Lotteries Amendment Bill [B21-2013]: briefing

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Trade, Industry and Competition

23 July 2013
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Department of Trade and Industry briefed the Committee on the Lotteries Amendment Bill. Some of these concerns that would be remedied included time management, long wait for acknowledgement of receipt to recipients and a huge increase in the demand for grants while the Fund remained the same size. These issues were largely a result of lack of organisation and poor management, rather than a result of the legislation. As for policy issues, the list included:

Accountability of Distribution Agencies
Quorum and conflict of interest
Simplification of the process
Categorisation of grants
Disbursement of the funds
Size of the Board
Differentiation of the organization name versus its board
Role of the Minister and that of the Board
Proactive funding
Grants through conduits
Internal review mechanism of decisions
Auditing of financial statements.

The objectives of the Bill included the establishment of a National Lotteries Commission as the new title for the Board; provision for the extension of powers of the Commission, provision for the licensing of an organ of state to conduct the National Lottery, provision for a clear accountability process of Distributing Agencies through an appeal process, elimination of overlapping functions between the Minister and the Board and removal of the Reconstruction and Development Programme as a category.

Critical comments received by the Department from stakeholders included these topics:
• Alignment of National Lottery objectives with country goals
• Lack of technology in South Africa to run the lottery
• Full time employment of Distribution Agencies
• Internal review mechanisms versus external processes
• Lottery as a private run organization versus a State run entity.

Members welcomed the Lotteries Amendment Bill and said it was long overdue. All Members present expressed concerns about the financial aspects of the Amendments, particularly about the full time employment of Distribution Agencies, addition of new members to the Board and the review process. Members’ questions also touched on the issue of a privately or publicly run Lottery. Members also enquired about the removal of the Reconstruction and Development Programme category, the keeping of the Miscellaneous category, multi-year funding, mandatory timeframes, grace periods between new appointments of Board members and a representative selection of Board members.

Meeting report

The Chairperson apologised for the delays and stated that very few apologies were received from the members, which did not account for all the absent Members. The Chairperson warmly welcomed the Department of Trade and Industry and all members of the public. She stated that this Committee was of high importance as it had a very strong international presence due to international relations within trade. The Agenda for the meeting was adapted and then adopted.

Lotteries Amendment Bill briefing by Department of Trade and Industry (DTI)
Ms Zodwa Ntuli, Deputy Director General (DDG): Consumer and Corporate Regulation Division (CCRD), began by thanking the Committee for welcoming the Department and provided recognition for her other team members that were not to be presenting. She outlined that the DTI has several young interns within the Department in order to provide them with training and experience. The Department hoped that Parliament would help absorb them into the system following their internship.

Ms Ntuli stated that the process of bringing the Lotteries Amendment Bill to Parliament had been ongoing since 2007 and many had said it was taking too long.

She noted that ongoing challenges for obtaining lottery funding included the long wait for acknowledgement that applicants must go through during the application process. There was also a long waiting period for the arrival of the first payment following adjudication. She emphasized, however, that not all the present challenges were caused by the legislation but purely by how the organization was managed. Much work was done by the leadership team to resolve these challenges and much progress was seen.

Ms Ntuli explained the National Lotteries Board (NLB) was established to implement the Lotteries Act which was passed in 1997. The NLB Fund was estimated to total about R16 billion, which was able to make a signification impact on South Africa if used effectively. The Fund did not go without challenges, however. As the popularity of the Fund increased, the demand also increased. The number of applications for grants from the Fund increased dramatically while the amount in the Fund remained stagnant. A significant effort was to be directed towards distributing the Fund in a manner that was to have the most impact.

Ms Ntuli explained how the NLB had direct relations with other departments, such as Social Development. When stakeholders were submitting complaints about the lottery, the related departments also displayed some concerns. To resolve complaints, the Chairperson of the Board held round table discussions in which the issues were analysed and solutions were found. A working committee that comprised of the National Lotteries Board as well as the Distribution Agencies (DAs) had to be created due to a significant gap between the distribution agencies and the Board. This working committee produced reports identifying areas of improvement could be made to the legislation. Following these reports, a draft Bill was created, approved by Cabinet and sent out for public comment. The Bill was then revised based on these comments and it was currently waiting to be introduced into Parliament. In the Bill, there were also a number of technical amendments in order to make it more user friendly. The scope of the Bill was limited; however, if other issues were to arise, they would also be considered.

Ms Ntuli presented the policy issues (see document) with a strong emphasis on these four issues:
• Simplification of the process of the distribution of funds – the excessive number of rules were making the process of accessing funds extremely difficult for the targeted people;
• Categorisation of grants – limitations in categories impacted the timeframes of grant allocation. There was a lack of categories based on the size of the required grant, that is, if a small or a large grant. The addition of categories would help to reduce the long waiting periods and allow for timely allocation of funds without hindering the requirements;
• Size of the board – the board was currently comprised of only seven members, which limited the number of committees that were needed. There was a need to have more members with the sufficient skill sets;
• Proactive funding – the current funding process required that an application be submitted in order to receive a grant; no application meant no funding. As such, many worthy courses were not funded because proactive funding was not permitted. The new amendment was seeking to allow for proactive funding which would identify worthy recipients without requiring an application.

Ms Clementine Makaepea, DTI Director: Regulated Industries, presented the list of objectives of the Bill:
• Improvements to the provisions relating to staff members, Board Members and Distribution Agencies with the DAs appointed full-time rather than part-time.
• The creation of the National Lotteries Commission (NLC). The term “Board” was used interchangeably as the title of the organization as well as the governing body of the ‘Board’ which played an oversight role within the NLB. The NLC was created in order to refer to the body of the Board, which allowed for differentiation between the two.
• The appointment of an organ of state to conduct the National Lottery. The organ of state was to be appointed by the Minister following consultation with the Board. The maximum period that the organ of state could conduct the National Lottery for was not to exceed a period of eight years.
• Elimination of overlapping functions between the Minister and the Board as the Act referred to the two interchangeably, which was not correct. All aspects of the Act relating to the roles and functions of the Minister and the Board were revised and clarified to eliminate any overlap.

Ms Ntuli went over the critical comments that had been received from stakeholders about the draft Bill. A key issue they raised was ensuring that the organization provided additional support to programs that were good cause programs. To do so, the NLB had to align some of its goals and objectives with those of the county such as employment and empowerment. A complaint raised by stakeholders was the lack of technology in South Africa to run the lottery and the resulting need to rely on outside technology. Once the licence to operate was issued, it was important that the operator worked towards establishing the necessary technology in South Africa, as it was also a tool to implement South Africa’s objective of job creation. A concern was raised about the proposed full time appointment of the Distribution Agencies as they would be losing their independence. However, the DTI was certain that full time appointment was the best solution for the effective use of funding and time and the independence of employees would not to be impacted. A number of comments suggested a separate tribunal was necessary to perform the duty of an appeal body as opposed to the proposed internal review mechanism. The review mechanism was already in place by the NLB and it provided rejected applicants the opportunity to appeal declined applications. The Department response to the proposal for an independent tribunal was that it would come at an unnecessary high cost. The current review mechanism was successful with a good track record. There were comments on whether the Lottery should remain a privately run organization or become an organ of the state. There was interest for the Lottery to remain as a private run industry so that the expertise of the private sector could be maintained. There was also the concern that appointing an organ of the state to run the Lottery would result in poor management as was experienced with other state owned entities.

Dr W James (DA) pointed out that there were two fundamental issues that required fundamental change: 1) having a robust system that executed its mandate effectively and that protected its independence and 2) efficiency of distribution with regards to both speed and accuracy. On the question of whether the lottery should be an organ of the state, he commented that it was entirely dependent on the model used. The South African Revenue Service (SARS) was provided as a successful model. Mr James raised the issue of cost to the Department and asked how much the amendments would cost the state. He also disagreed that an external review model would be costly if the ombudsman model was followed.

Prof Alfred Nevhutanda, Chairperson of the NLB, replied that current Act did not provide any provisions for the review process. The current procedure of an internal appeal mechanism was highly successful and therefore an external procedure was unnecessary. With regards to the organ of state, the NLB was already looking at SARS to see how they process their applications and it was using SARS as a model for certain procedures.

Ms S van der Merwe (ANC) was also concerned with the potential increase in costs. In particular, she was concerned about the added cost of appointing full time Distribution Agencies.

Ms Ntuli replied that the appointment of full time adjudicators within the DAs was to reposition the cost and normalise it. As full time employees, they were required to work more hours, which meant that fewer employees would be needed. There was also other associated costs with part-time members that were higher than full time costs.

Mr N Gcwabaza (ANC) raised the issue of finances in regards to the addition of the National Lotteries Commission, which would increase the number of bodies from one to two. The use of an additional tribunal and additional members was also a concern. He asked for clarification on the removal of the Reconstruction and Development Programme (RDP) category. Where were the funds from the RDP reallocated? Were they allocated to government priorities?

Ms Ntuli replied that a new body was not being created. Although the proposal stated that it was a new commission, it was just changing the name of the Board from NLB to NLC in order to differentiate between the Board and the organization itself. As such, there was no cost for a new body; the only cost was for the appointment of more members. The DTI would provide a breakdown of the costs in a future meeting. With regards to the RDP category, it always had zero allocation of funds because it was purely operational. Therefore, there were no funds to be redirected.

Mr G Hill-Lewis stated that the Bill was very welcome and long overdue. He asked that section 13 be expanded upon with regards to the Minister’s ability to appoint an organ of state and what exactly were the grounds for him to do so. The rationale for the Miscellaneous category was questioned as most of he controversial grants emerged from this category. He would like to see a provision added to allow non government organisations (NGOs) to apply for multi-year funding as many complaints had been received from NGOs that indicated an issue with single year funding. Similar complaints were received with regards to long waiting periods and the concept of mandatory timeframes was recommended.

Prof Nevhutanda replied that once the organization as a whole was running smoothly with the new legislative changes, time management issues were to become a problem of the past. As for the Miscellaneous category, he argued that it was of great importance as it would include proactive funding within the new legislation. The duty of the Board was to monitor and not to adjudicate, therefore the controversial funding of the past was not a fault of the Board. He also replied that the majority of the sectors within the NLB were providing multi-year funding. However, the issue was the high volumes of demand for funding which had led to single year funding. In the new financial year, organizations were to apply for two to three year funding but three years was the maximum. This was to aid NGOs in organizing fundraising opportunities, which was an added benefit of knowing that funding was secured for two or three years.

Ms Ntuli added that the concept of multi-year funding was included in the legislation because there was nothing in the legislation that prevented multi-year funding. This process was already taking place with the exception of funding going towards charities due to the very high demand. Mandatory timeframes was not added to the legislation because it was considered to be a matter of regulation and policy.

The Chairperson asked if there was a grace period between new and old Board members during the appointment of new board members. She also showed concern about the skills and experience of new Board members. She expressed the need to have a representational group of members that represented the needs and lived experiences of the people.

Ms Ntuli replied that the issue of representation was already being considered in the appointment of Board members. The NLB had opened up solicitation form the Provinces.  She agreed fully with the Chairperson about having members who were able to relate to the people on the ground. She stated that if the Board members had no sense of the issues, then it was not possible for the organization to be effective. In regards to grace periods, there was always to be a combination of old and new members on he Board at the same time.

The Chairperson concluded that this meeting was a preliminary engagement, which provided the opportunity to study the Amendment Bill and look at the gambling report. Public hearings were set to begin on 13 August 2013.

A brief discussion was had between the Secretary and the Committee Members with regards to scheduling conflicts for upcoming meetings.

The meeting was adjourned.


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