Lotteries Amendment Bill [B21-2013]: Department response to submissions

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Trade and Industry

20 August 2013
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Portfolio Committee heard a final submission from the Zakheni Arts Therapy Foundation, a grassroots non-profit organisation (NPO) that provided psychological and emotional support to children, adolescents and adults through creative arts therapy. As dependents of  Lottery funding, Zakheni experienced several challenges with the Lottery Fund. These challenges included the process of the funding application, as it was extremely complex and time consuming. There were also challenges with delays in response from the National Lottery Board and delays in the release of tranches. The lack of communication or use of poor communication practices provided Zakheni with a barrier to communicating properly with the National Lottery Board. Lastly, the grant agreements obligated Zakheni to return any interest gained in the course of the funding agreement. This investment represented a large sum that could have been of great use to the work of the organisation.

Members’ concerns included the following: Appropriate length for multi-year funding, location and duration of operation, the extent of the interest, parts of the application process that should be excluded, room for growth and expansion of the organisation, opinion on full-time versus part-time status for Board Members.

The Department of Trade and Industry provided its response to comments on the Bill which included:
- Funds not reaching intended beneficiaries
- Most deserving organisations excluded by tough requirements
- Long waiting periods for decisions on and payment of grants
- Complex processes leading to a high level of declines
- Lack of communication by the National Lottery Board (NLB)
- Perceived conflict of interest by persons making decisions on grants
- Missing documents leading to non-compliance
- Infrequent calls for application impacted greatly on declined applications
- Funds not sufficiently distributed by the NLB.

The dti provided a summary of the issues that were within the scope of the Amendment Bill:
• Appointment of Distribution Agencies (DAs)
• Quorum and conflict of interest
• Simplification of the process
• Categorisation of grants
• Disbursement of the funds
• Size of the board
• Differentiation between the role of NLB and that of its Board of Directors
• Clarification of the role of the Minister and that of the Board
• Proactive funding
• Grants through conduits
• Internal review mechanism
• Auditing/Independent review.

The Department provided comments on four sections that received the most commentary from the public.
 1. Section 10(1)(c)(i) on the review mechanism: The dti replied that the mechanism itself was established to reduce the cost of approaching the courts. It was already in existence and the clause merely formalised the process. Some recommendations were made on this section to improve the credibility purposes.
2. Section 10(m) and (n) on proactive funding: The dti argued that the provision was intended to reward good causes based on research, including communication with the community, but that they were still bound by the requirements. It had been recommended that the criteria were added to the Bill as well as the percentage allocated to proactive funding.
3. Section 13(7): The dti commented on the possible licensing of an organ of state saying that this applied only where the licence was revoked or had expired without the next operator selected.
4. Section 26(A): Comments by the public were that a single distributing agency of nine members was not sufficient to service all categories. The Department responded that that the Bill should confer powers to the Minister and the Board to determine the size of the distributing agency in each category.

The dti outlined the three options recommended by the Regulatory Impact Assessment and said Option 1 was the model adopted in the Bill. Detailed written responses would be submitted to the Committee by 23 August 2013.

During the discussion, Members raised the following concerns:
- Additional roles of the internal review mechanism
- Balance between continuous and sporadic funding
- The role of the grants as not simply salary providers
- Allocation of fund to rural areas
- Measurement of skills and technology transfers
- Double dipping and duplication amongst organisations
- Measuring the impact of the National Lotteries Distribution Trust Fund
- The importance of localisation of the industry
- Administration costs
- The role of conduits.
 

Meeting report

The Chairperson notes that there was one outstanding submission to be presented to the Committee, which was to be followed by discussion and deliberations on the Bill.

Zakheni Arts Therapy Foundation submission
Ms Phila Nkuzo, Administrator, explained that Zakheni was a grassroots non-profit organisation (NPO) that provided psychological and emotional support to children, adolescents and adults through creative arts therapies. They provided healing and learning among children, youth and communities through various mechanisms such as art workshops, drama therapy in school and transformational theatre for children. Currently, the main source of funding for Zakheni was the National Lotteries Distribution Trust Fund (NLDTF) Arts and Culture Charities Sector on a three-year grant agreement. Other funders included the Solon Foundation, the Commonwealth Foundation and HopeHIV among others.

Ms Nkuzo noted that one of the challenges that Zakheni faced with the NLDTF was the process of funding applications. The process of filling out an application in itself was extremely time consuming as the NLDTF required many attached documents along with the form. It was particular frustrating that the application was likely to be declined if one small aspect of the application was missing. For a small organisation such as Zakheni working with only a team of four people, they lacked the position of a designated fundraiser. As a result, the whole team was required to work together to complete the lengthy application, which put great pressure on their programmes. Once the application was complete, the following challenge was the delayed response time. It ranged anywhere from 4 to 22 months to receive a response. These delays had a direct impact on the programmes as by the time they received a response, the programmes had changes or had developed over time. Additionally, the time frames that were set in the application process were affected by the delays. Delays were also experienced in the payment of the tranches, which led to the organisation staff being forced to work unpaid. This had ethical impacts as some of the therapy programmes had to end, which halted the healing process of the children.

Another challenge noted by Ms Nkuzo was the poor communication practices of the NLDTF. Many interim reports were sent to the Fund but a confirmation of receipt was not sent and no follow up conducted. No contact was made with Zakheni to explain the reason for the delayed tranches; even after months of delay. Through the NLDTF SMS system, several messages were received that contained incorrect information. There was also a constant repetitiveness in the information delivered as multiples of the same SMS or letter were received repeatedly.

Ms Alison Bohlmarin, Finance and Operations Manager, spoke about the grant agreement for charities. Money was received, however the grant agreement itself was never sent by the NLB. This made it extremely difficult to comply with the associated legal aspects.

Ms Nkuzo requested that the following recommendations be considered: improved and prompt response times, reliable disbursement of funds and contactable staff.

Ms Bohlmarin made the last recommendation about the accumulated interest from grant funding. The grant agreements made with the NLN required Zakheni to return any interest accrued from the funds over the three-year agreement to the Fund. In its reports, it has been requested that the interest remain in the possession of the organisation so that it could used towards investing in their work. The interest made was capable of growing the size and sustainability of the NPO.

Ms Nkuzo concluded that they were very grateful to the Lottery Fund and hoped that the Committee would take the recommendations into consideration.

Discussion
Mr G Hill-Lewis (DA) noted that one of the consistent themes from all the submissions was the issue of multi-year funding and sustainable funding. What did Zakheni propose was an appropriate length for long-term funding that allowed for a sense of insurance in operations?

Ms Bohlmarin replied that multi-year funding was highly appreciated. Three years worked much better than just one year because it allowed the organisation to operate current projects and plan for future ones comfortably.

Mr G McIntosch (COPE) argued that it must be understood that the lottery should not be viewed as a constant cash flow; rather, it was there for project funding and not for continuous grant funding. Where was Zakheni based and for how long had it been operating?

Ms Nkuzo replied that the NPO was based in Observatory, Cape Town with some subcontracted work in other provinces and has been operating for 10 years.

Ms S van der Merwe (ANC) stated that the recommendations were completely reasonable. What size of a problem was the interest refund issue?

Ms Bohlmarin replied that interest of R1000 had accumulated over the years, which was capable of being put to much use in a small organisation.

Mr X Mabasa (ANC) expressed appreciation for the input made. He asked Zakheni what parts of the application form could be excluded from the process. If support were increased, was the organisation capable of growth and expansion?

Ms Nkuzo, in regards to the application form, replied that if an organisation was funded by the National Lottery in the past, then some of the attached documents should not necessarily need to be repeated. The project manager at Zakheni was the better person to answer this question.

Ms Bohlmarin replied that there was definitely room and capacity to expand if the funds were available. Currently, Zakheni had two budgeting ways: low road budget and high road budget. High road budget was hoped for but they were prepared for lesser funds.

The Chairperson noted that some of the clauses in the Bill covered a few of the concerns raised and attempted to respond to those issues. It would have been useful in the submission to provide Zakheni’s opinion about the full-time versus part-time debate of Board Members and if that would improve the response time.

Ms Nkuzo replied that a full-time team dedicated to addressing the administrative aspects of the Lottery Fund was expected to be highly useful, as opposed to part-time workers. More staff or more full-time staff was certainly going to make a difference.

Lotteries Amendment Bill: Department (dti) response to submissions
Ms Zodwa Ntuli, Deputy Director-General: Corporate and Consumer Regulation, noted that most of the issues raised were interlinked with some technical matters not addressed in the presentation. She referred the Committee to the detailed background of the Lotteries Act, studies and reviews conducted on it and on the gambling scene in the accompanying document. Essentially, there had been a series of discussions, studies, reviews, conducted since 2007 to address various challenges associated with the Lottery, particularly the distribution of funds and government alignment. This Amendment Bill had gone through a very long process to reach this point. Throughout the process, the public had raised the following challenges:
- Funds not reaching intended beneficiaries
- Most deserving organisations excluded by tough requirements
- Long waiting periods for decisions on and payment of grants
- Complex processes leading to a high level of declines
- Lack of communication by the NLB
- Perceived conflict of interest by persons making decisions on grants
- Missing documents leading to non-compliance
- Infrequent calls for application impacted greatly on declined applications
- Funds not sufficiently distributed by the NLB.

Ms Ntuli said that it had been very useful to see how the public viewed the role of the NLB and to see people’s expectations. During this process, the dti discovered that many non-profit organisations depended entirely on the NLB, which was not necessarily by choice but due to the significant decrease in the donor sector over recent years, and particularly in the international donor sector. However, it was important to remember that the Lottery Fund was not necessarily growing, although the demand was steadily increasing. She emphasised that the intention of the Bill was to address the problems holistically and not look at the needs of individual organisations. The dti wanted to ensure that the detailed recommendations submitted to Parliament were in line with the policies. The following was a summary of the issues that needed to be attended to within the scope of the Amendments:

• Appointment of Distribution Agencies (DAs)
• Quorum and conflict of interest
• Simplification of the process
• Categorisation of grants
• Disbursement of the funds
• Size of the board
• Differentiation between the role of NLB and that of its Board of Directors
• Clarification of the role of the Minister and that of the Board
• Proactive funding
• Grants through conduits
• Internal review mechanism
• Auditing/Independent review.

Ms Ntuli stated that the diagram of the NLDTF’s application process was of great importance as it helped to guide interventions. Following the formation of the diagram, it was much easier to pinpoint and locate where the challenges were. Challenges were evident in the following areas: call for applications, processing of applications (lack of necessary technology) and the legal process.

Mr MacDonald Netshitenzhe, dti Chief Director: Policy and Legislation, outlined the objectives of the Bill. It was proposed that the objectives of the Bill include the purpose of the NLDTF, which was to fund good causes and develop communities. With regards to the comment on Section 10(1)(c)(i), which stated that the review and appeal process was best conducted by an independent body, the Department replied that the mechanism had been established to reduce the cost of approaching the courts. It was intended to assist smaller organisations that viewed the adjudication as unfair. More importantly, the review process was already in existence and this clause merely formalised the process. It was recommended that for credibility purposes, the following was needed:
- A set of criteria for the review to be included in the Bill
- The Bill had to enable the drafting of regulations to provide for procedures to ensure certainty and consistency, and prevent possible abuse
- These regulations were to include the necessary forms to be used and timelines applicable for the review
- The Bill had to provide for the decision of the review to be binding.

Mr Netshitenzhe responded to the comments on Section 10(m) and (n) on proactive funding. The comments argued that allowing funding without application would lead to bad practices and corruption and was unfair to those who had to comply with the application process. In response, the dti argued that the provision was intended to reward good causes, based on research, which was to include communication with the community. Potential recipients identified by research were still bound by the requirement for proactive funding and the adjudication of the DAs. It had been recommended that the Bill clearly provide the criteria for proactive funding as to not undermine the application process. It was also recommended that the Minister determine in the Bill the percentage that was to be allocated for proactive funding in each category.

With regards to Section 13(7) on the licensing of the organ of state, Mr Netshitenzhe replied that this provision was put in place only in the situation where the licence was revoked or expired with the next operator not appointed. It also sought to address an instance where lottery operators consistently failed to implement objectives of transfer of skills, localisation, BBBEE, local procurement and technology capitalisation. It had been recommended that the Bill be improved to state more clearly the grounds for an intervention by the state.

 In response to the comments on Section 26(A) that a single DA was not sufficient, the dti proposed that the provision was reconsidered to retain all the categories and was also proposed that the Bill should confer powers to the Minister and the Board to determine the size of DAs in each category. The rationale for the professionalisation of the adjudication process was due to backlog, quorum, frequent meetings, speedy turnaround times, conflict of interest as well as all year application.

Ms Ntuli briefly covered the recommendations made by the Regulatory Impact Assessment (RIA) which were divided into three options. The dti was largely in favour of the first option and it was the model adopted in the Bill. However, all of them were feasible. The dti recommended that the Committee accepted all the dti recommendations as presented. Detailed written responses were to be submitted to the Committee by 23 August 2013. Ms Ntuli stated that the recommendations were very clear but the detailed responses would provide better understanding. The public hearings were extremely useful and allowed the Department to rethink the original proposal. Lastly, the argument that the state did not have the capacity to run the lottery was misinformed as none of the organisations in the country had the skills or capacity; skills were built over time. Additionally, the technology for lotteries was not found in South Africa and as such the Department wanted to encourage the development of that technology locally. However, if no incentives were created for the people to create the technology, then it would never happen.

The Chairperson asked the Chair of the NLB, Prof Alfred Nevhutanda, to provide his input on the recommendations and responses.

Prof Nevhutanda emphasised that it was difficult to make remarks as representative of the Board. In the past, the set-up of the NLB had made it one of the most difficult organisations to run as there was no organisational system in place to run it. The company required a person of authority that was able to lead it in orderly manner. Over the past few years, the Board has enhanced the structure. For example, they came up with the internal review mechanism, which gave hope to all organisations that applied and were rejected. They also discovered that the application form was extremely difficult to complete and rather outdated. With regards to turnaround time, many improvements had been made and the Board created new positions within the organisation in order to increase the efficiency and effectiveness of the structure. Currently, the turnaround time was up to 90 days from the submission of the application. Throughout the process, there was an automated system in place to communicate with applicants and inform them of receipt of application as well as its status. Lastly, the skill level required from the Distribution Agencies was extremely high and did not come cheap. As such, it was up to the Committee and the dti to determine whether the DAs should be comprised of part-time of full-time members or a mixture of the two.

Discussion
Mr Hill-Lewis stated that it was the right recommendation by the dti to lay out the exact process in the Bill of what was to happen in the case that a state organ was appointed to run the Lottery. He argued that there was unnecessary panic on this issue. It had always been the case that the intention of the clause was that it was only to happen if the licence failed.

Ms Ntuli was glad that there was better clarity on the role of the state organ and that perhaps now some housekeeping was required to further clarify.

Mr A Alberts (FF+) required certainty about the process where one could review the decision made. If there was a problem with the procedure itself, was the internal review mechanism capable of reviewing the process?

Ms Ntuli replied that the review mechanism in this particular case was set up to deal with matters regarding the adjudication process of the Board. However, the process raised was one of great importance and perhaps was more geared towards the management at the NLB and NLDTF.

Mr Mabasa questioned how a balance could be struck between continuous and sporadic funding as both had their own challenges. Were the NLB and the dti able to demonstrate to organisations that the funds received were not for the sole purpose of paying salaries? How much of the Fund was directed towards rural areas?

Prof Nevhutanda replied that 50% of the fund was allocated towards rural areas as was outlined in the Act. With regard to salaries, DAs provided guidelines for the provision of salaries, however, not all agree to the guidelines. That was an aspect that required internal work. As for funding continuously or sporadically, the three sectors did not work the same as each had their own timelines. He suggested that a call for applications should be sent out earlier in order to provide the organisations with time to prepare the applications while they still had funds.

Mr N Gcwabaza (ANC) asked if there was the ability to evaluate whether technology and skills transfers were going to happen and how were these objectives to be represented when achieved?

Mr MacDonald stated that these aspects were included in the contract and must be done.

Mr Z Wayile (ANC) noted that it had been an important exercise to find solutions. How did the NLB ensure that unnecessary double dipping and duplication was avoided in order to avoid abuse of the system? A way was needed to measure the success and impact of the NLDTF.

Prof Nevhutanda replied that the NLB was trying to avoid double dipping. There was a need for a policy process regarding this issue in order to cover the problem on a wider scale amongst all donor organisations. This was of particular importance given the fact that different laws governed NPOs, non-governmental organisations and the NLB.

Mr B Radebe (ANC) emphasised the importance of localisation.

Mr MacDonald agreed and stated that the dti was also in strong favour of this aspect. Incentives were required to motivate local producers to create the technology.

Ms Ntuli replied that there was currently a local manufacturer that had started building the necessary technology for the Lottery. As such, if there was dedication and focus on this aspect, it was possible to increase localisation, which would increase capacity in South Africa.

The Chairperson made a reference to administration costs, in particular wages and salaries. How were the funds distributed actually spent. Perhaps there was a need for a national requirement on the amount of administration costs relative to what the expenditure was. What was the role of conduits and their importance?

Mr MacDonald replied that the dti was requesting Parliament to remove conduits, as they were unhelpful and were simply middlemen. The dti wanted applicants to come to the Department directly.

Ms Ntuli noted that there was a 20/80 ratio where 20% was the maximum that could be spent on salaries.

Ms Ntuli concluded that there had been significant improvements in the way in which the NLB was run.

The Chairperson said the Committee greatly appreciated the engagement with the NLB and the dti.

The meeting was adjourned.
 

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