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LOTTERIES POLICY REVIEW:
A discussion document

August 2012

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Executive Summary

The document outlines the policy proposals intended to amend the Lotteries Act,
Act No. 57 of 1997 (the Act) , to ensure the effective governance and
management within the lottery industry. The need to amend the Lotteries Act
followed an assessment of challenges that impede effectiveness and
efficiencies in the d istribution of funds.

The challenges identified include : strict requi rements set for accessing funds;
lack of accountability of Distributing Agencie s; the relationship between the
National Lotteries Board and the Distributing Agencies ; lack of quorum for
adjudication in the Distributing Agencies ; creation of Oversight Committee by
the National Lotteries Board ; and allegations of conflict of interest i n relation to
some members of the Distributing Agencies .

Other issues raised related to the turnaround times for processing applications
and for payments, lack of communication with the public and the applicants in
general , and lack of capacity in the Na tional Lotteries Board to carry out the
mandate effectively.

In the assessment it was clear that most of the challenges identified were a
result of inefficiencies in the National Lotteries Board , and specific actions were
identified for implementation by the Board. These include the review of the
organi sational structure of the National Lotteries Board to provide for
appropriate capacity to deliver ; streamlining internal processes for receiving and
processing applications ; upgrad ing the grant management s ystem to enhance
efficiencies, improving turnaround times for application processing and
payments to beneficiaries ; and communicating better with the public and
beneficiaries.

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There were , however , challenges that were a direct result of the gaps in the
legislative framework that necessitated a focused review. The following are
recommendations:

 The Distributing Agencies must be professionali sed and appointed on a full –
time basis. They must also be bound by the provisions relating to conflict of
interest in the same manner and extent that the staff of the National
Lotteries Board is bound. Distributing Agency members should be appointed
based on skills, expertise in adjudication and availability to serve on a full –
time basis to curb problems of quorum and conflict of interest.

 The Distributing Agencies should continue being appointed by the Minister.
But as they are part of the distribution function, they should conform to rules
and regulations , including the policies of the National Lotteries Board as th e
entity that by law is required to account to Parliament. The amendments to
the Act should clarify accountability in a manner that removes any
ambiguity.

 An Internal Review Mechanism should be introduced to deal with aggrieved
applicants. In this regard, the Board of the National Lotteries Board should
serve as a structure to review complaints arising from decisions of the
Distributing Agencies and the decision of the review should be made
binding. If the applicant is still aggrieved after this process, t hey may
approach the court of law for relief. This will reduce the costs of litigation for
applicants.

 The processes for accessing funds in the National Lotteries Board must be
simplified to improve service delivery. The adjudication of applications can
be guided by the nature and size of grants requested. In this case, the
grants must be categori sed as small, medium and large grants. Small grants
can be adjudicated by a three -member panel, medium grants by a five –

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member panel , and large grants by a full p anel subject to quorum
requirements. Forms for each of these categories should be simplified to
require information that is necessary based on the risk that needs to be
mitigated. This will go a long way to increase the speed for adjudication and
improve t urnaround times and access to funds.

 The disbursement of funds includes steps from application to final payment ,
with adjudication being part of this process. It is , therefore , important to set
turnaround times for each category of grant applied for to pr ovide certainty
to applicants and to be able to measure the performance of the National
Lotteries Board‟s performance. The Distributing Agencies should not be
regarded as independent entities, but rather as a step in the process of
disbursing funds for goo d cause. The Distributing Agencies should thus be
bound by the reporting requirements and rules governing the National
Lotteries Board.

 The size of the Board , as an oversight structure and accounting authority of
the National Lotteries Board , should be i ncreased to 11 members to enable
it to perform its mandate adequately.

 The amendments must differentiate clearly between the National Lotteries
Board as an entity and the Board of the National Lotteries Board as an
oversight structure and accounting autho rity. This may necessitate a change
of the name of the National Lotteries Board to , for example, the National
Lotteries Commission or National Lotteries Organi sation to minimi se
confusion.

 The Act must distinguish clearly between the functions of the Mini ster and
those of the Board of the National Lotteries Board to prevent concerns
arising from ambiguity in the Act. In this regard, the Board should not be
allowed to vary the conditions of a licen ce issued by the Minister.

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 The Act should provide for both application -based funding and proactive
funding. In this case, proactive funding should be guided by research that is
informed by national priorities. The Minister should be allowed to determine
the percentage of allocation that can be given to proactive f unding, and
review it from time to time. Proactive funding will help support good causes
timely, particularly in cases of disasters such as floods or storms.

 The Act must clarify the process and the terms through which conduits can
be funded. Conduits pos e a risk as they are meant to provide further funding
to good cause , but various grants have raised significant concerns.

 The Act should align financial accounting requirements to the Companies
Act 2008, as amended, to reduce the burden on smaller organi sations to
have financial statements audited.

 Education and awareness must be included in the Act as part of the
functions of the National Lotteries Board . This will assist entities to
understand the requirements to properly apply for and report against funds .

 The Act must be harmoni sed with the other laws to improve enforcement
and monitoring of compliance.

 There are a number of technical amendments that have been identified over
the years of implementing the Act. These are articulated in the policy , bu t
are not necessarily exhaustive. The drafting of the Bill will bring more
technical errors to the fore and these will be corrected accordingly.

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1. Background

1.1 The Wiehahn Commission, which was established to investigate the
feasibility of regulating th e lotto and gambling in South Africa post –
democracy, made recommend ation s for the regulation of gambling and
the State -run lottery system . Emanating from the Wiehahn
recommendations on lotteries , the Lotteries Act, Act N o. 57 of 1997 , was
passed.

1.2 The Ac t governs the operation of lott ery within the country by creating the
National Lotteries Board and providing for the powers to appoint a
national operator for a defined period. The National Lott ery commenced
operation for the first time in South Africa in 1999. The first lottery
operator was Uthingo , followed by Gidani , whose term comes to an end
in 2014.

1.3 In 2007, the dti commissioned a study 1 to assess the performance of the
National Lottery and deal with the challenges hampering its effectiveness .
The p rocess included research to assess the overall socio -economic
impact of the National Lottery since inception in 2000 . Consultations took
place with the Board and Distributing Agencies , as well as with other
departments, such as Sports and Recreation and Ar ts and Culture. The
review identified a number of issues that required improvement , including
strained relations between the National Lotteries Board and the
Distributing Agencies .

1.4 In 2008 /09 , there was a public outcry regarding accessibility of funds and ,
importantly , that funds do not reach the intended beneficiaries. The
Minister called a Round Table with the relevant stakeholders to
1 Review of the Nati onal Lottery: 2000 – 2007 by Dr Stephen Louw, Ms Abigail Ronald -Louw and the Institute for
Social and Institutional Sustainability for the dti (2008)

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investigate the causes of this outcry. The Round Table comprised the
Minister of Sports, Minister of Arts and Culture, th e three Distributing
Agencies , the National Lotteries Board and officials of the dti . This
process identified the causes and proposed interventions to improve the
distribution of funds. The assessment revealed , inter alia , that the
requirements for accessi ng funds were too strict and excluded the
majority of deserving organi sations ; that it took on average more than two
years for beneficiaries to receive payment from the National Lotteries
Board ; and that vacancies and conflict of interest in the Distributi ng
Agencies impede quorum for adjudication.

1.5 A Working Group was created by the Minister to devise an action plan to
be implemented to correct the challenges identified. The Working Group
comprised the National Lotteries Board and the three Distributing
Agencies . Due to strained relations between the National Lotteries Board
and the Distributing Agencies , the Working Group was chaired by the dti
through the Deputy Director -General , Ms Zodwa Ntuli . The action plan
was developed and agreed for implementation by the National Lotteries
Board and the Distributing Agencies . the dti proceeded to develop policy
interventions for the amendment of the Act to address some of the issues
that required legislative intervention.

1.6 Following the Round Table and the Working Group , the Minister issued
new regulations to streamline the application process and relaxed some
of the requirements for accessing funds, including the requirement for
two -year audited financial statements. The Minister also issued a
directive in regard to the distribution of funds and provided priority areas
in line with broader Government priorities. The regulations and directive 2
2 Gazette Notice No. 33398: The Direction and Procedure for the Distributing Agencies in relation to Distr ibution of
Funds from the National Lottery Distribution Trust Fund

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were issued in July 2010 , following a focused assessmen t3 by the dti
through the Chief Director of Policy and Legislation , M s Nomfundo
Maseti . The Minister also appointed new members to the Board of the
National Lotteries Board in 2010. A draft policy document was produced
in June 2010 , after consult ation with various stakeholders.

1.7 In 2009, the Minister establish ed the Gamblin g Review Commission after
concerns were raised by Parliament regarding the proliferation of
gambling and the piecemeal approach to new gambling activities. The
Commission was chaired by Ms Astrid Ludin and a report was submitted
to the Minister in Septembe r 2010 4. The review of gambling included the
lottery as part of gambling activities. In light of the review process, the dti
made a decision to await the report of the Gambling Review Commission
to align the policy proposals with the recommendations of the
Commission prior to processing the policy proposals. A Regulatory
Impact Assessment 5 was conducted on the draft Lottery Policy in 2010 to
determine the appropriateness of the policy interventions proposed.

1.8 To obtain input from affected stakeholders on ho w to improve efficiencies
in the distribution of funds by the National Lotteries Board , the dti
requested that it have a wide stakeholder engagement. The Lottery
Indaba was held at Gallagher Estate in June 2011 6. The Portfolio
Committee on Trade and Indust ry held public hearings on the Gambling
Review Commission and produced a report with recommendations in
March 2012 7.
3 Assessment of Needs Report through Countrywide Consultations on the Possible Funding of Community
Development Initiatives, 2010 4 Gambling Review Commission Report, September 2010 5 Regul atory Impact Assessment: A study prepared by Genesis Analytics for the dti , August 2011 6 National Lotteries Board Natio nal Conference (Lottery Indaba), Gallagher Estate, 20 June 2011 7 Report of the Portfolio Committee of Trade and Industry on the Report of the Gambling Review Commission, 07
March 2012

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1.9 The assessment processes outlined above identified a number of
challenges in the management of the NLB and gaps in the Act. Issues
rela ting to the organi sational management of NLB are being addressed
internally and being monitored. T his document addresses those
challenges that require legislative amendments , but may make reference
to certain actions by management that align to a particula r policy
recommendation . These challenges have hindered the ability of the
National Lotteries Board and Distributing Agencies to carry out their
mandates and distribute public funds to deserving beneficiaries.

2. Purpose

2.1 The South African Government in troduced a regulatory framework that
sought to curb proliferation of gambling , while allowing responsible
gambling to take place. In relation to the lottery speci fically, t he
fundamental policy principle approved by Government was that the
National Lottery will be utilised to generate substantial revenues to fund
projects of common national interest to which there was insufficient
funding in terms of state expenditure.

2.2 However, this goal is not being optimally achieved as the provisions of
the Act are mar red with anomalies that need policy and legislative
interventions. Such anomalies range from lack of governance and
transparency to lack of accountability of certain governance structures
established in terms of the Act.

2.3 In sum mary , the overall objectiv e of the review was to look holistically at
the following areas and propose solutions:

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 Assess the relevance of the current regulatory regime and deal with
challenges that relate to the structures, roles and functions of the
structures established in terms of the Act ;

 Assess the overall socio -economic impact of the National Lottery in
the past 10 years;

 Review challenges in the Act that hamper optimal distribution of funds
for the National Lotteries Board and Distributing Agencies , and to
address straine d relations between the Board and Distributing
Agencies;

 Address problem gambling, by incorporating mechanisms in the
legislation to eradicate or minimi se its negative impact;

 Assess difficulties experienced in the licensing processes in 2006;
and

 Overh aul the Act to address legislative provisions that are open to
different interpretations and result in disempowering the National
Lotteries Board from enforcing the Act.

2.4 The various assessment stages alluded to in the background above has
culminated in v arious proposals to address challenges identified. For
ease of reading with clarity on the problems and proposed solutions, the
structure of the document will be as follows:

 Accountability of the Distributing Agencies ;
 Lack of Quorum and Conflict of Inter est ;

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 Accountability of Distributing Agencies to the N ational Lotteries
Board ;
 Simplification of the Process ;
 Categorisation of Grants ;
 Disbursement of the Funds ;
 Size of the Board ;
 Differentiation of the Board of the National Lotteries Board , and the
National Lotteries Board ;
 Roles of the Board of National Lotteries Board and those of the
Minister ;
 Proactive Funding ;
 Grants through Conduits ;
 Internal Review Mechanism of Decisions ;
 Auditing of Financial Statements ;
 Technical Amendments Required ;
 Harmonis ation with other Laws ;
 Education and Awareness ;
 Summary of Recommendations ; and
 Conclusions .

2.5 The purpose of the document is to propose policy intervention s to
address the challenges identified during the implementation of the Act,
and as identified by var ious assessments alluded to in this document.

2.6 This document is a draft that is developed for wider consultation with
stakeholders . Once policy interventions are consulted on, a draft Bill will
be produced and submitted to Cabinet with final policy for ad option by
Cabinet for introduction into Parliament.

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3. Discussion

As indicated, various issues were identified and proposed interventions
recommended after consideration of a number of options. The issues are
discussed in detail as follows:

3.1 Acco untability of the Distributing Agencies

3.1.1 In terms of the Act, the Minister appoints the Distributing Agencies . This
is done after the Minister has consulted with relevant Ministers that are
related to the described sectors. Legally and in practice, this m eans that
the Distributing Agencies only account to the Minister . If there are
backlogs or irregularities in the distribution of funds from the National
Lotteries Distribution Trust Fund (NLDTF), the Distributing Agencies
legally expect the Minister to be the one that addresses the issue with
them despite these matters being purely administrative and operational in
nature. Day -to -day operation of Distributing Agencies should be managed
and monitored closely and it is inconceivable that the Minister can be
expected to perform such a function.

3.1.2 There are also allegations that members of Distributing Agencies are
conflicted and , therefore , decisions that should be transparent under
rules of corporate governance are compromised . The practice in
compliance with governance principle s is that a member of the
Distributing Agency that is conflicted would declare a conflict of interest
and recuse him/herself from adjudicating on the matter that he/she is
conflicted in . The concern raised by the public is that the majo rity of the
members of Distributing Agencies are leaders of organi sations that
benefit directly from the lottery funds and in significant amounts. It is ,

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therefore , suggested that tighter governance rules should be set to deal
with conflict of interest.

3.1.3 Further allegations relate to irregular conduct by some members of
Distributing Agencies who bend the rules to accommodate some
organi sations over others. Also, some Distributing Agency members are
alleged to be playing advisory roles to potential applican ts, which conflicts
seriously with the mandate of Distributing Agencies . The National
Lotteries Board as a trustee of the NLDTF should ordinarily be in a
position to monitor the distribution process and address matters that fall
short of compliance with go vernance principle. It must be emphasi sed
that adjudication is just one aspec t in the process of disbursement of
funds, albeit the most important part. As an entity that accounts in terms
of the PFMA, the National Lotteries Board has a duty to monitor and
report any violation and deviation from governance principles both in the
entity and the Distributing Agencies . However, its role in putting in place
measures necessary to prevent and identify such deviations of violations
are not espoused in the Act.

3.1.4 Pa rt of the challenge identified includes the lack of quorum due to some
Distributing Agency members not being available at all times to attend
meetings. This impedes delivery of service to the public as the members
are currently appointe d on a part -time bas is and have full -time
employment elsewhere. Given the nature of the distribution function in a
funding entity such as the National Lotteries Board , the number of
applications received by the NLB and the speed with which organi sations
require to be serviced , it is clear that the part -time nature of this function
is inappropriate and compromises service delivery . There is , therefore , a
need to professionali se the distribution function to enhance equitable and
speedy distribution of funds to intended beneficia ries.

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3.1.5 Various options were considered , with some clearly r equiring legislative
amendments to curb these problematic scenarios . I t is proposed that the
Act be amended to provide for professionali sation of the function of
distribution of funds without com promising the independence in the
decision -making processes over grants .

3.1.6 It is recommended , therefore , that the Minister should continue to appoint
members of the D istributions Agencies , but on ly on a full -time basis. This
means that the persons appointe d will purely be responsible for the
adjudication of applications . Persons should be appointed based on
skills, expertise and availability to serve on a full -time basis. Such
persons can be employees of the entity and bound by all the rules and
regulations relating to conflict of interest , which currently apply to the NLB
staff and Board members in terms of Sections 3 and 7 of the Act . These
sections in the Act should thus be amended to apply consistently and be
clear and unambiguous.

3.1.7 The amendments to th e Act should clearly spell out the provisions
dealing with the roles of Distributing Agencies , and ensure that such
apply consistently across the entity . The full -time and professionali sed
nature of the distribution function will address the concerns aroun d
turnaround times, quorum and inefficiencies in the distribution of funds.
Dedicated adjudication on a daily basis will make way for applications
that are not only conditional to calls for applications being issued, but
could be made at any time , based on the needs of the applicant and the
timing of the relevant project for good cause.

3.1.8 The Distributing Agencies must account operationally to the National
Lotteries Board on funds distributed from the NLDTF . The N ational
Lotteries Board must set service deli very standards for the Distributing
Agencies to continuously improve efficiency and work ethics in the

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distribution of lottery funds. Clear governance and management
processes aligned to the business plan of the entity should be developed
in line with the requirements under the PFMA and the shareholders‟
compact. In this way, the entity will be able to agree on targets and
measures for such targets.

3.1.9 It recommended that the Minister should, u nder the current provisions of
the Act, appoint on a full -time bas is some members of the Distributing
Agenc ies to expedite the improvement of efficiencies . Others will
continue to operate on a part -time basis until such time as the Act has
been amended. In the interim, t he Minister may also increase the number
of members per Distributing Agency to improve efficiencies. This means
there will be full – and part -time members till such time as the Act is fully
amended to allow for only full -time membership. In light of the move to
full -time members hip , t he Act must provide for transitional arrangements
to address the issue of part -time members whose term would be running
upon adoption of such amendments.

3.2 Lack of Quorum and Conflict of Interest

3.2.1 One of the challenges relates to lack of quorum at Distributing Agency
meeting s, which caused delays in the adjudication of grants. The lack of
quorum was due to members not being available for sittings at scheduled
dates. Also, where members were available to sit, it was found that as
they are drawn from sectors, most of them repre sent organi sations that
apply for funds in the National Lotteries Board , and as a result had to
recuse themselves in most adjudication sessions due to conflict of
interest. A further contributing factor is that Distributing Agency members
are appointed on a part -time basis . The rate of resignations is also a
concern .

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3.2.2 The recommendation made above regarding the appointment of
members of Distributing Agencies on a full -time basis will address the
issue of quorum. A further recommendation is that the Act be amended to
clearly express that the persons to be appointed should have no interest
in any organi sation that benefits from the lottery funds. This means that
persons who agree to be appointed as Distributing Agency members
should be beyond reproach and be bound by the same restraints that
apply to members of staff of the National Lotteries Board and the dti in
terms of the Act.

3.2.3 The Act currently does not prescribe whether the Minister can appoint
members on a full – or part -time basis . It is , therefore , the Minister‟s
prerogative , which he can exercise anytime. To address the challenges,
the Minister may appoint members as full -time members within the
existing powers in the Act. The appointment should continue to be for a
specified period , with limitations on the number of terms a person can be
allowed to serve in the Distributing Agency .

3.3 Accountability of Distributing Agencies to the National Lotteries
Board

3.3.1 It has been established that t he lines of accountability for Distributing
Agencies have in pr actice raised concern and cause for some of the
challenges affecting the effective distribution of funds. The National
Lotteries Board as the trustee of the NLDTF has no specific role in the
Act to ensure transparency and governance principle s are monitore d and
adhered to. As proposed above, the r ules of good governance that will
promote transparenc y and curb conflict of interest should be prescribed
clearly in the amendments to ensure consistency across the entity .

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3.3.2 The Act must enable the NLB to develop operational service delivery
standards to ensure continuous improvement in the efficiencies of the
distribution function and have appropriate measures to identify and
prevent irregular conduct . The Distributing Agencies should continue to
be appointed by t he Minister as the Act prescribes, but account
operationally to the National Lotteries Board as the entity that administers
the fund.

3.3.3 The Act must also be amended to create a review mechanism of the
decisions of the Distributing Agencies . Although ordina rily such reviews
and/or appeals should be directed to court, in the nature of grants
allocated from the NLDTF, a court process has proved to be expensive
and prohibitive for beneficiaries of these grants. It is recommended that
the Act be amended to provi de for the creation of an Internal Review
Mechanism , which would be an intermediate step before a person
approaches the Court. The intention is to ensure that the public receives
adequate support without incurring exorbitant costs of going to court and
to allow for the speedy resolution of disputes. The mechanism should
have a binding effect on the applicant and the entity . Where the
beneficiary is not satisfied with the outcome, the y may approach a Court
of law .

3.4 Simplification of the Process es

3.4.1 The a pplication process for funds in the NLDTF has proven to be
complex and affect s accessibility of funds to most deserving
organi sations or good causes. It is recommended that the Act be
amended to embed simplicity , while enhancing accountability and good
gov ernance. Such interventio ns should be risk -based , looking at the
nature , purpose and size of grants , among other things .

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3.4.2 The operation of Distributing Agencies must be made more efficiency
driven , by determining some grants that may be adjudicated by one
member or a panel that does not compris e all members. The same
principle is applied in adjudication of cases in the National Consumer
Tribunal and the Competition Tribunal and can apply in the area of
adjudication of applications. The review mechanism shou ld remain the
same as recommended.

3.4.3 The National Lotteries Board should increase its monitoring and impact
assessment capacity to conduct inspections and spot checks to ensure
funds are used for intended purposes. Also, it should have capability to
proact ively identify the fraudulent use of funds and deal with this
effectively.

3.5 Categorisation of Grants

3.5.1 To improve efficiencies and turnaround times, g rants should be
categori sed according to their nature and size , which can be determined
in monetary val ues and can be reviewed by the Minister from time to
time.

3.5.2 All application s for grants – irrespective of size, nature or impact – have
been dealt with in a similar manner and there is no specific turnaround
time attached to the processing of such applic ations. This means that a
small organi sation , such as a old age home , that requir es funding of less
than R500 000 will be subjected to the same process and requirements
as an application for the construction of a local bridge , for example, that
require s fu nds in excess of R 10 million. It is recommended that the Act
be amended to allow for grants to be categori sed , and different
application and processing rules to be determined for each category .

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3.5.3 It is recommended that grants that are from R1 .00 to R500 000 .00 (small
grants) can be decided upon by three members of the Distributing
Agency . The application form should require only basic information
necessary to establish the authenticity of the application, the nature of the
project or cause to be funded, the need for the funds, and assessment of
risk and reporting mechanism.

3.5.4 Grants that are more than R5 00 00 0.00 but less than R5 000 000.00
(medium grants) can be considered by five members o f the Distributing
Agency . The application form should have enhanced requirements linked
to the financial risk and the nature of the cause or project.

3.5.5 Grants that are more than R5 000 000.00 (large grants) should be
considered by the panel of members of Distributing Agency , with
necessary quorum to make decisions on such grants . The application
form could require more information based on risk associated with such
funds and the impact thereof.

3.5.6 Measures should be introduced to prevent the small and medium
categories from being abused by a single organi sation in piecemeal
applications to avoid enhanced requirements for medium and/or bigger
grants, as the case may be. This can be through prohibiting an
organi sation from applying in multiple sectors or being barred from
applying for a certain period of time after having receiv ed a grant in any
of the categories. More measures can be explored.

3.5.7 Turnaround times should be attached to these categories in the
regulations to provide applicants with proper waiting period s after
submitting an application. Turnaround times will also en able the National
Lotteries Board to be accurately measure d on its performance.

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3.5.8 The review mechanism for all the grants will be the same as proposed in
this document in that a person aggrieved may use the Internal Review
Mechanism to be introduced in the Act, failing which the Court of law may
be approached.

3.6 Disbursement of the funds

3.6.1 The accountability of Distributing Agencies should be made clear as
recommended in this document. The ambiguity in this area affects the
seamless distribution of fun ds. The disbursement of funds must follow a
clear and synergi sed process , with the value chain clearly considered .
The process from application to final payment must be articulated in the
regulations to the extent necessary in legislation, and further deta il in
service delivery standards , which can be reviewed from time to time to
ensure continuous improvement .

3.6.2 The service delivery standards must articulate clearly the internal
processes and systems to support operations , and which systems should
be regul arly assessed against technological developments . Adequate
adm inistrative capacity should be put in place to facilitate effective
service delivery. The full -time Distributing Agencies must adjudicate on
applications received efficiently and effectively in accordance with the
rules of good governance and accountability . The role of Distributing
Agencies should be limited to adjudication only.

3.6.3 The full -time Distributing Agencies must also adjudicate proactive grants
based on proactive research on needy areas or special circumstances
such as natural disasters , research findings of which would have been
approved by the National Lotteries Board . Consideration should also be
given to Government priorities in determining the needs for proactive
funding.

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3.6.4 The percent allocated for such proactive funding should be determined by
the Minister from time to time. The National Lotteries Board shall ensure
that the organi sational structure provides for an effective research section
to provide support for the proact ive identification of good causes for
funding .

3.7 Size of the Board

3.7.1 The size of the Board of the National Lotteries Board is small and affects
the ability to fulfil all requirements of the corporate governance principles.
The Board committees that are required to operate in an entity such as
the National Lotteries Board have also increased , and the current Board
is overstretched and cannot adequately fulfil its mandate . It is
recommended that t he size of the Board be increased to 11 members ,
which will allow for other special skills to be recruited .

3.7.2 As this policy recommends an Internal Review Mechanism, the Board of
the National Lotteries Board will play a significant role as the review
mechanism. The Act should allow for participation of Distributing
Agencies on the Board , to improve interaction between the Board and the
Distributing Agencies . This should be introduced to address previous
tension s and lack of co -operation between the Board and the Distributing
Agencies , which resulted in unnecessary b ottlenecks in achieving the
mandate of the National Lotteries Board. In this case, it is recommended
that the Chairperson of each Distributing Agency become s an ex -officio
(non -voting) member of the Board.

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3.8 Differentiation of the Board OF National Lo tteries Board and the
National Lotteries Board

3.8.1 The Act provides that there should be a Board and its function is to
exercise an „oversight ‟ role of the N ational Lotteries Board . The Act
confuses usage of the word „Board ‟, referring to both the N ational
Lotteries Board and the „Board ‟ that has an oversight role. The word
„Board ‟ is used interchangeably and this confuses matters.

3.8.2 The Act must be amended to clarify the terminology to avoid confusion
that affects operational duties and lead s to unnecessary co nfusion of
roles that expose the entity to legal challenges from time to time .
Consideration should be given to amending the name of the National
Lotteries Board to the National Lotteries Commission or National
Lotteries Organisation , or any name that may be proposed by the public
to distinguish the organi sation from its Board of Directors .

3.8.3 The National Lotteries Board as an entity account s to Parliament and the
Minister , being the political head through who m it a ccount s and report s.
The Board of the Nati onal Lotteries Board is the accounting authority ,
with obligations flowing in terms of the Public Finance Management Act.
The Minister as the Executive Authority has a specified role in relation to
both structures. The distinction is important and necessar y to remove
ambiguity.

3.8.4 The Act must be amended to expressly state the functions of the National
Lotteries Board as an entity, and the role and function s of the Board as a
governing structure and accounting authority.

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3.9 Roles of the Board of the Natio nal Lotteries Board and those of the
Minister

3.9.1 The provisions of the Act give an impression on literal interpretation that
both the Board and the Minister have equal powers in relation to varying
conditions of the licen ce, as the Act allows both the Minist er and the
Board to vary the licen ce conditions . The Act often refers to the Minister
or the Board in various critical sections that clearly should not be the
case.

3.9.2 The Minister should consult the Board before the Minister issues the
licen ce. All anomalie s in respect of the roles and functions of the Minister
and the Board should be identified and clarified. These anomalies have
led to decisions by the Board that ha ve an impact on policy without the
Minister‟s involvement , as the Act suggests that the Boar d or the Minister
may do that. This is obviously an unintended consequence from the
drafting of the legislation, which requires correction.

3.9.3 In view of the above, it is recommended that the roles and functions of
the Board and those of the Minister should be differentiated, with no room
for anomalies and ambiguity. The minister should continue to consult the
Board before issuing licences or varying licence conditions. The Board,
however, should no longer have the powers to vary the licence
conditions. The A ct should also provide for certain powers that the
Minister may delegate to the Board in writing to improve efficiencies,
where required.

3.10 Proactive funding

3.10.1 The Act currently makes access to funding to be purely application -based
thus undermining the objective to achieve good cause and making

24
meaningful impact. For instance, where emergency funding is required in
a sector such as charities , for example in a case where a school has
been damaged by storms, the application -based process impedes
speedy in tervention.

3.10.2 There is , therefore, a need to amend the Act to make provision for
proactive funding as well within certain specified confines. The proactive
funding may be based on emergency or disaster issues or informed by
the outcome of proper research t o assess needy areas for proactive
funding guided by the priorities of the G overnment. A percentage of
allocation that can be used for proactive funding must be determined by
the Minister from time to time.

3.11 Grants through conduits

3.11.1 The Act should cla rify the limitation of funding that can be provided to
conduits that further distribute these funds to good causes. This must be
examined within the context of risk involved and the administrative
burden placed on the National Lotteries Board to ensure pro per
governance in the conduits that are granted funds. A number of grants
through conduits have raised concerns and there is a need for clarity in
the legislation for consistency in the decisions of the Distributing
Agencies to be achieved in relation to granting funds to conduits, if at all
necessary.

3.12 Internal Review Mechanisms of Decisions

3.12.1 As indicated, there is currently no provision for an Internal Review
Mechanism in the Act. As a result, a review committee was set up to try
to reduce the costs of approaching courts by applicants. This is , however ,

25
not without challenge as there is no basis for such an Internal Review
Mechanism in the Act.

3.12.2 Various options were considered , including introducing an external
committee that could review the decisio n of Distributing Agencies in
cases where an applicant that has been declined is not satisfied .
However, this was found to be unworkable and could lead to further
bureaucracy. Further, it was considered that when an applicant is not
happy with an outcome o f the D istributing Agency , the matter should be
reviewed by the courts. However, access to the courts is impossible as
legal costs are astronomical and prohibitive.

3.12.3 Furthermore , it was considered that the decisions of the three – and five –
member panels of the Distributing Agencies be reviewed by the full panel
of the Distributing Agencies . This was , however, considered undesirable
as the decision, irrespective of whether it was made by a three – or five –
member panel, is a decision of the Distributing Agency as a whole . Thus
the Distributing Agency cannot review its own decision.

3.12.4 It was , therefore, deemed fit that an internal mechanism for the review of
the decisions of Distributing Agencies should be provided by the Board of
the National Lotteries Board , wi thout the applicant incurring any costs .
The Board may allocate a sub -committee specifically for this area so as
to be more efficient .

3.12.5 In view of the above , it is recommended that the Distributing Agencies
appointed by the Minister on a full -time basis should have their decisions
review ed by the Board as espoused above. This will improve the speed
with which matters are adjudicated and reviewed, where necessary , and
save organi sations the costs of litigation .

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3.13 Auditing of Financial Statements

3.13.1 The A ct provides furnishing of an audited financial statement as a
requirement after the grant ha s been provided . While this requirement
may have been relevant for proper accounting purposes, there have been
developments in the legislative framework that impact on this provision in
the Act.

3.13.2 The National Lotteries Board required that the two -year audited financial
statement be submitted by each applicant, but this proved to affect
access to funds negatively for small and new organi sations and
compel led those wh o can to apply through other established entities.
Applying through a particular entity carries its risks and in various
instances resulted in delays in the reporting o n the funds as well as
inconsistent application of funds to intended projects. Distincti on should
be drawn between a first -time applicant and the organi sation that has
previously received funds from the NLDTF when these requirements are
determined.

3.13.3 To accommodate small organi sations that do not necessarily have the
requisite capabilities to perform auditing on their financials , various
methods to ensure accountability were considered . The main reason
behind this consideration is the need for relaxation of stringent
requirements that bar potential applicants from accessing funds.

3.13.4 It is , ther efore , reco mmended that the Act should be kept in line with the
principles of the Companies Act, 2008 , which has relaxed auditing
requirements for certain types of entit ies. While bigger and established
entities should continue to be required to submit aud ited financial
statements, the smaller entities should be allowed to prepare their
financials in the manner acceptable in the Companies Act, with

27
necessary adjustments taking into consideration that not all organi sations
are registered as not -for -profit co mpanies in terms of the Companies Act .

3.13.5 Compilations of records should be introduced without defeating the tenets
of financial discipline. Auditing per se is an involved , cost ly and
burdensome process . Independent review and compilations , if correctly
appl ied , can be best suited to this environment. An option considered
was that in the case of small institutions , including new applicants, the
verifiable compilation of financial position should be accepted .

3.13.6 Further, it was concluded that financial accounta bility through auditing or
independent reviews or compilation should be required even after the
grant has been concluded. This post -grant financial accountability will
assist to gauge the success and impact of the lottery on beneficiaries .
Various capacity -building interventions to enhance the financial reporting
capabilities of smaller entities should be introduced by the National
Lotteries Board .

3.13.7 Another option considered that independent review should be accepted in
line with the Companies Act . Over and above the considered option, it
was recommended that the National Lotteries Board must have an active
unit to deal with the financial aspect of the requirements , which will help
assess reports against funds received to ensure that funds have been
properly utili sed and accounted for . Such a unit should be able to verify
the financial status of applicants .

3.13.8 Furthermore, if the applicant failed to submit all the necessary
information, the N ational Lotteries Board should , with in a reasonable
period , inform the applicant t hat the application is incomplete and
therefore rejected. The applicant should be allowed to resubmit a
complete application , which should be considered a fresh for compliance

28
purposes. As the requirements will be relaxed in the application form s,
based on categories of grants as proposed in this document, it should not
be as difficult as it was previously to meet the requirements. It is ,
therefore , anticipated that the rate of rejection will not be as high as it
currently stands .

3.13.9 Further, the education and awareness function of the N ational Lotteries
Board should assist applicants to understand the requirements and
mitigate the rate of rejection. The all -year opportunity for organi sations to
apply will remove the anxiety on organi sations that h ad to wait a long
time for a call to be issued to re -apply once rejected.

3.13.10 It is recommended that all the proposed options should be accepted on
a case -by -case scenario and be aligned appropriately with the
Companies Act , which seeks to reduce the burden on small entities.

3.14 Technical Amendments Required

3.14.1 Over the years of implementing the Act, various technical amendments
have been identified. The technical amendments listed herein are the
most obvious identified at this policy stage. More technical amendments
may be identified during the later stages of approval and the drafting of
the Bill following public comments. By its very nature , and during the
drafting stage , more technical amendments may be necessitated by
various other factors that are not conceivable at this stage .

3.14.2 Technical amendments identified currently are as follows:

 The terms „Board ‟ for oversight should be distinguished from the
National Lotteries Board as an entity and their functions and roles
should clearly be distinguished in t he amending Act .

29

 “State running a lottery without licensing a third party .” In this regard,
the Act should be amended to enable the State to licen ce a third
party (as is the case now) or for the State to run the lottery itself , if
considered possible and viable . The rationale i s to allow the State to
direct national p riorities with full steam to needy areas , but also to
allow the State to intervene in instances where a licen ce is revoked or
suspended for any reason.

 “Extension of term”. The current provis ion s of the Act do not empower
the Minister to extend the term of the existing licen ce to a specified
period. The suspension of lottery operations in 2007 , when there was
a legal challenge by Uthingo , exposed this gap . It is proposed that the
Act be amend ed to include a provision empowering the Minister to
extend the term of the existing licen ce for a once -off period of 24
months , where considered appropriate on specific factors , to prevent
the element of abuse by the existing operator to invoke an extensi on .
The provision must provide that the licen ce term will lapse at least
after the duration of 24 months or after the dispute is resolved and a
new licen ce is issued.

 “Advertisement ”. The Act must empower the Minister to restrict
advertising of lottery by Regulations to be issued by the Minister to
instil responsible gambling as well as c urbing minors from gambling.

 “Locus standi of N ational Lotteries Board in enforcing the Act”. The
National Lotteries Board should be empowered expressly to have
locus st andi in enforcing the Act against unlawful promotional
competition s and illegal lotteries . Declaratory orders should be
obtainable by the National Lotteries Board with ease. This is so since
two court cases differed, one saying the National Lotteries Board has

30
a locus standi , while the other held that the National Lotteries Board
does not have a locus standi as the Act is not express.

 “Enforcement Powers”. Further, the Act should provide for
enforcement powers to be exercised by the National Lotteries Boa rd
such as inspections, compliance notices and consent agreements,
which will enable the NLB to properly regulate the industry.

 “Access to minors”. Access by minors to the National Lottery must be
monitored and enforced by the National Lotteries Board . Th e
regulation of minors must be put as a licensing condition with specific
terms.

 “Counselling”. Lotto winners, with more focus on winning of more
than R1 million, must undergo a mandatory counse lling before they
receive the ir winning s. Such counse lling s hould include financial
advice to help them manage the winnings.

 “National Priorities”. Allocation of funds shoul d be informed by
national priorities and this criterion must be well spelt for potential
applicants. Where national priorities no longer exis t in a particular
area or project, funding should cease. The Act must clearly specify
the discretion in adjudicating to ensure that applicants are clear that
the fact that formality requirements are met does not mean the
applicant is entitled to a grant.

 “Multi -year funding”. The Act must make provision for multi -year
grants to be made available for various sectors , with criteria made
clear in the Act to avoid inconsistency. The Act must be clear about
how much of the NLDTF funds can be utili sed for perso nnel costs.

31
Recommendations are that preferably not more than 20% of the grant
should go to personnel and 80% must be expended to beneficiaries.

 “Categories of Distributing Agencies”. There is a need to broaden the
scope of categories and reconsider a bolishing the RDP category as it
seems to have become redundant. Other stakeholders are of the
view that the following categories should be included , namely
Education, Health and Disaster Management. Discretionary Fund ,
which can rest within the miscellane ous category , will cater for the
needs that are not covered in other sectors. Therefore, there may not
be a need to extend sectors by statute. The ones that the Act
embodies may be enough. The Act should accordingly be amended
to include a description of g rants that can be accessed through
miscellaneous funds, as well as to abolish the RDP category.

 “Direction on Funds”. There is a need to empo wer the Minister to
issue criteria through regulations . This can allow the Minister to
channel funds to specific areas , instead of distributing the funds to
areas that are not in dire need and provinces whose funds can cater
for its needs if properly focused. This can be done in accordance with
Section 32 of the Act.

 “Responsible Gambling”. The gambling cluster re gulated in terms of
the National Gambling Act, 2004 have collectively created and
contribute d to the funding of the National Responsible Gambling
Programme (NRGP). The NRGP is created to offer counse lling
service s to people with gambling problems and cond uct base studies
on the impact of gambling in society . Operators contribute an amount
equal to 0 ,01% of their Gross Gambling Revenue towards the
initiative in a voluntary manner . There have been concerns that
people with gambling problems emanating from pl aying the lott ery

32
also get assistance from NRGP , even when lotto does not contribute
towards the initiative . Other views are that the lotto already
contributes significantly in funding good cause projects , which include
rehabilitation program me s for a numb er of areas including alcohol,
gambling, prisoners and , therefore , there is no need to overburden
lotto with an added obligation. The Portfolio Committee for Trade and
Industry (PC), after considering submissions from the public hearings
on the Gambling Re view Commission Report, recommended that
lotto should contribute towards the NRGP . However, the PC further
recommended that the current NRGP should be restructured to allow
broader funding to all initiatives involved in addressing the negative
social impac t of gambling in society . It is recommended that t here is a
need to enhance the social responsibility interventions in the Act,
which can achieve the same result without compromising the policy
decision to separate lottery regulation from general gambling.
Combining the contribution to a single fund will also blur the roles of
the gambling authorities and the National Lotteries Board in the
management and oversight of such fund .

 “Sense of entitlement to lottery funds”. The uproar over unsuccessful
applicat ions has created an impression that some organisations hold
the view that the lottery funding is meant to sustain their existence in
a perpetual manner , even if the need for funding may not be in
existence. Lottery funding should be seen as an initiative that is
meant to assist where there may be lack of funding , but not as a form
of sustaining the existence of such organisations, except perhaps for
old age homes and orphanages whose nature is rather different and
may require specific intervention from th e relevant government
departments responsible for them . Lottery funding must reach as
many beneficiaries as possible ; sustaining the existence of

33
organisations that do not comply with set criteria , such as achieving
national priorities , will limit its reac h.

 The provision must outline that the approval for a grant application
does not create a legitimate expectation that funding will be approved
in the next application , even if the applicant meets all the formalities
for applying .

3.15 Harmonisation w ith Other Laws

3.15.1 There is a need to reconcile the application of the National Lotteries Act
with other legislation, in particular those administered by the dti : Such
legislation includes :

 Companies Act, 2008 requires independent reviews for small
companies . Although compilation of records is not a requirement, it
can be introduced in this scenario ;

 Public Finance Management Act should be complied with by the
National Lotteries Board and the Distributing Agencies;

 The National and Provincial Gambling Acts to ensure alignment and
streamlining of monitoring of illegal lotteries ; and

 Legislation governing not -for -profit organi sations and administered by
the department responsible for such organi sations.

3.15.2 The Act must make provision for co -operation between th e National
Lotteries Board and other funding institutions and regulators where
synergies can be achieved.

34
3.16 Education and Awareness

3.16.1 Education is one of the national priorities of Government that need s
adequate support. It is proposed that education ca mpaigns be funded
from the lottery and must comprise a function of the NLB . The Act must
thus be amended to include the education and awareness function as a
function of the National Lotteries Board .

4. Summary of recommendations

The summary of recomme ndations is as follows:

4.1. The Distributing Agencies must be professionali sed and appointed on a
full -time basis. They must also be bound by the provisions relating to
conflict of interest in the same manner and extent that the staff of the
National Lotteri es Board is bound. Distributing Agency members should
be appointed based on skills, expertise in adjudication and availability to
serve on a full -time basis to curb problems of quorum and conflict of
interest.

4.2. The Distributing Agencies should continue be ing appointed by the
Minister. But as they are part of the distribution function, they should
conform to the rules and regulations, including policies of the National
Lotteries Board as the entity that by law is required to account to
Parliament. The amend ments to the Act should clarify accountability in a
manner that removes any ambiguity.

4.3. An Internal Review Mechanism should be introduced to deal with
aggrieved applicants. In this regard, the Board of the National Lotter ies
Board should serve as a structu re to review complaints arising from
decisions of the Distributing Agencies and the decision of the review

35
should be made binding . If applicants are still aggrieved after this
process, they may approach the Court of law for relief. This aims to
reduce the costs of litigation for applicants.

4.4. The processes for accessing funds in the National Lotteries Board must
be simplified to improve service delivery. The adjudication of applications
can be guided by the nature and size of grants requested. In this case,
the grants must be categori sed into small, medium and large grants.
Small grants can be adjudicated by a three -member panel, medium
grants by a five -member panel , and large grants by a full panel subject to
quorum requirements. Forms for each of these cate gories should be
simplified to require information that is necessary based on the risk that
needs to be mitigated. This will go a long way to increas ing the speed the
of adjudication process and improve turnaround times and access to
funds.

4.5. The disburseme nt of funds includes steps from application to final
payment , with adjudication being part of this process. It is , therefore ,
important to set turnaround times for each category of grant applied for to
provide applicants with certainty and to measure the performance of the
National Lotteries Board . The Distributing Agencies should not be
regarded as independent entities, but as a step in the process of
disbursing funds for good cause. The Distributing Agencies should ,
therefore, be bound by the reporting re quirements and rules governing
the National Lotteries Board .

4.6. The size of the Board of the National Lotteries Board as an oversight
structure and accounting authority should be increased to 11 members to
enable it to perform its mandate adequately.

36
4.7. The a mendments must differentiate clearly between the National
Lotteries Board as an entity and the Board of the National Lotteries Board
as an oversight structure and accounting authority. This may necessitate
a change of the name of the National Lotteries Boa rd to , for example, the
National Lotteries Commission or National Lotteries Organi sation to
minimi se confusion.

4.8. The Act must distinguish clearly between the functions of the Minister and
those of the Board of the National Lotteries Board to prevent concer ns
arising from the ambiguity in the Act. In this regard, the Board should not
be allowed to vary the conditions of a licen ce issued by the Minister.

4.9. The Act should provide for both application -based and proactive funding.
In this case, proactive funding should be guided by research that is
informed by national priorities. The Minister should be allowed to
determine the percentage of allocation that can be given to proactive
funding, and review it from time to time. Proactive funding will help
support good causes timely, particularly in the case of disasters such as
floods or storms.

4.10. The Act must clarify the process and the terms through which conduits
can be funded. Conduits pose a risk as they are meant to provide further
funding to good cause , but vario us grants have raised significant
concerns.

4.11. The Act should align financial accounting requirements to the Companies
Act 2008, as amended, to reduce the burden on smaller organi sations to
have financial statements audited.

37
4.12. Education and awareness must be included as part of the functions of the
National Lotteries Board in the Act. This will assist entities to understand
the requirements to properly apply for report against funds .

4.13. The Act must be harmoni sed with the other laws to improve enforcement
and m onitoring of compliance.

4.14. There are a number of technical amendments that have been identified
over the years of implementing the Act. These are articulated in the
policy , but are not necessarily exhaustive. The drafting of the Bill will
bring more technic al errors to the fore and these will be corrected
accordingly.

5. Conclusions

5.1. It is proposed that the recommendations as outlined in the discussion be
accepted and used as a basis for amending the legislation. Functions and
roles of structures or bodies should not create anomalies that will make
implementation of the Act impossible. It is believed that if the policy
recommendations are followed, all problems that previously marred the
administration of the lottery will be solved.