Engagement with National Lotteries Board (NLB) & Distributing Agencies on current status of its distributing activities in their respective sectors

Meeting report

The Chairperson said she had recently reviewed the Committee’s oversight report and reminded Members of three critical issues that had been highlighted. The most important of these was the question of letters of authority for businesses, and the possibility of obstructing businesses with unnecessary red tape. It would be important for the Committee to pursue this issue with the CEO of the National Regulator for Compulsory Specifications, Mr Asogan Moodley.

Mr D Macpherson (DA) asked whether industry stakeholders could also participate in these engagements.

Mr B Mkongi (ANC) asked that the matter be processed very carefully, because letters of authority existed to protect the people from being exploited by foreign businesses.

The Chairperson then welcomed a delegation from the National Lotteries Board (NLB).

National Lotteries Board (NLB) presentation
Prof Alfred Nevhutanda, Chairperson, NLB, began by thanking the Committee for its contribution to the Lotteries Amendment Act, which had been promulgated in April 2015. The Act would affect its operations in five significant ways:

• The NLB would become the National Lotteries Commission (NLC).
• Distribution agencies (DAs) would gain full-time staff. This would help speed up the process of adjudication applications, helping to deal with a large backlog.
• The NLB would undertake to raise awareness and educate the people about lottery grants.
• The NLB would adopt a proactive funding model, which involved going out and trying to discover grantworthy initiatives, instead of simply waiting for applications.
• It would allow them to introduce a differentiated system of grant applications that would distinguish small, medium and large grants, by having different application requirements. In the past, an application for a R200 000 grant required the same application as for a R60m grant, for instance.

The National Lottery also had a new operator, Ithuba. As always, the transition was bringing challenges, but there had been no interruption of the lottery.

Prof Nevhutanda described the breakdown of funds to the NLB's four sectors: charity (47%, up from in 45% in the previous financial year), arts (23%, down from 28%), sport (28%, up from 22%) and miscellaneous (2%, down from 5%). The miscellaneous sector, which had in the past been managed directly by the Board would, according to the amendments, have a dedicated administrative body. Helped by a new information technology system, the NLB was aiming to streamline grant allocation, so that the entire process -- lodging, assessing, and adjudicating to payment -- could be completed in under two months. In the past, it had sometimes taken two years. There were now NLB offices in all nine provinces.

Ms Thabang Mampane, CEO, NLB, began by describing the NLB's vision, mission and values. She said that for a few years, their fund had remained at R1.6bn to R2bn, although the needs of communities had increased. She described the divisional sub-programmes, which were intended to guide the DAs. She asked whether it would be necessary for her to go through the roles and responsibilities of the DAs.

The Chairperson said that they could skip these, as they were fully described in the Act, to which all Committee Members had access.

Mr Jeffrey du Preez, Senior Executive Manager: Grant Funding, NLB, went through the finances of each sector, starting with Arts, Culture and Heritage. In describing the spending over the last three years, he pointed out that although there appeared to be some under-spending in 2014-15 -- only 71% of the budget was indicated as having been spent -- this figure had been calculated quite early in the year, and was therefore somewhat misleading. The same point applied to all four sectors.

He described the spending in 2014-15 in terms of priority areas, the most significant being the protection and promotion of traditional knowledge and cultural expressions, accounting for 57% of the spending, and in terms of sub-sectors, the most significant being environment (19%) and visual arts (24%). The NLB aimed to ensure that no province received less than five percent of the value of all allocations. They had managed this in 2013-14, but not in 2014-15, partly as a result of the early calculation already mentioned, with the Northern Cape, Free State, North West and Mpumalanga all falling below five percent. The NLB was working hard to achieve this goal again, and believed that the establishment of help desks and the fact that they now had offices in all nine provinces would help them to meet it.

The target date for clearing the significant backlog of grant applications was mid-July 2015. He was confident this would be achieved, and the Arts, Culture and Heritage DA was therefore aiming to release the call for new applications by 30 June 2015. The call would be composed in alignment with the National Development Plan (NDP). It would be tightly focussed, which was necessary because the overall budget had remained unchanged, and clear on what was excluded from the call, to reduce the number of non-qualifying applications.

Moving on to sports, Mr Du Preez described the spending over the last three years. In 2014-15, the provinces that fell below the five percent threshold were the Free State, North West and Mpumalanga. The breakdown of grants by sub-sector indicated that 43% had been given to national federations, and the remainder to schools and clubs. Infrastructure projects accounted for 30% of the value of grants. The backlog in the sport sector was much less serious than that in the Arts, Culture and Heritage sector.

In the charities sector, Mr Du Preez said that there was a significant fraud problem. This sector was moving towards a focus on early childhood development (ECD), and the recent targeted call for ECD applications had yielded as many as 4 500 applications, 150 of which had been granted conditionally. Many of these were for infrastructure, and since infrastructure was a legacy project, the charities DAs wanted to make sure that the money was not wasted. Plans were being made for monitoring and evaluation, site visits and quality assurance. The next call for applications was currently being considered. A staggered series of submission dates was being considered to ease the administrative burden. The spending over the last three years was described, and the 2014-15 figures broken down by province. The Northern Cape was the only province falling below the five percent threshold.

Ms Nomathemba Kela, Chairperson: Charities Distribution Agencies, said that a low number of applications was partly accountable for the low spending in the Northern Cape.

Mr Du Preez said that in the miscellaneous sector, the provincial and sub-sector breakdown was determined by the applications received.

Prof Govin Reddy, member of the NLB board, expressed his dismay at the cut in the miscellaneous sector's funding. It would be problematic to employ a full-time DA, as the amended Act required, to handle such a small amount.

Mr Phillemon Letwaba, Chief Financial Officer, NLB, said that the operating cost of the DAs had amounted to R12m in 2014-15. R13m had been budgeted for emoluments in anticipation of full-time DA employees, but since this had not happened yet, only R7m had been spent. R4.3m had been spent on travel and accommodation and R556 000 on catering. He pointed out that these two amounts would decrease when permanent DA staff were employed.

Ms Zodwa Ntuli, Deputy Director-General: Department of Trade and Industry, and a member of the NLB board, said that the NLB had been plagued with problems in the past, like unsatisfied grant-holders and massive application backlogs. This was well known, but she was confident that the new organisational structures being put in place in accordance with the amended Act would go a long way to solving them. The full-time DAs were one of the most important changes to NLB's managerial structure. These posts had been prepared and would be advertised within the next quarter. An effort would be made to retain the skills of individuals who had done the work on a freelance basis in the past. Since these people would become employees of the NLC, they would be bound by a code of ethics which would, she hoped, decrease the perception that DAs had a conflict of interest, which had been a problem in the past. The proactive funding model would help to direct grants to where they were needed most. The differentiated grant application system would increase the accessibility of the funds to smaller projects, and reduce their dependence on third-party intermediaries, who were frequently corrupt, by making the application process simpler and assisting applicants where necessary. She expected the NLB-NLC transition to take three years.

The Chairperson thanked the NLB delegation for their submission. She reminded them that the Committee's oversight report had recommended that the Department of Trade and Industry place conditions on the funding of the administrative functions of grant applicants, as the funds were intended for developmental aspects.
Ms Ntuli said that limits had been set down in the regulations limiting administrative funding. She acknowledged the Chairperson's comment, but noted that there were certain sectors with a heavy administration load.

Discussion
Mr M Kalako (ANC) asked how applicants in the ECD area were selected, as there was a large informal, unregulated childcare sector.

Prof. Nevhutanda said that the NLB worked closely with the Department of Social Development, and only accredited childcare centres were eligible. Their intention was also to target rural areas, where the need was great.

Ms Kela added that the Department of Social Development had a serious backlog of registration applications, so they accepted a letter of support from the Department in lieu of accreditation.

Mr Kalako asked whether there was a close relationship between the sports DA and the Department of Sport and Recreation. He said that schools had an important part to play in redressing the imbalances of the past, specifically regarding sports, and asked whether the NLB funded the training of sports coaches.

Mr Mveleli Ncula, Chairperson: Sports DA, said that school sport had understandably suffered in the 1976 uprisings. He said they had a three-pronged approach to funding in the sports sector -- developing facilities, training coaches and providing transport. They would work closely with the Department of Sport and Recreation to ensure that funding was efficient.

Mr Kalako called for strict conditions to be established for grant applicants’ budgets for consultants. It was a general problem in South African business that too much money was spent on consultants.

Prof Nevhutanda agreed that this was a problem, but there was only so much the NLB could do to protect South Africans from their own dependence on consultants. In general, there was a lot of corruption in applications.

Mr Mkongi spoke passionately about the need for continued monitoring of funded projects. How did they plan to ensure that grants were not misused? He also worried that the proactive funding model might result in projects being funded that did not respond to the needs of a particular community, and were just “dumped” there and left to deteriorate. Several members echoed Mr Mkongi's call for continued monitoring.

Prof Nevhutanda agreed that this was very important. He pointed out that beneficiaries did not always honour their obligation to advertise their lottery funding.

Mr A Williams (ANC) also asked how proactive funding worked. Who was responsible for identifying worthy grant recipients? Was the NLB going to discuss this with other government departments? How systematic was this process? Several Committee Members, including the Chairperson, asked for clarity on the mechanism of proactive funding.

Mr Mkongi worried that national sports federations, funded by “white monopoly capital” for a particular agenda, were not the most appropriate recipients of NLB grants. The benefits from these grants seldom trickled down to local clubs.

Mr Ncula said that there were conditions attached to the grants received by federations, and he hoped that the full-time DAs would be able to ensure that they were adhered to.

Mr Mkongi was also worried about the backlog in the Arts, Culture and Heritage sector. Artists were dying in poverty. He suggested that some kind of partnership with the Charities sector might be set up to provide a safety net for artists.

Prof Nevhutanda said that the application in the Arts, Culture and Heritage sector was complex, and a single application could take two hours to assess.

Mr Willie Reetsang, Deputy Chairperson: Arts DA, added that there was a history to the backlog in this sector, but that it should be cleared by mid-July.

Mr A Williams (ANC) asked about the significant differences among provinces in the proportion of funds that were constituted by firm allocations and by conditional allocations. For example, in the provincial breakdown of the Charities sector, Mpumalanga had R13m in firm allocations and R32m in conditional allocations, making up their 6.51 percent of the nationwide allocations in the sector. But Limpopo had ten times as much funding in firm allocations as it had in conditional allocations, and the Western Cape had only firm allocations. He said that the five percent threshold should be made up of firm allocations only.

Prof Nevhutanda said that conditional applications were often granted subject to the submission of one or more non-mandatory documents, or a revision to their budget. Surprisingly, applicants often took a very long time to make these changes.

Ms Kela said that allocations were often made subject to site visits.

Mr N Koornhof (ANC) said that the African Arts Initiative, which had received a R3m grant in 2013 after a two year application process, was now struggling to get the second instalment of the grant from the NLB. Funding delays like this could sink an organisation. He asked what the NLB did to ensure that allocated funds actually ended up in the pockets of grant-holders.

Ms Ntuli said that in many cases, responsibility for this lay with the grant-holders. Sometimes they did not submit the reports necessary for the NLB to release further instalments, or perhaps they were unable to account for the spending of the previous instalment. In such a case, the NLB could not release the rest of their grant, no matter how much they wanted to believe that the money would be spent for good purposes. The NLB did try to help organisations that struggled with accounting, however.

Mr Macpherson said that the reduced funding to the Arts, Culture and Heritage sector was disappointing. A recent study had found that lottery funding made up 80-90 percent of funding in this sector. The sports sector, for example, had many more potential funding sources.

The Chairperson also strongly questioned the budget cut in this sector. She added that companies seemed to have a natural inclination to fund sports initiatives, rather than arts initiatives.

Mr Reetsang agreed that the funding cut was disappointing, and said that the arts, as well as sports, made an important and often under-appreciated contribution to national cohesion.

Ms Ntuli said that the decision had not been taken lightly. In response to earlier concerns expressed by the Committee, the allocation to the Arts, Culture and Heritage sector had been raised from 20 percent to 23 percent.

Mr Macpherson asked what the best- and worst-case scenario was for the time taken to process a grant application. This was a key indicator for the Committee to assess the performance of the NLB and DAs.

Ms Ntuli could not give a precise figure in days, but said that full-time DAs would definitely help speed up the application procedure.

The Chairperson was concerned at the small amount -- just 1.23 percent of the grants awarded in the Arts, Culture and Heritage sector -- that had been allocated in the literature sub-sector, particularly in light of the decreasing levels of childhood literacy in the country. She agreed that unscrupulous intermediaries were a serious problem, but also noted that people were driven to them by need, as it was difficult for a small organisation to complete a complex, demanding application procedure. She hoped the differentiated application system would help in this regard, and contribute to a more equitable distribution of lottery funds.

She asked Members to put any further questions to the NLB in writing, as they would not have time to get through them all, and asked that the NLB respond to these by 16 or 17 June.

The meeting was adjourned.