Smalle Legislative proposal to amend the Lotteries Act No 57 of 1997

Private Members' Legislative Proposals and Special Petitions

25 October 2011
Chairperson: Mr S Thobejane (ANC)
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Meeting Summary

Mr J Smalle submitted a legislative proposal to amend the National Lotteries Act, No 57 of 1997. He noted that there was a need to regulate more comprehensively the manner in which the National Lotteries Board (NLB) distributed funds, particularly in the category “allocation for miscellaneous purposes”. He pointed out that this category of payouts, which covered any applications that did not fit neatly into the categories for charities, sports and recreation, or arts and culture, was particularly inadequate, as it left space for conflicts of interest and inappropriate behaviour within the NLB. There had been public concerns in the last year about the NLB funding a union, and funding the National Youth Development Agency to the tune of R40 million for the World Festival of Youth and Students, whilst it had turned down applications from major charities, one of whom was supporting over 4 000 disadvantaged children. In the last week he had also established that the NLB currently had R900 million of unspent funds. Another concern related to the Act’s failure to define exactly the position with the distributing agencies, who had discretion on whether to approve lottery funding, despite the fact that there were no clear criteria, and there was a severe risk of abuse or manipulation, particularly since the NLB could not hold these distributing agencies to account for the money they allocated, and there was the possibility of conflicts of interest. The lack of specific criteria also meant that the lottery funding did not necessarily fall in line with government outcomes, nor judged the effect of the spending. There was far too narrow a definition of “political office bearers” and there were no requirements about capping of expenditure, nor how discretion was to be exercised.

Mr Smalle proposed that section 31 of the Act be amended, firstly by adding a new subsection (7) to define clearly what kind of organisations were eligible for support under the ‘miscellaneous’ category. The distributing agencies would need to be made accountable. They would also need to make contributions to problem gambling, which was recognised as a problem, yet no national lottery funding was allocated to it. A structured appeal process had to be added. The Act would need to be clarified to explicitly exclude applications from political organisations. Any organisations that wished to approach the NLB for funding should be able to put their case to the Minister. The agencies would be held accountable for the money they used.

A Member of the Committee, who also sat on the Portfolio Committee on Trade and Industry, noted that this latter Committee (Trade Committee) was already dealing with a report by the Gambling Commission, and suggested that this proposal might be pre-empting matters that the Department of Trade and Industry (dti) were also discussing. Mr Smalle conceded that the Trade Committee had heard the Gambling Commission report, but this dealt with a wide range of issues, and there was no indication how, or when, the Trade Committee would deal with the matter, which he felt was urgent and needed to be addressed now, as the need for clarity was highlighted already on 3 February 2010. Mr Smalle told the Chairperson, in response to a specific question, that he would be satisfied were the Trade Committee to give an assurance that the matters would be dealt with, within a time frame. This Committee would now consider his proposal further. However, it was unable to do so at this meeting, as also to deal with other matters on the agenda, for lack of a quorum.

Meeting report

Smalle proposal to amend the National Lotteries Act No 57 of 1997
Mr Smalle presented his legislative proposal to amend the National Lotteries Act (the Act). This proposal stemmed from the Department of Trade and Industries (dti) report of February 2010. He noted that both under the current legislation, and in the public domain, there had been certain questions raised as to how the National Lotteries Board (NLB) was running its affairs. The public had been most disconcerted when one of the unions had received support from the NLB, and it was reported that the National Youth Development Agency (NYDA) received R40 million for the World Festival of Youth and Students, through the miscellaneous fund.  However, in contrast to this, the NLG had turned down requests from major charities, such as Sikhula Sonke, an organisation that helped 4 000 poor children in Khayelitsha. There were also revelations about billions in unspent funds. Mr Smalle had been with the NLB this week, and it was established that, currently, R900 million of its money remained unspent.

Mr Smalle said his legislative proposal would deal with how the NLB’s public relations must be turned around and how the NLB had to manage itself. He noted that there had been loss of credibility, with the NLB receiving just fewer than 12 000 applications in the various distributing agencies. There were four different criteria. The distributing agency boards, of which two had been appointed but the third was not yet appointed because it comprised non-permanent people, could only deal with 200 applications per month. There was also an issue around conflict of interests in the distributing agencies who made rulings on the various applicants.

In the last year, the distributing agencies dealt with 8 000 applications from charities, sports and recreation, from about 1 700 applicants, and there were just under 3 000 applicants in the arts and culture field, and there was also a fund for “miscellaneous”, for matters that did not fall under the other criteria, where the Minister would exercise discretion. The miscellaneous expenditure items were currently not well defined and did not talk to where, and how far, and on what criteria the Minister could make his or her ruling. The dti had made recommendations in this regard. There was also a court ruling on the matter, which spoke to how the Constitution’s intention was defeated because the definition of “political office bearers” was too narrow. There was also no clear definition as to how the NLB should exercise its discretion, how far it could go to use the money, as well as nothing to cap its expenditure. There was nothing specific enough that set out what the distributing agencies could or could not do. Currently, the Act did not have anything similar to, say, the Public Finance Management Act (PFMA) where certain people in certain sections could approve funding up to a point, after which it would have to be referred to a higher authority. This meant that effectively, the distributing agencies, some of whom may be operating on a temporary basis, had carte blanche on how to spent NLB funding, and that opened a window for possible abuse or manipulation of funding. There were no links from the distributing agencies to the NLB, so that they did not have to account for the money spent. Although the NLB must, in its Annual Report, state what money had been spent, it could not hold distributing agencies accountable for the funds they allocated nor the interventions they made. There was no oversight over the distributing agencies and they were not accountable to the NLB.

Mr Smalle noted that his proposed legislation would have an impact on section 31 of the National Lotteries Act. This was the only section that he would like to amend. He suggested that a new subsection (7) must be added, to define clearly exactly what kind of organisations were eligible for support under ‘miscellaneous category’. Then there would be another new section dealing with accountability of the distributing agencies and also to require them to make a contribution towards problem gambling. The 0,01% of support for problem gambling was managed by the National Gambling Board, who placed advertisements to make people aware of problem gambling, and also to assist with social needs should there be some rehabilitation process required in order to get a compulsive gambler back into society, if a request was made to the courts by a person to note that a breadwinner might be spending all the household’s money on gambling. NLB was a form of gambling, yet lottery funding was not presently contributing.

There was also currently no process in the Act that dealt with a structured appeal process for applications that were rejected. Mr Smalle suggested that this had to be added. He also suggested, in line with concerns raised by the Courts, that the Act should be clarified to explicitly exclude applications from political organisations. Allocations to organisations omitted from subsection (7) should be listed. If any organisation that was listed wished to approach the NLB for funding, the Minister should have the prerogative to consider, and then accept or turn down that proposal, but that must be set out clearly to ensure that there were no grey areas. Ministers would therefore have to motivate why contributions to political organisations were valid.

Mr Smalle concluded that the Act had to be amended, to hold distributing agencies accountable for the monies that they used. There had to be a better set of criteria. He noted that presently it was a first-come, first-served application approach. There were no criteria requiring that the broader implications must be considered, which, ideally, would place emphasis on desired government outcomes, and would specify what the effect of the spending would be. None of these issues were presently addressed by the Act or Regulations.

Ms F Khumalo (ANC) welcomed the presentation, and confirmed that she, like Mr Smalle, also sat on the Portfolio Committee on Trade and Industry. Last week, that Committee had visited a number of companies in Johannesburg to look at their packages, and to see whether there was a need to amend the Act. She thought that Mr Smalle’s proposal would run parallel to processes that were already taking place at the Department of Trade and Industry, and for this reason, she suggested that instead of dealing with Mr Smalle’s proposal now, the Committee should follow the progress made to amend the Act by the Department.

Mr Smalle explained that the Portfolio Committee on Trade and Industry was dealing with the Gambling Commission’s Report. The Gambling Commission Report was sanctioned by the Minister one and a half years ago, and it dealt with all forms of gambling. He explained that there were basically two legs to gambling; one was represented by the casinos, horse racing and general betting, but the second was the National Lotteries Act activities. There was no clear indication on how that process would move forward, and the Portfolio Committee on Trade and Industry had not yet considered whether and when it would address issues raised in the Gambling Report. Whilst it would no doubt wish to deliberate on matters raised over time, it was too soon to say what would be done. He stressed that the way in which the NLB was being run needed to be addressed now, not later. Already on 3 February 2010 concerns about its operation had been raised, yet nothing had yet been done. He thought the matter and his proposal needed to be addressed urgently. Whilst he agreed with Ms Khumalo that some of the issues were with the dti, his input was relevant and could influence the issue.

The Chairperson asked Mr Smalle whether he had at any time raised these issues in the Portfolio Committee on Trade and Industry, because ultimately this Committee would consult with the former Committee.

Mr Smalle replied that there was a small group of three people who had looked into the bigger issues of gambling. They would make proposals, but that would probably not happen until after the first quarter of 2012. Mr Smalle had hoped that this Committee could deal with the matter more quickly. He admitted that there could be some duplication.

Ms A van Wyk (ANC) asked whether the problem could not be resolved by stronger oversight by the relevant Portfolio Committee.

Mr Smalle said the dti’s report of 3 February 2010 clearly indicated that there was a need for legislation and clarity, to address the grey areas and ensure that the National Lottery was better run. The NLB administered their National Lotteries Distribution Trust accounts and the finances it received, but the distributing agencies did not account to the NLB so there were clearly gaps. Although there were reports, there were no clear lines of accountability. He urged that all systems should be interlinked and that he had set out some clear proposals to amend the Act. The Chairperson of the Portfolio Committee on Trade and Industry could report on the loopholes detected during oversight visits. Clearly there would be some legislative processes, but there was no clarity on that yet.

Ms M Pilusa-Mosoane (ANC) was concerned that the dti was dealing with the issue at the same time and said that this Committee needed to know how far the dti processes had gone.

Ms Khumalo agreed that when the Portfolio Committee on Trade and Industry met with the NLB, several issues were raised, including questions around the distributing agencies, and the fact that some stakeholders had to work together to get proper information as to who accounted to whom for money that was spent. She suggested that it would be more appropriate to hold over Mr Smalle’s proposal until there was more clarity on what dti or the Portfolio Committee were doing, to ensure that there would not be duplication.

The Chairperson asked Mr Smalle whether he was convinced that the functions of the NLB, as set out in the Act, were not sufficiently clear to enable the Board to play an effective monitoring and administration role over the funds.

Mr Smalle said he was convinced that the NLB could not do so. Currently, the NLB received applications, and merely checked as to whether they were completed in the correct format, and were accompanied by the necessary documentation. From there, the forms were given to the distributing agencies, who then made the allocations on an applicant-based approach. The current legislation did not allow for the NLB, the Minister, or a distributing agency to approach a worthy organisation to whom it may wish to offer assistance. There was also no discretion, and he submitted that some discretion also needed to be built into the legislation so that government could play a role. He would debate the issue hard at the Portfolio Committee on Trade and Industry, but he stressed again that there was an urgent need to finalise and regularise the issues now.

The Chairperson asked whether Mr Smalle would be comfortable if that Portfolio Committee were to assure him of its concern and could demonstrate its commitment, by way of a programme, to address the issue.

Mr Smalle replied that he would be very comfortable if there were proof that the Portfolio Committee on Trade and Industry would look at the legislative framework, and if time frames were fixed to make the necessary amendments.

Ms van Wyk said there was no way that this Committee could speed up legislation, so Mr Smalle should not be under any false apprehension in this regard.

The Chairperson thanked Mr Smalle, and advised him that this Committee would look at his proposal, and let him know the outcome.

Other business
The Chairperson noted that the Committee was unable to deal with the other items on the agenda for lack of a quorum. However, he thanked Members of the ANC for their attendance, pointing out that it should not be up to the opposition Members to do their work alone, as the public had mandated all MPs to look at issues.

The meeting was adjourned.


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