Years of concern about corruption at the National Lotteries Commission (NLC) culminated in 2022 when the Special Investigations Unit (SIU) reported it was investigating misappropriation of more than R1.4 billion. With a new chairperson and board in place, what’s next for the NLC and the organisations that rely on funding to carry out their good works? Glenda Nevill investigates.
Rumours of corruption at the NLC began at least 13 years before a determined media investigation exposed how
hundreds of millions of rand had been stolen from the body. Now the SIU is conducting a probe into the corruption and the Limpopo Mirror.
The total value of lottery grants being investigated totals more than R1.4 billion. Presenting to Parliament in
September 2022, SIU head Andy Mothibi reported the results of the unit’s first investigation into 12 grants totalling R279.7 million “corruptly siphoned out of the NLC with the assistance of [former NLC] executive and board members”. Grants worth R246.6 million are currently being investigated, with findings due in March 2023. The remaining R905.9 million will be investigated from April 2023.
Mothibi told Parliament civil litigation was already under way to recover stolen funds and that preservation orders were being sought for eight properties bought with misappropriated Lottery funds. The names of 13 implicated individuals would be handed over to the National Prosecuting Authority (NPA) by the end of October 2022.
These revelations have left the NLC’s reputation in tatters. As for the nonprofit organisations (NPOs) reliant on
Lottery funding to carry out their work, trust in the system – and the people responsible for ensuring its ethical
operations – is non-existent.
Many of those named in the investigations have left the NLC but, as the SIU’s Mothibi told Parliament, this does not mean they won’t be pursued and prosecuted. Meanwhile, lifestyle audits across all levels of staff to root out corruption at the NLC have been promised.
The role of the NLC
The National Lotteries Board ran the Lottery after it was launched in 1998. The NLC was established in terms of
the Lotteries Amendment Act, 2013 (Act No. 32 of 2013). The NLC is the trustee of the National Lottery Distribution Trust Fund (NLDTF), into which proceeds intended for allocation to good causes are deposited. These monies are governed by regulations determining how the pool of money is shared between different sectors and which organisations are eligible for funding.
The NLC is not supposed to adjudicate applications for funding or make allocations to organisations. However, the
Act was amended once more in 2015, allowing it to fund causes without the need for rigorous applications. It was this amendment, allowing ‘proactive’ funding, that opened the door to more abuse and corruption.
The NLC and the NLDTF are funded by a share of the ticket sales from the Lottery, interest and dividends derived from the investment of money standing to the credit of the fund and other money lawfully paid into the fund. For 2022/23, R1.24 billion has been budgeted for allocations, up 6% on the previous year.
“When I was asked to come clean up here, I could not say no. I was part of the first lottery in 1998, so I have a passion for this. It’s intended to really enable public resources to go a little further and meet the needs of the people. For this to work, we have to be trustworthy and be trusted by the people on whom the lottery depends.”
Professor Barney Pityana, New National Lotteries Commission board chairperson, 8 August 2022
A new era at the NLC
The Minister of Trade, Industry and Competition, Ebrahim Patel, appointed four new NLC board members in March 2022, a month before the term of the existing board ended. New appointments include former Asset Forfeiture Unit Head, Willie Hofmeyr; former Cabinet Secretary, Dr Cassius Lubisi; accountant and businesswoman Precious Mvulane; and Deputy Chairperson of the South African National Biodiversity Institute board and a former COPE Member of Parliament, Beryl Ferguson.
NLC Commissioner, Thabang Mampane, resigned in August 2022 after the NLC questioned her about a golf estate home allegedly paid for with funding intended for a school in Limpopo. Meanwhile, the assets of the former NLC Chief Operating Officer, Philemon Letwaba, have been frozen. The SIU also named former board members – the former Chairperson, Alfred Nevhutanda (his 11- year term expired in November 2020); and William Huma (who resigned in late 2021 after being fingered in various investigations) – who were responsible for the NLC’s ‘proactive’ funding policy.
Nevhutanda, who became chairperson of the NLC in 2009, is alleged to have bought a Rolls-Royce worth
R6.3 million and his R27 million luxury property has been attached. Besides Nevhutanda, the SIU report also
identified two top NLC executives, former Commissioner, Thabang Mampane and Phillemon Letwaba, and former
board member, William Huma, as being responsible for the NLC’s controversial ‘proactive’ funding policy.
In July 2022, cabinet announced Professor Barney Pityana as new chairperson of the NLC board. In September 2022, Lionel October – a previous director general of the Department of Trade, Industry and Competition (dtic) – was appointed acting commissioner of the organisation.
Pityana, who attended the SIU presentation to Parliament observed, “It is fair to state that the NLC finds itself at a
crossroads. This flagship philanthropic project, that should be the pride of our country, has been buffeted by crosswinds. The National Lottery is obligated to function with due regard to some key constitutional and moral principles.” He brought up the comprehensive report by auditing firm SkX, ironically commissioned by the former board, but which they subsequently concealed. Neither the SIU nor the dtic had sight of the report until well into 2022, despite it being handed over to the NLC in November 2020.
A whistle-blower leaked the SkX report to GroundUp. The investigation revealed:
- High levels of irregular expenditure and a culture of non-compliance
- No consequence management
- A culture of secrecy and intimidation
- A high level of fraud with respect to grant funding, especially ‘proactive’ funding.
Civil society’s response to NLC corruption
Revelations of corruption at the NLC were no surprise to civil society organisations. Dr Joanne Harding, executive director of the Social Change Assistance Trust (SCAT), said a report into the Lottery commissioned by the Funding Practice Alliance in 2010 exposed poor funding practices at the NLC, such as long delays in the processing of grants, poor communication and lost applications, among other issues. ‘Meeting their mandates?’ study, she commented, is as relevant today as it was 12 years ago.
“The Funding Practice Alliance had meetings with the minister and made submissions to the portfolio committee
on suggested changes. Some were implemented but others, such as the cooling-off period, have made it very
difficult, particularly for small organisations that depend on this funding to keep operating,” she asserted. The cooling-off period is the 12 months after receipt of a grant, during which recipients may not apply for new funding.
How the NLC will change
The new NLC board has made recommendations for dealing with the rot within the organisation and to stop further corruption:
- The suspension of proactive funding
- Establishment of an anti-fraud coordinating team comprising the SIU, the DTCI and the
Companies and Intellectual Property Commission - A review of the grant funding process
- A review of how distributing agencies adjudicate funding applications
- The re-establishment of an anti-fraud hotline, in collaboration with the DTCI Shared Services Centre
- A wider investigation into all NLC contracts, as well as all channels through which payments were made by, or on behalf of, the NLC
- An investigation into the regional operations of the NLC, which has offices in all nine provinces
- A review of all previous forensic and internal reports, as the NLC has ignored forensic reports and their anti-corruption measures.
Harding believes there must be a deep investigation into the system, and checks and balances in decision-making as well as full declarations of conflicts of interest. Transparency about who receives funding and how much, is essential. This disclosure was taken away, which made it difficult to identify irregularities. The grantmaking arm of the Lotteries should be run with care for the sectors it is set up to support, she recommended.
Organisation Undoing Tax Abuse’s (OUTA) Wayne Duvenhage believes NPOs have been hamstrung in speaking
out for fear of reprisal, commenting, “They may not complain for fear of never becoming a beneficiary again in the
future. Those who get reduced income will generally not complain, again out of fear of receiving less or nothing going forward. I saw this with the QuadPara Association of South Africa (QASA), whose allocations were cut because they (rightfully) challenged government on a specific matter.”
Keshvi Nair, public relations officer for the National Council of Societies for the Prevention of Cruelty to Animals (NSPCA), remarked that it is unfortunate that allegations of fraud and corruption within the NLC have come to light. “The SPCA movement has, in the past, struggled with the NLC when they sought to exclude animal welfare from receiving funding; however, this was addressed and animal welfare continues to be included, which we are fortunate and grateful for,” she added. “The NSPCA hopes that we will continue to be able to receive funds from
the NLC, as we rely heavily on these types of donations/funding. The NSPCA and our member SPCAs are NPOs, and without these grants from the NLC, we are placed in an even more compromised state in terms of funds to do our vital work across South Africa.”
SkX’s recommendations
Audit firm SkX was appointed by the previous NLC board to investigate corruption within its ranks. It filed its report in November 2020. To date, nothing has been done to follow up the allegations it contained or implement its recommendations. SkX advised:
- Strengthening legislative, regulatory and policy regimes to address weak internal controls
- Revisiting project management structures to clearly articulate responsibilities in terms of proactive grant management
- Paying grant allocations in tranches based on project progress reports
- Rigorously enforcing grant agreement breaches
- Enforcing specific performance by non-profit organisations “up to professionally certified completion of the projects”
- Repaying money “estimated not to have been utilised towards the project”
- Seeking legal opinions on instituting claims against individual directors or members “who may have been unduly enriched”
- Instituting recovery proceedings against directors or members of organisations who may have “misapplied or misappropriated funds” allocated to projects
- Rigorously enforcing the verification and vetting process of organisations applying for funding
- Enhancing processes and requirements for annual conflict-of-interest forms and declarations, as well as regulations to address grey areas surrounding related party entities applying for grants from the NLC
- Ensuring an upfront declaration of contractors used for the implementation of the projects
- Considering the failure of project management structures within the NLC and calling for the accountability of responsible NLC officials
- Evaluating contracts between non-profit organisations and contractors that were engaged to determine if the amounts paid were in line with the grant agreements
- Pursuing recovery remedies where contracts do not exist – including possibly instituting criminal action against parties involved
- Reviewing the financial records of NPOs as part of the grant agreement requirements to ascertain if the organisations made any payments to NLC officials.
Last word on implicated NPOs
Raymond Joseph, one of two journalists who exposed corruption at the NLC, reported that a major shortcoming is
that the Commission failed to conduct proper monitoring and evaluation of grant applicants. “The system is rotten, and we discovered in many cases that fraudulent financials were submitted. All of this is something straight out of
the ‘tenderpreneurs’ playbook. NPOs that apply for funding have to supply directors’ identity documents, their constitutions and registration certificates. Crooks at the NLC had direct access to them and were able to supply them to connections that used them to successfully apply for funding.”
How NPOs can apply for funding
Despite the uncertainty at the NLC as the new board settles in and corruption investigations continue, the organisation has called for funding applications for the 2022/23 financial year.
Details of the application process and requirements are provided on the NLC website:
https://www.nlcsa.org.za/how-to-apply/
Source: The Trialogue Business in Society Handbook 2022 (25th edition)
