The Auditor-General presented the dti Portfolio audit outcomes for the for 2012/13. At a glance, it was evident that there were improvements noticed within the Companies and Intellectual Property Commission (CIPC), the National Consumer Tribunal and the National Regulator for Compulsory Specifications. With the exception of these three entities, material adjustments were necessary to the financial statements. The Companies Tribunal was in great need of internal improvements for the aforementioned aspects but they were still in the early phases of operation. Technically, this current year was their first year of operation, as the previous year was mainly preparatory. It was recommended that the Tribunal seek the assistance of the dti portfolio. For 2012/13, the final appropriation for the department amounted to slightly over R8 billion. The audit opinions chart in the associated document indicated that a significant number of entities received an unqualified audit with findings on predetermined objectives and compliance.
There were also some fluctuations in the result of entities throughout the years. The Companies Intellectual Property Commission (CIPC) faced a significant challenge within its IT controls, which was particularly significant as efficient IT systems were necessary for business to succeed. Great improvements made across the board with regards to predetermined objectives and financial health. Supply chain management was a key challenge for many of the entities. The importance of material errors/omissions in the annual financial statements (AFS) submitted by entities was discussed at large. Two aspects were highlighted with regards to financial health: 1) the National Consumer Commission overspent its operating expenditure budget by 8.3% and underspent its approved capital budget by 72.3% and 2) the South African Bureau of Standards underspent 85% of its approved capital budget, which was not necessarily a bad result. Lastly, there was no evidence of unauthorised expenditure in this portfolio. There was some fruitless and wasteful expenditure mainly in the National Consumer Commission (R3.58 million). As for irregular expenditure, it was information that was required to be disclosed within the financial statements.
The two areas where the dti Portfolio required the most focus were material adjustments in the financial statements as well as supply chain management; and to a lesser extent, predetermined objectives to ensure that the strategic plans were aligned to enforce consistent reporting.
Members’ concerns included:
- The process of auditing
- Indicators for a leadership culture
- The Commissioner of the NCC was only in an acting capacity
- Difference between irregular expenditure and fruitless & wasteful expenditure
- Lack of progress and enforcement
- Warning signs within internal gaps
- The relationship between action and strategic plans
In deliberations on the Lotteries Amendment Bill, the two topics of juristic versus national person and the distribution role were immediately discussed. The following topics also received much debate:
- The responsibility of research for proactive funding
- The maximum number of members on the Board
- The allotted time period for the Minister to address unlawful applicants after adjudication
- The duration of the appointment of an organ of state: two versus eight years
- Juristic persons applying on behalf of other organisations.
Auditor-General South Africa (AGSA) on the Audit Outcomes for 2012/13
Mr Lourens van Vuuren, AGSA Business Executive, began with an overview of audit outcomes. At a glance, it was evident that improvements were noted within the Companies and Intellectual Property Commission (CIPC), the National Consumer Tribunal and the National Regulator for Compulsory Specifications. With the exception of these three entities, material adjustments were necessary to the financial statements. It was normally recommended that entities completed monthly financial statements; however, there was a constant push back by entities arguing that such a recommendation was not a legislative requirement. He indicated that there was a great need for focus on internal controls such as leadership, financial and performance management as well as governance. In particular, the National Consumer Commission (NCC) needed improving its governance, and from a leadership perspective, a permanent commissioner was still in need of appointment. Additionally, the Companies Tribunal was also in great need of internal improvements for the aforementioned aspects but they were still in the early phases of operation. Technically, this current year was their first year of operation, as the previous year was mainly preparatory. It was recommended that the Tribunal seek the assistance of the dti Portfolio.
Mr van Vuuren moved on to the detailed document on the audit outcomes. For 2012/13, the final appropriation for the department amounted to slightly over R8 billion, which was primarily funded through funds appropriated in terms of the annual Appropriation Act. The audit opinions chart in the associated document indicated that a significant number of entities fell within the 'yellow' category. Yellow referred to an unqualified audit with findings on predetermined objectives (PDO) and compliance. Ideally, these entities should move out of the yellow and into the green category of a clean audit opinion with no findings on PDO and compliance. A further analysis of the chart indicated that there were some fluctuations in the result of entities throughout the years. For example, the South African Bureau of Standards was categorised as yellow in 2008/09 but then moved into the green category from 2009/10 onwards; whereas the National Credit Regulator (NCR) began as green in 2008/09 and moved to yellow for 2011/12 and 2012/13. Another example was the Small Enterprise Development Agency (SEDA), which spent the first two time periods in the yellow then moved to green in 2010/11 but dropped back to yellow after two years. Evidently, there were several issues that needed to be addressed amongst entities to achieve and maintain results. It was equally important that entities maintained a holistic outlook when seeking improvements within their audit.
Mr van Vuuren turned to Section Four in the document on Key Focus Areas. The first table indicated the key focus areas. The table provided an overview on the status of different factors such as predetermined objectives, HR management, IT controls, material errors/omissions as well as financial health. The Companies Intellectual Property Commission (CIPC) faced a significant challenge with its IT controls, which was particularly significant as efficient IT systems were necessary for business to succeed. Great improvements made across the board with regards to the Predetermined Objectives and financial health. Mr van Vuuren singled out two entities that required the most focus: the CIPC and the National Consumer Commission. The National Consumer Commission experienced a significant regression. Previously the Commission’s audit was unqualified but this year it was qualified.
Section 4.1 on Supply Chain Management gave detailed information on the findings for each dti entity, the root causes for these and recommendations for procurement both under and over R500 000. Those procurements under R500 000 were feasible to be controlled by the management team on a day-to-day basis, whereas larger procurements required much more complex and formal procedures. However, for under R500 000, one had to maintain an up to date supplier database, which should be used to make procurements. Problems with supply chain management were not difficult to resolve, especially since many were related to poor planning skills on the part of entities.
Section 4.2 on Predetermined objectives summarised in findings per entity. For instance, for the Companies Tribunal, the majority of the reported indicators and targets were not consistent with those indicated in the approved annual performance plan (APP). It was important for entities to have an APP that was in line with their strategic plan and that all daily activities were linked to the APP. An entity should not have placed efforts and funds towards targets that were not in the approved APP. If an entity was unable to achieve the original targets, then it was required that they include the reasons in the performance report. In this scenario, it was important to then look at levels of expenditure and the relationship between the percentage of financial resources used and that of the targets achieved. From an oversight point of view, quarterly reporting played a key role in monitoring the success of predetermined objectives and addressing misalignment.
Section 4.3 on Human Resources Management, Mr van Vuuren noted that there was one important non-compliance that occurred in the CIPC environment. Broadly, an employee was appointed for a short-term contract for an IT position at a salary higher than the maximum salary without authorisation from the executive authority. With regards to the NCC, there was a very high vacancy rate and there was a clear link between the audit outcomes and the vacancies.
Section 4.4 on Information Technology Controls highlighted all the findings that relate to IT. It was repeated that CIPC had many areas that needed to be addressed particularly relating to resources, segregation of duties, security management and user access management. These controls were very important to ensure that the entity functioned within a secure IT environment. There was a need to find a system that was able to meet the needs of CIPC while also being easy to control, easy to manage and easy to maintain.
Section 4.5 on Material Errors/Omissions In The Annual Financial Statements (AFS) was very important. The AFS should undergo a proper review process which required that various levels of management review the financial statements to ensure accountability. It was equally important that all entities address the findings within their action plans, as from an oversight point of view, the action plans were a key resource for the Committee to assess the entities and see what material adjustments were made and the reasons for these to ensure no reoccurrence. With regards to financial health, two aspects were highlighted: 1) the NCC overspent the operating expenditure budget by 8.3% and underspent its approved capital budget by 72.3% and 2) the South African Bureau Standards underspent 85% of capital budget, which was not necessarily a bad result. In looking at the drivers of internal controls, the NCC was the entity that required the most work on its internal controls, which were comprised of three main categories: leadership, financial & performance management and governance.
Lastly, Mr van Vuuren discussed matters of expenditure. There was no evidence of unauthorised expenditure in this portfolio. There was some fruitless and wasteful expenditure mainly in the NCC with R3.58 million. As for irregular expenditure, this was information that was required to be disclosed within financial statements. The document provided a complete list covering both the current and the previous years. Finally, two investigations were highlighted that the Auditor-General was aware of. The first investigation was conducted by an independent consulting firm, which explored procurement irregularities and appointment irregularities within the NCC. The Public Protector was responsible for the second investigation, which looked into allegations of irregular procurement and irregular recruitment also in the NCC with recommendations made on its financial controls and financial chain management processes.
In summary, Mr van Vuuren noted that the two areas where the dti Portfolio required the most focus were material adjustments in financial statements as well as supply chain management; and to a lesser extent, predetermined objectives to ensure that the strategic plans are aligned and to enforce consistent reporting.
The Chairperson noted that the NCC and the Lotteries Board were already in discussion with the Committee in terms of resolution of their audit findings.
Mr G McIntosh (COPE) asked how the employees at the Auditor-General reach their conclusions with regards to the predetermined objectives. Was the APP analysed during the process? How were the objectives audited? He noted his agreement with the importance of the AFS as well as regular monthly reports. There was a question about the process of assessing and evaluating effective leadership culture within entities. He appreciated the presence of the leadership principle within the process.
Mr van Vuuren replied that the process for auditing performance information was quite detailed and mainly depended on documentation. In the early stages, the strategic plan and the APP were compared against each other and then the approved APP was the document used to audit progress. There were often inconsistencies found between the APP and the performance reports as other priorities arose during implementation. Throughout the process of the audit, there was a need for constant engagement between entities and the Auditor-General . Ultimately, the auditing process analyses the actual achievements whilst searching for hard evidence of those achievements. As for effective leadership, there was no mathematical calculation for measurement; rather there was a list of indicators to use as a guideline. The following are some of questions addressed when assessing leadership: were policies and procedures adequately communicated? Was there a process in place for the creation and implementation of action plans? Ultimately, the process of analysing leadership culture within a particular entity was not an easy measure.
Mr G Hill-Lewis (DA) was surprised to read that the Commissioner at the NCC was still Acting Commissioner as he recalled the Committee approving a candidate for the position in the not too distant past. He was also disturbed to read that most of the evidence for irregular expenditure was stolen from the NCC office, which was highly concerning. Was there an investigation in place to learn how that happened? If so, were any charges laid? What was the difference between irregular expenditure and fruitless & wasteful expenditure?
Mr van Vuuren replied both terms were defined in the legislation in the Public Finance Management Act (PFMA). Fruitless and wasteful expenditure was expenditure that was made in vain and could have been prevented had reasonable care and planning been taken. As such, this category was relying to some extent on judgement. A very simple example was not paying a credit card bill on time, which resulted in interest charges. In this case, the interest charges would be identified as fruitless and wasteful expenditure. On the other hand, irregular expenditure was defined as incurred expenditure that was not in line with the legislation.
The Chairperson replied that the Committee had previously been informed of the break in and that an investigation was put in place. She did however ask for a status report on the matter.
Ms S van der Merwe (ANC) was also concerned with the fact that the Commissioner at the NCC was in an acting position. There was concern about the lack of progress and perhaps there should be stricter enforcement. While the difficulties in compliance were recognised, it was a concern that could not be overlooked. There was a dire need for progress in regards to irregular expenditure.
The Chairperson noted that the acting Commissioner was appointed in September 2012.
Mr Z Wayile (ANC) asked what action was required to deal with the issues surrounding supply chain management. Were there any known warning signs for gaps within internal controls? What has been the observations of the Auditor-General about commitments from entities themselves to resolve the problems they face?
Mr van Vuuren replied that significant effort was put in place to get entities to take on commitments and the early warning signs was a process that was started over two years ago. In this process, engagements were held four times a year between the Auditor-General and both the CFO and CEO of a particular entity to discuss assessment, improvements and solutions. The goal of this engagement was to identify areas that needed improvement.
The Chairperson observed that whenever there was a lack of control related to policies and procedures that were not established, it inevitably lead to a lack of control mechanisms. She corrected her previous statement regarding the appointment date of the acting Commissioner as it was June 2013 not September 2012. A question was raised on the relationship between action and strategic plans: how helpful was it to have the two aligned? Broadly speaking, there was evidence of irregular expenditure throughout the departments; as such, was there a need for more control mechanisms or was it a matter of procedure?
Mr van Vuuren confirmed that the acting Commissioner was appointed 1 June 2013. He replied that there was no one mechanism that was enforced broadly. Some entities require more policy procedures while others have the necessary policies but required more control. Ultimately, policies and procedures were key elements of working towards improving the overall success of the entities.
The Chairperson emphasised the importance of regular reporting. The Office of the Auditor-General team was thanked greatly for their hard work on these reports.
Lotteries Amendment Bill: deliberations
The Chairperson re-emphasised the importance of time and the need to work both effectively and efficiently.
Ms Ntuli requested they begin deliberations on the issues raised in the previous meeting.
Juristic vs. National Person
Ms Zodwa Ntuli, dti Deputy Director General (DDG): Consumer and Corporate Regulation, noted that this discussion was raised previously by the Board to assess whether there was a possibility for any person to apply directly to the National Lotteries Distribution Trust Fund (NLDTF). However, it did not appear as a very strong issue and as a result, it was not placed as part of the policy document. The dti proposed that the same approach of funding only juristic persons be retained as there were a number of consequences that would emerge if amended, which would greatly impact the operations of the institution. For one, the NLB currently received an overwhelmingly large number of applications, which would only increase if the limitation of juristic persons was removed, and ultimately create a backlog in the process. Secondly, the current verification process of each application was extremely complex and stringent. This was created in a way that would ensure the validity of the applicant organisation and to guarantee that no fraudulent applicants were funded. Evidently, this process would only be amplified if the applications were open to any person. However, the proposed process of proactive funding was to enable the NLB to identify worthy causes that may not be a juristic person. Proactive funding was then the route to take to benefit national persons and would address the issue at hand.
Mr N Gcwabaza (ANC) wanted to address the issue of individual applications and if an inclusion could be made that allowed organs of civil society to alert the NLB about certain good causes or worthy national persons.
Mr B Radebe recognised the validity of the concerns raised by the dti; however, there was still some concern. The example of rural areas and sport was raised. The scenario explained was one where there was great potential for a student in a school in a rural area but was limited by the environment due to lack of funding within the school or the area in general. There were also smaller funds within each category that had fewer requirements and would cater to such an example (based on the United Kingdom Lotteries). Additionally, extreme situations could be catered for as it were not a black and white process.
Mr Radebe replied that given this explanation, it was acceptable to maintain that only juristic persons may apply, especially since extreme situations were catered for.
Ms Ntuli replied that the concerns raised by Committee members were valid. Firstly, all schools were allowed to apply for funds as entities; as such, the schools should be able to identify such talent. In addition, proactive funding was responsible for researching and identifying such good causes.
Mr McIntosh needed clarity on what part of the Bill the Committee was discussing juristic person as he had only found it in Section 26F(2). There was no proposal regarding juristic persons and this was simply a sideline discussion. There was support for the dti about the need to retain the juristic person in the clause; however, there was also understanding for Mr Radebe’s argument but perhaps the NLB was not the appropriate institution to fund such a scenario.
The Chairperson replied that the Committee was referring to Clause 10(q).
Ms Ntuli indicated that there should be provisions that allowed for proactive funding, which could happen at the request of the Minister or the board who would request the Commission to do so. Once the Commission received a specific request, it would conduct thorough research and report back. As such, the Commission must have the research capacity to do so.
Ms van der Merwe referred to the newly distributed A-list, which had been edited from the first version, and proposed that the amended sections be discussed individually.
Ms Ntuli said this topic was of at the centre of much discussion in previous meetings and as such was pertinent to be addressed again. To clarify the different functions, the different roles of the NLB as an institution were: First, the NLB had a regulatory function, which oversees the National Lottery and other lotteries. This was regarded as the regulatory arm of the NLB and within it, the decision making in regards to the National Lottery, for instance, was in the hand of the Board. The second arm was Distribution. The distribution of funds was the function but the decision-making about where the funds went was made by the Distributing Agency. In this case, the National Lotteries Commission was to continue to have these two functions and the decision-making in regards to these two functions had not changed. She emphasised that the Board decided upon the regulatory functions whereas the Distribution Agency was in charge of all decision-making about distribution.
This explanation distinguished between the functions of the Board and those of the Distribution Agency; however, these two functions were encompassed within the functions of the organisation as a whole. As such, the dti had considered if there should be a name change that would better represent the functions. The initial thought was that a name change may not be necessary as the functions were not facing any alterations and the organisation was to continue to have two main bodies: regulation and distribution. However, for the purposes of clarifying the role of the Distribution Agency, the dti was prepared to look into a name change. However, a name change would not contribute to any fundamental change in the functions. Furthermore, the Distribution Agency was responsible for putting in place conditionalities on the funds granted and ensure that they are adhered to. As such, the function of the Distribution Agency was a continuous one throughout the full distribution process. Ultimately, the name of this body could be changed to Adjudicating Agency; however, the dti felt that this name would undermine the important functions that the agency played.
Mr McIntosh stated that there was a significant difference between the meaning of distributing and adjudicating and as such, it was important to decide on the most fitting title to avoid confusion.
Mr Gcwabaza stated that his understanding of one the functions of the Distributing Agency was to adjudicate and approve the applications or in a sense, authorise the transaction. If that was the case, then who then was responsible for the physical distribution of the funds?
Ms van der Merwe understood the dti’s explanation but in the Principal Act, there was a definition of a Distributing Agency that had not changed in the amendments. This definition stated that there was a person appointed by the Minister to distribute funds but not any person in the Provincial or National sphere of government. Who was that person? Was it someone in the Commission or somebody in the Distributing Agency? There was a great need for clarifying who this appointed person was.
Ms Ntuli replied generally that once the documents was delved into and the roles were clarified, then there was a need for transitional provisions to explain potential impacts of switching from part-time to full-time members. She had hoped that the edited A-list would bring some clarification and asked that it be discussed.
The Committee turned to the A-list and discussed the amended proposed amendments (indicated in green in the document).
Adv Johan Strydom, dti Legal Advisor, indicated that the green sections were ones that had received much discussion and that still needed to be resolved.
Clause 4 inserting Sections 2A-2G
Adv Strydom indicated that this was not a fundamental amendment but was certainly necessary to add clarity.
Clause 5 amending Section 3
Adv Strydom noted that this change arose after previous discussions. The amendment originally limited the attendance of the Chairperson of the Distributing Agency to meetings regarding strategic planning of the Agency. Given the noted restrictions of this amendment, clause 5 was re-amended to “who may only attend meetings of the board per invitation or if matter relating to the adjudication of applications for grants or distribution of grants are to be discussed.”
The members were on board with this alteration.
Clause 10 amending Section 10
After reading the proposed amendment, Adv Strydom explained that given Ms Ntuli’s explanation of the functions of the board, it was clear that the Board should not be conducting any research, as it was a function of the Commission. Furthermore, it was noted that the Commission did not need authorisation from the board to conduct such research. The next version of the A-list would remove ‘authorise’ from this item and replace it with ‘request’.
The Chairperson pointed to Section 2A(3), which stated “the Commission may, upon request by the Minister, board or on its own initiative in consultation with the board, conduct research on worthy good causes…” Given this, what was the relationship between the clause in discussion and the referenced section? Were they in alignment with one another?
Adv Strydom stated this now brought the discussion towards the fundamental principle of proactive funding and whether it was proficiently provided for in the Bill. Ultimately, if Sections 2A(3) and (4) were read alongside Section 10(c)(q), then the role of the Commission regarding research was abundantly clear. The result would be that, in practice, the Commission would no longer need an application and worthy good causes would be identified. The only issue remaining was the potential for mismanaged funds. Was there a need for cautiousness and a prescriptive process for the Commission’s distribution of money that arose from proactive funding practices? If the answer was yes, then the solution was to include these provisions in regulations provided by the Minister.
The omission of this paragraph was now necessary as it was no longer a function of the board but rather a matter for the Commission.
The power indicated in this provision equally belonged to the Commission and as such, its omission was proposed.
Mr Hill-Lewis asked where this paragraph was seen in the power of the Commission.
Mr L Sopela, Parliamentary Legal Advisor noted that it was in relation to Section 33.
Adv Strydom asked the Committee to hold off on this issue that clause was reached in the A-list.
The Chairperson wanted clarity that the issue raised was addressed further on in the amendments.
Adv Theo Hercules, State Law Advisor, replied that as Adv Strydom indicated, the issue was covered later on in the A-list.
Adv Strydom noted that this was matter was previously raised by Mr Hill-Lewis, which related to the justifiable grounds to be taken into account in the case that the Minister took the decision not to appoint a private entity to conduct the lottery at all. As such, this subsection was omitted and replaced with:
“In deciding whether justifiable grounds contemplated in subsection (1) exist, the Minister may consider any relevant factor including but not limited to –
national government policies or priorities;
the need to grow local industries and to procure goods from local manufacturers;
the need to transfer skills and technology to the citizens of the Republic of South Africa; or
the need to comply with the legislative framework for the promotion of broad-based black economic empowerment and transformation.”
Based on these grounds, Adv Strydom noted that the Minister was then justified to appoint an organ of state for a necessary period of time.
Adv Hercules noted that the provision should be changed to the “the Minister shall” as ‘may’ would defy the purpose of justifiable grounds.
The Chairperson and Committee agreed to this substitution.
Section 13B (new clause)
Adv Strydom noted the following new addition to the Bill:
13B. The Minister may at any time owing to the fact that –
the licensee is for any reason whatsoever unable to conduct the National Lottery in terms of the conditions of the licence or is unable to meet the conditions of the licence to the satisfaction of the Minister;
the licence to conduct the National Lottery is suspended for any reason whatsoever;
the licence to conduct the National Lottery is revoked in terms of the Act; or
the licence to conduct National Lottery has expired,
after consultation with the board, appoint or authorise any person or organ of state, as the case may be, for a non-renewable period not exceeding 24 months to conduct the National Lottery on such terms and conditions the Minister deems appropriate;”.
Adv Strydom then reintroduced previous discussion on time limitations for the maximum length that the organ of state may conduct the lottery for: two years versus eight years. This new provision stated that if the licensee failed for any reason, the Minister may appoint an organ of state for a non-renewable period of two years. However, if the scenario of justifiable grounds were in place, then the Minister would be able to not appoint a licensee at all. Here the question arose of how long the period should be; two years or eight years. It was important to keep in mind that the periods mentioned did not refer to the scenario. The 24 months was the existing licensee and the two versus eight years was when the Minister did not want to appoint a new licensee.
The Chairperson flagged discussion on the issue of two versus eight years for later in the meeting.
Adv Strydom noted that this amendment proposed that the ceiling for the number of persons appointed to the Distributing Agency be omitted. The number should fall within the discretion of the responsible Minister as it related to technical considerations.
Ms van der Merwe pointed out that item one under clause 24 should have been in green as it was a new provision, which omitted Section 26A(c).
Adv Strydom acknowledged this with apologies.
The Chairperson asked what the policy intentions were behind this amendment.
Mr Hill-Lewis noted that if Section 26A(c) was omitted, then the function listed there must be transferred to the Commission.
Mr McIntosh was uncomfortable without having a minimum or maximum number outlined in the Act.
Ms Ntuli noted the point that placing a ceiling may lead to excessive appointments. As such, it was proposed to state ‘not exceeding’ whatever number was agreed to. Thus far, nine was the number of persons appointed but it may be fewer once members were switched to full-time status.
Mr Hill-Lewis asked if that was nine members in each category, because if yes, then it was a total of 36 members.
Ms Ntuli replied that it was indeed nine members per category.
The Chairperson stated that perhaps nine was sufficient enough given that it had been sufficient thus far. Ms Ntuli’s comment to insert ‘not exceeding’ was duly noted.
Mr Hill-Lewis asked if this clause placed a limitation on the total number of members for all four distributing agencies or a limitation on each agency alone. Ultimately, was it required to come up with an all-encompassing number or per Distribution Agency?
Ms Ntuli replied that the number under discussion was per category.
Adv Strydom requested not to address this amendment as it related to the issue of the functions of the Distributing Agency and the potential name change, which were discussed earlier in the meeting and flagged for later discussion. This provision referred to the Distributing Agency as 'adjudicating agency' and as such was still under debate.
Adv Strydom outlined that Section 33 of the Act was substituted entirely with the following:
“33. The Minister may within fourteen days after a distributing agency has adjudicated upon an application and recommended a grant in favour of an applicant under this Chapter, prohibit the Commission from paying out such grant if such grant is likely to be utilised for an unlawful purpose or fails to comply with the conditions the Minister has imposed in terms of section 32: Provided that the Minister shall –
consult with the board and the Commission before any such prohibition is imposed; and
disclose to the board and the Commission any information at his or her disposal which may indicate that any such grant is likely to be utilised for any unlawful or improper purposes”.
Adv Strydom stated that in order to accurately address this provision, one must look at what processes were to take place in practice. Once the Distributing Agency completed the adjudicating process, all that was left was the physical distribution of the funds by the Commission. If that was to be defined as distribution, then confusion would arise.
Ms van der Merwe agreed. There needs to be clarity in the definition of Distributing Agency - that it was not responsible for disbursement but was rather responsible for decision-making in regards to distribution.
Ms Ntuli noted that Ms van der Merwe was absolutely accurate. The key aspect was the definition of terminology. Distribution was not the same disbursement; rather it referred to the decision-making.
Mr Hill-Lewis had an issue with the responsibility of the Minister in this section. The allocated fourteen days was seen as highly restrictive, especially since unlawful use of the funds may not appear until later on. Secondly, why was this the responsibility of the Minister? It was expected that there was to be many unlawful applications and this responsibility should belong to the board as it was the body accountable for what the Commission did. There were also issues with the phrasing of the amendment, as it gave the board the power without any time limitations. The original provision in Section 10(c)(s) was preferred. He proposed that this responsibility should be assigned back to the board and that the original wording should be retained.
The Chairperson reiterated that the issues with this provision were regarding the time limitations, the number of potential unlawful applicants and if it was a function of the Minister as the board was accountable to the Minister.
Ms van der Merwe agreed that the original wording was better and that fourteen days was too short of a time frame, as the issues may not come to light that quickly. The understanding from the new provision was that the Minister was responsible for the final decision but only after consultation with the board. Therefore, more thought was required on who this responsibility belonged to.
Mr McIntosh suggested that it could be changed so that the Minister would request the board to investigate.
The Chairperson noted that this topic needed to be addressed with great caution.
Mr Gcwabaza stated that perhaps it was correct not to have this responsibility in the hands of the Minister.
Ms Ntuli noted that in the policy, one of the functions of the board was to address internal issues. The withdrawal of a grant was a drastic measure and as such, it was proposed that the power should remain with the Minister; but the board was able to make recommendations. It was also proposed that the phrasing in Section 10(c)(s) be amended to include the role of the board to recommend matters on the issue and that the phrasing of this provision should be consistent with Section 33.
The Chairperson appreciated this proposal and asked if Section 10(c)(s) was to be maintained in its original section and also replicated in Section 33.
Ms Ntuli replied that it was proposed to move the provision completely to Section 33.
Mr Hill-Lewis asked if there was agreement on the removal of the fourteen-day limit.
The Chairperson raised one concern with the lack of a time limit as the process may last over years otherwise.
Adv Strydom pointed out the importance of the short time period. In Section 33, the Minister was powerless after the grant was made. The Minister was only able to withdraw the grant after adjudication but before disbursement; unlike in Section 10(c)(s), where the power of the Board was wider. So how long after adjudication was the payment paid was how long the Minister had power for.
Mr Hill-Lewis asked if the provisions for the recovery of funds in the case of unlawful use were necessary to be included in the Bill.
Adv Hercules replied that any money used for unlawful purposes could be recovered through the institution of appropriate action.
New Clause 34
Given the course of the discussion, Adv Strydom pointed out this new clause regarding the name change of Distributing Agency was likely to be omitted.
Diagram on structure of the National Lotteries Commission
Mr Sopela indicated that this organogram demonstrated the operational structure of the NLB. The diagram identified each body and aspect, provided a detailed outline of the structure as well as indicated where there were connections between each.
Ms van der Merwe indicated that the diagram was very helpful not only to the Committee but also for applicants, as it allowed one to see the process of applications.
The Chairperson informed the Committee that since the new 'green' proposed amendments had been covered, the next step was to go though the A-list clause by clause.
The proposed amendments were read out and the following were discussed:
Clause 10 amending Section 10
Ms van der Merwe pointed out the Section 10(c)(s) was no longer to be omitted.
Adv Strydom replied that the proposal was that item three under clause 10 was withdrawn and that another amendment in this regard was yet to come.
Clause 12 amending Section 13
Mr Hill-Lewis asked what the rationale was behind the Board having to make a recommendation to the Minister. Was ‘person’ the correct terminology for who could be appointed to conduct the lottery? Was it an individual that was appointed or a company?
Ms Ntuli replied that it was a juristic person that was to be appointed. As for the recommendation question, the board was essentially the monitor of the licensee and as such it was appropriate that the board did an initial assessment prior to the selection by the Minister.
Adv Strydom replied that in the Principal Act there was no definition of a person and as such one would stick to a juristic person. As for the recommendation of the Board, the rationale was due to the fact that another person to conduct the operations would replace the licensee.
Mr Hill-Lewis brought up the issue of two years versus eight years for the duration of the appointment of an organ of state. The Department had consistently repeated that the addition of this provision was to avoid the repetition of the failure of the Lottery, which took place in 2007. That was perceived to be a highly sensible suggestion. However, that did not justify an eight year time period. It was proposed that the two-year period should be retained.
Ms van der Merwe noted that this change was not in the original amendments and only appeared in the first A-list amendment. The intention was to appoint the organ of state for a period long enough to ensure that there was no gap. There needed to be consideration for how long it would take to start the lottery again as well as to open up applications. The objectives clearly indicated that it was not intended to provide the state with a licence. It was suggested that perhaps to maintain the two-year period but add a provision that indicated that this timeframe may be extended if no suitable replacement licensee was found.
Mr Gcwabaza asked how flexible the eight-year appointment was. To clarify, if a suitable replacement was found halfway into the appointment of the state, was the Minister able to disrupt the appointment and put in place the new licensee?
The Chairperson emphasised the need to separate the two issues at hand. The first was the issue of non-compliance. The second issue was finding another person to license following the termination of the current licensee. If there were no suitable licensees, then the Minister could appoint an organ of state to run the lottery for a full period of eight years. Were these issues correct based on the discussion in the previous meeting?
Ms Ntuli replied that the Chairperson was in fact correct in recalling the issues. When a licence was interrupted for any reason, the state organ could be introduced to protect the industry. There was to be specific provisions made for the role of the state.
Mr Hill-Lewis stated that there was a lot of confusion due to the two separate issues. There was no disagreement with regards to the appointment of the state but emphasised that the concern was in regards to the time period. The suggestion made by Ms van der Merwe was very reasonable. The point was not to make the state and ordinary licensee, which was what appeared to be taking place.
Mr Gcwabaza stated that it was important to not have any interruptions in the running of the Lottery and thus perhaps eight years was an acceptable time frame.
Ms van der Merwe proposed that it was a case of non-compliance, then the state could perhaps run the Lottery for the remainder of the period of that licensee. It was also argued that the two issues should not be separated.
Mr McIntosh argued that two years was a long enough period to replace the licensee but if not, then agreed that the period could be renewable.
Mr Wayile argued that the state must not be excluded from running the Lottery as it was not just for the private sector. There appeared to be a consensus that eight years was too long to have the state conducting the Lottery.
Mr Hil-Lewis argued that appointing an organ of state was capable of causing more disruption as the state had no experience or capacity to run the National Lottery.
The Chairperson noted that there was no consensus regarding this issue and there was no agreement on the appropriate time period. This issue was reflagged for further discussion.
Clause 26 inserting Sections 26A-F
Mr Hill-Lewis addressed the issue of juristic persons acting as agents on behalf of other organisations. There were many organisations that specialised in making applications and sourcing funding on behalf of other organisations. It was agreed that there were some cases where organisations make mischievous applications but there needed to be a mechanism in the regulations that allowed the Distribution Agency to check their validity. As such, it should not be disallowed that other organisations apply on behalf of others. It was proposed to delete Section 26F(2).
Mr Radebe noted that there was often the expectation that the person who applied on behalf of the other was going to receive commission, which would be taken from the grant.
Mr Hill-Lewis agreed that it was often the case that commission was deducted and the NLB could add provisions regarding that issue. The regulations should stipulate that it was a voluntary engagement.
Ms van der Merwe argued that an organisation should not have someone apply on their behalf. However, there was no issue with an organisation seeking assistance in the completion of the application so long as they personally applied.
Mr McIntosh agreed with Ms van der Merwe.
The Chairperson noted that there remained several issues flagged for further discussion and requested that the dti have a new clean A-list with all the amendments made throughout this discussion.
The meeting was adjourned.
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