Lottery law tweak sparks abuse fears

Proposed changes to the Lotteries Act could see an organ of state appointed as the licensee to operate the country's billion-rand national lottery.

The recently published draft Lotteries Amendment Bill includes changes to the definition of a "licensee" to include a person or organ of state. And in the event that the minister of trade and industry decides, on "justifiable grounds", not to award the licence to operate the lottery, the Bill allows the minister to nominate a state body to conduct the lottery for up to eight years, after consultation with the National Lotteries Board (NLB).

The Bill also permits the minister to appoint a person or an organ of state as the licensee for a nonrenewable period of two years if, at any time, the current licensee is unable to operate the lottery or to meet the conditions of the licence, or if the licence is suspended, revoked or has expired.

The revision of this aspect of the law is intended in part to avoid the problems seen in the past when the lottery was temporarily suspended while opposing bidders battled it out in court, according to the department of trade and industry.

During 2007 the former licensee, Uthingo, challenged the award of the licence to the current operator, Gidani. The delay caused by court proceedings halted the lottery temporarily, with a resultant drop in sales and loss of revenue. However, the proposed provision has raised eyebrows among civil society organisations and opposition parties.

Janine Ogle of the Funding Practice Alliance (FPA) said it raised questions about which organ of state could be appointed and, practically, it was not clear how it could be implemented given the technical expertise, staffing requirements and infrastructure needed to run the lottery. "I just don't see how it would work," said Ogle.

A state-run lottery
The provision has also raised the spectre of a state-run lottery, which the FPA has objected to in the past. Returns from the lottery are distributed to civil society organisations through the National Lottery Development Trust Fund and its distributing agencies, which is overseen by the National Lotteries Board.

The disbursement of funds has been a long-standing bone of contention for many charitable organisations that have applied for funding. There are three distributing agencies — one for arts, culture and national heritage, one for sport and recreation and a third for charities.

Its funding of politically affiliated organisations — including awarding R1-million to the trade union federation Cosatu for its 25th anniversary party in 2011 and R40-million to the National Youth Development Agency for its world festival for youth and students, dubbed the "kiss fest" — has been dogged by controversy.

In a report released in 2011 examining the funding mandates of the National Lottery Development Trust Fund and the National Development Agency, the FPA noted that "grant-making has been riddled with ineffective and sometimes confusing lines of communication and accountability between the [board], the minister and the three [distribution agencies]. The consequence has been that nobody associated with … grant-making has been held accountable for the NLB's inability to disburse funds effectively and efficiently [to civil society organisations]."

The FPA's report stated that any potential shift to a state-run lottery would have a "crippling impact on civil society" and could risk diverting much-needed funds away from civil society organisations. The existing challenges of accessing funding from the lottery were only likely to get worse if lottery revenues went directly to the state or the various departments for disbursement, said Ogle.

Democratic Alliance MP Geordin Hill-Lewis said the provision was a "heavy-handed" approach to the range of changes needed in the law governing the lottery. "It creates the scope for massive corruption by civil servants who will have control of the billions of rands flowing to the lottery," he said.

It could also result in less money flowing to worthy causes due to the delays associated with government administrative processes and bureaucracy, he argued.

Not addressing problems
However, the Bill does include changes aimed at addressing some of the problems that have agitated civil society in the past, and it aims to implement the recommendations of a review of lottery policy, which was completed by the department last year. The recommendations include provisions to clarify the accountability of the distributing agencies, professionalising the agencies by appointing members on a full-time basis and introducing an internal review process for aggrieved applicants, among others.

Gidani was fined R7.5-million in 2011 for failing to meet its licence conditions after security breaches were detected, according to the annual report of the board.

The spokesperson for the board, Sershan Naidoo, said the fine had been paid in full. "Gidani has increased and improved on security controls," he said. "The NLB continues to closely monitor the licence for any breach. The NLB is satisfied that the measures are in order."

According to the board, by March 31 this year the annual accumulated amount in the fund was R2.4-billion, and it had disbursed R1.7-billion between April 1 2012 and March 31 2013. This was an unaudited provisional figure, since the board's audit is under way and will be finalised at the end of July.

Accumulated funds stood at R2.5-billion in 2012, R2-billion in 2011 and R3-billion in 2010 according to the board, and the disbursements were R2-billion, R3.6-billion and R1.9-billion respectively. The current lottery licence expires in 2015.

Gidani's head of corporate affairs, Thembi Tulwana, told the Mail & Guardian the company would bid for the licence again. She said Gidani was aware of the Bill and was "considering it carefully with the view to probably making representations in the allowed time".

The Bill has been published against the backdrop of plans to overhaul the broader gaming industry, following a gambling review conducted by the department.

Tulwana said, that although the review found that lotteries were losing popularity internationally, Gidani was bucking this trend and maintaining revenues of R4.2-billion a year.

The show must go on
Trade and Industry Minister Rob Davies said that the provision allowing an organ of state to run the Lotto "enabled the state, at any given time when deemed necessary, to run the lottery itself without outsourcing this function where it is of the view that national priorities are not met by the current regime of outsourcing".

It would allow the state to intervene if a licence was suspended or revoked without having to halt the lottery, he stated in response to questions from the Mail & Guardian.

Davies said any organ of state appointed as the licensee would have to meet the requirements and objective evaluation criteria set out for a lottery operator.

The relevant sections of the Bill would only become operational after the next round of bidding was concluded and it was not aimed at the licensing process that was unfolding, he said.

Other amendments to the Bill addressed issues such as conflicts of interest, and incorporated mechanisms to prevent corruption or undue influence. The disbursement of funds would remain with the National Lotteries Board and the lotteries policy dealt fully with the challenges of the distributing the money.

These included the part-time nature of the distribution agencies, now being addressed by making full-time appointments, and the allegations of conflicts of interest by the distributing agency members "who were perceived to serve interests of their own organisations and a few favoured ones".

"This is being addressed by requiring any person that will serve on the distribution agency to have no interest whatsoever in the organisations that are beneficiaries, or potential beneficiaries," Davies said.

Furthermore, processes had been simplified by removing burdensome requirements such as audited financial statements, by categorising grants for speedy adjudication and by opening up calls for funding all year round instead of one or two calls a year.

Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.

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