Presentation to the Portfolio Committee for Social Development National Lottery Distribution Trust Fund (NLDTF)

Introduction The purpose of setting up a National Lottery was to benefit South Africa’s disadvantaged citizens. The funds generated by South Africa’s National Lottery addresses five good cause categories. It should be noted that while the funds raised by the National Lottery are for the betterment of society as a whole, it should not be seen as the only source of funding. Organisations should continue with their fund raising drives and see the National Lottery as one probable source of funding.

Introduction (continued) The funds generated by the National Lottery, have reached many organisations, some of whom have previously not had access to funding mechanisms. Distribution procedures were not implemented when the National Lottery was established as there was no way of knowing what ticket sales would be, for this reason it was decided to wait until a pattern had been established. This delay also allowed for the accumulation of funds to ensure sustainability before distribution began. Emergency funding was disbursed to 80 organisations to address financial difficulties.

Background: Distribution of Funds March 2000 – President Thabo Mbeki launches the National Lottery on 2 March 2000, with the sale of the first ticket. The first live draw is held on 11 March May 2000 – Department of Trade and Industry calls for public nominations for people to serve on the Distributing Agencies for Arts, Culture & National Heritage; Charities; and Sport and Recreation. October 2000 – Applications for Emergency Funding are called for on 8 October and the closing date is set for 30 November. November 2000 – Minister Alec Erwin appoints the Board to set up offices to provide administrative and management support to Distributing Agencies.

Background (continued) December 2000 and January 2001 – Applications for Emergency Funding are considered. The first payment to a beneficiary from Lottery Funding is made on 15 December A total of 4.1 million is disbursed to 80 beneficiaries. Cabinet approves the nominees to serve on the three Distributing Agencies. February 2001 – The Distributing Agencies meet for the first time to workshop a policy framework. March 2001 – Advertisements calling for applications are published. July 2001 – The first grant from Charities sector is paid. The other two categories follow shortly. March 2002 – By 31 March 2002, over R200 million is allocated to beneficiaries.

National Lottery Distribution Trust Fund The Lotteries Act: –prescribes the establishment of the NLDTF, which is to be managed by the National Lotteries Board; and –requires the Board to annually table a report in Parliament in respect of the Fund. Each week Uthingo Management transfers funds generated for good causes to the NLDTF. The amount is calculated using a predetermined formula based on ticket sales in terms of the License to Operate the National Lottery.

National Lottery Distribution Trust Fund The allocation to Good Causes varies with the number of tickets sold. It starts at 10.16% and goes up to 40.58%. Ideally, over the seven year License period, an average of 30% of the proceeds after VAT will be contributed to Good Causes. The balance of the proceeds goes to operating costs

Beneficiaries of Good Cause Monies The Lotteries Act identifies as beneficiaries of funds accumulated the following five broad categories: –Reconstruction and Development Programme –Charities –Arts, Culture and National Heritage –Sport and Recreation –Miscellaneous Purposes.

Government Gazette No May 2002 The funds in the NLDTF allocated for good causes will be distributed as follows:

Distribution Agencies The Lotteries Act prescribes the manner in which people are appointed as members of a Distributing Agency. A call for nominations from the public was published by the dti in May All nominations were subject to assessment and probity checks. The Minister of Trade and Industry consulted with the relevant Ministers, and a shortlist was presented to Cabinet for approval. The process was completed in November 2000 and the Agency Members met for the first time in February 2001 for a policy workshop.

Central Applications Office In terms of Regulations, the Minister of Trade and Industry, gave the National Lotteries Board the mandate to set up the infrastructure to offer administrative support for the Distributing Agencies. A Management Information System was set up and the necessary staff engaged. All applications for funding go through this central office. Applications for funding that are received by the advertised deadlines are stored and applicants are sent letters of acknowledgement of receipt. The relevant captured data is prepared for presentation to the Distributing Agencies for adjudication.

Application Process After the establishment of the Distributing Agencies, each of the beneficiary categories identified their criteria for funding and issued individual advertisements inviting potential beneficiaries to submit applications by a pre-determined deadline. The period for processing applications is 6 months. This is in line with international best practice, for example in the United Kingdom it takes 5 months to process applications.

Adjudication of Applications Merits of each application are assessed. An amount of money is then allocated to successful applicants. Conditions if any are identified. Grant Officers then visit projects to verify aspects of applications, as requested by Distributing Agency. Upon verification Funding Agreements are signed. Quarterly reports are required from Beneficiaries. Funds are then electronically transferred to the bank account of the beneficiary. In some cases this may be in tranches.

Adjudication of Applications.

Criteria for Application: Charities (2002) In adjudicating applications, the Distributing Agency will focus on the following areas of activity: –Capacity building for organisations and communities which will involve training; advocacy and lobbying; and skills development. –Poverty alleviation. –Community and residential care for the vulnerable, i.e. children; families; older persons; persons with disabilities; women; people affected/infected by HIV/AIDS; the chronically ill; youth; and drug abusers and offenders. Preference will be given to organisations working in areas that are under-resourced and under-served.

Criteria for Application: Charities (2002) In order to ensure that community-based organisations (CBO’s) without registration or audited financial statements gain equal access to lottery funding, non- profit organisations were requested to assist these non-registered CBO’s in their application and administrative process. This partnership would require the CBO and NPO to enter into a formal working agreement.

Allocations:1 April 2001 to 31 March 2002

Allocations Analysis The previous diagram shows that the total allocation from the amount available in the NLDTF was only 51% for this period. This should be a concern, but when when one considers the individual categories a different picture emerges: –Arts, Culture and National Heritage: 48 % allocated –Charities: 67% allocated –Sports and Recreation: 71% allocated Both Charities and the Sports & Recreation categories have allocated over 60% of the amount available. A concern is that the Arts, Culture and National Heritage category were only able to allocate 48% of the amount available.

Applications:1 April 2001 to 31 March 2002

Applications Analysis The previous diagram shows that in total, only 35% of the applicants to the NLDTF were succesful. This figure becomes alarming when each individual category is considered : –Arts, Culture and National Heritage: 19 % of applications succesfull –Charities: 38% of applications successful –Sports and Recreation: 47% of applications are succesful The reason for this is that 15% of the applications did not meet the criteria in the Act and were disqualified. (Small businesses and farmers) A further 40% did not complete the application forms correctly, did not submit financial statements or do not meet the requirements of the Act (e.g. registration status). Only an estimated 10% are rejected on merit.

Geographical Spread Beneficiaries 1 April 01 to 31 March 02

Geographical Spread for 3 Categories (April 2001 to March 2002)

Geographical Spread Analysis It is immediately apparent that Gauteng and the Western Cape were the main beneficiaries of funding, followed by KwaZulu Natal and the Eastern Cape. The remaining provinces received 5% and less. It should be noted that the Gauteng figures also included National Bodies, and therefore in practice many of these National Bodies distributed the funds received from the NLDTF to their provincial offices. Each application is judged on its own merit and provincial ticket sales are not taken into account by Distributing Agencies. So it appears that the problem is that non-profit organisations in the affected provinces are not making application for funding

Geographical Spread Analysis This could be because of a lack of information about the NLDTF and how to apply for funding, coupled to access issues as the Central Applications Office is based in Pretoria. One solution is to increase public awareness of the NLDTF in rural areas through radio “spots” and “talk shows” on community radio stations and other local media. This should be coupled with the development of a network of partners in rural areas who can provide assistance with the distribution and completion of applications.

NLDTF Income (from Ticket Sales)

NLDTF Total Income

NLDTF Total Income and Expenditure

NLDTF Net Surplus

NLDTF Income Statement for year ended March R 2001 R Revenue Interest Received Other income Disbursement of Funds Assistance to the NLB Other Operating Expenses Net surplus for the year

Steps to address Gaps Amendments have been proposed to combine the RDP and Miscellaneous distributing agencies, in order to form one distributing agency responsible for special purposes. A Special Purposes Distributing Agency would fund special projects like education, health, crime prevention, child abuse prevention and other miscellaneous matters. The rationale for the distributing agency is the alleviation of poverty, social development and the improvement of the quality of life

Steps to address Gaps (continued) Other amendments envisaged to the legislation include: –enabling natural persons and not just juristic persons to apply for grants for charitable work done by them; and –to allow the Minister of Trade and Industry, in making allocations to distributing agencies, to consider the general development in South Africa and not the number of people or number of lottery tickets sold in each province. The National Lotteries Board will hold a National Conference next year, which will function as a “think tank” on social change.

Steps to address Gaps (continued) A multi-strategy approach will be developed with regards to distribution, strategies being investigated are, for example: –Larger grants to bodies with a proven track record, such as Red Cross Children’s Hospitals that can be renewed annually; or –Grants for large five year projects that would be paid out in tranches quarterly or annually. This would enable the Distributing Agencies to consider more applications for large amounts that would be capable of having a social impact. There clearly is a need for a public education campaign on how to apply for NLDTF funding and the type of information that needs to be provided by an organisation.

Steps to address Gaps (continued) Lack of applications from less developed provinces might be addressed by: –Education campaigns on how to apply for funding targeting non-profit and community based organisations in rural areas and less developed provinces; –Establishment of provincial partnership networks to increase access to information and assistance; –A co-ordinated government approach to non- profit organisational capacity building in the provinces; and –A research study to determine the capacity of non-profit and community based organisations to absorb NLDTF funding.

Successes Post-March 2002 Based on allocations from April to September 2002, there has been an increase in applications that meet the criteria for Good Causes: –Distributing Agencies to date have allocated R277, 296, 048, a 20% increase over the total for the year ended March –Succesful Arts, Culture and Natural Heritage allocations have increased by over 49% –Charities allocations have also increased by 33%.

Successes Post-March 2002 (Continued) CHARITIES (1 April September 2002) Area of FundingAmount R Aged16,191,100 People with Disabilities31,960,927 Children’s Homes16,471,834 Early Childhood Development12,497,021 Community Services35,988,820 Chronic Illnesses19,849,967 Drug Abuse and Crime10,316,748 Poverty Alleviation12,079,961 Total155,116,378

Conclusion The allocation for the period 1 April 2001 to 31 March 2002 was R222,339,409, in comparison –All the other lotteries that existed prior to the National Lottery in South Africa only donated approximately R30 million to Good Causes over a five year period (Source:NLB); and –The National Development Agency only allocated R126,771,620 to projects (Annual Report: Year end March 2001). The distributing agencies have been extremely efficient in processing applications within a period of 6 months, which is line with international best practice.

Conclusion (continued) The latest reports received from the NLB seem to indicate an increase in amounts allocated to the three categories. The implication is that as familiarity with criteria and application processes increases both internally and externally, the resultant impact will be an increase in the distribution of funds available for allocation. The NLB and the dti have been analysing the patterns of the past financial year to identify gaps or short-comings that need to be addressed. This has led to a number of pro-active solutions being generated.