Distribution of lottery funds: briefing by the Non-Profit Partnership; Minister & Department of Trade & Industry

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Trade and Industry

15 October 2002
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
16 October 2002
DISTRIBUTION OF LOTTERY FUNDS; BRIEFING BY NON-PROFIT PARTNERSHIP; MINISTER & DEPARTMENT OF TRADE AND INDUSTRY

Acting Chairperson:

Ms C September (ANC)

Documents handed out:

"Smoke and Mirrors": The National Lottery and the Non-Profit Sector by Centre for Civil Society & the Non-Profit Partnership
NNP Submission on the Lotteries Legislation
Progress on the distribution of lottery funds
Press release: Implementation of the daily lottery delayed (Appendix)

SUMMARY
The Committee was briefed on the state of the national lottery by a non-governmental organisation, the Non-Profit Partnership, the Minister of Trade and Industry and the Department of Trade and Industry. The Non-Profit Partnership had published a report in collaboration with the Centre for Civil Society enquiring into the distribution of the lottery fund. The report pointed to certain disparities and contradictions within the legislation and regulations surrounding the lottery and the non-profit sector. The Minister acknowledged that there may be some problems with the legislation and regulations and was committed to altering these in order to have an even more effectively regulated institution. However, he did not accept the criticisms made by the NPP's submission and he believed their legal analysis contained many inaccuracies.

The Minister announced that a decision had been taken to temporarily shelve the introduction of a daily Lotto draw.

MINUTES
The Committee was briefed by the Non-Profit Partnership's Director, Mr Eugene Saldanha and their attorney, Ms Anthea van der Bergh. Dr Stephen Louw of the Centre for Civil Society, spoke on his research. The Minister, Mr Alec Erwin, also addressed some issues and there was a submission by the Department of Trade and Industry led by the Deputy Director-General of the Consumer and Corporate Regulation Division, Ms Astrid Ludin. The Chair of the Lotteries Board, Mr Joe Foster, gave a brief reply and each of the three chairs of the Distribution Agencies: for Arts, Culture and National Heritage, Dr Prins Nevhutalu; for Charities, Dr Tebogo Maitse; and for Sports and Recreation, Ms Kedi Tshoma, discussed their portfolios.

Non-Profit Partnership
The Director of the Non-Profit Partnership (NPP), Mr Eugene Saldanha, said the NPP was aware that the National Lottery has undergone an unprecedented level of criticism in the last few weeks. The NPP wanted to outline why they commissioned the research and why they believed the research was necessary.

The NPP's Mission Statement states that their aim is to 'strengthen democratic transformation through the strengthening of the financial viability of non-profit organisations.' They were surprised by the negative response the Lotteries Board had towards the report. For the record he wished to stress that the NPP had been coming to Parliament since 1999 on related issues and had made constructive comments to the Finance Committee.

The research was commissioned because the NPP saw a clearly identifiable problem. Their function is to conduct, or commission, research on such a problem, which they will then use to lobby Parliament and other government organisations in addition to taking the information back to the non-profit sector. The NPP has a wide support base for this issue and are certainly not representing a disgruntled minority of unsuccessful applicants.

In summary, the main reasons for the research were:
-It was in pursuit of their Mission;
-There was a need for independent and credible research to inform debate;
-There had been requests from the non-profit sector for an inquiry;
-The criticisms highlighted within the administration of the Lottery detract from the effectiveness of the NPP's training schemes and so forth.

Lottery Legislation
The NPP's attorney, Ms Anthea van der Bergh, continued with a submission relating to the alleged disparity and contradictions within the legislation and regulations surrounding the lottery and the non-profit sector.

She stressed it was not the duty of the Lotteries Board to be scrutinising applications, this was the job of the Distributions Agencies. It was an important point to make because there seemed to be problems arising from which agency was responsible for the various functions.

The lottery regulations prohibit unregistered organisation from applying for funding, but not all non-profit organisations need to be registered. Therefore the regulations are in conflict with the Non-Profit Organisations Act.

The Reconstruction and Development Programme (RDP) and the miscellaneous funds had not been earmarked for distribution, yet the Lotteries Board has a pro-active role to play in suggesting what they should be spent on.

The spirit of the Act and a purposeful interpretation of its terms show that a culture of openness and transparency is required. This is coupled with the general requirement under Section 195(g) of the Constitution, which states that 'Transparency must be fostered...' It was the submission of the NPP that the Lotteries Board has not complied with these requirements.

Continuing to Strengthen the National Lottery
Dr Stephen Louw of the Centre for Civil Society at the University of Natal, author of the Report published in collaboration with the NPP '"Smoke and Mirrors" The National Lottery and the Non-Profit Sector', continued the presentation. He complained that the legislation provided for an organisation, staffed from DTI funds, to assist with the application and distribution of monies. It was important that the Lotteries Board and the Distributions Agencies were totally separate. As with the UK, there was merit in the concept of decentralising the administration of small bids. It was crucially important that there was transparency as to where the money went. In particular, the public had to be made aware of where the miscellaneous and RDP funds were to be allocated.

In order to encourage the developmental vision of the lottery that the non-profit sector was strengthened, it was important to distinguish between short and long term funding for the organisations. It was also very important that, where there was a clear need, capacity-building was offered to small organisations which lacked the expertise to formulate applications or comply with the registration requirements.

It was important to ascertain whether the root of the problems lay within the provisions of poor legislation, poor administration or both. In his opinion, many of the faults lay in the fact that there was a poor
institutional structure.

Briefing by the Department of Trade and Industry
The Minister, Mr Alec Erwin, began his statement by saying that he welcomed the interest and oversight with regard to gambling. The Government had taken the view that gambling was a social reality, best dealt with by effective regulation, not prohibition. In his mind, the Lottery was the best regulated of all the gambling institutions. However, he did acknowledge that there may be some problems with the legislation and regulations and was committed to altering these in order to have an even more effectively regulated institution. However, he did not accept the criticisms made by the NPP's submission and he believed their legal analysis contained many inaccuracies.

He stressed that it was important for everyone to understand that the public's point of contact regarding the regulation of the lottery was the DTI and not the Lotteries Board. The Lotteries Board had only one function: it was the guardian of the licence of the Lottery.

However, despite these comments, he did see merit in some aspects of the report. He had felt it important to bring the people responsible for the different aspects of the running of the lottery and each of them would speak to the Committee.

Background to the Lottery
When the decision was taken on the licence period, Parliament and government opted for seven years. However, ten years would have been a better length of time. The Operator was to conduct the lottery with a Trust Fund managing the monies generated. The NPP Report criticises the distribution of the funds, but no-one ever expected the Lottery to begin distributing funds in its first year of operation. This must be noted when complaining that surpluses exist. In some cases, although the monies have not been paid over, they have already been allocated for repeat funding for the second year of a project, for example.

The lottery funds cannot fund 'good causes' which should rightly be funded by Government. Therefore, government Departments which are unsuccessful when bidding for government finance are precluded from taking a 'second bite' by applying for lottery monies. However, there was certainly a case to be made for long term financing of organisations with a good track record.

There was also a decision taken not to fund the creation of administrative bureaucracies or capacity-building in this sense. Instead, the money had to go to on-the-ground projects. It is true to say that, at present, the NGO structure in the country is weak and this impacts of the distribution of the funds. The Application for Lottery Funds could not be the sole source of funding for a project. The Minister also denied that there was a lack of clarity within the legislation on the Distribution Agencies. If there was
any confusion within the legislative provisions these could be rectified by the alteration of a few words but there was no possibility that a new distribution agency would be set up to assist the non-profit organisations.

The NPP's presentation was incorrect in its assessment of the institutional structure. A central distribution structure where applications were received and initially vetted by the National Lottery Distribution Trust Fund, and thereafter passed to the Distribution Agencies, was the correct idea. The only issue may be was it sufficiently staffed? If not, then this could be rectified.

The criticism that the legislation and regulations made it unclear as to who was eligible to apply was also misguided. Juristic persons were able to apply and those were, simply, anyone whose existence was prescribed by law. All in all, the process was progressing well with a well managed and stable NGO system slowing coming into being.

The Minister announced that a decision had been taken to temporarily shelve the introduction of a daily Lotto draw.

Progress on the distribution of lottery funds
The Deputy Director-General of Consumer and Corporate Regulation Department: Ms Astrid Ludin, presented the DTI Briefing. (please refer to the briefing attached here)

The Minister summarised the DTI's assertions that, firstly, the country has seen the largest ever dispersal of funds to worthy causes. Secondly, there has been a marked increase in the quality and quantity of applications made and, lastly, that the correct amendments will be put to Parliament to
ensure that the process runs smoother.

Briefing by the Lotteries Board
The Chair of the Lotteries Board, Mr Joe Foster, gave an overview of the licence application procedures. The issuing of the licence emanated from the bidding process where the three applicants each outlined how much they estimated they could generate. The Lotteries Board holds regular meetings with the operator, Uthingo Management (Pty) Ltd, and once a month Uthingo supplies their accounts with the Lotteries Board scrutinise for financial impropriety. The integrity of the operator and the Lottery in general is further ensured by checks being made that the Trust Fund is paid and that all claimed prize monies are handed over to the winners.

Some confusion has occurred over the 'guaranteed' jackpots announced prior to the draw. Mr Foster stressed that anytime a guaranteed jackpot was announced, any shortfall incurred through the income for the draw was met from Uthingo's profits and at no time was the Trust or the public left to shoulder the deficit. The balls used for the draw were regularly tested by the Engineering Department at Wits to ensure that they were not weighted. Similarly the randomness of the machine was regularly tested. After each draw the operator had to give over a set of computer tapes detailing the prizes won and these tapes had to conform with the mainframe records before the Lotteries Board authorised the issuing of the prize monies. These were the only functions of the Lotteries Board.

The Chair of the Sport and Recreation Distribution Agency, Ms Kedi Tshoma, said her Agency had three priorities:
-Sports equipment for existing sports facilities or clubs;
-The upgrading of existing facilities; and
-Capacity-building in the form of managerial training of sports skills, for example.

In addition to these priorities, there are administrative requirements. The agency assesses each application it receives. Someone will visit each of the projects. The bank details are verified and an agreement between the organisation and the Agency is signed.

The Chair of the Charities Distribution Agency, Dr Tebogo Maitse, said that her agency had focused on organisations that faced closure or a down-scaling of activities through financial difficulties. She said there had been initial complaints that people were not being informed of the reasons for the refusal of their application. Initially the Agency had assumed that, as their priority had been publicly stated, the unsuccessful applicants would realise why they had been unsuccessful.

Most of the money distributed had gone to Charities dealing with the Aged. This was because they were well-established organisations used to applying for funds. However, the rural areas had not been assisted because the non-profit organisations had not gone to them and offered the necessary support.

With regard to the vetting procedures, the Agency had uncovered 450 fraudulent organisations who had, collectively, applied for R2,3 million. Last weekend, the Agency allocated R34 million.

The Chair of the Arts, Culture and National Heritage Distribution Agency, Dr Prins Nevhutalu, said that everyone should be very proud as South Africans that no bogus organisations were being funded and, so misappropriating these monies. The Distribution Agency staff were all well vetted and strove for the utmost personal integrity.

Discussion
Mr Bruce (DP) said that it was a pity time was so limited for questions as the briefings had raised some important questions and failed to answer other questions. There had been no real explanation as to why only half the money had been distributed. The explanation that had seemingly been offered, that if South Africa was slow, the British had been even slower, was unacceptable. In the past there had been mooted reasons that it was accounting or even actuarial practises which had caused the delay. Now there was no clear explanation given.

The justification for setting up such a gambling monopoly had been that the charities would ultimately benefit more than they do at present. However, the figures given were very raw with no real indication as to how many organisations were benefiting.

He said he w as also confused as to why the DTI was now saying that it estimated only R30million had been distributed under the previous lottery schemes when merely one month ago the same Department was claiming that there were no reliable figures from the previous dispensation to provide these very figures. How was the Department now able to say only R30million had been given out?

The Chair responded by saying that no-one had said R30 million had been given, the figure was R220 million. However, the Minister and the Deputy Director-General corrected him by saying that their presentation had estimated the amount charities had gained under the previous dispensation to be R30 million. The Minister said that this figure had been gleaned from previous accounts, statements made and so forth. It was an estimate of the money passed over to good causes. No records existed to show the money which had been raised overall.

Prof Ripinga (ANC) said that much damage had been done through miscommunication and misperception. Did this mean the communication system was at fault?

Mr Nefolovhodwe (AZAPO) began with a comment that the problem appears to stem from an unskilled NGO presence previously set up under apartheid. In order to respond to public criticism, money has been rushed out of the system to what can only be described as dubious 'good causes.' It is clear that rural and new organisations need assistance with capacity building and information dissemination before they can access the funds. This leads to the question, are the funding criteria able to be met? He said it was not enough to say that 'we hope existing organisations will help in rural areas' as the help, if it is offered at all, is not offered freely. The assisting organisation wants to benefit too. Perhaps, despite potential conflict with peoples' moral beliefs, etc., the time has come to see if some partnerships can be entered into with churches. He asked the question, if partnerships are envisaged in the rural areas, on what basis did the speakers see it being undertaken?

The Minister said that the existing organisations were supposed to show concern that the NGO sector grew and so they should help with the capacity building.

The Chair of the Sport and Recreation Distribution Agency said that costs to meet capacity building within sport was fundable. Therefore an organisation could ask for money to train the sports coach, but not to teach them how to apply for the funds.

The Chair of the Non-Profit Partnership, Mr Eugene Saldanha, said that the NPP, in collaboration with the Legal Resources Centre, had produced a brochure entitled 'National Development Agency and the Lotteries Act.' The National Development Agency were asked to give workshops on their role and they took up the offer with alacrity. To date, the National Lotteries Board has not responded to the request.

The Minister said the Lotteries Board should not be approached on this basis.

Mr Zita (ANC) asked two questions. Firstly, in terms of the Charity criteria, if a rural community needed a tractor could they apply to the Lottery Trust Fund? Given that the aim would be ostensibly commercial, it
would also mean that the community would be more sustainable which is the aim of the fund.

The Minister, to much laughter in the room, said that he doubted buying a tractor would be possible, but he would leave the final word on it to the Charities Chair.

The Chair of the Charities Distribution Agency said, in contrast, that if the tractor was to be used on communal land, and the members of the community had a constitution stating that upon their dissolution the tractor would pass to another non-profit organisation, they would be able to put in a bid for the tractor.

Mr Zita then asked what where the plans to promote provincial agencies as the people in the Eastern Cape had no idea how to access the resources required. They needed guidance and sensitive criteria.

The Minister said they would not be expending money on setting up a Provincial structure. The Institution was set-up correctly.

A Member addressed her questions to the Chair of the Sports Distribution Agency. She said that it was within her personal knowledge that sport within Soweto had died. She asked that specific beneficiaries were named. The Chairperson interjected and asked Mr Foster and Ms Tshoma not to answer the questions.

The ANC member queried the nature of the pro-active partnership building envisaged to facilitate the application process.

The Chair of the Charities Distribution Agency said that when the Lottery had requested that partnerships be forged, it was envisaged that there would be a transfer of skills from the established organisations to the new ones. This has not happened even amongst the people in the room today. Those who were most deserving, but failed in the application process, never received the opportunity to complain through the media. However, those with access and privileged were the ones calling loudest when they were unsuccessful.

The ANC member said she had a problem with page 11 in the DTI progress report regarding the distribution of funds to smaller groups. If the administrative structure was not to be altered, how would they be speeded up?

The Minister said that the verification meant it could never be done in 48 hours, but a streamlining of the process would have to be looked at for small grants.

The ANC member said that there had been an outcry from NGOs dealing with domestic violence that they were experiencing enormous problems with funding. Due to many of these organisations not having registered, the legislation had incapacitated them from applying.

The Minister said that the money could not be given to people who could not be checked up on. However, there were people doing a sterling job running soup kitchens and other low cost charitable ventures. The rules would need to be looked at, and possibly some risk taken, with regard to these persons.

The Chair of the Arts, Culture and Heritage Distribution Agency, Dr Prins Nevhutalu, said that in many cases the reason seemingly good causes were being rejected was because their objects may be worthy, but they were all headed by white males. The attempt to use the Lottery to transform society would be defeated if these same people, time and time again, received the money. This is why, for example, women in disadvantaged communities were being deliberately encouraged to apply.

The ANC member asked, in conclusion, what the Distribution Agencies' relationship with the Chapter 9 Institutions was?

The Chair of the Sport and Recreation Distribution Agency, Ms Kedi Tshoma, said her Agency had experienced the same problems as the other two, so she could speak for them. The Distributions Agencies worked with the Government departments they related to and with the MECs responsible for that portfolio to ensure that people were not doubly funded. However, she acknowledged that other methods were needed: radio broadcasts, working through schools and churches.

Mr Lockey (ANC) welcomed the Minister's announcement that the plans to host a daily lottery draw had been shelved. Given that South Africa was facing high food inflation, high unemployment and other social and economic problems to consider a daily draw was insensitive. The Poverty Committee had called for the rural and impoverished communities should be assisted which was clearly not happening. Also there was an obvious problem if 40% of the applications were being rejected due to administrative complexity.
He further voiced his dissatisfaction with the juristic person requirement as it excluded many worthy potential applicants.

The Minister said that the decision to introduce a daily draw had been delayed. The Minister subsequently pointed out that Minister said that the decision had been taken because there was such a hype surrounding the Lottery and a great deal of misinformation surrounding the effect it has on the socio-economic position of persons, they decided for political reasons not to go ahead. However, he said that the evidence showed that it was middle-income households, and not the poor who spent the highest proportion on the Lottery. [please see the attached press statement]

An ANC member asked whether the Lotteries Distribution Trust and the individual Distribution Agencies had sufficient staff capacity to deal with the number of applications they receive.

The Minister said that the level of payments made to date showed that the Distribution Agencies were able to cope well with their workload.

The Chair added her support to the decision to shelve the daily lottery. She said, however, that there was scant time available for the amendments to be put through and asked the Minister to outline whether their would be an active engagement with the public over the alterations proposed to the
legislation.

The Minister said that there had been a tremendous input from the public already. He said that they would not use any organisation as a 'gatekeeper', everyone's comments had been helpful. However, he stressed that the interlocutor was not the Lotteries Board but the Department of Trade and Industry. This was the only avenue to be used.

He said that the alleged contradictions within the various pieces of legislation had been conveyed to four Senior Counsels. They had given conflicting opinions on whether there was a conflict so the law was now to be passed back to the State Law Advisers.

The Co-Chair also wanted to know how they proposed to rectify the problem that the people who most deserved the money were not receiving it, yet well established and, many would think, undeserving, had been receiving it.

The Minister said that the guidance given to the Distribution Agencies was that, after seven years, will they have left a legacy? It was unfortunate that the best organised organisations were not those serving the previously disadvantaged communities. The non-profit sector had to assist with the capacity building in this area. The Government and the Lottery would not pay for this administrative capacity building.

The Co-Chair said that there was a clear sense that the parties to this dispute were not working well together. The NGO sector had said that charities could not give audited accounts, but this was clearly wrong and, speaking on behalf of the Members of the Portfolio Committee, Parliament would not accept that.

He said the parties had to begin to appreciate their roles and work well together. This did not appear to be happening from the content of the day's discussion. Also, for example, within the NPP Report there is a breakdown of the distribution of funds but the section then ends with a critique of 'missing funds.' Does this mean that it is alleged someone is stealing the money? If so, this is a grave allegation and must be investigated. In circumstances such as this, the terse reply the NPP received from the Lotteries Fund was correct. On behalf of Parliament he wanted to say that it did not do for anyone to be calling the Lottery a 'national disgrace.'

The Director of the Non-Profit Partnership said that the letter made personal comments regarding the researcher which were uncalled for and the organisation did not find it acceptable at all.

The Co-Chair said that no-one was describing anyone's correspondence as 'acceptable' or 'unacceptable.'

The meeting was adjourned.

Appendix:
16 October 2002
Media Release

Embargo: For immediate release

 

 

Attention: News editors and Parliamentary correspondents

Implementation of daily lottery delayed

 

Minister of Trade and Industry, Alec Erwin, today announced that he is exercising his right in terms of the National Lotteries Act to delay the proposed daily lottery. Erwin indicated that he needed to evaluate the impact of a daily lottery on the licence operator, the generation of funds for good cause, as well as the social impact.

 

Erwin and Deputy Director-General for the dti's Consumer and Corporate Regulations Division, Astrid Ludin presented a progress report on the distribution of lottery funds to the parliamentary Portfolio Committee on Trade and Industry.

 

The Minister said that the lottery was doing exceedingly well in terms of its regulation, and the generation and distribution of funds. Minister Erwin complimented the National Lotteries Board for the unprecedented distribution of grant funds and expressed the view that the lottery fund was the best regulated structure within the gambling sector, noting that the process was a lot more transparent than before.

 

The National Lotteries Distribution Trust Fund is governed by the Lotteries Act, which assigns the responsibility of management to the National Lotteries Board (NLB). The Act necessitates that the licence to operate the Fund be allocated through a tender process and to maintain accountability the Act also requires that the NLB annually tables a report in Parliament in respect of the Fund.

 

Ludin outlined the distributions to date and provided an analysis of the statistics, as well as recommendations for improvement. Though the National Lottery was only launched in March 2000, it made more than R4.1 million available to 80 organisations by January 2001. More that R220 million was distributed to 1240 organisations in the first year of operation. The amount allocated to date has grown to over half a billion rand.

 

 

Enquiries: Astrid Ludin

Deputy Director-General: Consumer and Corporate Regulations Division

Phone: 082 9267493

 

Issued by: Panna Kassan

Head: the dti Media Unit

Phone: 082 4117305

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