National Lotteries Board annual performance and funding criteria 2010/11

Meeting report

National Lotteries Board annual performance and funding criteria 2010/11 presentation
Professor Alfred Nevhutanda, Chairperson, the National Lotteries Board (NLB, the Board), indicated that the NLB was still on track despite the media criticism. It was his second year being in the position of Chairperson and he recently faced tough questions posed by the media. It seemed as if the rural areas were playing more lottery than the urban areas and the Act should be amended so that it could speak on the realities on the ground. Surveys done by the NLB and interaction with people in all provinces indicated that mainly blue collar workers played lotteries. The Board hosted many “Indabas” in areas where lotto money should have been allocated and was happy to state that all organisations which received funding from the Lotto were reflected in the Cumulative Payments to the National Lottery Distribution Trust Fund (NLDTF) Beneficiaries Book. The NLB did not encourage organisations to depend on the Lotto for funding but at the same time understood that the “cake” had to be divided in such a way as spoke to the needs of the people.  

Professor Vevek Ram, Chief Executive Officer (CEO), NLB, said the National Lotteries Act had established the NLB and specified its functions. It had set up the process for awarding the licence and established the NLDTF. The Act had set up the Distributing Agencies (DAs) and the processes of distribution, and also set the process for monitoring and regulating for private and society lotteries, and promotional competitions. The function of the Board was to advise the Minister; protect players; maximise proceeds to good causes; administer the NLDTF; monitor and regulate other lotteries; and manage the central applications office. The entities eligible for funding were Non-Profit Organisations (NPOs); Non-Government Organisations (Public Benefit Trusts, and Section 21 Companies); Municipalities and Parastatal bodies; Institutions of Higher Learning; Public Schools; Museums, Libraries, National Parks and Institutions (established through an Act of Parliament); Provincial Academies of Sport; National Sports Federations; Affiliates to National Sports Federations; Sports bodies; and Recreational Clubs.  Applicants were required to have a prescribed application form (2010/11) accompanied with a registration certificate/proof affiliation, and  signed and dated Constitution /Founding documents. New applicants had to submit two most recent and consecutive sets of Annual financial statements signed and dated by a registered accounting officer. Previously funded applicants needed most the recent year’s audited financial statements signed and dated by an auditor.  A signed and dated auditor’s or accounting officer’s report; detailed project business/implementation plan; detailed project budget; and project motivation had to be submitted with all application forms (slide 11). The funding criteria looked at issues of need, impact, feasibility and stability, finance, budget, governance, partnership, innovation, history and spread.

The NLB's revenue, cash disbursed since inception,  and cash available for allocation for 2011/12 were indicated (table, slide 21). The challenges with the current model were that it had a low impact and was inflexible; there was absence of a targeted approach and it had a high risk. There was no real response to the National Priorities and it was reactive and inequitable. The high rate of decline was due to incomplete documentation; unaudited financial statements; unregistered auditors; documents not in the names of the applicant; applications outside the mandate of the Distribution Agencies (wrong sector or nun-fundable items). Project management lacked good corporate governance and grant agreements were not properly signed. Grant agreements were not read and unauthorised deviations had been noted. Applicants submitted incorrect, incomplete or unsatisfactory progress reports and some entities had improper record keeping. Applicants delayed the submission of additional information that was requested by the Distribution Agencies and some did not give recognition to the NLDTF. Other challenges were regarding fraud, misrepresentation, lack of impact, dependency on the Lottery funding; and conflict of interest.

The Board had medium term and short term measures in place to encounter the various challenges. The medium term plans were to make amendments to the Act including the funding model, and to decentralise operation. The short term plans included the Board’s consultative process; operational fixes, formalised relationship with the Distribution Agencies; systematic adjudication; conflict of interest and code of conduct management; and  focused calls for applications. The consultative process was done in order to arrive at the most appropriate model for the South African context. The Board held consultative workshops in all provinces as well as a National Indaba.

Discussion
Mr K Sinclair (COPE, Northern Cape) said that the Chairperson of the NLB made a lot of comments on what the media was saying about the NLB. He did not think that the Chairperson’s focus should be on the media, but on the work which was at hand. People complained that the money they received from the NLB was too little and he was interested in knowing about the impact the small amounts had on the organisations. The NLB was correct by saying that entities could not just depend on the Lotto for funding, but the allocated funding had to at least help entities to fulfill their mandate.

Mr A Nyambi (ANC Mpumalanga) welcomed the presentation and expected the Chairperson and CEO to clarify all the issues raised by the media in the presentation. He only had information from the media on the funding of the Congress of South African Trade Unions (COSATU) and the National Youth Development Agency (NYDA) and nothing from the NLB. It was good to reflect on what happened nationally from 2001 to 2011 as indicated in the report, but it would have also been good to see a reflection on what the NLB did in provinces, because it seemed as if most funding was allocated to Gauteng, KwaZulu-Natal and the Western Cape. He asked the NLB to give examples of how it dealt with illegal lottery activities. It was important for the Committee to understand how the NLB dealt with conflict of interest because it was one of the main issues raised by the media. He asked for more clarity on the representation of provinces on the “Indabas” and wanted more explanation on the irregular expenditure incurred by the NLB as indicated by the Auditor-General (AG). It was worrisome to note that the accounting authority did not ensure that an adequate risk management function was in operation for the full financial year as per the requirements of Section 51 (1) (a) (i) of the Public Finance Management Act (PFMA) and the Treasury Regulations (TR) 27.2.1 and 29.1.1. It seemed as if there was a correlation between the AG’s report and what was highlighted in the media.  It was very concerning to see that the entity had no internal audit system. 

Ms M Dikgale (ANC, Limpopo) asked if the NLB took time to visit rural areas and explained to people how they could benefit from lottery funding.

Ms L Abrahams (DA, Gauteng) asked what criterion was used for miscellaneous funding and what monitoring systems did the entity have in place. 

Mr M Maine (ANC, North West) said that rural area development was one of the priority areas of government and should also reflect as such in the NLB funding and programmes. There should be significant improvement in reaching people in rural areas because the national priority of rural development was taken very seriously by government. He asked what the NLD did when people in rural areas did not meet the requirements. It had been highlighted that one of the areas the NLB looked at when entities applied was the measure of impact. He asked what impact the R40 million given to the NYDA had and indicated that he found the national and provincial categorising of programmes very problematic and the issue should be looked at.

Mr B Mnguni (ANC, Free State) asked what national priorities the NLB was addressing besides education. He failed to understand why so much money was given to entities like Fédération Internationale de Football Association / International Federation of Association Football (FIFA), the South African Football Association (SAFA) and COSATU, and asked for an explanation. He wanted to know what plans the NLB had in place to continue to help needy organisations while its revenue was shrinking.

The Chairperson was not sure if the NLB was truly responding to the national priorities of the country. There was a need for more attention in the rural areas and the NLB should feel free to utilise constituencies and traditional offices to reach rural people. It had been highlighted that unsuccessful applicants had to wait for a period of 18 months before they could reapply. The Chairperson asked if the entity was happy with the waiting period and whether it took time to sit with applicants to correct incorrect applications.  He asked about the areas where all the workshops were held in provinces.

Ms Dikgale noted that most venues where workshops were held were in towns and hotels. There should be a venue change where more rural people could be reached and accommodated.

Prof Nevhutanda said there was more information that could have been provided, but time was the factor restricting the sharing of information. He said that the Board went on a road show through all provinces and had been advised on which areas to visit. Most visited areas were rural and semi-urban and it had meetings in all remote rural areas. It went twice to all provinces and invited all beneficiaries to talk about all legislation changes. It engaged with the Protea hotel for a reasonable discount when a workshop was held in that venue. Each province had more than100 delegates and the NLB even paid for members from rural areas and organised transport for the less fortunate, and paid for accommodation for those who could not afford it. It should be noted that from the 1 500 delegates which attended the “Indaba,” 80% came from the rural provinces and the delegate list could be made available. The Act currently restricted the NLB from doing things it would liked to do and it therefore developed its own programmes to be more user friendly. It was the prerogative of the Minister of Trade and Industry and Members of Parliament to change the Act so that it could effectively speak to the needs of the people.

The NLDTF had seven members appointed by Parliament and the NLB could not interfere in their business. The Distribution Agencies  approved funds by following its internal procedures and neither the CEO nor Chairperson had power to stop the process. It should be noted that the Distribution Agencies did not account to any structure but to the Minister directly while the Chairperson and the CEO had to report to Parliament, but the Distribution Agencies approved the funds. The Act prohibited the entity to give more money than what had been asked otherwise it would be in trouble with the AG. The impact could therefore only be measured by the funding that had been allocated. The NYDA and COSATU were Section 21 institutions and the Act stated that every NPO (Section 21 foundation) had the right to approach the NLB and submit an application for funding. The Distribution Agencies only looked at aspects that could be funded and allocated funds accordingly. The Distribution Agencies funded the cultural event of COSTAU and not the party as such; the money did not go to COSATU, but to the event.  The NYDA submitted an application that it needed money and the Distribution Agencies checked if the entity met all the requirements. The Distribution Agencies looked into the activities and only funded the cultural aspects. The NLB believed that the activities were worth funding and the use of money by the NYDA could be justified.

Mr Nyambi asked for more information on the activities that was funded.

Prof Nevhutanda said he would have printed all the items that were funded if he knew that the Committee was going to ask for the information on all the activities that were funded. Groups from outside came to perform at the COSATU event and the NLB provided remuneration for those who performed. The NLD ensured that performing groups during the NYDA’s World Youth Festival were paid and funded transport, but receipts of all other activities were presented by the NYDA. The NLB could send a report to the Committee with detailed information on what was funded on grant agreements. FIFA and SAFA were also Section 21 organisations which asked to be assisted by the NLB. The Board looked at its business plans and only funded what it deemed necessary.

Mr Maine asked how long it took for the Board to approve an application and whether it looked at the name of the organisation before it approved its request.

Mr Nyambi asked if it was really value for money to fund FIFA, SAFA, COSATU and the NYDA while there were many organisations in rural areas which met the requirements, but were not funded or waited for a long time before it could receive funds.

Prof Nevhutanda  said the Distributing Agencies did not look at the name of the organisation but checked if all requirements were met and allocated funding according to the impact it would have.  The period it took the NLB to respond to an application was within three months of receiving the application and it should be noted that the NLB did not have a closing or opening date for applications. The NYDA received funding after a month and a half of its application and COSATU waited for more than a month after its funding had been approved. He said that management of the NLB would take responsibility and have more accountability on funds if the Act could be changed. Guidelines were very specific that the grant agreement should be returned to the applicant to be signed within 90 days. Some applicants returned documentation took long to reach the NLB, or important documents were missing and that caused delays in the process.

Mr Abrahams asked what the difference was between roadshows and advertisements on television.

Prof Nevhutanda said the Board did send people to explain the criterion for qualifying for funding where there was a need. However, it would also look at using means to better reach people on the ground.

Prof Ram said examples of illegal lotteries were the First National Bank (FNB) Million Rand a month competition,  and many competitions which notified people by short-message service (SMS). Maybe the stopping of illegal lotteries would push up the revenue of the NLB..

Mr Sinclair did not see that it was the Ministers prerogative to make the changes as indicated by the NLB Chairperson. He noted that a Mr G Sam (pg 25 of annual report) was part of the Accounting Authority/Distributing Agencies Committee as the Sports Distributing Agency Chairperson. The South African Sports Confederation and Olympic Committee (SASCOC) was given huge amounts by the Distributing Agency and there might be a conflict of interested having Mr G Sam as part of the Distributing Agency Committee/Accounting Authority.

The Chairperson said the NLB had to bring the DA Distributing Agencies to the next meeting so that the matter of conflict of interest and the issues between the NLB and the Distributing Agency could be dealt with properly.

Prof Nevhutanda  said that the Distributing Agencies Committee was not the Distributing Agencies. The Distributing Agencies Committee was a separate entity which was not legislated for and worked more like an Ad Hoc Committee. It was formed to be the bridging agency between the NLB and the Distributing Agencies and the Minister had been very helpful in accommodating the process. Three members who were recently appointed in the Distributing Agencies did not disclose there interests and the Minister removed them from the Distributing Agencies.

Prof Ram stated that irregular expenditure consisted of components of the NLB and the NLDTF. The entity outsourced its internal audit functions which expired and the organisation did not have internal audit for three months, but the issue had been rectified. The NLB funded various miscellaneous programmes. Miscellaneous programmes were classified as programmes which did not fall under Charities, Sports, or Arts, Culture and Heritage. The NLB funded SAFA because it did nit have money for the Bafana Bafana training camp before the 2010 Soccer World Cup.

Ms Dikgale said the current funding model had no strategy implication and many people were not aware that they could benefit from Lotto funding.

Mr Nyambi said the AG highlighted the outsourcing of internal auditing and asked what implications the outsourcing of the function would have. He was of the view that the SAFA funding had been dealt with as an emergency by the NLB.

Mr Sinclair said Members wanted to know if money given to FIFA, SAFA, COSATU, and the NYDA was well spent and asked for a detailed report from the NLB on the issue.

Mr F Adams (ANC, Western Cape) said he heard reports that applications were easily approved if people knew members of the NLB or the Distributing Agencies while other applications were rejected. He requested to engage more with the NLB and the Distributing Agencies at a later stage on those accusations.

The Chairperson asked the NLB to report back to Parliament before the end of the 2010/11 financial year, accompanied by the Distributing Agencies.

Prof Nevhutanda said the Board would by all means ensure that information of the Lottery funding and programmes were filtered down to ordinary people. He did have meetings with Members of Provincial Legislatures (MPLs) from various provinces with the aim that the information would be filtered down. He ensured the Committee that there was no political interference on SAFA’s so called “emergency” funding. The application came to the offices through the normal channels and the normal procedures were followed as was done with every other application. It should be noted that the NLB would not allow itself to be used for financial bail-out. A report would be made available to the Committee on how the funds allocated to the NYDA were spent. He denied claims that people were funded because of their connections with members of the NLB or Distributing Agencies. Applications were not about whom you knew but rather if you met the minimum requirements. The NLB needed more guidelines from the Committee so that it could distribute funds freely and fairly and the he asked for continuous interaction between the NLB and the Committee.

Prof Ram said that the Audit Committee had considered doing auditing internally but it would be more cost effective to outsource the function. All irregular expenditure had been taken very seriously and the NLB had already attended to and resolved some of the irregularities raised by the AG.

Consideration and Adoption of Committee Programme
The Committee programme was adopted with no objections raised.

The meeting was adjourned.