Western Cape Gambling and Racing Board's accommodation & R18.6 million distribution to Kenilworth Racecourse: Treasury briefing

Meeting report

Provincial Treasury: Western Cape Gambling and Racing Board's (WCGRB’s) accommodation

Mr Klaas Langenhoven, Director: Infrastructure, Western Cape Treasury, said the Provincial Treasury, together with the Department of Transport and Public Works (DTPW), had investigated a number of options to address the WCGRB’s accommodation needs. Available options, such as improvements to the current space utilisation at Seafare House were limited, given the building’s status as a heritage site, thereby restricting the changes that could be made to the building.

As an interim solution, budget provision had been made for rented accommodation. Provincial Treasury had set aside a provisional reserve of approximately R7.5 million to address the Board’s more permanent infrastructure requirements. The permanent solution would form part of a comprehensive office accommodation solution for the Western Cape Government that was still under consideration. The WCCRB, DTPW and Provincial Treasury had worked together to facilitate the accommodation tender -- Expression of Interest (EOI) -- requirements. The tender had been published in the government tender bulletin on 6 April 2018. The initial closing date of 3 May had been extended to 10 May, due to late publication of the tender bulletin. Only once the period for the EOI had closed, would the DTPW be in a position to detail the level of interest.

Discussion

Ms C Beerwinkel (ANC) remarked that the report was ridiculous, because these issues went back to the previous board and the previous Committee. She asked Mr Langenhoven to remind her when the initial meeting had taken place, when Members had been taken around the whole building. It had been in 2015 -- and now it was 2018. She asked how the process could be condoned. She could understand the processes followed, including tender processes, but the question was whether these processes could take three years. In that initial oversight visit, Members had shown the Board things that needed to be changed and repaired, and had advised that the building was a heritage site and therefore it would be difficult to make changes to it. She was surprised that all recommendations and suggestions made at that time were being tabled. The tabling was ridiculous. She did not know who to blame. Should she blame the Committee for failing to put pressure on the Board and the Provincial Treasury? Why had the Board chosen the northern suburbs? Why had it taken the Board and Treasury so long to consider the 2015 recommendations? Why should the Committee approve the condonation?  She said that the proposal of refurbishment could not go ahead without consulting other people.

The Chairperson commented that there were three options, and asked which one they were undertaking. He added that in terms of the timeframe, they were far behind.

Mr R Mackenzie (DA) said that when he saw the figure of R7.5 million, he had wondered what would happen at the end of financial year. Would they explain to the Standing Committee on Public Accounts (SCOPA) how the money had been spent? The key partner was the DTPW. The DTPW should be invited to brief the Committee on what the causes of the delays were. The process would be completed by 10 May, and they should be able to furnish the Committee with timelines. The question was when these processes would take place. The refurbishment of the building would require money being spent on it.

Mr Langenhoven said that the first option was refurbishment of the building. The second option was relocation. Because of value for money, the DTPW did not support relocation. However, the building was more than 60 years old and the Board had to comply with laws and regulations before the building could be touched. There was the main issue of security.

Ms Beerwinkel commented that Mr Langenhoven should not respond to her questions because he had not been there in 2015. She had referred to the 2015 oversight visit.

Mr David Lakay, Chairperson: WCGRB, said that the northern suburbs was part of the process and was preferable for them because most licences of the Board were located in that region. It would be easier to access its clients, and it was the policy of the government to move services closer to the people. It would also reduce traffic congestion from the central business district (CBD).

The Chairperson remarked that the Board should provide a timeline, giving an indication of when accommodation would be available.

Mr Langenhoven responded that the accommodation could be available in six months’ time, but it could also take even a year.

The Chairperson said that according to the DTPW, the building might be able to accommodate other people. Was that true?

Mr Langenhoven said that this was under consideration in terms of long term objectives.

Ms Beerwinkel asked why the discussions on the option of refurbishment had not been done simultaneously with the discussions about the option of relocation. Above all, she did not know why they would want to touch the heritage building, rather than fixing what was wrong. She did not understand why there were delays, and felt that something “fishy” was going on. There was something which the Provincial Treasury was not disclosing. Whether there was tender or not, or whether there was an advertisement or not, the DTPW was working closely with the Provincial Treasury. The question was, why was everything being dumped into the Provincial Treasury’s lap? The DTPW should come and explain itself. She commented that she did not know that the northern suburbs was a gambling area.

Mr Langenhoven said that they had had to go through all the processes, and these had led to fruitless expenditure. It had been a bit difficult deciding what should be done first, as they had had to check whether the building was suitable for accommodation.

Ms Beerwinkel commented that the major problem was that members of the Board did not want even to stay there. They wanted to stay in the northern suburbs. They wanted to stay where the business took place.

The Chairperson remarked that the DTPW would be invited in order to indicate how the Committee could assist in speeding up the process. What could be inferred from the Provincial Treasury brief was that they were not there yet. He thanked the Provincial Treasury for their insightful presentation.

R18.6 million distribution to Kenilworth Racecourse: Briefing by WCGRB

Mr Robin Bennett, Head of Department (HOD): Regulatory Compliance, said that the WCGRB collected the betting levy and distributed it to Kenilworth Racecourse. In the early 2000s, the horse racing industry was in dire financial straits. At the time, it was run by the Western Province Racing Club (the Club). Numerous requests were made to extend relief to the club, bearing in mind the direct and indirect employment. Discussions had been held between the Western Cape Finance Member of the Executive Committee (MEC) and his counterpart in KwaZulu-Natal (KZN). The proposal and recommendation was that half the taxes collected from bookmarkers be paid to the Club.

At the time, tax payable by the Club was proposed to be reduced to 6% from 6.5%. Effectively, the proposal resulted in the Club being placed in a net tax receivable position. The amendment to the Western Cape Gambling and Racing Regulations was published on 8 November 2002. Since coming into operation, the Board would collect the betting levy and pay over to the Club, now the Kenilworth Racecourse. Regulations also placed obligations and duties on Kenilworth Racecourse upon receipt of such levy, in that no portion of the levy might be allocated for: day to day administration costs, costs incurred in respect of the Jockey Club, costs relating to the licence application or renewal thereof, and refinancing any part of the business.

Mr Bennett said that in addition, there was a duty on Kenilworth Racecourse to submit quarterly reports for review. The Office of the Board conducted desktop audits as well as on site audits, to confirm this information. Legislation prescribed what was considered to be development expenditure for the industry, which included stakes payable and upgrading facilities. Legislation further obliged Kenilworth Racecourse to spend not less than 25% of the betting levy on stakes.

Given the current climate in the industry, Kenilworth Racecourse had been spending 100% of the betting levy on stakes. Stakes were effectively the prize money for winning, or placed horses in a race. Such information was audited on a regular basis by the Office of the Board. The Board ensured that this betting levy, which had its objective of assisting the totalisator in maintaining the horseracing industry in the Western Cape, was utilised only as intended. There were no audit findings to suggest any improper expenditure to date of this betting levy. The amount of the betting levy for the 2016/17 financial year was R18.6 million, which full amount had been utilised to enhance the stakes offered.

Discussion

The Chairperson said that since their visit to Kenilworth Racecourse, Members had posed questions on the history of the industry, on the stakeholders of the industry, and on agreement(s) between the industry and the government. They were also concerned about the decline of clientship due to the relationship between the Board and the Provincial Treasury. He asked for a response on these matters.

Ms Beerwinkel remarked that she knew nothing about gambling and betting. She wanted to know what the difference between a bookmaker and a totalisator was. Who was on the top echelon, who were the others, and what were their duties and responsibilities? There were two provinces which did not have horseracing -- the Eastern Cape and KZN. KZN, however, had the Durban July. What was wrong with the arrangement of collecting levies? There were discrepancies. Why had the Board to collect and then pay? The fundamental question was, who was doing what in order to generate money from the poor?

Mr Mackenzie asked about the auditing of financial information, and who audited the expenditure. Was it an internal or external auditor? It had been stated that 100% of the levy was spent, instead of 25%. Was this expenditure audited? If yes, who did it?

Mr Bennett responded that there was an external auditor who provided the financial statements. The information that came from the internal auditing group was insufficient. This kind of information talked about assets and liabilities. The information needed was rather relating to betting and gambling. These were separate matters, because the internal auditing group had no mandate to look into those matters. With the auditing, the Board started from scratch and counted every cent and checked whether every cent was spent correctly. The team that did this work came from the Regulatory and Compliance department. Since the Provincial Treasury was here, it was important to mention that there was a feasibility study looking at how the sustainability of finances could be maintained in the future. The Provincial Treasury was conducting one study and the Board was conducting the other, and outcomes of these studies would be reconciled. Once the study was finalised, the Board would present it to the Committee.

Ms Beerwinkel asked whether the Western Province Racing Club still existed.

Mr Bennett responded that it was now Kenilworth Racecourse.

Mr Beerwinkel asked what totalisators were and what they did.

Mr Bennett said that totalisators were in charge of what they called ‘pool betting.’ In one bet, the money would go in the betting pool. Whoever won would come from that pool. The totalisator could only pay what was in the pool. For example, if everyone put in R100, those who won would get 75% of that pool and the 25% would remain with the industry. What happened, however, was that they would provide different options of betting. The bookmaker made sure that gamblers knew what they would win if they bet, but with the betting pool, they did not know what they would get if they won. That was difference.

Mr Beerwinkel asked what was better between the totalisator and bookmaking.

Mr Bennett responded that that was the question that challenged gamblers. However, many of them had their own preferences. It was very ‘fun’ industry.

Mr Beerwinkel asked whether the totalisator was what people in the community called the “tote,” and where they would sit and discuss it.

Mr Bennett agreed. He explained that there were totalisators at the racecource, and those totalisators went out into the communities in order to bring services to them. A totalisator normally received 3%.

The Chairperson asked whether the racecourse was an international facility, and whether there were people outside the country who were putting their money into local horse racing.

Mr Bennett responded in affirmative. He said that for the big races, people from outside South Africa were putting their money on the horses. The big races were advertised on satellite television, and that was how the world came to know about them.

The Chairperson said that Members wanted to know why members of the Board were paid first.

Mr Bennett responded that the first thing that was done was to collect and calculate revenues, including ensuring that taxes were paid. They then calculated what 6% and 3% amounts were. The 6% was paid to the Provincial Government, and 3% was paid to the Racecourse.

The Chairperson asked whether R18.6 million was sitting with the industry, and whether the 6% and the 3% would be taken out of it.

Mr Bennett responded that tax was collected on a weekly basis, and that the R18.6 million was an accumulation of what the Racecourse would get at the end of the financial year.

Mr Beerwinkel asked the Chairperson to check whether the concerns that Members had raised when they last visited Kenilworth Racecourse had all been addressed in the presentations.

Mr Bennett responded that all these questions were being considered under the on-going sustainability study that had been mentioned earlier. They wanted to see why the industry was declining and where online betting was feasible.

Mr Beerwinkel asked whether there were blacks who owned some business in the horseracing industry.

Mr Bennett responded that they were still looking at how the industry could be transformed. Social responsibility was taken into consideration by the Kenilworth Racecourse. They met regularly to see how social responsibility matters could be responded to.  The Racecourse was at level four of Broad-Based Black Economic Empowerment (BBBEE).

The Chairperson remarked that members were looking for the sustainability of the industry, as well as its transformation. He thanked the Board for its insightful report.

The meeting was adjourned.