Challenges on National Lotteries Distribution Fund

1. PRESENTATION TO THE PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY Date: 3 February 2010 Challenges on National Lotteries Distribution Fund

2. Delegates Nomfundo Maseti: Acting DDG: CCRD Tel: 012 394 1810 Mpho Mosing: Director: CCRD Tel: 012 394 1504 2

3. Purpose The purpose of the presentation is to: Present challenges relating to distribution of funds in the NLDTF in terms of the National Lotteries Act propose possible solutions to the challenges 3

4. Background The Lotteries Act of 1997 establishes the National Lotteries Distribution Trust Fund, administered by NLB The NLDTF’s intention of the National Lotteries was to redress inequalities of the apartheid system in sports, arts and to assist the South Africans to enhance status of living under the charity category Further Section 32 (4)(b)(i) provides that the Minister must when distributing funds take into account general development in the Republic, with specific reference to regional, economic, financial, social and moral interest of the Republic Five categories approved for good cause funding as: Charities Arts and Culture Sports and Recreation Restructuring and Development Programme (RDP) Miscellaneous The Act was approved with these principles and established National Lotteries Board & appointment of Distribution Agencies (DAs) 4

5. Background • The current value / size of the NLDTF is estimated at R5 8889 billion. • R5.4 billion was distributed for good causes. • R3 729 billion is available for distribution

6. Challenges • Number of reasons for minimal distribution: - Legislative & Administrative Challenges • Administrative challenges addressed by Sub Committee - capacity constraints - communication - loss of documents - grant agreements • Overall Legislative challenges - Amendments and Regulations • Structure of the board/Accountability of National Lottery Distribution Trust Fund (NLDTF) • Licensing/ Definition of office bearer • Relationship between Minister, Board and DAs • Lack of directive for adjudication • Audited financial statements • Educational Campaigns to attract wide spread of applications

7. Challenge: Amendments • Structure of the board/ accountability to NLDTF • In terms of the Act • NLB administer & manage NLDTF and accounts to Parliament. • Fiduciary duties Section 50 PFMA as a National Public Entity • outmost care to ensure reasonable protection of assets and records of Public Entity • act with honesty, integrity and in best interest of Entity • prevent any prejudice to the financial interests of the state • DAs allocate and disburse the funds in NLDTF without oversight function over DA nor Accountability by DA NLDTF • Anomaly resulted in - • the establishment of an Oversight Committee • review adjudication decisions by DAs • contributed to the delays • ultra vires, established outside ambit ofthe Act. • Oversight Committee was disbanded – Concern legitimate

8. Preferred Solution • Jointly and severally liable & responsible for the NLDTF • DA Accountable section 83 of the PFMA as National Public Entity. • PFMA defines NPE as – • National government business enterprise or • A board, commission, company, corporation, fund or other entity (a) established in terms of national legislation, (b) fully or substantially funded either from the National Revenue Fund, (c) or by way of a tax, levy or other money imposed in terms of national legislation; (d) and accountable to Parliament • DAs meet 3 requirement of National Public Entity • DA listed in Schedule 3 of the PFMA as Public Entities accountable in terms of the PFMA. • Fiduciary duties in section 50 & Account to Parliament • This will address the concern that Distribution Agencies make decisions regarding the funds within the Trust Fund but only the Board is held responsible & accountable for such decisions. • Including the Distribution Agencies as accountable bodies in the PFMA for the Trust Fund will give comfort to the fact that any decisions taken by the Distribution Agencies will have to be accounted for in Parliament.

9. Challenges: Amendment • Licensing & Definition of office bearer • Section 13(2)(b)(iv) provides that no political party or political office bearer should have any direct financial interest the applicant or shareholder of the applicant. • In 2006 National Lottery was suspended for 6 months • Alleged that Gidani the preferred bidder had political office bearers in its shareholding • NEC Members of the ANC had financial interest in Gidani • Transvaal High Court held that - • Constitution of the ANC does not define NEC member as political office bearer • Members in Gidani shareholding therefore not political office bearers • Judgment defeated the objective of the Act to exclude political office bearers interpretation of political office bearer was narrow • Solution • Expand the definition in the Act to include Members of different committees in political parties • Proper probity checks & investigations by the Board • Compulsory disclosure from applicants • Penalties to non disclosure

10. Challenge: Amendment • Relationship between the Minister, the Board and Distribution Agencies • To improve the relationship between the Minister and the Board and to assist with speedy resolutions on problems between the Board and the Distribution Agencies it is proposed that Minister meet with the Board and the Distribution Agencies at least twice a year. • The meetings will address internal challenges between the Board and Distributing Agencies • Minister’s attention will show interest in the work of the Board and Distributing Agencies. • Solution • Minister convene at least two statutory meetings in a financial year with the Board and Distribution Agencies

11. Challenges: Regulations • Challenges identified that require regulation - • Lack of directive for channeling of funds • Audited financial statements • Educational campaigns. • Lack of Criteria for channeling of funds • Due to lack of the criteria distribution of funds has not been channeled to specific areas and in stead the bulk of the funds have been allocated to the wealthiest provinces Gauteng, Western Cape, and KwaZulu-Natal where the most tickets were sold. • To realise the prescripts of Section 32(4) and to draft an informed criteria needs assessment exercise was conducted • Consultations with rural community leaders, Municipalities, community based organisations and members of the community. • This exercise assisted in assessing provincial needs and on those basis a criteria was set by the Minister. • The notable projects and initiatives identified in various provinces which could potentially contribute to achieving and advancing the developmental and socio-economic needs, in line with section 23(4) of the Act, were: • Farming and small agricultural projects – aimed at entrepreneurial development and skills development - respond to economic development, reduce unemployment, empowering women, particularly single mothers, and youth in poor communities with relevant skills. • Provision of educational facilities designed to enhance literacy through early childhood education, adult literacy, vocational training and mentoring for skills development

12. Challenges: Regulations • Challenges identified that require regulation - • development of sports and recreational facilities in the rural areas for talent development and accessibility to such facilities • support for causes designed to protect and promote traditional knowledge and cultural expressions • promotional work of arts and craft produced by groups of disabled people and women • development and preservation of cultural heritage sites for revenue generation including tourism. • All these key areas will be the focus areas for the National Lottery Trust Funds • Solution • Based on these factors criteria was set channeling 50% of Trust Funds to specific needs • Benefit of this regulatory intervention - address the persistent criticism encountered by the Distributing Agencies of bias & favoritism • Criteria has been published for public comments • Comments will close on 5 February 2010 • Final Publication end March 2010

13. Challenges • The requirement for compulsory audited financial statement • The Notice gazetted in October 2005 (Notice No: 28130) specific requirement in the application form for applicants to provide “a signed audited financial statement for the past two years.” • This changed the application form accompanying the Regulations issued in 2000 which merely require proper keeping of accounting records and provision of written report on financial state of affairs. This requirement is crucial in order to ensure accountability on expenditure of the grants. • The 2005requirement for an audited financial statement is onerous and costly for new applications • This requirement is stringent, not expressed in the Act and excludes most needy and deserving organisations from the grant. • Potential fraudulent and misappropriation of funds allocated for development purpose. • Solution • The Form issued in 2005 was amended to remove the stringent requirement of audited financial statements for first time applicants • To address misappropriation of funds audited financial statements from beneficiaries previously funded are required Section 32(1)(c). • This will assist expand the reach of the fund to most deserving and marginalised communities • Site inspections to minimise fraudulent utilisation of the grants

14. Challenges • The requirement for compulsory audited financial statement • Solution • Organizational founding documents (this requirement is applicable to organizations that have not previously been funded by the NLDTF or if the objectives of the organization have since changed) • Constitution/ Articles and Memorandum of Association/ Trust deed • Institutions established by an Act of Parliament must only cite the enabling Act • Proof of registration for non-profit organizations, section 21 companies, Public Benefit Trusts and schools registered with the Department of Education (except private schools) • (Municipalities and Tertiary Institutions are excluded from this requirement but must cite the enabling Act). • Most recent financial statements of the organizations:- • of a year for organizations that have previously received funding from NLDTF • for two consecutive years signed and dated by a registered and independent Accounting Officer or an Auditor in the case of organizations that have not previously been funded by the NLDTF • Signed Auditors or Accounting Officer report • Regulations are published for public consultation and comments will close on 05 February 2010.

15. Challenge: Regulation • Educational Campaigns by Board • Conduct outreach programmes educate public on requirements for application • Conduct capacity building programes with the public – drafting constitutions, proposals, business planning, financial reporting and report/record keeping • Conduct capacity programes with the beneficiaries – financial reporting and management, report/record keeping, proper utilization of grants awarded • Resolution • Grant beneficiaries must attend training prior to allocation of funds on the utilisation of funds, reporting of funds, record keeping for accounting purposes, possible areas of improvement • Impact will be tangible as funds will be properly used and accounted for • Reduce exclusion of previously funded Organizations • Section 10 of the Act will be amended to expressly incorporate the proposed resolution

16. Conclusion • Harmonization with other Legislations • Social Development Act, Companies Act, PAJA, PFMA other • Act refers to old Acts as in Section 54(1)(e) Harmful Business Practices Act 1988 Act must explicitly prohibit online lottery in the country • Act must stipulate punitive sanctions in the Act for offenders

17. End THANK YOU