National Lotteries Board progress report on disbursement of lottery funds

NCOP Trade & Industry, Economic Development, Small Business, Tourism, Employment & Labour

12 September 2012
Chairperson: Mr D Gamede (ANC, KwaZulu-Natal)
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Meeting Summary

The National Lotteries Board (NLB) presented an update on its funding and activities. It was explained that NLB was funded by 34% of sales of lottery tickets by the contracted sales company, Gidani (Pty) Ltd. These funds were then allocated, in terms of the applicable Act, to charities (45% of funding), arts and culture (28%) sports and recreation (22%) and miscellaneous (5%). The NLB’s Board exercised control over the Trust Fund, and three committees, known as Distributing Agencies, adjudicated on the funding applications. Since inception in 2000, NLB had received R13.9 billion, of which R13 billion had been dispersed, R4.7 million was spent on administration R4.7 billion was still in the account, of which R2.4 billion remained as cash for the 2012 year. Detailed figures were provided for the funds paid to each sector, and funding for the provinces. Some concerns had been expressed in previous years as to the distribution of funding, some of which were linked to misperceptions about the way in which NLB rolled over reserves each year. It was impossible to predict figures accurately from lottery sales, nor to determine what applications would be received. The applications were substantially greater than the funding available, which was part of the reason for so many appeals being lodged. For many non-profit organisations, lottery funding was their main source of funding, but available funding had risen from R3 billion in 2001 to only R4.9 billion in 2012. Operations around ticket sales had improved, but the sales had remained largely static. The NLB had held roadshows and tried to improve access to the application process, which also contributed to the increase in applications for funding. Each province was supposed to receive 5% of funding, but Northern Cape consistently only received 2% of direct funding, although it was possible that some of the funding granted to larger organisations applying from Gauteng or Western Cape was also distributed in this province. NLB would be focusing on Northern Cape, Mpumalanga, Free State and North West to reach the 5% minimum target. Several challenges were described, including the NLB’s inability to seek out projects to fund, as it was only permitted to respond to applications. Not all organisations could meet the criteria or complete their applications on time, and some had expectations of recurrent funding, which crowded out new applicants. In order to improve access to application documents, counter the high number of non-compliant applications and address the delays in processing applications, NLB had set up a helpdesk and two provincial offices, with three more planned, and extended the application time. Changes were needed to the National Lotteries Act in relation to the distributing agencies, to enhance the measures to address conflicts of interest, to allow proactive funding, to extend the funded sectors, and to set up a formalised appeals process.  NLB intended to roll out more provincial offices, introduce caps on funding, to allow a greater spread, to simplify the applications for smaller grants, and allow online applications. It would be running an impact study to inform the strategic funding model, developing a clearer funding policy focussing on impacts of funding, and introducing longer-term funding to allow organisations to work to self-sustainability. It would also increase its stakeholder communications and publicity .

Members asked about the provincial spread of offices, how NLB would limit the administration and costs linked to setting up new offices, how provincial inequalities were to be addressed, and provincial membership of the board, the criteria for appointment of the Distributing Agency members, whether this Agency was needed, how conflicts on the adjudication panel were addressed, and the present approach to adjudications. More details were requested on the results of the roadshows and helpdesk, and how rural understanding of the process was to be enhanced. Members were asked by the NLB to provide details of requests that seemed valid, but had been refused. More details were provided of the types of applications in the Miscellaneous category, and how the NLB would monitor applications. Members asked if the funding would be spent, and the effect of rollovers was explained. Members asked that the Paralympics be considered for funding.

Meeting report

Briefing by the National Lotteries Board on the progress report with regard to the disbursement of lottery funds
Prof Alfred Nevhutanda, Chairman, National Lotteries Board, advised that he had also been Acting Chief Executive Officer of the National Lotteries Board (NLB or the Board), until the appointment of a new CEO at the end of September 2012. He would provide an update on disbursement of lottery funding.

Prof Nevhutanda advised that the contract for the sale of lottery tickets had been awarded to Gidani (Pty) Ltd, who would be providing 34% of sales income to the National Lottery Distribution Trust Fund (NLDTF). The NLDTF allocated the funds in accordance with the National Lotteries Act 1997 (the Act) to four sectors. Charities received 45% of funds, arts and culture received 28%) sports and recreation received 22% and miscellaneous allocations amounted to 5%. The NLB had a Board, whose members exercised control over the funds in the trust of NLDTF. Funding applications were adjudicated and allocated by three committees known as the distributing agencies (DAs).

The NLB had received R13.9 billion since inception on 01 April 2000, had earned R3.9 billion in interest and currently had a total fund of R17.9 billion. To date, R13 billion had been dispersed, R4.7 million had been spent on administration and the fund had R4.7 billion funds on account. A breakdown of the funds paid out by sector was detailed in the presentation. He noted that by 31 March 2012, R2.2 billion of this had already been committed, which meant that applications for funding had been agreed, but the grants had not been fully paid. The remaining cash for the 2012 financial year 01 April 2012 – 31 March 2013 was R2.4 billion.

Mr Jeffrey Du Preez, Senior Executive Grant Funding, National Lotteries Board, addressed public concerns that the NLB was failing to disburse funds effectively. He explained that between 2006 and 2009 the NLB rolled over reserves each year so that not all funds raised were issued in these years. During 2009 and 2010 NLB had issued these reserves on top of the income for each year, so it had appeared to issue more than it was earning. In 2011, there appeared to be a drop in funds issued, once the reserves had run out. (See attached presentation for detailed figures).

Mr Du Preez expressed that the NLB faced some further challenges. Firstly, it was not possible to predict income from lottery sales. Secondly, outflows were dependent on the number of applications received, the numbers that complied with the Act and the number of applicants who could demonstrate they deserved funding. The NLB could not predict the number or value of applications and the number of applications kept increasing. In the financial year 2011/12 applications amounted to over forty times the money available. It was therefore not surprising that NLB got many appeals, as it was unable to satisfy every applicant either in part or fully.

Prof Nevhutanda stressed that for non-profit organisations (NPOs) in South Africa, the lottery was the main source of income. Despite this, the funding had grown from R3 billion in 2001 to only R4.9 billion in 2012, with a significant dip down to just R1.6 billion in 2008. Despite improvements in operations, ticket sales had remained static. In 2011/12 the NLB introduced roadshows, which included capacity building workshops to demonstrate the application process, and held an Indaba in June 2011 attended by with 1 500 delegates. These had doubled the numbers of applications received for funds. The NLB had also improved application turnaround times and introduced SMS notifications to applicants.

Mr Du Preez presented the allocations of funding by province and explained that the Act required each province to receive a minimum of 5% of funds, but that this had proved difficult to achieve. He tabled a breakdown and noted that Northern Cape had consistently only received around 2% of funds per year, while Gauteng received 34% in 2010/11. He suggested that there were a large number of national organisations based in Gauteng and the Western Cape, which may also have been supporting projects in other provinces. He acknowledged the need for a special focus on Northern Cape, Mpumalanga, Free State and North West to reach the 5% minimum target. He finally noted that KwaZulu-Natal and Limpopo had both received more each year over the last three years.

Prof Nevhutanda presented the funding budgets of the 2011/12 financial year (see attached presentation for full details).

Prof Nevhutanda outlined a few specific challenges for the NLB. Firstly, the Act only allowed an application-based funding model, so the NLB was prohibited from seeking out projects to fund. Secondly, successful applications were dependent upon the existence of organisations who met the criteria of the Act and could make convincing applications. Thirdly, some organisations had expectations of recurrent and permanent funding, which crowded out new applicants. Finally, there were delays in the application process. NLB would advertise and call for applications, and although it tried to process applications as soon as they were received, most would, in practice, arrive only on the deadline date. Applicants could take up to a month to provide any documents that were missing, and some of them took as long as that also to return signed contracts, all of which added to the delays in processing and issuing funds. In order to improve access to application documents, counter the high number of non-compliant applications and address the delays in processing applications, NLB had set up a helpdesk and two provincial offices, and three more were planned by the end of the 2011/12 financial year. NLB had also planned to increase application timelines from six weeks to between eight and twelve weeks, and to allow applicants to track progress of an application on the NLB website. In addition, applications would in future be scanned in house, rather than externally and the DAs would be provided with an adjudication manual, specifying how applications were to be assessed and what documents were required by the Act.

Prof Nevhutanda noted that the Act needed to be reviewed and legislative changes made. He suggested that the review should cover the composition of the distributing agencies, and enhanced measures were needed to deal with conflicts of interest. The NLB needed additional powers to proactively seek to fund needy organisations, rather than merely relying on the application processes. There needed to be an extension of funded sectors, to reflect societal changes, and a formalised appeals process should be set up.

Prof Nevhutanda laid out future plans for the NLB. These included the roll out of more provincial offices, caps on funding provided to NPOs, to enable a broader spread of funding, and a simplified application processes for smaller grants, and online applications. An impact study would be done to inform the strategic funding model and a clearer funding policy was being developed, focussing on impacts of funding. NLB would undertake increased stakeholder communications, greater publicity of funded activity and the introduction of longer term funding commitments, to enable organisations to work towards self-sustainability.

Mr A Nyambi (ANC, Mpumalanga) asked in which provinces the offices were located.

Ms E Van Lingen (DA, Eastern Cape) asked how the NLB ensured that the addition of provincial offices would not add layers of administration and costs.

Prof Nevhutanda replied that the provincial offices were located in Eastern Cape and Limpopo. Although NLB had hoped to find rural offices, it found that the best location was the capital city. The NLB was seeking to add one office to all provinces to enable a better spread of funding, and when this was done there would be adjudication of applications, such as sports applications, within the provinces to ensure a more even provincial spread.

Mr Nyambi asked for more time for the Committee to review the proposed legislative changes to the Act.

Mr K Sinclair (COPE, Northern Cape) asked why the previous CEO of NLB had resigned.

Prof Nevhutanda replied that the previous CEO had served for ten years and taken early retirement. His departure had nothing to do with the issue of stolen data.

Ms M Dikgale (ANC, Limpopo) asked whether the NLB board had wide provincial membership.

The Chairperson asked whether part-time Board and Committee members of the DAs were impacting on the speed of processing applications.

Mr Sinclair asked what the criteria were for appointing the DAs and whether these were an intermediary that could be removed to reduce costs.

Ms Van Lingen asked how much the distribution agencies earned.

The Chairperson asked how conflicts of interest for adjudication panel members were dealt with, when applications for their organisations were received.

Prof Nevhutanda replied that the NLB Board was appointed by the Portfolio Committee on Trade and Industry, and there were national, not provincial appointments. He confirmed that the Board consisted of only six members.

In relation to the distribution agencies, Prof Nevhutanda confirmed that the Act specified their existence, and the fact that they must comprise representatives of the sectors they covered. The Distributing Agency for Arts and Culture had recently gained five new members, who had been appointed following interviews with the Minister for Trade and Industry, in accordance with the recruitment procedure set out in the Act. He advised that more members would be appointed to the Sport Distributing Agency, so that it would be able to process applications more quickly. He acknowledged that in the past around 80% of the DA members had been from Gauteng, but that this would be addressed to ensure wider provincial representation.

Prof Nevhutanda added that improved conflict of interest procedures would be introduced in relation to the committee members. The Act required that committee members be appointed to represent their own industry. However, in future, applications with the potential for conflict would be passed on to an entirely neutral team.

The question of DAs earnings was not addressed.

The Chairperson asked how the “first come first served” approach to adjudicating applications addressed provincial inequalities.

Prof Nevhutanda replied that the current Act did not effectively enable the NLB to address inequalities between the provinces. The NLB had been restricted from giving preference to applications for specific provinces, as other applicants would then be enabled to challenge these decisions. The audit requirements were also too high and the application process was prohibitive for some applicants. The NLB sought to address these deficiencies through the roadshows and provincial offices, as well as through the amendments it had suggested to the Act.

Mr Nyambi asked for detail of achievements from the roadshows in the provinces that had not managed to achieve 5% of funding.

Mr M Maine (ANC, North West) asked how the helpdesk supported non-compliance.

Ms Dikgale asked whether helpdesks accessed rural areas.

Ms B Abrahams (DA, Gauteng) asked how widely the roadshows accessed the provinces.

Mr F Adams (ANC, Western Cape) asked what else was planned, in addition to the roadshows, to improve rural understanding of the funding application process.

Prof Nevhutanda replied that the roadshows had been staged in two areas per province. In Mpumalanga, one was held outside Nelspruit, although there had been three held in Cape Town. He confirmed that the NLB sought to invite Premiers, Mayors and Director-Generals of institutions to attend the roadshows. The roadshows had included capacity building workshops to explain the compliance requirements and application criteria and processes. The helpdesk was intended to provide additional compliance and application support.

Mr Sinclair said that he knew of applicants from the Northern Cape who had had their applications turned down, and therefore the persistent 2% achievement in Northern Cape must have been an internal NLB issue.

Prof Nevhutanda reaffirmed that the Northern Cape was a serious concern. He asked Committee Members to advise him of any organisations whose valid applications may have been refused. He gave a commitment that the NLB would be running further roadshows and workshops in under-performing provinces.

The Chairman asked what new NPOs, who did not yet have audited financial statements, would need to do to meet the application requirements.

Mr Du Preez advised that first-time applicants now could submit accounts from an accounting officer, rather than audited accounts, and they also had the option to apply in partnership with an organisation who did already meet the application criteria.

The Chairperson asked whether application forms could be standardised and made simpler.

Prof Nevhutanda replied that the form was being standardised, and that smaller grant applications would be shorter.

Ms Van Lingen asked what areas were covered by the sector named “Misc.”.

Prof Nevhutanda replied that “Misc.” included projects which fell between the other categories, such as, a mix of art and sport, as well as selected emergency funding requests, such as the Banyana Banyana training facility shortly prior to the FIFA Women’s Cup. This funding was demand-led, and was not advertised.

Ms B Abrahams asked what oversight was done over funded organisations.

Prof Nevhutanda replied that the measures planned included site visits to applicants before appraisal of submissions, during funding and post project, as well as calling for progress reports on funding, and forensic audits as necessary.

Ms Van Lingen asked whether extending the advertising period would increase the advertising budget.

Prof Nevhutanda replied that costs would not increase, it would simply provide a longer timeframe for NPOs to apply.

Ms Van Lingen asked what back-up procedures were in place for the in-house scanning.

Mr Du Preez replied that the equipment was state of the art and risks had been assessed.

The Chairperson asked what contributed to the rollovers of funds in previous financial years, and what were the targets for improving the service.

The Chairperson asked how confident NLB was that it could allocate all the sports funding this year.

Mr Sinclair said that the current status report, as at the end of August, reflected only a 25% allocation of funds, despite the fact that the financial year was halfway through. This seemed to suggest that the NBL would not meet the annual target.

Mr Du Preez replied that the rollovers occurred when applications were not completed quickly enough, and this could occur for a variety of reasons, including the inability of the DAs to meet regularly. Some solutions could be provided only through legislative changes and terms of committee appointments. There would also always be some under spend in each year, because of phased payments of allocated funds and delays in contracting funding. However, 30-day targets would be imposed for responses to queries and for signing of contracts to try to address these delays and speed up disbursement of funding.

Ms Van Lingen asked how much funding the NLB received per year.

Prof Nevhutanda replied that it had received between R1.6 billion and R1.8 billion per year from Gidani, and this represented 34% of sales of lottery tickets.

Ms Abrahams asked that the Paralympics be considered for funding.

The Chairperson advised that the Committee might want to invite Gidani to a future meeting, to get clarity on the provincial income figures from lottery sales.

The meeting was adjourned.


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