Lotteries Amendment Bill: briefing

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Trade and Industry

02 March 2000
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Meeting Summary

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Meeting report

3 March 2000


Documents Handed Out

Lotteries Amendment Bill
South African National Lottery - Presentation by National Lotteries Board

Proposed amendments in the Lotteries Amendment Bill were discussed. The initial precautionary exclusion of thousands of people (such as the 9000 retailers selling lottery tickets and their families) from participating in the lottery in order to minimise the risk of fraud, was generally seen as unjustifiable given the "incorruptible" nature of the checks and balances built into the security system. Many jurisdictions including Germany, Australia and Sweden, who had as sophisticated controls as South Africa's system, had no exclusions as to whom could participate in the lottery. One view was that to have any exclusions would undermine the integrity of the National Lottery as being fairly and independently run and controlled. On the other hand to keep the process above board it was proposed that at least the directors of the managing company and members of the National Lotteries Board be excluded. The committee's recommendations with regard to the amendments to the Bill will be finalised at its next meeting.

Mr Alan Hirsh (a Chief Director in the Department of Trade and Industry, briefed the committee on the proposed Lotteries Amendment Bill.

When the Lotteries Bill was enacted, the Lotteries Board had not existed yet, neither had the contractor been appointed nor had the terms of reference for the lottery contract been drawn up. There was no certainty at that stage around the nature of all the conditions under which the lottery would be implemented. Thus as a matter of caution, the Bill included a number of exclusions of categories of persons from participating in the lottery because the security provisions were not understood at that stage. The presentation by the CEO and Chairperson of the National Lotteries Board on the 9 February covered the issue of the security provisions of the lottery.

Because of the nature of the tight security around the lottery, and because a large number of people were excluded by the ultra-cautious nature of the Lotteries Bill it had been decided to amend the Bill.

Essentially the Lotteries Amendment Bill deletes 14 (2)(1) iii of the Lotteries Bill which specifies that :

:-"the Licensee not to permit, require or compel any of its employees or agents knowingly to sell a ticket, or to pay any prize to -

(aa) a director of the licensee or a director of a holding or shareholder company of the licensee, an employee, agent or consultant of the licensee or a member, employee or agent of the board;

(bb) a person who prints or in any other way manufactures a ticket for the National Lottery, or any of his, her or its directors or employees;

(cc) a person who supplies, operates, maintains or repairs any computers or any other electronic device or system of any kind. or parts thereof or software for those computers or devices, in respect of the National Lottery, or any of his, her or its directors or employees; or

(dd) a person who is responsible for the marketing and
advertising in respect of the National Lottery, or any of his, her or, its
directors or employees, as the case may be"

This excluded tens of thousands of people: those associated with the companies involved in the implementation of the lottery, the 9000 retailers selling lottery tickets and their families, the media, employees of the lottery contractor and the advertising companies involved in the marketing of the lottery.

The purpose of the amendment was to allow all people falling into those categories to participate in the lottery and thereby broaden the base of the lottery.

Integrity Of The National Lottery
Actual Risk
Employees of the Licensee could theoretically pose the greatest actual risk of fraud in terms of possessing any opportunity to affect the outcome of a lottery draw. Lottery operators around the world build stringent security measures into both their systems and procedures to ensure that such activities cannot be perpetrated by their employees. Firstly, as lottery draws are generally conducted in the public eye, and under independent supervision by an independent external auditor, no lottery employee, or any other individual, has the opportunity to influence which winning numbers are physically drawn.

As the numbers drawn are beyond the control of any individual, the only other opportunity for a lottery employee to manufacture a winning entry would be to tamper with the transaction file of entries after the draw (once the results are known) to "create" a winning entry. However, before any lottery draw is conducted, the game is closed on the lottery system and a transaction file of all valid entries sold in that draw is stored on computer tape.

A copy of this tape is lodged outside the control of the lottery operator, with an independent external auditor, prior to the draw taking place. If an employee was able to breach the highly sophisticated security protocols which are in place to protect the lottery operators copy of the transaction file, any change in lottery operators transaction file would no longer exactly match the copy being held by the independent external auditor.

Prior to winning entries being selected and prizes being confirmed, the lottery operator's copy of the transaction file is electronically compared against the copy held by the independent auditor. Any discrepancy between the two copies would immediately be highlighted and the offending entry would be disqualified. Winners are not announced until the two copies have been reconciled.

Computer log records would quickly and effectively identify the perpetrator of the attempted fraud. It is suggested that if lottery employees demonstratively do not have the ability to fraudulently affect the outcome of a lottery draw, then employees of the Board, who are even further physically removed from the actual operation of the lottery, would have significantly less opportunity to do so.

Lottery Retailers
The only direct inter action a lottery retailer has with the central lottery system is via his/her retail lottery terminal. Essentially, apart from basic reporting functions and stock ordering, the only transaction which a retailer can process through a retail lottery terminal is to sell or cancel lottery entries and to validate/pay prizes on winning entries. The retail lottery terminal completely excludes the retailer from gaining any access to the lottery system other than that which is required to operate his/her retail lottery business.

Suppliers & Service Providers
Employees of the many supplier organisations who will provide goods and services to the National Lottery have even less access to the lottery system than do lottery retailers. Even suppliers of maintenance services on lottery equipment have no opportunity to access the central lottery system and therefore the opportunity for any of their employees to influence the outcome of a lottery draw is non-existent.

Marketing & Advertising Service Providers
Once again, suppliers of such services including advertising agencies, promotional agencies, etc. have no access to any component of the lottery system which would enable them to influence the outcome of any lottery draw.

Perceived Risk
It is recognised that the provisions contained within Section 14 (2) of the Act also seek to deal with the perceived risk of fraud from a public perception standpoint. However, since it is argued that no actual risk exists, as demonstrated above, then retaining the provisions of Section 14 (2) actually sends out a contradictory public message to the effect that the integrity of the National Lottery is not unassailable.

Prohibiting employees from participating effectively indicates to the world at large that the outcome of the lottery draw can be influenced when, in fact, this is not the case. In jurisdictions which allow lottery employees to participate in lottery games, the public perception of lottery game integrity is universally high and the fact that lottery employees are treated in the same way as the general public is perceived as being of significant reassurance in relation to the integrity of the lottery itself.

Such jurisdictions include Brazil, Western Canada, Ontario, Atlantic, British Columbia, Quebec, Puerto Rico, Trinidad, Mexico, Australia, New Zealand, Sweden, Germany, Singapore and Malaysia. It is argued that with appropriate controls and independent supervision, the actual risk of lottery fraud is eliminated. This being the case, participation in lottery games by employees, as well as the general pubic, can be seen as a clear and public confirmation that effective and appropriate controls are in place and that they work. It is suggested that to prohibit any party from participating will inevitably have a negative effect on the public's perception as to the integrity of the National Lottery.

The ability of the License (to actively enforce the provisions of Section 14 (2) of the Act is extremely limited. The National Lottery will employ approximately 300 direct employees. In addition 9,000 retailers and their employees will be ineligible to play, as will employees of service providers such as SABC, Telkom, the Post Office, Standard Bank and the numerous small companies who will all directly supply goods and services to the National Lottery.

Accurately identifying each and every one of these individuals as prohibited players would not be achievable. In terms of preventing a prohibited player from purchasing a lottery ticket, it would be effectively impossible for the

Licensee to prevent such occurrences as there is no requirement, nor would it be workable, to require proof of identification from every player wishing to purchase a lottery ticket. Common sense also suggests that if a prohibited player did purchase a winning entry, they could simply have someone else claim the prize on their behalf. The Board and the Department would respectfully suggest that the provisions contained within Section 14 (2) of the Act relating to prohibited players are effectively unenforceable.

Section 60(a) of the Act provides that:

"The Minister may with the concurrence of the board, make regulations regarding -

(a) the conduct of the National Lottery or sports pool, including

(i) the minimum age of persons to whom or by whom tickets or chances may be sold,'

(ii) the persons or categories of persons who shall be disqualified from participation;"

Section 60(a)(ii) provides an existing mechanism for the Minister to review the prohibited player situation at a later date.

The National Lotteries Board was consulted on this Bill.

Parliamentary Procedure
The Department of Trade and Industry and the State Law Advisors are of the opinion that the Bill should be dealt with by Parliament in accordance with section 76 of the Constitution of the Republic of South Africa, 1996 (Act No.108 of 1996).

Mr Conroy said that in terms of the exclusions, the Lotteries Bill did not even refer to spouses. It was easy for a wife of a director for instance to purchase a ticket, which would increase the number of exclusions even more. He felt that it thus seemed to be a good amendment. Mr Conroy noted that should a director win a big prize, would not the perception be created that everything is not above board and a cloud of doubt could thus be cast over the whole system.

Mr Hirsh said that he had seen the President on television the previous night who had said that he would not be subscribing to the lottery, however the President said that if he did participate he would win it! Winning it would give the impression that there was some measure of corruption. Mr Hirsh hoped that the Directors of the Lottery Company would follow similar advice.

A member wanted to know what the initial intentions were, in having the exclusions and subsequently wanting them removed.

Mr Hirsh said that when the original Lotteries Bill was drafted, the nature of the process of implementing the lottery was not fully understood by the drafters. At that point the terms of reference or the request for proposals for the tender had not been drawn up and therefore the specifications of the systems had not been drawn up. The nature of modern systems which make them immune to tampering was not fully understood by the drafters - in terms of the evolution of computer security systems, they had developed to the point that the nature of the auditing process was completely immune to tampering.

Mr M Moosa (ANC, Gauteng) had no problem with removing the exclusion of directors; marketing, advertising and printing people for example. He was however concerned that persons who operated, maintained, or repaired computers and electronic devices and who wrote the software perhaps had the ability to manipulate the technical process. Thus people involved with dealing with the system itself who knew what the configurations were, how the numbers were chosen by the computer and what the computer did to find the eventual winners perhaps should be excluded.

Mr Hirsh said that when the CEO of the Lotteries Board made the presentation to the joint committees in February, he explained essentially how the numbers were to be encoded and the separation of the records. In his view and in the view of the experts that were consulted, it would essentially be impossible to ensure that you are able to corrupt the system at all the levels. For example, at the level of taking out the number, and essentially the corrupting of the records in all three places where the records were being held namely in the record of the contractors (the managing company), the record held by the Lotteries Board and the record held by the independent auditors. He suggested that a memorandum be sent to parliament by the experts, to explain why the system was impossible to corrupt.

The chairperson, Mr Bob Davies (ANC), said that he was a bit weary of saying that things were incorruptible or the Titanic can never sink. Since members of parliament were not computer technicians, the proposed memorandum would not be too useful to them. The real issue was whether one would add to the security by saying that certain people could not buy tickets. He felt that there would in fact be no such addition. If people were able to corrupt the system by working with the software, they could presumably also find somebody else to buy the ticket for them. By saying that they cannot buy a ticket, one was therefore not really adding to the security.

Mr F Beukman (NNP) said that in principle he agreed with the amendment. The role of the independent external auditor would be important in determining the credibility of the process. He asked who this external auditor was, and what probity checks had been made with regard to it.

Mr Hirsh could not say exactly who the external auditor was but said that it would be a company that was entirely unassociated with the lottery and the Lotteries Board. It would be an established firm of auditors, which had a good reputation.

Mr S Rasmeni (ANC) said that he wanted to find out whether perhaps the decision to make the amendments arose out of the processes within the Lottery board or as a result of some lobbying from those who were excluded, and who felt that they should participate in the lottery.

Mr Hirsh was not aware of any lobbying that had taken place. The amendment was considered by the members of the National Lottery Board in discussion with DTI and it was on this basis that the decision was made because a relatively large number of salaried people who could participate in the lottery would be excluded without the amendments.

Mr Conroy felt that when the amendments were mentioned in the press, the CEO's and the directors should distance themselves and state formally that they would not participate in the lottery.

Mr Hirsh said that he would convey such a request to them, should it be the feeling of the committee.

The chairperson said that the wording of I (iii) (cc) was open to the interpretation that for example all Telkom Employees were excluded from purchasing tickets. Whatever corruption there may be would not be added to by allowing or not allowing them to buy tickets.

He wanted clarity on what would be recommended by the committee with regard to exclusions. Would it be the members of the Lottery Board and the Directors of Uthingo, the managing company?

Dr K Rajoo (IFP) wanted to know whether their immediate families would also be excluded.

The chair said that whether or not this recommendation was to be made at all had to be discussed. If the amendment was supported, its scope had to be discussed as well. He was not particularly agnostic on this however.

A member said that by the President saying what he said, he was not excluding his wife. He excluded himself in order to put the whole thing above board - imagine what would happen if he won the first couple of million rand. It would be a nice gesture for the directors and those persons in (aa) to excluded themselves and put the process above board. It could not be expected of this exclusion to however extend to his wife or child for example.

Mr Moosa said that this had to be investigated. It would certainly be distasteful if Joe Foster (chairman of the National Lotteries Board) won the lottery. The question was here not whether the system was corrupt but whether the perceptions that are generated therefrom were going to be appropriate. The last thing that one would want was further speculation in the media that the whole process was corrupt. Perhaps the exclusions of the Directors of Uthingo, the managing company, and of the board would help in this regard.

The chairperson said that the committee did not have to take a decision on this issue immediately. It only had to take a decision on the Lotteries Amendment Bill on Tuesday the 7 March 2000, when it would decide whether it wanted to add to its report on the Lotteries Bill in terms of a moral statement or general recommendation.

The committee would meet on Tuesday once again, to decide whether it accepted the broad principle of no exclusions, or whether there were other proposals. Mr Conroy's proposal that directors of Uthingo the managing company and the members of the National Lotteries Board should voluntarily indicate that they would not participate in the lottery, had to be considered in this regard.
Employees of the Licensee & Board



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