National Lotteries Distribution Trust Fund (NLDTF): National Lotteries Board and Department of Trade and Industry input

Meeting report

National Lotteries Board on the National Lotteries Distribution Trust Fund (NLDTF)
The Chairperson of the National Lotteries Board (NLB), Professor Nevhutanda Alfred, briefly addressed the Committee on the Board’s strategic direction going forward under his leadership. He promised to vindicate the legislature’s desire for the entity to deliver and assured the Committee that the problems between the distributing agencies and the Board that had been experienced in the past had been resolved. The distributing agencies, as well as any member of the general public, could now feel free to consult the Chairperson and any member of the Board on any matter that they were not happy about. The National Lotteries Board was geared to deliver its mandate and no stone would be left unturned in pursuing that objective. Much of what it and the Department of Trade and Industry were presenting was the outcome of several consultations between them to map out how the NLB could function efficiently and effectively.

The Chairperson of the Portfolio Committee commented that he appreciated the enthusiasm shown by the new board. This meant that the work which the Committee had put in last year had not been in vain. However, the proof was always in the pudding and the Committee were anxious to see the work being done by the NLB and the way in which the NLDTF was being distributed. The co-ordination between the NLB and the DTI was also critical and it was important for the left hand to know what the right hand was doing.

Professor Vevek Ram, CEO: NLB, explained that the NLP input would provide an overview of what the Board’s work was about with special reference to the distribution of the NLDTF and the challenges that they faced. The DTI input would focus on how those challenges would be addressed.

Professor Ram explained that presentation would give a brief organisational background because they thought that there was a misperception that the primary function of the NLB was to distribute money when in fact it was a regulator whose primary function was to regulate the national lottery. The presentation would also look at distribution challenges and some of the interventions that the NLB had already implemented.

The primary function of the Board was to regulate the national and other lotteries so that they were run with utmost integrity and to ensure that the national lottery generated maximum revenues for good causes in a responsible way and that these revenues were disbursed equitably and expeditiously.

The NLB owed its existence to the National Lotteries Act which established its functions, set out the process for awarding the licence to operate the national lottery and established the National Lottery Distribution Trust Fund (NLDTF). This was the fund where all the revenues from the lottery as prescribed by the licence where actually held. The Act also set mechanisms for distributing funds from the NLDTF and processes for monitoring and regulating private and society lotteries and promotional competitions.

The functions of the Board were to advise the Minister on the functioning of the lottery licence, the percentages that were allocated to different causes, such as arts and culture, natural heritage, charities and sport, and also to advise the Minister on the efficacy of legislation. The Act did not specifically mention that the Board should be involved in the distribution of the NLDTF but it did make provision for the Minister to allocate any other duty to the Board. One of the duties allocated by Minister Erwin in 2000 was for the NLB to take over the administration of the distribution of funds. The Board did not really make the decision as to who got funding but provided the administrative support for that whole process.

Having been given that additional task, they found that the Board had almost become two organisations in one, having both a regulatory role and one which was the support function for the distribution. In practice, one found that nine tenths of their work was more focused on distribution rather than regulation. It was not that they were ignoring the regulation but it was just how things had turned out.

The presentation provided an overview of the distribution of the NLDTF and took the Committee through the process of how the distributing agencies decided on allocation of the fund and the procedure for inviting applications. He also briefed the Committee on the charities that were a focus for the NLDTF and other areas of focus in arts, culture and heritage and sports. The Committee was also given the details of the internal process for processing applications and the figures for distributing agency output and other relevant NLDTF distribution statistics.

Professor Ram briefed the Committee on some of the challenges faced by the entity particularly in processing applications for funds where progress was bogged down by a high volume of applications compared to the capacity to deal with them. The NLB estimated that they received an estimated 1000 applications more than they could handle. The issue of distribution was another area of concern because of there had been no direction from the Minister of Trade and Industry. Another challenge faced by the NLB was that there was no detailed formal process of adjudicating applications.

The problem with the funding model was that the Act currently specified that it was application based. This meant that to get money one had to fill in an application form. This meant that the NLDTF could not be used for emergency funding such as required after the occurrence of a natural disaster such as flooding or fire. For instance, the Department of Education had recently been running around looking for R10 million to acquire portable buildings to use as classrooms. The NLDTF could not fund that because without an application, the Auditor-General would then jump on them because that was not how the process was specified in the Act.

Another concern was that the application requirements were quite rigorous and what this meant in effect was that one had to have money in order to get money from the NLDTF. This was because one needed to furnish audited financial statements, and all kinds of record keeping which the fancy organisations had. This meant that organisations that did not really need the money were the ones actually getting the money whilst the ones in dire need were not.

The NLB was also concerned about the impact that they achieved with the NLDTF money in terms of the R6.2 billion that they disbursed. A small scale impact study had been done a few years back and what it showed was that this money was used to allow organisations to continue existing. There was no real significant impact that said so many new jobs had been created or that there had been any other social changes that were significant.

Professor Ram touched on several other challenges which included the fact that the distributing agencies were not accountable formally for the money which they disbursed and the lack of a mechanism for appeal or review of a funding application. The NLB had no statutory authority to review a decision made by the distributing agency.

Discussion
Mr X Mabaso (ANC) congratulated the new leadership of the NLB and wished them well in their future endeavours. He was impressed with the input and he felt that it would go a long way in assisting the Committee to identify problems experienced by the entity. His only worry would be whether the workshops that were planned were going to come up with solutions to these identified problems. It was a big worry because the same problems that were outlined here would be a measure of the Board’s efficacy as well as their associates because the Committee expected those problems to be resolved.

Professor Nevhutanda responded to questions on the strategic direction of the NLB. There had been an induction of the Board by the DTI. The strategic session that the CEO and he had referred to would look at the current mission and vision of the NLB to see if it tallied with the current Act. If it did, they would consider how they could make it more elaborate to include some of the DTI’s suggestions. The strategic session would look at the NLB organogram structure to see if it answered the oft-repeated concerns of the legislators. If not, they would consider ways of making it responsive to the concerns raised by Parliament and the public so the structure was aligned to the delivery mechanism they intended to implement. The strategic workshop would also look at the need for educational campaigns and the turnaround times for the applications.

Mr Mabaso asked what the strategies were for achieving a provincial balance in the distribution of funds. He pointed to the extremes reflected in the presentation which showed certain provinces receiving more than others.

Professor Nevhutanda responded that there was a pilot project planned in one or two provinces such as Limpopo where offices would be opened to ensure that the service was brought to where people were located so that they would not have to struggle to apply. This was something that they were still negotiating with DTI so that they could get clarity as to how this could be done.

Ms Mpho Mosing, Director: Consumer and Corporate Regulatory Division (CCRD) in the DTI, made mention of an important assessment that had been done by the DTI. They had conducted a needs assessment in all the provinces so that they could address the issue of funding balance.

Mr Mabaso referred to the five categories approved for good cause funding and asked why the Reconstruction and Development Programme (RDP) category had a figure of zero. Was this a policy decision or indeed was it the correct figure?

Ms Nomfundo Maseti, Acting DDG: Consumer and Corporate Regulation Division (CCRD), responded that there was a need to revisit that particular category because the legislation that established the RDP no longer existed. They would have to decide if the five categories approved for good cause funding in the legislation should be maintained or should they remove some.

Professor Ram added that the Act stated that a certain proportion recommended by the Minister had to be put into the RDP Fund or a fund designated by the Minister of Finance. RDP was now defunct and they had asked the Minister of Finance to tell them where they could put this money. The Minister had responded that National Treasury was not interested in the fund and that they had to negotiate with the DTI about what to do with the money. The DTI had then recommended that they reduce the allocation to zero until the Act was amended.

Mr Mabaso referred to the challenges faced by the Board and asked how they intended to deal with the issue of incapacity that they faced.

Professor Nevhutanda replied that the DTI had come up with a good mechanism. As a Board they were also looking at ways that would allow organisations to consult the NLB for information. They were ensuring that people were free to make phone calls to the NLB for information about the application process. In the past, there had been no access to the NLB offices for organisations and the public.

Mr Mabaso asked if the Board had a strategy to ensure that they did not have a surplus of unspent NLDTF money as had happened in the past financial year – despite poverty remaining unaddressed.

Professor Ram responded that they did not have any control over the flow of the NLDTF. The money flowed because grants were made. They had no control over those grants in terms of to whom they were made, what the amounts would be or how many applications were considered. Therefore surplus depended on applications and on funding. Until more categories were added by an amendment to the Act, then they did not have an answer on how to get rid of the surplus. Obviously if the number of rejections were reduced then some of that surplus would go away. However at the moment there was no concrete mechanism for them to say that they would be able to get rid of the surplus in a year or two.

Department of Trade and Industry on National Lotteries Distribution Trust Fund (NLDTF)
Ms Nomfundo Maseti, Acting DDG: Consumer and Corporate Regulation Division (CCRD), provided a progress report on the challenges that the DTI had identified in a series of meetings with the distributing agencies and the NLB and the proposed solutions to some of the problems.

In her overview of the institutions that were established by the Lotteries Act, she emphasised the relationship between them, the level of accountability and the function of each. The Act was very specific that it gave the NLB the power to administer the Fund and to invest it in a Trust. At the same time, the Act established the distributing agencies that determined the beneficiaries of the fund. Therefore the NLB as a Fund trustee needed to obtain a decision from the distributing agency so it can then disburse the funds from the NLDTF.

There were corporate governance matters in the management and the administration of the NLDTF. However when it came to the role of the distributing agencies, it was not very clear in the legislation what accountability and corporate governance existed. It was important from the outset to outline those relationships and be aware of the different categories of the distributing agencies.

An important consideration when trying to capture the purpose of the Fund was the framework or direction by the Minister. The Act empowered the Minister to advise the distributing agencies as to where the NLDTF money had to be channelled and its utilisation purpose. As the Minister provided that kind of direction, he had to take into account specific factors to do with the general development in the Republic. Some factors which had to be taken into account were the improvement in the standard of living of the community, the financial and socio-economic needs of the provinces and the number of tickets that were sold in each province.

Ms Maseti corrected Slide 5 of the DTI presentation saying that the current value of the Fund was estimated at R6,2 billion and not R5,8 billion (which was for the 2008/09 financial year and not the current one). She said that they would supply the correct figures for that slide to the Committee.

She said that the problems identified by the DTI included some that the Minister could rectify by way of regulations to avoid waiting for amendments to the legislation. Others were administrative problems that could be resolved between the NLB and its distributing agencies via internal process. This included the support required by the distributing agencies in assessing and adjudicating over the applications.

The administrative problems were being addressed through a sub-committee chaired by the DTI. The Central Applications Office (CAO) had been assigned to the NLB by the former Minister of Trade and Industry. This provided support to the distributing agencies when presented with certain challenges. When the applications were received, the CAO had to screen the applications to check if basic documents and information were available. There was a need for this to be done by people with a certain level of skills. The problem was that there was a high staff turnover of those responsible for screening the applications. People who were involved in the screening phase did not have the necessary knowledge and the proper training for doing that work. This was why distributing agencies ended up with applications with incomplete information, which once it got to the NLB for processing, there would be delays because of missing details. There were not any dedicated resources assigned to training. There was therefore a need to capacitate the application process so that the process moved smoothly. Another problem was the loss of documents as a result of the long turnaround time for processing applications - a period of almost two years. Calls for applications were made once a year and there was no mechanism where calls could actually be made on a more regular basis. This resulted in their receiving a huge bulk of applications. It took them a year to assess the applications and process them. It was desirable to have a process where applications were called for regularly so that they could be assessed as they came in to improve their processing time. An assessment of the resources to handle applications throughout the year was required.

Another problem was inadequate communication between the distributing agencies and the NLB. The NLB obviously had concerns about corporate governance and accountability. If they wanted to query the adjudication decision made by the distributing agencies, there was not any formal process for reviewing applications without delaying the conclusion of grant agreements. The turnaround time for the conclusion of grant agreements took almost two years.

The DTI, through its sub-committee, had tried to identify the causes for these problems and how they could actually eliminate them. Some required legislative amendments, such as the accountability of each structure - particularly the distributing agencies as they made decisions on the allocation of funds. There was a lack of clear responsibility by them for accountability for NLFTF money. This would be dealt with in proposed amendments that would be brought to the Committee in the course of the year.

The relationship between the Minister, the NLB and the distributing agencies and their different roles needed clarification. At present, the role of the Minister was sometimes confused with that of the NLB as a result of unintended consequences in the legislation. There was also a lack of direction or guidance in the adjudication of applications required for the distributing agencies. This had been done in the past year and a notice had been published.

Another difficulty was the compulsory requirement for first-time applicants to produce audited financial statements. This affected smaller organisations that despite a worthy cause had no financial statements as they were only starting up their operations. The DTI felt that this requirement was unnecessary. The DTI had been unable to see what the rationale for this requirement was because such organisations would have never been granted any funds and they could therefore see no reason why they were required to account. This was something that could be rectified by way of regulations as it was a requirement which had not existed in the past but had been instituted by regulations in 2005.

The DTI also proposed educational campaigns to promote the optimal distribution of funds, understanding of the application requirements and procedures and which would focus on assisting communities in putting together their applications.

Discussion
Mr Van Der Westhuizen (DA) asked the CEO of the NLB if there had been any response from the NLB or its distributing agencies to the global economic downturn exacerbating the hardships experienced in South Africa. Had more money been allocated to charities for instance and had they employed more staff to assist in speeding up the processing of applications?

Professor Ram replied that specific responses to the economic downturn would have to be articulated by the distributing agencies that would met with the Committee in the following week.

Mr Van Der Westhuizen commented that whilst he was glad to hear that an impact study had been conducted on the NLDTF that had been disbursed. He differed with the NLB’s finding that all of the money that they had disbursed had made a very low impact. He was aware of many non-governmental organisations that employed many volunteers with funds received from the NLDTF. They put their time and energy into the activities of charitable causes that produced immediate and great changes in communities. For example, the late Honourable Schmidt who had been a Deputy Principal at a primary school in the Free State had informed him that they had developed sports fields using NLDTF money. Each and every year there were hundreds of school children who benefited from what had been a once-off allocation from the lottery fund. If it was true that there were organisations that were making very little impact with funds from the NLDTF, then the issue of impact had to be brought in to the criteria for allocating funds so that funds would only be given where the impact was highest.

Professor Ram conceded that there was some impact but this was incidental rather than planned. This impact was not significant because it was not tied to a particular funding focus. It all came back to the issue of the need for a funding policy which was precise and focused and to achieve such impact could mean that the Act would have to be amended.

Mr N Gcwabaza (ANC) referred to slide 11 of the NLB document and slide 8 of the DTI document which touched on the problems of auditing the distributing agencies. He asked if there was nowhere at all where the agencies were made accountable in the legislation. Were they suggesting that they could deal with these funds as they wished and that nobody could look into their books in terms of the legislation? If that was the case, then this created a lot of problems

Professor Ram replied that there was currently no accountability in the legislation because the distributing agencies used other people’s money and not their own funds. In terms of legislation there was no way that one could get around this. They had discussed the matter with the Auditor-General who had agreed that it was not his responsibility to audit the distributing agencies.

Mr Gcwabaza asked for the correct amount of Fund that was available for distribution.

Ms Maseti explained that DTI’s slide 5 was outdated as it quoted the figure for the 2008/09 financial year but not the current value of the NLDTF.

Ms F Khumalo (ANC) asked what the major problem was that resulted in applications being rejected. She noted the large number of rejections caused by lack of knowledge of application procedures and the need for training. Was the fact that applications were called for only once a year also a reason for the large number of rejections because applications were given enough time for proper consideration?

Ms H Line (ANC) asked in view of Professor Ram’s comment that the greatest number of rejections was a result of people not understanding the application requirements, whether this meant that only people in Gauteng and the Western Cape were the ones who understood these requirements. Part of this had been answered by the DTI when they said most of the allocations went to the bigger provinces because more tickets were sold there. However she was asking this because Professor Ram had submitted that most of the rejected applications did not meet the requirements. She wanted to know if the NLB had a database of all the applications submitted to the Board.

Professor Ram replied that the pilot project had looked at the statistical distribution of the rejections and they had thus established offices in Nelspruit, Polokwane and East London. The purpose of these satellite offices was to help people on the ground to fill in application forms and for them to understand what the requirements were. They had to have a very focused and targeted approach if they were to be successful. In the absence of a policy for funding it would be difficult to target outreach. For example, if funding was for disability then rural communities could be targeted with that particular objective in mind. At the moment, because funding was so widespread, it was difficult to achieve any sort of targeted impact in specific areas.

Professor Ram explained that most of the rejections they had were due to non-compliance. There were a criteria and a list of documents to be provided with the application as required by the Act. Many of the rejections were because the criteria had not been met or the documents had not been submitted. A lot of the rejected applications did not even come to the stage where the merit of the applications was looked at because they were rejected on the basis of non-compliance.

Mr S Njikelana (ANC) noted that mention had been made of educational campaigns and outreach programmes. He asked if there had been any such educational campaigns or programmes in the past. He asked to what extent there had been any conscious focus on the area of the disabled.

Professor Nevhutanda agreed that in the reports on the allocation of NLDTF, it was important to disaggregate information on the basis of age, gender and disability for instance so that one could acquire statistics of how many women had been educated using such funds or how many people with disabilities had been assisted.

Professor Ram replied that with respect to disability, the decision to fund was made by the distributing agencies. They did have a category which they set aside for disabled funding.

Ms Maseti replied to members’ concerns about monitoring and the targeted campaigns or where money had to be directed. The main problem was in the different functions of the Board, the Minister and the distributing agencies and this came through especially in levels of accountability.

The Chairperson commented that crime prevention was missing and felt that it was necessary to expand the category to include it. He added that the priority still had to be alleviating poverty.

Mr Mabaso asked if the CEO had done anything to overcome the failures and challenges that had been articulated. He asked if all these failures had occurred under his leadership.

Professor Ram explained that his role as a conventional CEO gave him little or no control over the NLDTF allocation. There had been significant changes in the NLB from the time when he had been appointed to the present day including the additional requirements for distributing funds at the end of 2000. There were matters not within the NLB’s control and they could only do what they could control.

The meeting was adjourned