National Gambling Amendment Bill; NRCS 2017/18 Annual Report & Quarter 1 performance

Meeting report

Briefing on the National Gambling Amendment Bill 2018
Dr Evelyn Masotja, DDG: Consumer and Corporate Regulation Division (CCRD), DTI, gave the historical background to the amendment bill which started with the Wiehahn Commission recommending strict regulation of gambling in 1995. In 1996 the National Gambling Act was passed. After that came the
2004 National Gambling Act and the National Gambling Amendment Act in 2008 with the Gambling Review Commission Report of 2010 recommending policy reforms. In May 2015 the Department published the National Gambling Policy for broader public consultation and in September 2016 the National Gambling Amendment Bill was published for broader public consultation, which Bill was approved by Cabinet on 4 July 2018.

Ms Caroline Kongwa, NGB Administrator, then provided an overview of the industry. Turnover for 2017/18 was R37.9b with Gross Gambling Revenue (GGR) of R28.7b yielding Taxes and levies of R2.9b. Most of the GGR came from casinos (64%). The provincial breakdown saw Gauteng contribute 42%, KZN 18% and the Western Cape 16%. Even though casinos still contributed the largest percentage of GGR, this was a decline from its 84.4% contribution to GGR in 2010. This could be attributed to the growth in other forms of gambling with betting increasing from 10% to 21%. There had been growth in all sectors except the number of totalisator outlets.

Ms Kongwa then spoke to the number of licences in the market, trends in betting and in taxes and also to the increase in number of operational bingo positions.

The estimated monetary flows associated with illegal (online) gambling in South Africa impact the economy in the following ways with respect to employment and GDP:

• Total loss in value add (the total contribution of the gambling industry to the SA economy) of R1.9 billion for the economy as a whole per annum. This includes a direct impact of R972 million and an indirect impact of R972 million. This is less than 0.01% of total annual GDP for South Africa.
• Total loss of 3,785 employment opportunities in the legal gambling industry based on employment in casinos (841) and employment in related services such as retail outlets and restaurants (2,945). This equates to 5.9% of the total employed persons in the casino industry of the country.

Dr Masotja then spoke to key challenges and key provisions of the bill, which were:

• The urgency to reposition the National Gambling Board (NGB);
• Addressing loopholes in the legislation;
• The proliferation of electronic bingo terminals;
• The slow transformation of the industry;
• The issues around labour, transformation, and a lack of norms and standards within the self regulated horse racing industry;
• The lack of coordination between the national and provincial legislation as manifest in the misalignment of legislation, litigations, and the National Gambling Policy Council;
• The enforcement powers in the legislation against illegal gambling in South Africa, and the onerous burden to ensure unlawful winnings forfeit to the state through the High Court

She then spoke to the proposed provisions of the amendment bill which had elicited generic comment and the Department’s final position after consideration of the comments. The comments were on:

• The limitation of electronic bingo terminals (EBT) licences. According to the NGB the country has 6 543 EBTs by 2017/18.
• The restriction of lottery related licences and that that bets on lottery results or conducting sports pools must be licensed and the rate that Licensees must contribute towards the NLDTF.
• That the regulation of the times gambling advertising could flight, as the Minister was empowered to do, was too restrictive.
• There were concerns that the provision, that money forfeited as unlawful winnings should be automatically forfeited without court order and paid over into the NGR to fund activities relating to problem gambling, may permit arbitrary exercise of power by the NGB.
• On the amendment of s17, that gambling premises in shopping complexes must have separate entrances from other shops at the complex or malls, concern was raised about existing premises and those within multi-storey skyscraper buildings.
• On the amendment of s27 to ensure that a third party was appointed to operate the National Central Electronic Monitoring System (NCEMS), the Limited Payout Machine operators recommended that the NCEMS be left to them, while some provinces believed they must operate the NCEMS and that it must be extended to all gambling modes.
• On s33’s amendment to emphasise the NGR’s role in ensuring that the socio-economic effects of gambling are considered before Provincial Licensing Authorities (PLAs) approve in excess of five LPM sites, provinces believed that the provision encroached on their independence to license gambling. They added that the NGR without a board meant the decisions adopted by the PLA boards could be overturned by one person, the NGR CEO, thus undermining the collective expertise of boards of PLAs.
• On the amendment of s44B (1) and (2) to recognise and monitor the self-regulation in the horseracing industry, operators queried why a similar position was not extended to other types of sporting activities and they preferred to continue with self regulation without monitoring.
• On the amendment of s44C to provide for the PLAs to help determine a payable rate by bookmakers towards the development of horseracing, bookmakers and tote operators opposed the provision and believed the current contribution of 6% to PLAs with half going to Tote operators was enough.
• The amendment of s62(1)(g) requiring province to consult with the National Gambling Policy Council before amending their own legislation and that their legislation would be invalid if no consultation happened was supported if it did not usurp the role of the provincial legislature.
• There was opposition to the amendment of s63A which provided for the National Gambling Policy Council meeting be empowered to make decisions by members in attendance at the following meeting if the previous meeting failed to reach a quorum, on the basis that the approach was against corporate governance
• There was also opposition to the amendment of s64 which removed the board from the structure of the NGB and that the NGB become the National Gambling Regulator (NGR) led by a CEO, on the basis that NGB approval was needed for LPM sites in excess of five machines. This implied that the CEO will overturn the decision of PLA Boards.

The amendment of s76A providing for the NGR to develop its inspectorate capacity against illegal gambling operations was supported but operators also proposed that the stance on online gambling be reconsidered

Discussion
Mr A Williams (ANC) asked if the labour figures given had been verified.

Mr D Mahlobo (ANC) said he supported the view that the NGB become a Regulator but questioned exactly what the NGB’s concerns were that they wanted to regulate. On online gambling, he said that trying to control people’s lives was not going to work. What were other things the Department could do in this respect? He said the Department should not include issues such as the buildings related to gambling as that had to do with spatial planning.

Mr G Cachalia (DA) said online gambling was a reality and prohibiting it would not have an impact. The Department should look at the UK model of interactive gambling. He added that more gambling licences would benefit the fiscus.

Mr D MacPherson (DA) said the amendment bill was a very bad bill. The real problem was that provinces were doing their own thing. In his view, now was the opportunity to review the Department’s stance on online gambling. The bill was first published in 2016 and the bill before the Committee was different, so would it be gazetted for public comment again and if not then why not. He added that the Committee needed to look at the bill the way the Copyright Bill was looked at.

Adv Alberts (FF+) asked if the Department had received legal advice on the forfeiture of illegal gambling proceeds through administrative action without going through court procedures. He said there was a need to look at the difficulty of policing online gambling as well new technologies such as virtual money like Bitcoin, which were borderless and where a position needed to be formulated.
Mr Williams asked whether online gambling should not be legalised and taxed. He added that one should not forget that gambling caused socio-economic problems.

Ms P Mantashe (ANC) was concerned that it appeared online gambling could not be stopped and that it robbed South Africa of employment opportunities. She asked when the situation regarding the lack of cooperation of provinces would be changed.
Mr S Mbuyane (ANC) said there were loopholes and challenges regarding the mandate of the NGB. Did the NRCS have the capacity to enforce legislation? If provinces were not attending meetings, that issue needed to be sorted out not a change in the legislation. He supported the proposal that the NGB become the National Gambling Regulator.

On the challenges and mitigation factors, Dr Masotja said that most of the challenges were addressed by the proposed amendments. She said that not only were the challenges being listed but proposed solutions were also mentioned. There was thus a link between the challenges and the proposed amendments. She said for example that it was not only about online gambling but also measures to control exposure to gambling per se.

On the control of access to buildings, if there was a casino at a typical mall then everyone would go there as it was enticing, so it was a matter of protecting young people. One challenge was people’s exposure to gambling and limiting that because pensioners, for example, took their pension to casinos to gamble.

She noted the comments on other jurisdictions regarding online gambling but from the Department’s perspective this was an activity that was currently prohibited in South Africa.

Regarding the Department’s stance on online gambling, the inputs around the process the Department had taken and the difference between the two bills and whether the new bill would be gazetted, she said the bill was now before Parliament and those were some of the decisions the Committee would have to take. The changes in the bill were informed by the comments received from the public through the public hearings process. The Department’s point of reference was to have a balanced view that covered the economic rationale while also protecting of the citizens of South Africa by restricting certain activities in the best interest of vulnerable people.

On the seizure of unlawful winnings, the Department did not want to use the court process because it was a rigorous process and the cost of going to court was far more than the unlawful winnings gained. The Gambling Board did undertake investigations and verification, so it was not a matter that was taken lightly.

On the consultative process, the Department had engaged with Treasury on money-laundering issues and other gaps and on how challenges around online gambling could be addressed. Bitcoin was a new thing and in a few years time there would be something else just as new.

She noted the input that online gambling could be taxed and its socio-economic impact.

She said the Gambling Policy Council was legislated within the Gambling Act and it was an important structure because that was where concurrency and coordination was supposed to happen. Because of the impact the decisions of this body had, there was a need to amend the Act as it was based on a constraint from the point of view of law that needed to be addressed. There were also loopholes and the differences in power of the National Gambling Board and the powers of the provinces to be considered.

She said the challenges addressed in the amendments were valid concerns, were major concerns and had in some instances lead to court cases.

On the employment figures, Ms Kongwa said these were the provinces’ audited figures. The NGB had not requested figures on indirect employment so these figures were only for direct employment. Research estimates for indirect employment was that it could go up to 70 000 jobs. This also accounted for the delay in tackling these cases because money had to be accumulated to fund the cost of court cases. R6m was set aside for cases and yielded R1.3m, so the exercise was expensive, and taxpayers’ money was being used.

On unlawful winnings, she said winnings were confiscated based on banking legislation, where banks had to hand over these monies to the NGB. These monies averaged R20 000 per year while the cost of senior counsel was around R50 000 a day.

On the matter of provinces and national government, she acknowledged that it was a challenge. The NGB had tried to reinforce its mandate, for example in the dog racing sphere, which should remain illegal. Yet recently the North West Legislature was considering amendments to the Gambling Act to legalise dog racing. Certain sectors of the gambling industry had almost reached saturation point in terms of licences permitted. There was no issue with electronic bingo terminals, but research had shown that electronic bingo terminals took three years to get to 6 000 terminals. She said the NGB had a responsibility to ensure that the negative effects of gambling were managed by controlling the roll out of terminals.

On Mr Mbuyane’s question, as the Regulator they looked at what the best regulatory models were. While it sets norms and standards, the NGB also needed to manage conduct because provincial governments were moving ahead and the NGB was always playing catch up. The NGB wanted to control the conduct of such bodies and of licensees. Under current legislation, the NGB could only enforce by invitation from the province to the NGB. The NGB did not have the autonomy to enforce standards that it set.

On transformation in the industry, she said the Minister advised that research be done and the NGB was seeking to find out what the levels of ownership was because BEEE certificates did not give the bigger picture. This research should result in a plan and a framework. She said that the NGB had noted that over time, various sectors of the gambling industry had bought into other sectors of the industry.

On the NGB’s organogram, the NGB was a very small organisation, with a staff complement of 13. It had started to build capacity in the technical aspects which it had a staff of four with one vacancy in the technical compliance division. There were four inspectors. She did not have the figures for how many inspectors it had at provincial level. SAPS and other law enforcement agencies worked with the NGB.

Mr Nkoatse Mashamaite, Director: Gambling Policy and Law, said the framework for regulating gambling was premised on the principles established by the Wiehahn Commission, one of which was to protect society from the overstimulation of gambling and to ensure there was not an oversupply of gambling places because people got addicted and struggled financially. There was also a need to provide for revenue generation and economic growth and the historically disadvantaged could take advantage of these opportunities and this required a balancing act. Online gambling was one of the issues that needed to be dealt with in terms of enforcement, even if it was regulated, because there would be illegal operators. The amendments would mean that the NGB would be able to act directly on enforcement. Currently the NGB had to wait for provinces to call for assistance before the NGB could act. The Department wanted the National Gambling Policy Council to work because of concurrent jurisdiction. Policy alignment was thus very important, hence provinces also had to table their bills for consultation because provinces had tabled amendments that had not been consulted on.

The Chairperson spoke to the background of the legislation and to the fact that the Board of the NGB had been removed and replaced by an administrator. She spoke to matters that the Committee had asked to be addressed following the 2016 call for comment on the bill. She said the bill also tried to address the fact that the Gambling Policy Board was regularly not quorate. It had been ten years in trying to bring the legislation through to Parliament. She said that the issue to be focused on was that gambling was to be regulated, not stimulated. She noted the other major concern was online gambling.

Mr Cachalia said he was concerned that the Department was seeking to minimise and control loopholes rather than maximise the tax revenue. PwC had forecasted that the industry would become a R30b industry. Any changes would be blocked by the provinces. The DA had, in the past, called for a Remote Gambling Bill which had been rejected.

Mr MacPherson asked what the different opinions of the provinces had been on the bill. He wanted the Department’s latest research to be made available to the Committee. He wanted the Department to compare the 2016 version of the bill with the current bill and to decide on whether it needed to be republished for comment from the public.

Mr Mahlobo said that some key challenges were addressed but the Department had not included the detail on how it would be addressed. He said that regulation of e-platforms was difficult.

The Chairperson then read out a motion of desirability of the bill and this was proposed and seconded by Mr Radebe and Ms Mantashe respectively.

Mr MacPherson objected to the reading of the motion and said he would take the matter to the Speaker for review.

At this point Ms Fubbs had left the meeting and Mr B Radebe (ANC) took over the Chairpersonship of the meeting.

Briefing by the National Regulator for Compulsory Specifications’ (NRCS) on its 2017/18 Annual
Mr Edward Mamadise, Chief Executive Officer, NRCS, spoke to the non-financial performance highlights. He said non-compliant products to the value of R302m were removed from the market; 72 500 tonnes of fish and fishery products were exported as Fishery Consignments; the vacancy rate was reduced from 12% to 6%; and there was significant progress in addressing the revenue qualification of the qualified Audit Opinion the NRCS had received. He said a total of 50 965 inspections were conducted and that 81% of the 14 148 Approvals were processed within 120 calendar days which was a significant increase from the previous year’s 53,5%. He then spoke to various areas of non-compliance. He said they had concluded an MoU with Shoprite Checkers aimed at ensuring that the retailer only sold compliant goods.

Ms Mimi Abdul, CFO, NRCS, then spoke to the financial performance. Income increased from R359m to R430m, due mainly to a project aimed at addressing an audit qualification as well as a drive to get customers on to its database which had resulted in a surplus for the year of R84m. Employee costs at 81% accounted for the bulk of total expenditure of R346m

Mr Mamadise spoke to the progress on the implementation of actions to address the AG’s findings. He spoke on the revenue qualification which included ensuring all known companies were registered on its financial system, on generating a revenue estimate, on the introduction of a validity period for LoAs, on the modernisation of NRCS’ ICT and business systems and its collaboration with SARS in information sharing and systems integration.

Discussion
Mr Mahlobo asked why the audit issues had increased from 36 to 44. What was the existing capability of the NRCS in ICT and in knowing what it wanted? Was the surplus income of the NRCS retained or returned to the Treasury?

Mr Williams asked what was being done regarding deficiencies in the control environment and management not adequately monitoring compliance, as noted in the AG’s report.

Adv Alberts wanted a status update on the Gauteng e-toll instruments. He asked if the investigation on Ford Kuga cars catching fire had been completed.

Ms Mantashe said that on an oversight visit the Committee picked up that there was over-expenditure on HR. What had been done about this? What had the NRCS done regarding the recommendations of the AG?

Mr Mbuyane asked if the vacant critical posts had been advertised.

Mr Radebe wanted to know the turnaround time for checking the specification of imports and providing Letters of Approval.

On why the audit issues had increased from 36 to 44, Mr Mamadise said that in the previous year the AG had audited them but that this year Ernst and Young had audited them. What had been acceptable in the previous year was regarded as not acceptable this year and the NCRS had had engagements with the AG on these matters.

On the existing capacity in the NRCS, he said the NRCS had the support of the ICT Steering Committee and could also access a high-level ARC Committee. As well as an ICT advisory company which provided technical advice.

On collaboration with other government departments, he said the challenge was the legal systems. The NRCS was running a project to run SARS’ risk system but the challenge was that it could not keep up with the ICT technology.

He said there were surpluses, mostly from the project to track down non-compliant companies. The challenge though was that the country was facing fiscal constraints so the NRCS needed to justify not returning the surpluses and that process was underway. Most of the surpluses were for the modernisation project which had been delayed.

The NRCS had a debate with the AG about what was meant by “regarding deficiencies in the control environment and management not adequately monitoring compliance” as noted in the AG’s report. The AG had said that the NRCS was not able to account for levies in the correct time period. This was standard language by the AG and was not a reflection of the inability of the NRCS to do the job. the NRCS was engaging with the AG and had employed Deloittes to assist.

He said the e-toll process was still underway and was not yet completed. Interim measures had been agreed on.

The NRCS was working with the NCC who had done the investigation and had not yet given a final report. He said the NRCS had provided technical support.

On the over-expenditure on salaries, the NRCS was doing an organisational review which would address the challenges that had been raised. The wages was also informed by the work the NRCS did in market surveillance.

On the AG’s audit qualifications, the AG had been working with the NRCS to resolve the qualifications. The AG had acknowledged that the NRCS was moving in the right direction and expected the NRCS to be compliant in two years. The NRCS was seeking to be compliant in the current year.

On appointments to critical positions, he said that interviews were being held for the post of CIO and the NRCS had made offers for the post of COO and were awaiting the acceptance of such offers.

On turnaround times for import Letters of Approval (LoA), he said that the turnaround time was120 days, but people imported goods then sought letters of approval when the goods were stopped at the borders. This stoppage meant customers were kept waiting and added storage costs. The NRCS was encouraging industry to comply with legislation.

Ms Mantashe said that the NRCS was only concerned with registered companies but there were lots of unregistered companies. What was their plan to deal with the latter, especially regarding the sale of expired goods in the townships.

Mr Mamadise said the NRCS did not only conduct inspections but did market surveillance as well. The NRCS had been going around to townships and was working with the NCC on the issue of expired goods but the NRCS’ mandate meant it was limited to compulsory specifications. He said government wanted all agencies to work on the matter so that if there was an instance of malpractice there were many pieces of legislation to choose from.

Ms Mantashe asked what the reason for the high salaries were and if these salaries were being paid what then warranted the presence of Deloittes in the office.

Mr Mamadise said that Deloittes was appointed in the context of the audit qualification. If the question was in relation to salaries, the NRCS used the Deloittes system to do job grading. He reiterated that the organisation was doing an organisational review which would assist in resolving the challenge of paying higher salaries. These higher salaries arose historically from challenges the NRCS had faced in the past and the Department had done interventions.

A Department official said there had been staff unrest in 2014/15 which had resulted in a settlement by the then management which had resulted in the salaries being high. The Department had not instituted the high salaries.

Mr Cachalia said the turnaround time currently and in 2014 were the same, at 120 days, and he felt it was shocking that there had been no improvement.

Mr Mamadise said he took cognisance of the comments and that was why the NRCS wanted to undertake the risk-based approach to tackle deficiencies and reduce the turnaround time.

Mr Cachalia asked what the increase in salaries were between 2014 and 2018.

Mr Mamadise said that salary increases were informed by collective bargaining and was 6%.

Briefing by the NRCS on its 2018/19 first quarter report on financial and non-financial performance
Mr Mamadise said non-compliant products to the value of R125 million were removed from the market during the financial year; a total of 12 746 inspections were conducted during the Quarter; and that 68% (3 267) of the 4 821 Approvals were processed within 120 calendar days. He said that the NRCS’ ICT Strategy had been approved, that they were implementing a Stakeholder Engagement Plan, that they were implementing an MoU with Shoprite Checkers as a pilot project to ensure that retailers only sold compliant products, and that the NRCS had started with an Organisational Review Project to be concluded in 2019.

Ms Abdul spoke to the financial performance for April to June. The total income was R144.9m against a budget of R99m while total expenditure was R84m against a budget of R99m with a surplus of R60m. She said accumulated earnings were retained and would be spent on the modernisation program although given the technical recession South Africa was in Treasury would probably ask for surpluses to be returned to Treasury.

Discussion
On the 1st Quarter report, Mr Mahlobo said he did not understand why there was a spike in the budget for the first quarter

Ms Abdul said that grants were requested in quarterly phases and the NRCS had made its request for the second grant earlier than the cut-off date and the transfer had occurred earlier so the 1st quarter budget reflected grant income for two quarters.

The meeting was adjourned.