Disbursement Of Funds Generated By The State Lottery: briefing by DTI

SOCIAL DEVELOPMENT PORTFOLIO COMMITTEE
3 October 2001
DISBURSEMENT OF FUNDS GENERATED BY THE STATE LOTTERY

Chairperson: Mr E Saloojee (ANC)

Documents handed out:
Miscellaneous Purposes Category: List of organisations and allocated grant (according to province)
Outline of DTI's presentation (Appendix 1)
Briefing Notes: Distribution of National Lottery Funds (Appendix 2)
Criteria for Adjudication of Lottery Funding Applications (Appendix 3)

SUMMARY
The Department of Trade and Industry briefed the Committee on the status of the disbursement of funds generated by the State Lottery to various organisations. The allocation of funds according to provincial ticket sales was an issue which was debated by the committee members. The general feeling was that this state of affairs was unacceptable, since it reinforced existing inequalities between the richer and poorer provinces. The committee agreed that another meeting would need to be scheduled.

MINUTES
Mr A Ruiters, the Director-General of the Department of Trade and Industry, said that over the seven-year period of the licence agreement, thirty percent of the proceeds of the lottery would go to good causes, divided into five categories: the RDP; charities; arts, culture and national heritage; sport and recreation; and miscellaneous. The miscellaneous category is administered largely at the Minister's discretion, and to date has been used to fund agencies that had made emergency applications for funding. This move had been initiated in response to the 'funding crisis' reported in the media.

Five hundred organisations have received close to R80 million, from the start of the current financial year. He said that the disbursement had been started this financial year, the second financial year in which the lottery has been operating, because it was felt that it would be prudent to wait and see how much money would be available for disbursement. The money was allocated according to provincial ticket sales, and that Gauteng received 39 %, then KwaZulu Natal and the Western Cape with 14 %, Mpumulanga and the Eastern Cape with 7%, Northern and Northwest Province with 6 %, the Free State with 5 % and Northern Cape with 2%. This was in terms of a section of the Act which stated that allocations for the disbursement of funds are to be made according to the general development level of the province, the number of tickets sold and the population of the province.

Discussion
Commenting on the allocation of funds according to provincial ticket sales, Ms Mamphi said that she could not believe that Parliament had passed legislation which perpetuates poverty, and recommended that the law be changed. She then asked, given that the miscellaneous funds had been used for emergency funding for agencies and organisations in financial distress, how the fund would be used in future.

Mr Saloojee raised the point that the list of charities seemed to be categorised fairly randomly, with some charities appearing in more than one category.

One member raised a concern over the communication with charities. She asked how the information in terms of requesting funding was made available in the rural areas. Was it available in the appropriate language, were there offices where the application forms could be obtained because Mr Ruiters had indicated that the forms were available over the Internet or by post, but this was problematic for poor charities in the rural areas? She also asked how the miscellaneous fund worked.

Ms Lamoni asked if the amounts distributed were the amounts requested by the organisations or how were they determined, because there seemed to be a wide range.

The Director-General responded that the ranges would continue to be significant because it did depend on what assistance was requested. This was because the needs of the organisations varied considerably. He indicated that he was unsure exactly how the assessment of the amount was made, because he was not on the adjudication committees, but he said he would find out for the committee.

In response to the question about communication in the rural areas, he said that all communication sources available were used, including radio, television, newspapers and that additional efforts were made after it was found that the initial response had been less than expected. He said that the same media were used to publicise the disbursements as had been used to publicise the actual lottery. He also said that there was only one office, the Central Applications Office where charities could apply for funding, although forms were posted or faxed when charities contacted the office.

He addressed the question of the way funds were allocated by saying that when the committee had put the legislation together, the five dimensions had been suggested, and it was felt that the poorest could be aided at the Minister's discretion through the miscellaneous category. He said that at this point, it was felt that more information was needed and that there were five field officers checking the applications and making visits to the organisations. He said that they were very cautious about making rash decisions.

Ms Lamoni said that she would like a definite answer on how the decision was made about the criteria for determining the amount given. Mr Saloojee agreed that there was a need for a follow-up on this.

Mr Ruiters reiterated that the differences in the amounts would remain great owing to different needs. He cited the example of a hospital in need of expensive equipment.

Mr Saloojee pointed out that this was a state facility which was therefore excluded from receiving funding.

Mr Ruiters clarified, saying that some charities run welfare hospitals, such as Elizabeth Anne's. He added that the other issue connected to this was that the committee might decide that it would not fund all parts of a request. The funding application requires a breakdown of what the money will be used for, and it may then be decided to fund all aspects except a car, for example. He went on to explain that the miscellaneous category was at the Minister's discretion, but this would probably be informed by Cabinet's recommendations.

Dr Jassat (ANC) asked who the distribution agencies were for each category. He also asked whether the miscellaneous category sought to focus on the rural areas.

Another member raised the issue of the allocation according to ticket sales, saying that Gauteng for example had many migrant workers etc. who were buying lottery tickets there, but their money was not going towards their home areas.

A member of the ANC suggested that the ad hoc committee, of which she had been a member, had blundered in making the decision to allocate according to ticket sales. She also suggested that some of the amounts that had been allocated seemed too little to be of any benefit. In terms of the criteria for funding, she said that requiring audits was perhaps too extreme, and that as with poverty alleviation efforts, bank accounts could be used

Ms Kalyan (DP) stated that surely the department could have made actuarial predictions about the amount of funds that would be available, rather than waiting for a whole year before disbursing any funds. She also asked how the Director-General felt satisfied with the amount disbursed, when R360-million, most of the funds available, had not yet been disbursed. She also asked why he had said that flood relief could be considered for funding under the miscellaneous category, when it was a function of the government. She asked whether the adjudication committee members received a salary. She also asked how long each application took, and whether there was a ceiling on how much one agency could be given.

Mr Ruiters explained that there were five categories, including an RDP one and one called miscellaneous. Three of the categories required an adjudication committee, with the RDP category being handled by a disbursement institution decided upon by the Ministers of Finance and Trade and Industry. Each fund received a minimum of 10 % of the funds. The RDP agency is responsible for doing the adjudication for this fund. With regard to flooding, Mr Ruiters said that he had merely made an example, but that the first issue had been one in which the Minister responded to public urgency. He said that in future, the committee itself might make a request for funding in response to an urgent issue that it had become aware of. In terms of adjudication, it was most likely that the Lottery Committee would set up an adjudication board.

In terms of the criteria, he reiterated that it should be a not-for-profit organisation, which has the status of a juristic person. The adjudication panels have been flexible in the past, for example with pre-schools who obviously cannot afford audits, but they were stricter on the larger, established organisations. He agreed that they would always be working on improving the communication with the public, but reiterated that the same methods had been used as had been used to teach people how to play the lottery. He said that as people got more experienced, it was anticipated that there would be more applications. He also agreed that predictions would be possible in the future, once more experience was available.

In terms of disbursement, he said that after two adjudication processes, R80 million had been disbursed, but that with increased experience it was anticipated that more would be disbursed and at a more rapid rate. He expressed the hope that the majority of the funds would be disbursed, adding that the first target date had been met in April/May.

Mr Ruiters also said that committee members received a per diem to cover travelling costs etc. but that they did not receive a salary, as it was considered a civic duty. In terms of the application time, he said that it depended on the accuracy and correctness of the application. There are five field officers who visit to check the accuracy and assist with applications, with more officers likely to be employed. He also said he could report back with an average time.

A question was asked about were the members, as parliamentarians, could obtain information on the application process for their constituents. Mr Ruiters suggested that he could provide this to the committee.

Mr Saloojee said that the distribution seemed to go according to ticket sales, but that the Act says this needed to be taken into account, i.e. was perhaps not as prescriptive as the department seemed to suggest. He went on to say that there was a need to address the poverty in the deep rural areas.

Mr Ruiters agreed, saying that there were a total of five considerations. He said that the issue of ticket sale distribution had partly been the result of a debate in Parliament. Because KwaZulu Natal had a long-standing Lotto of its own, there had been fears that the charities in that province would suffer, hence the provision that ticket sales be considered in distribution of funds. However, he said that he agreed that the issue of migrancy raised interesting considerations. He said that the research from overseas had suggested that there had to be a clear link between good cause money and the sale of the ticket because 'punters' wanted to see some feedback, this was felt to be one of the major reason behind people purchasing tickets.

Mr McNamara said that he took issue with the Director-General's initial statement that there could be no good cause money without the lottery. He said that there had been other sources of good cause money before the lottery. He said that now, he could give a list of charities that had been left out of the provisions. He also said that the lottery was not meant to support the government departments, but that the RDP was a government program. He also said that the example of clean-up programs, which Mr Ruiters had used, was a local government function and therefore should not be funded from lottery money. He went on to raise a serious concern regarding the Blue Bulls Rugby Union, which had been awarded R 1 million. He said that this was a professional organisation, and although they had said that they would spend the money on development, the players developed in this way would ultimately go on to make the union money. This was thus a serious problem.

Mr Mbadi (UDM) said that, with regard to the requirement that an organisation be a juristic person before it will receive funding, irrespective of the adjudication committee's leniency in this regard, the charities might be reluctant to apply, thinking they will be turned down. This is because the requirement stands in the documentation, and people in rural areas may be unaware of the complexities of the issue. He asked what happens to the interest gained over the period while the money went unspent. He also asked whether five people (field officers) were enough to cover the whole country.

Mr Saloojee followed up by saying that, from the list, it became clear that around eighty percent of the charities existed before transformation, and served certain populations. They had developed infrastructure in that time. He said that the committee had seen people setting up organisations with no experience or infrastructure. He therefore advised the adjudication committee to look at the history of the organisation. He also asked to know who was on the adjudication committee.

Ms Southgate (ACDP) echoed the chairperson's request, asking for information on the composition of the committee and who had appointed them. She also asked what guidelines were available for organisations, stipulating what would and would not be funded. She also asked what happened in the case of new organisations, with no financial history etc.

Mr Ruiters said that the same questions had been put to the adjudication panel i.e. how to make space for new organisations, saying that they supported the start-up of organisations, not just ones with a track record. He said that this accounted for some of the smaller sums of money, where small sums were paid initially, and if these were felt to have been used well, the amount was increased. This helped to decrease the risk of giving money to new, smaller organisations. He said that he would supply a list to the committee of the adjudication panel members, with their CV's, along with guidelines and a narrative on the adjudication process from them. He said that after that, he could answer any remaining questions on this matter.
Mr Saloojee reassured the Director-General that the intent was not malicious, but merely to ensure that the committee found the members acceptable.

Mr Ruiters said that the committee's experience in these matters was valued and could help to identify deficiencies. He said that they were in the process of building a national asset and the committee's input was welcome in this regard. With regard to the organisations, he said that this was the second time that the disbursement had been done, and steps had been taken to ensure that the organisations receiving funding had undergone transformation and provided support to all sectors of society.

Mr Saloojee said that there were some very old organisations on the list and asked whether it had been checked that they had undergone transformation themselves.

The Director-General said that that was what he had said. The department asked for audited statements, a constitution, the charity number etc. He said that this facilitates an understanding of what transformation has occurred. He said that checks were conducted, but they had to rely on legal evidence, such as charity numbers if they were to be successful in delivering money. He also sad that the requirements depended on specific instances. For example a woman who wanted to set up a crèche would need to maybe supply a letter from a person of standing in the community, because this was one of the concerns. He said that the requirement for a juristic person was for the larger institutions. Mr Ruiters said that ultimately, the annual report was submitted to Parliament, and the Auditor-General checked whether the Act has been applied, in letter and in spirit. This was the ultimate check on their actions.

He agreed that five people were not enough, and that nine would soon be employed as field officers. It was likely that this number would increase again at a later stage. With regard to other fund-raising groups, Mr Ruiters asked whether the committee member had asked those groups for their books, because the government had, and the information could not be accessed. This made it difficult to determine how much money was actually going to the charities. This had lead to the government decision to implement a lottery, to facilitate transparency. He said agencies were not left out, but had been given the opportunity to make applications. He said that the miscellaneous funds could also be used to prop up agencies in financial difficulties, as the department was open to agencies who were struggling financially. In terms of the RDP category, he said that the legislation had been drafted in 1997, when the RDP was on everyone's mind. The money did not go to the central RDP fund, but to another agency, at the minister's discretion, which financed programs with an RDP orientation.

He said that the example of cleaning up the local environment was based on the experience of communities taking ownership of such initiatives, rather than waiting for the government to finance them. He said that the idea was to encourage communities to engage with their environments and encourage community participation. He used the 'peace parks' as an example. He also said that local governments tended to focus on basic needs and services, often at the expense of initiatives such as those in this category. As for the issue of the Blue Bulls, Mr Ruiters said that he had been surprised when he saw that they were receiving funding. He did however point out that the money was for development, and why should black people be denied the opportunity to play rugby. He said sport was in need of transformation.

At this point, Mr Saloojee asked to end off the meeting. He said that the lottery was a reality which formed an exciting part of many countries efforts to fund charities. He cited the example of Spain, which funded all its initiatives for the disabled from funds generated by the state lottery. To Mr Ruiters he said that it should be clear that the members had worries, since many of them came from this social development background, where the need was great. He reinforced his earlier concern that historically advantaged organisations were receiving the bulk of the funds, but added that there were moves in the right direction. He expressed the hope that the committed people at the department were building capacity, and suggested that another meeting be scheduled, possibly to include other role-players. Mr Ruiters thanked the committee for the invitation and indicated that he welcomed the opportunity to continue with the discussions.

Appendix 1:

DISTRIBUTION OF FUNDS FROM NATIONAL LOTTERY

OVERVIEW
- Categories of funding
- Criteria for funding
- Key elements of distribution process

Categories of funding
- 5 categories:
* Charities
* Arts, Culture & National Heritage
* Sport & Recreation
* Miscellaneous
* RDP
- Max %age determined by regulation

Criteria for funding
- Juristic person
- Criteria differ with category
- Criteria focus on priority areas for this cycle of funding

Key elements of distribution process
1. National Lottery Distribution Trust Fund (NLDTF)
2. Distributing Agencies
3. Central Applications Office

1. NLDTF
- Administered by NLB
- Funds transferred according to licence agreement
- Total available for distribution this year R439 214 363

2. Distributing Agencies
- Public nominations and Cabinet approval
- Adjudicate upon applications
- Provide payment instructions

3. Central Applications Office
- Receipt and pre-screening
- Verification of info
- Payments
- Monitoring and evaluation

Appendix 2:

DISTRIBUTION OF NATIONAL LOTTERY FUNDS

1 Background:
The Lotteries Act 57/1997 makes provision for the distribution of funds generated by the National Lottery. The key elements of this system of distribution are the following:
-administration of the National Lottery distribution Trust Fund;
-establishment of distributing Agencies in terms of the act; and
-establishment of the Central Applications Office.

2. National Lottery distribution Trust Fund
The National Lottery distribution Trust Fund (NLDTF) is established in terms of section 21 of the Lotteries Act and is administered by the National Lotteries Board. The money from the NLDTF is to be disbursed to those organisations that have successfully applied for funding.

Each week Uthingo Management the licensed operator of the National Lottery, transfers funds generated for good causes to the NLDTF. This amount is calculated using a predetermined formula based on ticket sales in terms of the Licence to Operate the National Lottery. Contributions, based on ticket sales, start at 10.16% and goes up to a high of 40.58%. Over the 7-year Licence period, an average of 30% of the proceeds after contributed to Good Causes.

All funds invested in the NLDTF, together with the interest accumulated, will be used for the purposes as prescribed in the Lotteries Act. The activities of the NLDTF are also reported on in the Annual Report of the National Lotteries Board that is tabled in Parliament.
The National Lottery began in March 2000. All funds accumulated in a financial year ending 31 March are distributed in the following financial year. As at the end of March 2001, there was an operating surplus of R439, 214,363.00 NLDTF. This amount was allocated for distribution to good causes for the current year.

As at 31 August 2001, the balance in the National Lottery distribution Trust Fund stands at R708, 690,753.04. This amount represents the unexpended funds accumulated in the previous year, the interest accumulated on the account and funds transferred by Uthingo in the present financial year.

3. Distributing Agencies
- The Lotteries Act identifies as good causes, the following five broad categories:
- Reconstruction and development Programme
- Charities
- Arts, Culture and National Heritage
- Sport and Recreation
- Miscellaneous Purposes

In terms of regulations promulgated by the Minister, each of the 3 main beneficiary categories (viz. Charities, Arts, Culture & National Heritage and Sport & Recreation) qualifies for a minimum of 10% of the funds in the National Lottery distribution Trust Fund. The exception is the Miscellaneous Purposes category, which qualifies for a maximum of 5%. In a given year, should any of the other four categories require more than that prescribed minimum, a submission must be made to the Minister of Trade and Industry substantiating the reason for a greater amount.

The primary purpose of the distributing agencies is to consider applications for funding. They must then decide, on the basis of clear criteria and policy objectives, the organisations to which grants will be made. The process of policy formulation in this regard, has been completed and the three main distributing agencies have already called for applications in their respective portfolios. Once these applications are received, the adjudication process commences in earnest and funds may be distributed on the basis of the decisions of the distributing agencies. It should be noted that nomination of members to the distributing agencies were subjected to rigorous probity checks and a shortlist of candidates presented to Cabinet for approval. From the membership of the agencies, the following individuals were selected to chair each of the distributing agencies:

- Charities: Dr Tebogo Maitse
- Arts, Culture & National Heritage: Dr Prince Nevhutalu
- Sport & Recreation: Ms Kedi Tshoma

The following table sets out the critical dates that have marked the distribution process and includes the number of applications received by the distributing agencies for adjudication (NB: a total of 2 784 applications have yet to be adjudicated):

4. Central Applications Office
The purpose of the Central Applications Office is to receive applications and pre-screen them to ensure that they meet with the criteria determined by each distributing agency. This system ensures that the administrative cost of processing applications by each distributing agency is kept to a minimum.

Once pre-screening of the received applications has taken place, each distributing agency will be given the applications that appear to qualify as well as those that might qualify, for a decision as to who should be granted funding from the NLDTF. The applications that are received are scanned into the Information Management System that has been set up and then all hard copies removed for off-site storage. After the distributing agency has approved an application the Central Applications Office will do the following:
-inform the successful applicant of the decision made by the distributing agency;
-make arrangements for the successful applicant to sign a binding grant agreement which sets out the duties of the recipient of funds;
-expedite the transfer of funds to the recipient;
-play a monitoring and evaluation role to ensure that the recipient complies with the conditions of the grant.

The Central Applications Office has an important role to play in ensuring that once funds have been earmarked for a particular recipient, these funds are used for the purpose they were intended. Over time, this monitoring role will assist the government in acquiring crucial information regarding trends in development funding and in identifying the needs of the NGO sector as providers of services, information and so on. This, in turn, will help government to refine and substantiate its own policies in respect of government spending as well as the nature of support that is required by the NGO sector in South Africa.

Appendix 3:

CRITERIA FOR ADJUDICATION OF LOTTERY FUNDING APPLICATIONS

1 Charities
-Must be a juristic person and registered as a charitable organisation
-Faces risk of closure or scaling down of operations due to lack of finances
-Audited financial statements show sound financial management
-Priority issues identified for this cycle of applications:
*Children & Youth
*Socially vulnerable groups such as the elderly, women, disabled people, people living with HIV/AIDS

2 Arts, Culture & National Heritage
-Must be a juristic person
-Priority issues for arts and culture applications:
*Production of cultural products
*Building new audiences
*Education, training and skills transfer
-Priority issues for environmental organisations:
*Youth environmental education
*Organisations involved in clean-up operations especially in built-up areas
*Planting of indigenous flora
*Partnerships that encourage sharing of resources and experience between the more and less advantaged groups
-Priority issues for National Heritage Applications
*Promotion of job creation
*Nation Building Initiatives
*Equity and redress of historical imbalances

3.Sport & Recreation
Must be a juristic person
-Priority issues identified for sport and recreation applications
*Existing sport facilities/clubs that lack sport equipment
*Upgrading and/or renovation of existing sports facilities
*Training institutions/organizations involved in capacity building for sport