with and serves the goals of the Horseracing Integrity and Safety Act in a prudent and cost-effective manner and that its anticipated revenues are sufficient to meet its anticipated expenditures.

(d) Modification of line items. In its decision on the proposed budget, the Commission may modify the amount of any line item.

(a) When notice to the Commission is required. As to any line item, the Authority may deviate from the approved budget's expenditure information in a year by up to 10 percent in a year without providing prior notification to the Commission. If the Authority determines that it is likely to expend more than the approved expenditure for any line item by 10 percent or more, or if it will exceed its approved total expenditure by any amount, it must notify the Commission immediately upon such a determination.

(b) Line-item deviations of more than 10 percent. If the Authority determines that it is likely to expend more than the approved expenditure for any line item by 10 percent or more, its notice to the Commission must indicate whether it intends to repurpose funds from one or more different line items to cover the increased expenditure. The Commission retains the discretion to disapprove such a proposed repurposing. The Commission must issue any decision to disapprove a proposed repurposing within 14 business days of receiving notice of the Authority's proposal to repurpose funds from another line item. If the Commission takes no action, the Authority's proposal takes effect as an amendment to its approved budget.

(c) Total expenditure deviation. If the Authority determines that it is likely to expend more than the total approved expenditure, its notice to the Commission must indicate by what means it proposes to cover the difference. The Commission retains the discretion to disapprove the proposed means of covering the difference. The Commission must issue any decision to disapprove a proposed means of covering the difference within 14 business days of receiving notice of the Authority's proposal to cover the difference. If the Commission takes no action, the Authority's proposal takes effect as an amendment to its approved budget.

(a) Annual financial report. Every year, by May 15, the Authority must follow the procedures in § 1.143 to submit an annual financial report to the Commission, detailing the items listed in paragraphs (a)(1) through (9) of this section for the previous calendar year. The Authority must also publish this report on its website. The report must contain:

(1) A complete accounting of the Authority's budget, as audited by a qualified, independent, registered public accounting firm and in accordance with Generally Accepted Accounting Principles (including a statement from the auditor attesting to the auditor's independence and its opinion regarding the financial statements presented in the annual financial report);

(2) Line-item comparisons between the approved budget's revenues and expenditures for the previous year and the actual revenues and expenditures for the previous year;

(3) An explanation of how the Authority has considered the relative costs and benefits in formulating the programs, projects, and activities described in the budget;

(4) A description and accounting of the Authority's insurance coverage;

(5) A description and accounting of any budgetary reserves;

(6) Summaries of contracts or other liabilities that the Authority has entered into or may potentially incur;

(7) A summary of travel expenses, including an itemized list of any first-class travel (defined as the highest and most expensive class of service);

(8) Any new or continuing material or significant risks or issues raised by the audit, internal quality or control reviews, other inspections or peer reviews of the Authority, or any inquiry or investigation by governmental or professional authorities, along with any steps taken (e.g., corrective actions) to deal with any such issues, consistent with § 1.154; and

(9) Any other information requested by Commission staff.

(b) Annual performance report. Every year, by March 31, the Authority must follow the procedures in § 1.143 to submit an annual performance report to the Commission, detailing the items listed in paragraphs (b)(1) through (11) of this section for the previous calendar year. The Authority must also publish this report on its website. The report must contain:

(1) Narrative summaries of all the major efforts by the Authority to carry out the requirements of the Act, including the status or results of any publicly announced investigations conducted by the Authority;

(2) Information about the Authority's cooperation with the States as set forth in 15 U.S.C. 3060(b), including whether each State has covered horseraces, elects to remit fees, or has entered into an agreement under 15 U.S.C. 3060(a)(1) to implement a component of the programs on racetrack safety or anti-doping and medication control;

(3) A summary of all final civil sanctions imposed by the Authority in the previous year, in a tabular format. At a minimum, the summary should be broken down by violation category (e.g., racetrack safety program, anti-doping and controlled medication protocol rules, etc.) and should include the total number of alleged violations by category, the number of times the violations were admitted and resolved without adjudication, the number of times any violations were contested and adjudicated, the number of times any sanctions were imposed, the number of times that no sanctions were imposed, the number of civil sanction notices that needed to be reissued or corrected, the total fines imposed, the total amount of purses forfeited, and the number of times the sanctions were appealed to the Commission's Administrative Law Judge;

(4) An assessment of the Authority's progress in meeting or not meeting its performance measures contained in its strategic plan per paragraph (d) of this section;

(5) A statement from each Board of Directors committee summarizing its work in the previous year and all recommendations each such committee has made to the Board;

(6) Information about any changes in the composition of the Authority's Board of Directors or standing committees;

(7) Information about the relationship between the Authority and the anti-doping and medication control enforcement agency, including how the enforcement agency is performing under its contract with the Authority and how many years remain under the contract;

(8) A summary of all litigation to which the Authority is a party, including actions commenced by the Authority under 15 U.S.C. 3054(j);

(9) A summary of all subpoenas issued by the Authority under 15 U.S.C. 3054(c);

(10) Descriptions of any areas in which the Authority believes that improvements to its operations are warranted, together with the Authority's plans to achieve those improvements. Forward-looking information should reflect known and anticipated risks, uncertainties, future events or conditions, and trends that could significantly affect the Authority's future financial position, condition, or operating performance, as well as Authority actions that have been planned or taken to address those challenges; and

(11) Any other information requested by Commission staff.

(c) Midyear reporting. Every year, by August 15, the Authority must follow the procedures in § 1.143 to furnish to the Commission a same-year midyear report covering January through June, to include:

(1) Spending and staffing levels for the quarter ending June 30, compared to the levels in the Commission-approved budget;

(2) A summary of travel expenses, including an itemized list of any first-class travel (defined as the highest and most expensive class of service);

(3) The status of outstanding and completed corrective actions; and

(4) Any other information requested by Commission staff.

(d) Strategic plan. The Authority must develop and maintain a multiyear strategic plan. The Authority must follow the procedures in § 1.143 to submit its first strategic plan to the Commission on or before October 15, 2024. The Authority must reevaluate the strategic plan no less frequently than every five years. The Authority's annual budget must align with, and link spending to, the strategic goals. The strategic plan must include items such as a description of its State-by-State relationships and a discussion of planned rulemaking activities. The Authority must:

(1) Post its draft strategic plan on its website for a public comment period of at least 14 days;

(2) Present its final strategic plan to the Commission, along with a summary of its responses to public comments; and

(3) Publish its final strategic plan on its website.

(e) Further guidance on strategic plan. The Authority's strategic plan should include forecasts of the Authority's industry environment and its priority initiatives for the current and subsequent years. The strategic plan should also consider the impact that program levels and changes in methods of program delivery, including advances in technology, could have on program operations and administration. The strategic plan should identify several strategic goals aligned with the Authority's mission statement. Each strategic goal should have accompanying objectives, strategies, and performance measures. As guiding principles, performance measures should:

(1) Be limited to the vital few and demonstrate results;

(2) Cover multiple priorities;

(3) Provide useful information for decision-making;

(4) Be clear, measurable, objective, and reliable; and

(5) Focus on core program activities and priorities.

(a) Guiding principles. The Authority must effectively manage risk to prevent conflicts of interest, waste, fraud, embezzlement, and abuse. To manage risk, the Authority must align the enterprise risk-management process to the goals and objectives noted in the Authority's strategic plan. The Authority must assess risks, select risk responses, monitor whether responses are successful, and communicate and report on risks, consistent with § 1.153. The Authority must ensure that all internal controls have appropriate separation of duties (e.g., requester, approver, recorder). In addition, the Authority must develop corrective action plans no later than 90 days after receiving a notice of finding from its auditors or other internal assessments. The Board of Directors (or one of the Authority's standing committees) must review and evaluate identified risks and proposed corrective action plans. The Authority must review regularly its corrective actions identified from all audits and internal assessments and should develop criteria by which to prioritize its response activities. The Authority must ensure that its risk management activities encompass:

(1) Compliance with applicable laws, rules, and regulations;

(2) The avoidance of conflicts of interest, or the appearance thereof, in all aspects of the Authority's operations, including investigation and enforcement, vendor selection, personnel assignments and responsibilities, and actions by the Board of Directors or management; and

(3) Handling funds received and expended by the Authority, including revenue/expense policies, fundraising practices, contracting policies, travel policies, and real and personal property agreements and expenses.

(b) Data security and privacy. The Authority must ensure the privacy and security of data, including all reasonable measures to protect the confidentiality of any sensitive health information (SHI), personally identifiable Information (PII), and sensitive PII (SPII) stored in its systems, including those operated by the anti-doping and medication control program, the Horseracing Integrity and Welfare Unit, and the Authority's third-party contractors. The Authority must ensure a complete annual evaluation of the status of its overall information technology security program and practices, as audited by a qualified, independent, third-party auditor. The Authority must also ensure that it has policies, programs, and practices in place to protect SHI, PII, and SPII. The Authority must send a copy of the annual evaluation to Commission staff.

(c) Vendor selection. Procurement actions estimated at over $10,000 must be accompanied by documented market research (e.g., comparing the prices and other terms offered by the selected vendor against the prices and other terms offered by at least two other vendors) to ensure lowest cost or best value for goods or services to be provided. The Authority should also develop policies and procedures covering procurement activities.

(d) Notice. The Authority must provide advance notice to Commission staff of all significant Authority-planned events (e.g., press conferences, media events, summits, etc.) via a calendar, a list, email, or some other reasonable means. The Authority must also summarize key aspects of all such events on its website within a reasonable timeframe. The Authority must also give Commission staff prompt notice after it has been alerted to significant, adverse events in the horseracing industry (e.g., adverse safety or medical events that might reasonably lead to sanctions, track closures, etc.).

(a) Regular monitoring meetings. The Commission recommends that the Authority hold regular meetings with Commission staff to discuss upcoming or potential risks, challenges, and opportunities for improvement.

(b) Records and information management. The Commission recommends that the Authority maintain records and information in sufficient detail to support the Authority's programs and operations, as well as any records relating to its information management policies or procedures. The Commission expects that the Authority will make any of these records available to Commission staff upon request, to allow the Commission to carry out its statutorily mandated oversight.

(c) Treatment of confidential information. The Commission recommends that the Authority's submissions to the Commission not include any SHI, PII, or SPII, such as a Social Security number; date of birth; driver's license number or other State identification number, or foreign country equivalent; passport number; financial account number; or credit or debit card number. If the Authority submits documents to the Commission containing confidential commercial or financial information, it should so designate that material and request confidential treatment pursuant to § 4.10(g) of this chapter.

(d) Standing data requests. The Commission recommends that the Authority submit Board of Directors minutes to the Commission's Office of the Secretary within 30 days following each Board meeting.

(e) Personnel and compensation. The Commission recommends that the Authority develop compensation policies and practices with the primary objective of attracting, developing, and retaining high-performing individuals capable of achieving the Authority's mission. The Authority should strive to recruit a diverse team of industry leaders whose unique backgrounds, education, cultures, and perspectives help position the Authority as an effective and innovative self-regulatory organization. The Commission also recommends that the Authority conduct periodic salary benchmarks to ensure that employee compensation is in line with other like organizations.

(f) Customer service. The Commission recommends that the Authority maintain publicly accessible points of contact (e.g., email addresses, phone numbers) and monitor the timeliness with which it responds to inquiries. In this regard, the Commission urges the Authority to develop a policy and associated metrics covering its customer service activities, to be incorporated into its strategic plan and its regular reporting to the Commission.

(g) Travel. The Commission recommends that the Authority use standard, General Services Administration (GSA)-established, published per diem rates when determining how much a person may spend on lodging, meals, and incidental expenses. Nevertheless, actual subsistence expenses may be authorized under unusual circumstances with justification and prior approval from the appropriate approving official. The Commission urges the Authority to prohibit the use of first-class travel (defined as the highest and most expensive class of service) by employees, except when no other option is available or when a disability or exceptional security conditions require it. The Commission also recommends that the Authority not reimburse its contractors for first-class travel unless exceptional circumstances warrant.

The provisions of this subpart are separate and severable from one another. If any provision is stayed or determined to be invalid, it is the Commission's intention that the remaining provisions shall continue in effect.