National Lotteries Bill amendments: Department Trade & Industry briefing

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Trade, Industry and Competition

13 September 2013
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Department of Trade and Industry (dti) continued to take the Committee through the remaining provisions of the National Lotteries Amendment Bill, but asked the Committee to consider the principles being promoted. In relation to the Board and Committee having the power to consider funding deserving causes, where no formal applications had been made, it was noted that an empowering provision was needed. The dti had proposed that the issue of the money being paid to a juristic person be retained, so that applications from individuals and walk-in applications be avoided, but that in respect of deserving causes the procedure should be different, with the funding actually being in the hands of the Board, to ensure that the money was dealt with in a proper manner. Dti was of the opinion that there was no need for any amendment with regards to this; as there were sufficient provisions in the Principal Act already to deal with the matter.

Members voiced concerns about a lack of accountability when it came to juristic persons. Equally concerning was the involvement of the Board in disbursing funds, and Members stressed that there must be good governance. They voiced concern that giving money to individuals was risky, unless there was some guarantee that the money would be spent on what it was intended. For a juristic person, a constitution would be required, and compliance could be achieved. They were satisfied with that new section 10(1)(q) emphasised research on those providing the services and whether spending happened on the intended purpose. A position that the funds be managed by the Commission was supported as that would increase accountability, and could result in less risk. However, later in the meeting, Members requested an organogram that would clarify the position of the Commission and the Board, as well as the distribution agencies (whose name was to be changed).

Dti clarified the provisions relating to a scenario where the Minister was of the opinion that no licensee could be appointed to run the lottery, and said that it was stated originally that if this happened, then for a period of two years an organ of state could be appointed to deal with the vacuum. However, if an  existing licence was terminated the Minister could then appoint a new operator for a period of eight years to conduct the lottery, or could on justifiable grounds not appoint a new operator, instead instituting an Organ of State. Members wanted to see the new clause wording on this.

The future position of the proposed adjudication agencies (formerly the Distribution agencies) was discussed and the legal advisors indicated that the Bill would still need to be cleaned up to ensure that there was no future reference to the term “distributing” as this would not be their function. Members were concerned that there were still a number of grey areas and commented that the amendments were not as simple as first thought, and fresh issues had been identified. It was important that Members be clear on exactly what they wanted to be included in the Act, and what could be covered by regulation.

Members discussed whether it was desirable for clause 24 to prevent some non-governmental organisations applying for grants on behalf of others, pointing out that this was happening in practice, since some were experienced in applying for grant funding for others who were not so well equipped to do so. Some Members held that there was nothing wrong with this in principle, whilst others expressed a fear that administration charges would be levied, and cited situations where huge portions of grant funding were taken by administration, rather than being spent on doing the work intended. The point was made that acting as a bridge between NGOs and government was problematic, and the situation needed to be carefully monitored.

A new draft of the amendments was requested for the following meeting.

Meeting report

National Lotteries Amendment Bill: Continuation of Department of Trade and Industry briefing
Empowering section
Mr Macdonald Netshitenzhe, Chief Director: Policy and Legislation, Department of Trade and Industry, said he would continue from where the Department had reached at the last meeting.

He said he would recite the principles and the drafting would follow. It was crucial that all present agreed on the principle.

He noted that it would be better to leave the principal Act as it stood currently, with respect to juristic persons applying to the National Lotteries Commission (the Commission). This meant there would be no walk-in or applications from individuals or natural persons. The Department proposed that be left as it was.

However, the second issue was allowing the Board to, itself, do proactive research and funding, where it felt that a need for funding existed, but no formal application had been made, or the communities concerned had not be constituted as juristic persons. In such a situation the Commission would take its own steps, after research. He read out the relevant clause, noting that it would authorise the Commission to conduct research on, and approve grants to appropriately deserving good causes or recipients that may be funded. He stressed that once all the research was complete, money could be dispatched, but because in this case there would not be a juristic person necessarily, the Department of Trade and Industry (dti) required an empowering section to say the Commission, on its own accord, would have to manage the funds on behalf of those “disorganised communities”,.

An empowering section could be amplified with regulations, to specify what was a juristic person, and could be read in a manner that did not conflict with the Act. It was necessary to reconcile the sections and any apparent contradictions. If the principle were adopted, it would solve many of the problems.

The Chairperson asked if Members were following what Mr Netshitenzhe was suggesting.

Mr G McIntosh (COPE) said he was happy that dti did not suggest an amendment, as that could be problematic. He said he understood there was a problem with sub-clause (q). He said he had a problem with giving to individuals.

 He sought clarity as to which document was being used.

The Chairperson said there were quite a few documents that had been made available to Members, and that the documents were not labelled.

Mr Netshitenzhe apologised and said he had requested earlier that Members not deal with the draft at this stage. The documents being circulated were not relevant to this presentation. Members needed to address the principal Act first.

Good cause but no juristic person
Ms S Van der Merwe (ANC) asked what dti would do if it had a group of individuals who did not form a juristic person, and how they could be assisted. It sounded as if they could be assisted, but the management of the grant should be done by the Commission. She cited a hypothetical situation where an athlete might need money to compete for South Africa, but the hosting association did not have funding. The athlete should be allowed to receive lottery funding, but it ought to be managed by the Commission. She wondered if the money could not be paid to an individual athlete as there would be no accountability structure. If that was the principle, the Committee did not have a problem supporting that.

Mr McIntosh said he was not speaking against the spread of goodwill. His concern was purely about good governance. Giving money to individuals was risky, as there was lack of accountability, and unless there was a guarantee that money would be spent as intended. If a juristic person was involved, then it should have a constitution. He was still nervous on the principle. Clause (q) was a very good clause in that it emphasised research on those providing the services and whether spending would be as intended. He suggested that the juristic person provisions be left as they were and that dti should create a discretional provision, by exception, to make a grant to a good cause.

The Chairperson agreed and said the intention was to ensure that there were no loopholes.

Mr G Hill-Lewis (DA) supported the position that the funds be managed by the Commission, as that would increase accountability, and could result in less risk. He sought clarity on the wording, and why the Board needed to be empowered to conduct research. This was slightly ambiguous as it allowed the Board to approve grants. The Board should not be attending to this, but the Commission. He asked why the Board should conduct its own research and said it would not have capacity to do so.

The Chairperson summarised Members’ feeling that the principle was fine, if the administration of the funds was done by the Commission. The other issue was who should be conducting the research and approving the grants. She noted a proposal that the Board authorise the Commission to conduct the research.

Mr Hill-Lewis said the proposal was that the word “conduct” be deleted.

Ms van der Merwe said Members should wait and see how the draft had been rephrased. At the moment, the Committee was discussing a policy issue, and would come to the drafting later.

The Chairperson said there was a proposal that gave some direction, and that it did not have time to wait for further drafts. Two positions were proposed, and the Committee needed to agree on who would be conducting the research.

Mr Hill-Lewis said that if the volume of organisations on whose behalf the Commission managed funding increased, this would place an enormous administrative burden on the Commission. He wondered if the Commission’s staff and budget would be able to support them.

The Chairperson said these were the issues that dti needed to take into consideration when crafting the amendment.

Amendments to section 13
The Chairperson reminded Members that this issue had been flagged previously, and asked dti to report.

Mr Netshitenzhe replied that dti would like to address the principle again. He referred to wording that had been distributed.

Adv Johan Strydom, Legal Services, dti, said sometimes the Committee brought up issues that the Department had not taken into account when drafting policies. Officials had reflected on what transpired in respect of page 10 of the Bill, at line 21, for a new section 13A(1). This dealt with the scenario where the Minister, based on justifiable grounds, was of the opinion that no licensee could be appointed to run the lottery. The Minister, for a period of two years, could then appoint an organ of state to conduct the national lottery, so that there was no vacuum. If the Minister terminated an existing licence, he could then appoint a new operator for a period of eight years to conduct the lottery, or not appoint a new operator, but institute an organ of state.

Mr Strydom conceded that dti had made a mistake with this clause. The amendment emanated from a debate around justifiable grounds.

Ms van der Merwe sought clarity on whether what was being said was a suggestion that the Minister could grant powers to an Organ of State for a full period of eight years.

The dti delegation indicated that this was not so.

Ms van der Merwe reminded the delegation that she had sought clarity on the eight years at the previous meeting. She understood that the full licence period was eight years. Dti was now asking the Committee to substitute the 24 month period mentioned under clause 13A(1)(3)(d), with eight years. In effect this would grant the Minister the right, if he failed to find an operator, to grant an Organ of State the full eight-year period licence. This was the bottom-line. A separate issue was where a licence had been granted but the operator was failing, and here, the Minister could therefore appoint an Organ of State for the full 8 years.

The Chairperson said the explanation by the Member did connect the two critical areas.

Mr Hill-Lewis said dti had not asked Members to consider the timeframes yet. In clause 13, there was a change in that if a licensee was not in place, there should not be a vacuum with continuous display of inability to comply with terms and conditions of a licence. This was the amendment that Members were asked to consider.

The Chairperson said the two were conflated last night, but now the Committee was trying to separate the issues.

Adv Strydom said he appreciated what the Honourable Hill-Lewis was saying, but appealed that the period should be discussed. The policy required that the period of licence be eight years. Section 13 of the Principal Act allowed the Minister to make the appointment of the operator.

Mr Hill-Lewis said the section marked in red, in the new Clause 13A was very easy and consequential. The item was not controversial and could be agreed upon.

The Chairperson said while some Members had already agreed, she needed to think about it.

Mr McIntosh said the new subclause (d) could be more general on the need to comply with the laws of the country. The law was not just limited to promoting Black Economic Empowerment (BEE), but a law of the country. This needed to address that matter. Transformation was an abstract noun with very little content. He said he did not feel strongly about the proposal, but stressed the need to comply with the laws.

The Chairperson said the concerns the Committee had raised at the previous meeting had now been addressed. The only question remaining was whether Members agreed with clause 13(2).

Mr Hill-Lewis supported the proposal and said it was not a fundamental issue.

Ms van der Merwe said although the amendment was a bit “untidy”, what was reflected in the A-List3 (see attached Departmental document), was correct and reflected what was written in A-List 2. It related to the fundamental issues of the conditions that needed to be in place, including BEE, and transformation, growth of local industries, procurement and transfer of skills. This was the reason the Committee needed to support the current wording.

Dr W James (DA) supported the view.

Compliance with legislation
Mr McIntosh said the next point related only to neatness of drafting, not a political issue. The Bill needed to spell out, over and above the promotion of local industries, the need to transfer skills and technology, then the need to comply with the legislative framework for the promotion of BEE and transformation. He asked why the clause could not simply read “the need to comply with the laws of South Africa.” The Committee had just passed legislation on broad based BEE. The operators also needed to grow the economy and should not procure from outside. This should come out clearly at the end of (c).

The Chairperson suggested that the word “or” should be replaced with “and the need to comply with the laws of the Republic of South Africa”.

Mr G Selau (ANC) commented that no one had an option not to comply with the laws, so actually specifying this was not necessary.

The Chairperson summarised that the Committee had no problems with (a), (b), and (c), but Members were also saying compliance with the two pieces of legislation needed to be mentioned. No one disagreed with transformation and she saw no problem in it being mentioned for re-emphasis. She said she would not listen to any more points on the year-periods but this item needed to be flagged for resolution in the following week. She asked Members to study and consider the implications of the clause.

Distributing agencies
Adv Strydom said the word “distributing agency” (DA) on the A-List ought to be substituted. The policy stance had been that in future, the function of distributing the funds should be performed by the Board. If the DAs would no longer distribute funding, the question was whether there was any need still to refer to them in the Bill, and to decide what their function was if they remained. In future, the DA’s would be required to adjudicate applications by exercising their discretion, and making a judgement on justifiability of applications. The actual granting of the funds, however, would be done by the Board. He said it was important to reflect on the need for transitional arrangements and come up with a new proposal if the name and function had changed. He noted that the DAs were appointed on contract.

The Chairperson said this left quite a big gap, and asked how soon a draft could be proposed.

Adv Strydom replied that the dti should be able to table proposals on the following Tuesday.

The Chairperson said it was worrying that although the Committee was trying to finalise, new amendments kept cropping up.

Ms van der Merwe said she was confused. She sought clarity on page 14 of the Bill, under DAs, clause 14, which was inserting new sections. The changed role of the DAs had to be clarified, as to who would now be distributing. The whole matter needed rephrasing.

The Chairperson said that there were more amendments than initially thought. This was not a matter of principle. The Committee had to clean up the whole principal Act, and she asked Members to scrutinise the wording carefully to ensure no slip-up.

Juristic person
Adv Strydom said it was necessary for Members to refer, firstly, to page 9 of the Bill, the addition, under clause 10(c) of various new paragraphs, specifically paragraph (q). He requested that Members bear in mind the example cited by Ms van der Merwe of the athlete. Power could reside with both the Board ad the Commission, so there was no need for any amendment or any supplementary provision to grant the power. The Commission could be approached by bodies acting on behalf of the athlete and if could, without an application being lodged, approve grants.

The only question was whether the Committee was satisfied that the Board would deal with the money in a proper and adequate manner. The Board should operate under enabling provisions, so he questioned if Parliament, in the Bill, wanted to prescribe to the Board and the Commission how the money could be held in trust, or appropriated in favour of the athlete. Dti was of the opinion that no further amendment was necessary and the Bill already dealt sufficiently with the issue.

The Chairperson said there were few alterations, and that the linkages were very clear.

Mr Hill-Lewis asked if the clause meant that the Board could approve grants.

Adv Strydom replied that not only the Board could approve grants, but the Commission as well. The two structures could approve the grants, based on the provision in (q), without formal application being lodged.

Mr McIntosh said stakeholders’ submissions expressed concern on this. The fact that there was no definition of “good cause” created a kind of discretion. Such a situation could result in conspiracy between Members of the Board, as to who should get the money. He asked whether the DAs would be involved.

Adv Strydom replied that in future the essence of DA’s function would be for adjudication of applications and casting some kind of judgement on whether the application was approved.

Mr Selau sought clarity whether the Board would require permission from anybody to conduct research and approve grants to deserving applicants. It would appear that the Commission could only be able to do this kind of work in consultation with the Board.

Ms van der Merwe said the simplicity of reverting to what was set out in (q) was going to be the best way of resolving the matter. Members should ask who would manage the funds, and how they could ensure that funding went to a worthy cause, if there was no organisation. This would be dealt with in regulations. Many queries would be resolved when looking at the DA’s clause. As yet, there was no clarity on functioning between the Board, the “adjudicating agency” (the proposed name change for DAs), and the actual distribution of funds. When this was addressed, all the other questions would fall into place. She asked if the adjudication agency played a role when the Board had identified someone as a good cause.

Mr Netshitenzhe replied that dti had debated the issue and agreed that research findings should preferably be put before the adjudication agency, for scrutiny. This would allow the agency to endorse what had been done in the research, as independently verified by the adjudication agency.

Mr Z Wayile (ANC) commented that Members had been deliberating on this for quite some time. Officials had done the work, and the loopholes had been identified. The strategic intent was crucial. If only some of the issues were addressed in the Bill, the regulations could deal with other issues. He proposed that Members agree on the matter in principle, and leave it to the regulations to address all the safety mechanisms. It was possible to identify people, and as they were appointed there would be different requirements to satisfy. He requested that Members agree on the principle and arrive at an understanding that the regulation would address some other loopholes.

Mr McIntosh agreed, and said the Committee was trying to deal with the concerns that at present, money was not being distributed properly, that there were too many blockages in the system, and money had been distributed to unworthy causes. However, he was worried that now the dti appeared to have set up an even greater potential for log-jams, with a Commission, a Board, and the adjudication agencies involved. The change of name was significant, as the agencies would also adjudicate grants to non-juristic persons. The main concern was to make a good law that addressed the concerns of the public. In the past, lotteries distribution had been mired with huge controversies and inefficiencies. The deliberations now sought to make access lottery funding easier and more efficient, without allowing abuse from people who might have personal interests.

Mr Hill-Lewis said the debate had got more confusing. He asked why dti would like the Board to have the power to distribute funds and conduct research. The Board did not have accounting expertise, but the Commission had all of this expertise. The Board’s job was to oversee the Commission, and ensure that the Commission performed its duties.

Mr Netshitenzhe replied that the Board was the principal, and would have to take strategic decisions. In Dti’s view, the Board should be given permission to direct things at the company – in this case the Commission was regarded a company. This was the only rational. The Commission was full of experts, it could do that but it had to be authorised by the Board.

The Chairperson requested for a short adjournment.

Too many grey areas, organogram and flagging
The Chairperson said it seemed there were a number of issues that had not been thoroughly addressed. As deliberations went ahead, fresh issues had been identified. She said the reason she requested the adjournment was because of confusion surrounding the (q). It was important that Members be clear on what they wanted the Act to authorise. Issues that had been raised, even the night before required greater clarity. The Bill did not hang well together. There were no quarrels with the principle, but this did not come out clearly in the crafting of the amendment. She said she would like to get the thinking of Members. It was important that Members did not leave the meeting thinking there were only few changes; there were too many grey areas and there seemed to be a lack of alignment.

Ms Van der Merwe commented that there had been a lot of questions raised about the relationship between the different structures. There had to be clarity on this. Based on (q), it would seem that the Board should not be conducting the research, rather authorising the Commission to do so. The Committee should get an organogram that clearly indicated the line of authority and responsibilities. Some clarity on distribution had been provided, but further clarity on how the system would actually work in practice was needed. She stressed that whilst Members understood the Commission was accountable to the Board, there was no clarity on the Board’s strategic position and the kind of work it would have to undertake. The organogram should clearly show the accountability structure.

Mr Hill-Lewis, and Mr Selau seconded that proposal.

The Chairperson said the organogram would be dealt with in the next meeting. The organogram should give the purpose, functions, and the lines of responsibility. This would take the Committee further. After discussing the organogram, it would be useful to focus on the distribution agencies.

She added that although the Committee intended to finalise the issue about proactive funding, there was no point in pushing ahead and producing something that would not result in the desired effects. Members could continue to engage but she felt that given the request for more information, no purpose would be served in doing so at the moment.

Mr N Gcwabaza (ANC) proposed that documents be consolidated in future, so that Members did not waste time looking for separate papers; this Committee did not have the luxury of time.

Mr Selau stressed it was crucial to clarify the issue of the distribution and the adjudication agencies.

Mr Hill-Lewis asked if Members could still raise issues on the Bill that were not on the A-List, especially those issues that were still to come.

The Chairperson replied that they could.

Expert funding applications
Mr Hill-Lewis commented on clause 24, at page 16, and the proposed new section 26F(2). This would  prohibit applications for grants by industry fundraising agents. He said there was no necessity for the prohibition. From time to time there was abuse in the system, but this had not been adequately picked up in the past simply because the DAs were not full time and had not had capacity. Now that the capacity had been increased, the risk for abuse was diminished. In the Non-governmental Organisations (NGO) sector, some NGOs were dedicated to the service they provided, but could not do the business plans, whilst others concentrated on applying for grant funding on behalf of their sister organisations. He believed that such NGOs should not be prohibited from assisting others to access funding, as it would be unfair.

Mr McIntosh concurred, and said there were people in the NGOs helping others and doing a fantastic job. However, the proviso - that unless good cause was shown as to why such a beneficiary was unable to make the proposal on its own – appeared enough to address that aspect.

Mr Gcwabaza said there was nothing wrong with some NGOs fundraising for other NGOs from the private sector, but acting as a bridge between NGOs and Government was problematic. These people were not doing these applications for free. Members ought to be cautious about people whose business was to act as “go-between” civil society and government. He cited an example of labour brokers, and said this ought to be prevented at all cost.

Ms van der Merwe said this was a difficult discussion, because the larger NGOs employed people specifically to do applications. The Lottery would want to know that the money it distributed went for its intended purposes, and it was not intended that a percentage should go to people who had helped to fill out forms. A compromise was needed. She agreed that there was a need to clarify what “ just cause” as referred to in the Bill actually meant.

Mr Selau said that making application for a grant was not suggesting that it would be approved. The discretion lay with the Board. It was impossible to pre-empt whether an application made by a good organisation would be granted. The clause did not prohibit NGOs from doing applications on behalf of others. They could apply, but they just needed to identify a good cause.

Mr Hill-Lewis was not satisfied that the clause was sufficient. A small NGO could put an application together, but it would not always be good. He accepted the point that companies should not make a profit from grant funding, but these organisations were non-profit driven. This was not a blanket prohibition, but it was a major indication that the adjudication agencies were not very keen on such applications.

Mr Wayile said that NGOs were an international phenomena, and that Members should not underplay their role in the country. NGOs had done lot of work that could be equated to world class delivery. Members ought to be consistent when dealing with issues of maladministration, and the possibility of this had to be acknowledged in both the public and the private sector. The intention of the law was to deal with all bottle necks. The Committee had to strike the right balance, to ensure that loopholes had been dealt with. It should bear in mind that applications from rural based NGOs would not be as perfectly done as those done by urban based NGOs.

Mr Gcwabaza said one of the reasons the amendments were needed was precisely to give greater and easier access to funding, and to simplify the application processes. If that was achieved, there might not be a need for some NGOs to apply on behalf of others. He believed that the justification why a particular organisation would not be able to apply had to be clearly given.

The Chairperson said she knew that the USAid was very careful to ensure that part of funding was not paid towards administration costs. They often required a statement on administrative costs, and the breakdown of the budget. The reason was to ensure that the grant was not used to cover costs of administration, but met the intention of the grant funding. She cited an example of the CEO of the South African Tuberculosis Association who had worked five hours a day, three days a week, yet earned R90 000 per month, whilst the organisation struggled to support what it was committed to doing. She agreed that misuse of funding had to be guarded against. It was, however, important that the forms be simplified as this should address this challenge.

The Chairperson asked dti to assist, stressing that this clause did not seek to prevent the NGOs from applying, merely called for a good reason for doing an application on behalf of someone. Members from different political organisations would discuss the issue and would come up with a proposal.

Ms van der Merwe suggested that the Committee receive a clean A-List.

The Chairperson sought clarity on whether funding would be evenly distributed among concerned departments like arts, sports and the miscellaneous category.

Mr Netshitenzhe replied each sector would have its own budget. Arts and sports seemed to be the biggest and were therefore given more money. The Reconstruction and Development Programme was entitled to funding but nobody came to claim the money. Not too many applications on the miscellaneous category were received.

The Chairperson, in closing, reminded the technical team to prepare the structure of the organogram for the Tuesday meeting.

The meeting was adjourned.


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