National Lotteries Commission Annual Report 2021/22 & Q1 2022/23 Performance

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Trade, Industry and Competition

26 October 2022
Chairperson: Ms J Hermans (ANC)
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Meeting Summary

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National Lotteries Commission (NLC);

The Portfolio Committee on Trade, Industry and Competition held a virtual meeting to receive a briefing from the National Lottery Commission on its 2021/22 Annual Report as well as its first quarter financial and non-financial performance for the 2022/23 financial year.

While the report was on the activities of the Commission, there was a greater interest in new and departed personnel. The newly appointed Board Chairperson met the Committee for the first time as did the other board members, including the Minister’s representative on the board. The Committee was informed that three senior staff members had resigned and several others had been charged for involvement in the corrupt activities that the Special Investigating Unit had identified. The process of consequence management was ongoing. An anti-fraud task team has been established to coordinate and cooperate with Special Investigation Unit, the Directorate for Priority Crime Investigation (the Hawks) and Asset Forfeiture Unit to bring criminal charges against implicated individuals and recover assets. In consultation with the Board, the Minister concluded a two-year extension of the Third National Lottery Licence.

On an operational level, the Commission was strong and ticket sales for the lottery had continued to pick up following the decline during the Covid-1 pandemic. The challenge was that demand outstripped available funds as the demand was driven by the current economic conditions. Unauthorised agents operating in the country and from outside SA's borders was an ongoing challenge. Despite a slight improvement in ticket sales, the National Lotteries Commission operating costs increased by 6.6% to R570 million, mainly due to an increase in investigations, legal fees, advertising and publicity. The Commission received a qualified audit with findings of R36.8 million in irregular expenditure; both the National Lotteries Distributing Trust Fund and the National Lotteries Participants Trust received qualified audits. Reasons for the qualification included a lack of consequence management, collusion at high levels and a general lack of monitoring of functions.

Members welcomed the openness and transparency in the reports. Members asked for a breakdown of the ever-escalating legal fees that showed how many millions were spent, and what the money was spent on. What was the Commission going to do concerning the significant sums of money that had been spent with particular newspapers that showed a bias in favour of the National Lottery Commission? Should there not be a broad investigation into media capture by the Commission and the fact that certain media houses were willing participants in that exercise? Could the Committee get an indication of the size of the portfolio that the Commission was currently holding, and what kind of investments they were? Were there sufficient internal mechanisms in place to prevent large-scale looting as had occurred in the Commission? In terms of the weaknesses identified in grant funding, what measures would be put in place to address that? What would virtual monitoring by the Lotteries Commission entail? How did the Commission enforce action against illegal lotteries activities?

A Member asked if a special consideration could be made to see if the Commission were not able to give some sort of partial funding to animal welfare organisations that were highly reliant on such funding. What role did the Commission play in assisting people who became addicted to the lottery? What was being done about the process of education and awareness, underage activities and poverty alleviation?  What was the relationship between the Lotteries Commission and the National Gambling Board and was there collaboration? How much lottery funding had gone to projects with the 12 or 13 kings in South Africa? Were any projects funded to promote the writing or rewriting of issues of history and geography and all those aspects necessary for rebuilding a nation?

Meeting report

Opening Remarks
The Chairperson informed the Committee that the purpose of the briefing from the National Lotteries Commission was to engage on its financial and non-financial performance for the 2021/22 financial year, including a briefing on the financial and non-financial performance for the first quarter of the 2022/23 financial year for the Portfolio Committee to assess the performance of the National Department of Trade, Industry and Competition entity, the NLC, against its resource allocation in compliance with section five of the Money Bill.

Ms Nontombi Matemola, Acting COO, Department of Trade, Industry and Competition (dtic), introduced the Acting Commissioner of the NLC, Mr Lionel October, who led the management team from the NLC.

Mr October indicated that the Board Chairperson, Dr Barney Pityana, and members of the board were in attendance and he would hand over directly to Dr Pityana.

Dr Pityana introduced the board members: Ms Beryl Ferguson, Dr Cassius Lubisi and Ms Precious Mvulane. He explained that the remaining board member who had years of invaluable and relevant experience, Mr Willie Hofmeyer, was not well and so was not in attendance.

Dr Pityana added that board members were appointed at the end of March, but he had only joined the organisation in July by which time the Annual Report had been finalised. As a result, he called on Ms Ferguson to introduce the Annual Report. He would make some concluding remarks at the end.

Presentation by the National Lotteries Commission
Ms Ferguson introduced the presentation. She explained that the Board was appointed in March 2022 and the immediate task was to stabilise the institution. She mentioned the NLC’s mandate and role and spoke briefly of notable outcomes since 24 March 2022, including disciplinary processes against senior management and the resignations of the former Commissioner (Ms Thabang Mampane), CFO (Ms Xolile Ntuli) and COO (Mr Phillemon Letwaba). Some persons implicated in the investigative reports had been suspended and disciplinary processes had commenced. An anti-fraud task team has been established to coordinate and cooperate with the Special Investigation Unit (SIU), the Directorate for Priority Crime Investigation (the Hawks), and the Asset Forfeiture Unit (AFU) to bring criminal charges against implicated individuals and recover assets. In consultation with the Board, the Minister concluded a two-year extension of the Third National Lottery Licence.

Mr October stated that he was accompanied by the entire management team of the NLC. He said that the presentation was a balanced one that would acknowledge the challenges but also the strengths. Highlights for the 2021/2022 financial year showed a notable 34% increase in jobs created or supported but the NLC had closed down 56 investigated illegal lottery schemes. The NLC collected R1.64 billion from the national lottery operator, up from R1.48 in the previous financial year. He pointed out that the NLC did not receive any funds from the fiscus. As the largest grant funder, the Commission reached 3 294 beneficiaries, 400 fewer than the previous year, but more money was distributed at R1.2 billion as opposed to R1.14 billion in 2020/21.

Ms Tintswalo Nkuna, Executive Manager: Regulatory Compliance, NLC, briefed the Committee on the regulatory compliance highlights. She also presented the operational outcomes for the year on behalf of the Acting COO, the challenges being that demand outstripped available funds as it was driven by the current economic conditions. Unauthorised agents operating in the country and from outside SA’s borders was an ongoing challenge.

Ms Nkuna noted the grant funding highlights.

Ms Khanye Malibongwe, Acting CFO, NLC, said that revenue from the share of ticket sales increased by 10% to R1.64 billion. This marginal recovery reflected a slight progress in ticket sales after the slow sale of tickets at the height of the Covid-19 pandemic; NLC operating costs increased by 6.6% to R570 million, mainly due to an increase in investigations, legal fees, advertising and publicity. The NLC received a qualified audit with findings of R36.8 million irregular expenditure; both the NL Distributing Trust Fund and the NL Participants Trust received qualified audits. Reasons included a lack of consequence management, collusion at high levels and a general lack of monitoring of functions.

NLC First Quarter Financial and Non-Financial Performance for 2022/23 Financial Year
The First Quarter Report for 2022/23 was presented by Ms Anashnee Maharaj-Domun, Senior Manager: Corporate Performance and Monitoring. She presented the progress against the key performance indicators.
Highlights included participation in protection awareness and education programmes conducted in five provinces via over 165 education and awareness sessions. Socio-economic development included 1 789 jobs created, or retained, in Quarter 1 and R27 million allocated to KwaZulu-Natal and Eastern Cape for flood relief efforts via the proactive funding model and R120 million allocated through the application-based model.
(See Presentation)
Discussion

Mr M Cuthbert (DA) said that it was a refreshing change to have openness and transparency in the NLC and he hoped that it would continue in that fashion. That marked a significant change for the NLC and he hoped that it was not just a one-off deal and that it continued to operate in that fashion because it was important that not only Parliament but also the public, were allowed to zoom into what exactly was happening at the entity, considering the significant sums of money that it dispersed on an annual basis.

Mr Cuthbert noted the slide that referred to media spin, and it was something that he had submitted as a parliamentary question in the past. In the responses to his questions, he had gained the impression that the previous leadership in the NLC had been buying favourable media coverage. There had also been some information that certain critical stories were killed by the editors of newspapers. Those were very, very serious allegations. And as one would know, significant sums of money had been spent with particular newspapers that showed a bias towards the NLC. Aside from the Auditor-General’s report and the investigation, what was the NLC going to do in that regard? Should there not be a broad investigation into media capture by the NLC and the fact that certain media houses were willing participants in that exercise?

He noted that Ms Zandile Brown was on the platform. Had she been re-appointed? If she had not been re-appointed as the Minister's representative to the board, who was appointed?

Mr Cuthbert said that the NLC had put out a statement approximately a month previously, saying that the NLC would no longer be supporting animal welfare projects. He understood the core mandate of the NLC was to ensure poverty alleviation and assist people who were in need and vulnerable, but there was a duty of care to sentient beings. And noting that several deserving charitable organisations that dealt with animals were left out due to other people having benefited from money through hijacked NGOs, he asked if a special consideration could be made by the board and its leadership to see if it were not able to give some sort of partial funding. Those organisations were highly reliant on the funding provided by the NLC. It was just a plea to the leadership to see how they were able to accommodate that particular request.

He had picked up in the past that there was a significant sum of money contained within the investment portfolio and it was never really clear as to what the purpose of the investment holding was, and where those monies were kept, particularly what types of assets the money was invested in. Could the Committee get an indication of the size of the portfolio currently, and what kind of investments they were? Would the board consider selling those particular properties? He was not sure why a charitable, developmental institution should be holding such significant sums of property.  The SIU had not investigated property transactions but the matter had to be addressed.

Mr Cuthbert enquired how far the process of appointing a permanent Commissioner was. He understood that the advertisement had gone out.  When would a permanent Commissioner and executive team be in place?  Other dtic entities had had acting positions for years.

Mr W Thring (ACDP) noticed that mention had been made of the illegal lotteries or companies fronting as lottery companies, such as Lottostar. What was being done to regulate such activities, which included the advertisements on the radio and so on at a time when children were being taken to school? Mr October mentioned that some 100% of all illegal lotteries had been investigated. Was it 100% of the target or 100% of all illegal lotteries? With regards to the illegal lotteries, how many had been prosecuted? How many had been shut down?

Mr Thring had also noted that many participants playing the lottery were gamblers and had become addicted to gambling on the lottery. What role did the NLC have in assisting those who were seized by such addiction? The Portfolio Committee had received a presentation previously by the SIU with regards to the hollowing out of the NLC by syndicates operating internally. Were there now sufficient internal mechanisms in place to prevent such large-scale looting?

Ms R Moatshe (ANC) noted the virtual monitoring by NLC. What did that entail? In terms of the measures required to address it, had the entity developed an action plan regarding the weaknesses identified in terms of grant funding? And if yes, what actions would be taken? And what was the timeframe?

Mr S Mbuyane (ANC) asked what action was being taken to address the recommendations of the AGSA.
What was it doing about the weaknesses identified in the grant funding, and the measures required to address the illegal lottery schemes? How did the NLC enforce action against the illegal activities that had resulted in the 56 lotteries being closed down?  What was being done about the process of education and awareness, underage activities, and poverty alleviation? He encouraged the NLC to go to all nine provinces and not focus on the three major provinces only. What was the relationship between the NLC and the National Gambling Board and was there collaboration in dealing with illegal gambling schemes?

Mr Z Burns-Ncamashe (ANC) asked about the pro-active funding mechanism that had been used for siphoning off NLC funds. It had been abused but it was responsive to the plight of the downtrodden and deserving historically disadvantaged communities and so was still a necessity. So, a humanitarian body like the NLC could not abandon such a strategic instrument to transform the socio-economic situation of the communities. What measures were in place to ensure the policy was exercised while prudence was the order of the day?

The community outreach as well as the monitoring and evaluation (M and E) of projects interested him. What mechanisms were in place for outreach and M and E of funded projects? He asked about the intensity of the outreach programme. In the rural communities, some applicants exploited the opportunities offered by the NLC and it might be that there was no clear monitoring and evaluation mechanism or system. One clever person who understood the system could put together an application complying with all that was required. Ultimately, the person would get the funding and the NLC would finally realise that the project had never existed and the money had been embezzled and there was no portfolio of evidence in terms of the project for which the money was applied.

Mr Burns-Ncamashe asked for a list of projects that had been funded, including precise locations so that, as part of the oversight function of the Committee, Members would have an opportunity to go and see whether indeed, there was value for money. He saw that the proactive funding for the Arts was about R36 million. He assumed that was for arts, culture, heritage, and tradition. When one talked about issues of arts, culture, and heritage, one was talking about the soul of a nation. With the degeneration of morals in society, the need for new methods of enculturation, and innovations around that was essential and the NLC had to look at it differently in terms of how it allocated funding going forward. Could he get a sense of how much had gone to projects with the 12 or 13 kings in South Africa?  Were any projects funded to promote the writing or re-writing of history and geography and all those aspects that are necessary for rebuilding a nation? He looked forward to the funding of projects that talked to indigenous music and the whole value chain of indigenous knowledge systems. Those aspects remained very important in regenerating the moral fibre of a nation.

Mr C Malematja (ANC) was worried about the qualified audit report. He hoped, with the new board, the Committee was not going to see a repeat of the past two years where the NLC had obtained qualified reports. If one found a qualified report in an institution that dealt with money, one knew that the money had disappeared and there was an element of corruption and all those negative things that were not desired by the nation. The report said the NLC had achieved 90%, 94%, 100%, but when the Committee checked the progress themselves, one target was used for the entire country and only one province benefitted. The NLC was just complying in terms of reporting. That was not correct. The Committee wanted to see massive projects taking place throughout the country, as requested by his comrades.

He expressed concern that there were entities that were assumed to be entities that dealt with poverty and improved the life and living conditions of the poor but one found that the entity was structured in a such way that it was all about staff getting high salaries. People were getting high salaries left and right and at the end of the day, R3 million was gone just on salaries. One questioned what had been achieved but they could not point to anything. So why do they earn so much money? When would that be corrected? So those were things that the NLC should be worried about. Now there was a newly appointed chairperson, so people could not say they did not perform because they had no chairperson. There were rotten elements within the entity and they had to be dealt with. What kind of consequence management would be applied for non-compliance with the National Lottery legislation and regulations?
 
The Chairperson requested the NLC to also respond to the three questions from Dr Tshwaku in the virtual chat room as he had connectivity problems. There were already 24 questions but she asked for a breakdown of the ever-escalating legal fees so that Members could see how many millions were spent, and what it was that the money had been spent on. That was necessary as part of the oversight of the Committee. How many of the acting positions had been filled as per the Annual Performance Plan by the end of the 2021/22 financial year? And if not, what was the plan? What was the timeline for those positions to be filled?

She noted that the report spoke about the monitoring of projects. What did virtual monitoring entail? Were they going to send out drones? Could the Committee be taken on board as far as that was concerned? In her constituency, the parliamentary constituency office was doing education around the National Lotteries Commission, how to apply for funds, etc. Whilst that was very useful, did the NLC contract out their community outreach work? How widespread was that type of project because it could assist in getting the message out to all marginalised and poor communities?

Mr October asked Mr Njoni to respond to the first set of questions.

Mr Nkhenso Njoni, Senior Manager: Financial Accounting, NLC, indicated that in terms of investments, the NLC invested in line with the provisions in Section 25 of the Lotteries Act, which provided that if money was not immediately required, those funds might be invested in the Public Investment Corporation (PIC) or with financial institutions that were approved by the Minister of Finance. Where investments had been issued, the funds were currently in a holding account. Previous investments were from what the National Treasury had granted in terms of an exemption for the investment of surplus funds in April 2003 and Treasury had given an exemption for public entities required to invest with financial institutions in terms of the investment policy. NLC had invested with financial institutions in fixed deposits. But NLC also invested with the PIC. Where there were surplus funds currently in the call account, the entity had engaged with National Treasury on those funds as Treasury had withdrawn the previous exemption and all entities were required to invest in the PIC unless Treasury exempted the entity, so the NLC had engaged Treasury on the matter.

He added that Members should be aware that the National Lotteries Commission did not get funding from the fiscus. Certain items in the investments would have to be checked when the license of the national operator came to an end. And currently, the NLC was heading for the fourth National Lottery license, and that would affect the revenue in the first couple of months, or the first year. Those funds would be used as a buffer to assist in the first year in terms of that reduced income. There had also been periods where the lottery had been suspended for a period of time, and those funds would be utilised at such a time. But also, in terms of anything that the Commission needed to invest in, those funds would assist.

Mr Njoni moved on to animal welfare. From the Commission's perspective, the demand for funding, as indicated by Ms Nkuna when she was presenting on the operational outcomes, far outstripped the supply in terms of the amount available. In the previous financial year, requests totalling R4 billion were made, and the NLC only had R1.2 billion available. And therefore, it was difficult in terms of the choices made, but allocations were based on research and an assessment of priorities at the time. The entity reviewed its funding priority areas on an annual basis and it would consider trends and needs as well as the social and economic priorities facing the communities. It was a tough decision to exclude animal welfare but the NLC was currently reviewing the funding priorities for the 2023/24 financial year and recognised that animal welfare was an issue that people felt strongly about. And, in the rural communities, animals were their livelihoods, and the entity certainly would consider feeding animals and animal welfare in the 2023 call.

Ms Nkuna responded to the illegal lotteries and regulatory compliance. There was a need to distinguish between the lotteries licenced by the provincial lotteries boards that the entity did not deem as illegal lotteries. However, they were concerned as they were competing with the National Lottery. A case in point was Lottostar which was licenced but the NLC had approached the courts as it believed that the activities of Lottostar as a bookmaking activity were contravening the Lotteries Act, and they were lottery-type activities. That matter was brought before the court and Lottostar was granted leave to appeal the initial court outcome that said that it was an illegal lottery. It was an unlawful lottery contravening the Lotteries Act. The NLC was awaiting the outcome of the appeal on that matter.

She said that there were other types of illegal lotteries that the NLC took enforcement action against. Generally, they were lotteries that ideally should be licensed or registered with the NLC, such as fundraising activities by non-profit organisations that required registration as society lotteries. There were also promotional competitions or competitions run by profit-making companies to make a profit and not promote their products. Those were the ones investigated. The target was that in every financial year, NLC investigated 100% of all illegal lotteries that had been identified or reported by members of the public, so that it was able to take the appropriate enforcement action. There was not a specific number per annum. Hence, the NLC measured its performance based on the percentage of investigations because, at any given time in any financial year, different operators would be running unlawful lotteries. The NLC investigated all those it became aware of. Research undertaken by NLC measured the impact of illegal lotteries, their nature, their modus operandi, and also the various enforcement initiatives that could be undertaken. However, the challenge it had, particularly with the current legislation, was with those taking bets on the outcome of lotteries, including the National Lottery. That was in line with gambling legislation and regulations which fell outside the mandate of the NLC which had competing interests in terms of protecting lotteries as opposed to the regulated activities of the gambling sector.

Ms Nkuna added that in terms of enforcement action, there was firstly an investigation conducted into those identified lottery schemes that the NLC deemed to be illegal. As reported, in the previous financial year 56 illegal lotteries were closed; they would have raised R77 million. In most cases, the NLC received cooperation from those operators because they were usually unaware of the provisions of the Lotteries Act, and most of them would have been running a competition, raffle, or fundraising activities, mainly for fundraising to support their operations and not as a profit-making mechanism. The NLC had engaged with the policy-making division in dtic to look at ways to enhance the enforcement mandate and to ensure that the country was rid of the scourge of illegal lotteries. The biggest challenge was those lotteries that were licensed. Some lotteries were licensed in other jurisdictions, but South Africans were not allowed, by law, to participate in lotteries outside of the Republic of South Africa due to access via the internet and social media. For those lotteries that were licensed in other jurisdictions, it would be legitimate to operate in other countries, except where domestic law prohibited the practice. Other lotteries were operating illegally in their domestic countries, but they offered their products on the South African market. Those were the ones that the NLC identified and investigated. It was proving to be challenging to identify them so the current focus was on looking at those lotteries that were promoted online which allowed investigators to verify their IP addresses and to determine in which jurisdiction they operated. That allowed the NLC to engage with regulators in those jurisdictions to assist in the capping of those illegal lotteries.

In terms of gambling addiction, the NLC engaged with the Responsible Gambling Foundation and collaborated with other provincial licensing authorities. It was actively participating with the Limpopo Gambling Board and had signed a Memorandum of Understanding. In the NLC education and awareness programme, issues of prevention of excessive play were highlighted as well as an awareness and prevention of underage playing.  As part of the monitoring activities, the team visited retail outlets where National Lottery tickets were sold, making sure that they had playing limits that were adhered to by the operator. Counselling was made available, should there be persons found to be addicted to lottery-type games. With the lottery, there had been strict control in terms of the number of games available and play limits for every game. The education and awareness programme focussed on responsible playing. The NLC had partnered with provincial licensing authorities, together with the Responsible Gambling Foundation to assist in terms of tackling the issue of excessive gambling.

Ms Nkuna moved on to the question of illegal lottery schemes and how those were enforced. She had touched on the investigations that the NLC conducted, informing operators of contravention of the Lotteries Act and why those activities were deemed to be illegal so that they signed an undertaking to discontinue their operations. If then they are not willing to do that, then the NLC took those operators to court, but in most cases, they signed. The main case had been Lottostar but there was another licensed bookmaker that the entity viewed as contravening provisions of the Lotteries Act, and it was also preparing a legal case in that regard.

Ms Nkuna explained that the collaboration with the National Gambling Board (NGB) was based on a signed memorandum of understanding. Management engaged periodically with the National Gambling Board as it actively monitored issues of unlawful winnings from lottery and gambling activities, particularly those that came from winnings from online lottery plays that were not registered in South Africa and not licensed by the National Lotteries Commission. When the National Gambling Board was reviewing its legislation, NLC provided input. The NLC also participated in the NGB education and awareness programme and the investigation of illegal lotteries and illegal sports gambling. The NGB identified people taking bets on the outcome of lotteries, including African lotteries, lotteries in the UK, or any other jurisdiction, so the NLC collaborated in investigations to verify that those types of activities were either licensed by the NLC, or by a provincial licensing authority. Those were joint enforcement initiatives.

With regards to the question on community outreach, particularly with monitoring and evaluation, Ms Nkuna said that the NLC did try to reach many of the organisations that it had funded to monitor the implementation of the projects, based on the funding they had received. The Commission had limited capacity to cover all organisations, however, it had adopted a risk-based approach, where it was able to profile organisations either first-time applicants, those who had been funded before and were compliant in reporting on the funding that they had received, but also with the type of funding that was requested. Monitoring consisted of a pre-funding site visit undertaken before an organisation was funded to verify the existence of the organisation, its capacity to implement the project, and to verify that the initiative that the organisation wished to implement was what was desperately needed to support the community. If necessary, the NLC could fund other, more suitable, activities. So pre-funding site visits had been identified as a way of trying to mitigate the risks raised by one of the Members. An organisation had to submit a progress report six months after receiving the first payment which was then reviewed by the NLC team. Where the reporting was not adequate, there would be a post-funding site visit to ensure that the project was being implemented as intended and funded by the NLC. There were challenges in terms of rural communities, and others, being exploited by persons who knew how to apply for NLC funding for good causes. They exploited profit organisations under *the guise of trying to assist them. That was an area where the investigation unit reviewed applications and investigations were conducted to determine the legitimacy of those organisations. Some organisations were honest and were able to account, but some misused the funding that they received. The issue of monitoring and evaluation and increasing the outreach was noted and was one of the areas that the NLC, through its board, had identified as needing improvement.

Mr October said he was concerned about the media spending which had been identified in the Auditor General's report. There was a culture of non-compliance, especially with procurement and supply chain management provisions. There had also been repeated findings around the media. So that was part of the investigations for a firm of forensic auditors appointed a few weeks earlier. In terms of the Public Finance Management Act (PFMA), the NLC had to act because the AG had identified financial misconduct in the area of media spending. He would be attending to the matter and would be able to stop the irregularities concerning media spending.

Mr October responded to Mr Burns-Ncamashe regarding the bogus applications. The issue was not so much with monitoring and evaluation after people received funding. The problem was a very weak verification process and due diligence at the application stage resulting in many bogus applications slipping through the system. The NLC was working actively to strengthen the verification and registration system of non-profit organisations (NPOs). The Commission had set up a team of the Chief Information Officer (CIO), together with the Companies and Intellectual Properties Commission (CIPC), the SA Revenue Service (SARS) and the Department of Social Development. The NLC would be instituting a system similar to CIPC and SARS so that verification began at the application stage to verify that an NPO was genuine, and a genuine applicant was behind the application. Already, the NLC had rooted out some of the bogus applications at the application stage.

He noted that Ms Kuna had spoken about proactive funding. It was abused because of evil leadership. That was the area that was most abused, but there was nothing inherently wrong with proactive funding so the NLC did not want to throw the baby out with the bathwater in the review process. The NLC needed to have more strategic partnerships with its community, whether they were the NPOs, the churches, or traditional leaders. If the Commission formed long-term partnerships at the community level, it would be able to then ensure that proactive funding was used properly and went to the right beneficiaries for good causes. The NLC was looking at tranche funding so it did not give access to all the money in one go. Monitoring and evaluation had been spoken about but the Commission also intended to install an inspectorate. Monitoring and evaluation dealt well with the impact of the work on the ground, but it did not deal very strongly with compliance and the inspectorate would look at the money and whether it was being used for its intended purpose. The inspectorate would also check the proactive funding.  20% of the funding went to proactive funding; 80% went through the distribution system.

Mr October addressed the question of legal fees. Besides the media, legal fees was the other major area of concern and the Minister had agreed to an investigation and to get a full breakdown of each and every expenditure. The Auditor-General had also identified legal fees as an area of repeat findings. There appeared to be a poor use of legal fees because people used legal fees for private purposes. The Commission would be acting both on legal fees and media buying. The audit committee and the board had adopted the Auditor-General's findings. Once an entity adopted the AG's findings, then the PFMA kicked in and the accounting officer and the accounting authority had to act. And as he had said, the reason for the repeat audit finding in the institution was because there was no consequence management, the PFMA was never implemented, and no action was ever taken against people who did not follow procurement processes. He would be acting in terms of that and acting very strictly. Forensic auditors were looking at that as well.

Regarding community outreach programmes, the Commission would be much more responsive in future. Currently, the board was on a roadshow. The Board Chairperson had already been to the Eastern Cape. Currently, he and Ms Mvulane were in Limpopo, so there would be a roadshow to all the provinces where the Commission would interact with the provincial offices and then also strengthen the partnerships with the NPOs and the beneficiaries at the community level.

Concerning the appointment of the permanent Commissioner, Mr October assured the Committee that the process was well underway. Interviews were starting the following week and the board was seized with putting a Commissioner in place; it was the priority of the board. Virtual monitoring would be linked to the IT system. There was not a proper IT system or digital system and even in the proactive funding, there was a breakdown with regard to the electronic keeping of records. The Commission would be going purely digital; the CIO was working on a digital strategy so that every transaction would leave a digital footprint. Every applicant, every individual who applied could be tracked from the point of application and then throughout the value chain. CIPC had gone from a manual system to a 100% electronic system so it could be done, and one could have a massive outreach.

Mr October added that the Minister’s representative was Dr Cassius Lubisi who was a former DG in the Presidency and Cabinet Secretary. He had replaced Miss Brown from the end of March 2022. Shortlisting for Chief Audit Executive and the CFO would be completed in the week, but the board had prioritised the Commissioner’s appointment. And then there was just the COO. Vacancies would be filled in November 2022.

The Chairperson requested that a list of projects that had been funded be provided to the Committee and that it be updated.

Mr Burns-Ncamashe noted that the Board Chairperson had started an outreach programme and that
was a good initiative.  Each Member of Parliament who had a constituency had a parliamentary constituency office. Could the outreach programme link to the constituency offices, so that those constituency offices could assist in the dissemination of information to communities and so on and so forth?

The Chairperson asked the NLC, given its mandate, to work closely with the public education department in Parliament as it worked with constituency offices and did very good outreach work. She appreciated the work that had been done under very difficult circumstances by the new board and wished the board well under the leadership of Prof Pityana, for the difficult task that lay ahead in restoring confidence in the entity as great damage had been done in the past. The Portfolio Committee, as it did with other entities that were challenged, would be seeing the Commission frequently and conducting oversight frequently; so the Committee would walk the path with the Commission.

Prof Pityana said, on behalf of the board and staff, he had a few matters to bring to the attention of the Portfolio Committee. The Commission was engaged in a process whereby it supported the investigations that had been initiated both by the President and by the Minister, and also by the Commission, and to following up mechanisms to make sure that it wrapped up the work of bringing significant activity and breadth to the work of the National Lotteries Commission, through the ongoing workshops. There would be prosecutions to follow as well as efforts to make sure that the money that had been abused was repaid. That work was underway. The second thing that was in process was to make sure that an appropriate environment was created within the institution as, indeed, in some respects the NLC had been hollowed out and had been re-purposed for something other than what was intended. The National Lotteries Commission did not feature in the Zondo Commission but it was the same process that had re-purposed the National Lotteries Commission. The important thing for the Commission to make progress was to acknowledge that the effort to break down a very, very important structure of the state had been far advanced but now it had been stopped and there could be no turning back. The board had the unenviable responsibility of moving that execution forward, making new beginnings, and rebuilding that which had been broken.

He said the board would do that by making sure that there was an environment among the staff, and many of them were highly gifted staff who, in large measure, had been demotivated by what had been happening. There was a culture of intimidation and of fear that he was discovering every day, and many staff were living in amazingly, incredibly, dangerous situations. Many of the staff were, inevitably, also targets of criminal activities and syndicates. In due course, it looked like the staff were going to need protection because of what had been happening. Instead of communities recognising the staff as the bringer of joy, of good news, of development, of social cohesion, of making a difference in the lives of our people, oftentimes the staff were seen as a threat to what people had been receiving. The staff component of the organisation needed rebuilding, and to go back to what was intended in the Constitution: a culture of ethical moral life, openness, human dignity and to make sure that they worked out of respect and higher regard for people.

Prof Pityana continued. The third thing was to strategise and re-strategise. The critical aspects of the work of the Commission had been raised at the meeting, both in terms of looking at grant funding rules and policies. Policies had to synchronise with priorities, with what was happening on the ground. It was a particularly difficult time for people, with the cost of living so very high. Poverty was rampant in many communities, and rural communities were crying out for attention everywhere they went. The Commission needed partnerships: partnerships with traditional leaders, partnerships with municipalities, partnerships with provincial governments, partnerships with religious organizations; partnerships with government departments. The board members were going out of their comfort zones; going to meet communities where they were, and meeting staff at their desks. Board members were listening to them, and trying to understand the environment in which they worked. They were going to provinces and meeting beneficiaries in the places where they were working.

He stated that one of the key issues that the Minister had emphasised in appointing the new board was to restore the mission of the National Lotteries Commission, to restore the trust of the people and to partner with government to transform the lives of the people. People should begin to trust that the R5 a week that they put towards a ticket, ultimately made a contribution bigger than the ticket; it was a contribution to the well-being of many people, many of whom they might never meet. The questions on the proactive funding were quite correct because it was a mechanism to enable a quick turnaround and the identification of an urgent problem, and being able to act promptly. The board wanted to understand the difference between proactive funding and funding by application. What was the research that triggered proactive funding? The board would be working carefully on those matters. The National Lotteries Commission was making a new beginning financially. On behalf of the board, he thanked the Portfolio Committee for the reception and the questions that were raised. As the Acting Commissioner had said, the Committee should feel free to raise any questions directly with the board, and the members would endeavour to answer the questions. The board was trying to create an environment of openness and making sure that it could be held accountable by the relevant public bodies.

He said that the board was working towards first finalising the appointment of the Commissioner as, according to the Act, the other staff positions were the prerogative of the Commissioner who had to make appointments in consultation with the board. Having said that, Prof Pityana took the opportunity to thank Mr October for coming to the Commission’s rescue at a very critical time and bringing with him a lot of experience and understanding and heart and passion in the short period that he had been with the Commission, and for giving staff another good reason for coming to the office every day. The atmosphere had been very, very different with Mr October amongst the staff and he did appreciate the work that he had done. He was going to leave sooner than Dr Pityana would prefer, but he believed that they would be able to recruit a Commissioner so that the other senior positions could also be filled with the greatest of speed.

Prof Pityana thanked Minister Patel, the staff in the Minister's office, and the Department for the collaboration that they had received both in terms of investigations and also in terms of strategy and the critical issues that the board had to deal with. The partnership with the Department had been just incredible. He thanked his colleagues and the staff of the National Lotteries Commission.

He almost forgot about the question on animal welfare. It was a very difficult one. The acting CEO had answered it adequately, but he wanted to say that, even within that policy there were important considerations that had to be considered and one was that there were instances where animals were necessary to assist, for example, people with a disability. Where animals were needed to improve the lives of the people, that was something that the NLC would always consider, quite regardless of the policy of the Commission. He did not want people to go away with the idea that there was a blanket prohibition of grants to animal welfare organisations.

Closing Remarks
The Chairperson closed the meeting by saying that the Portfolio Committee would soon be paying an oversight visit to the NLC to observe progress.

The Committee Secretary informed Members that the following meeting would be on Tuesday, 1 November 2022: a briefing by the Minister on the 1st and 2nd Quarter dtic financial and non-financial performance; on Wednesday 2 November 2022, the South African Bureau of Standards and the National Regulator of Component Standards would provide progress reports.

The meeting was adjourned.

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