Lottery board vindicated by legal opinion

Parliament’s chief legal adviser has confirmed that the National Lotteries Commission (NLC) had to surrender a R300m reserve to the Treasury, in line with the provisions of the Public Finance Management Act (PFMA).

“Had the board not complied with the injunction from the Treasury, it would have been guilty of financial misconduct, which is a ground for dismissal or suspension of board members,” advocate Zuraya Adhikarie said in an opinion dated October 10 and given to the trade, industry and competition portfolio committee.

The payment to the Treasury was raised by MPs during a fiery meeting in September when NLC board chair Barney Pityana, NLC commissioner Jodi Scholtz and other senior executives appeared before the portfolio committee.

The NLC had reserves of R1.4bn at the time of the payment but was only ordered to pay R300m to the Treasury, Pityana told parliament.

Questions were raised about the legality of the surrender at a time, it was alleged, that the NLC was turning down requests for funding from needy organisations.

The debate ended with committee chair Mzwandile Masina requesting an opinion from advocate Adhikarie on whether it was legally permissible for the board to surrender the R300m from its reserves, a contingency in the event of lottery operations being affected by litigation cash flow problems.

Adhikarie said that while the Lotteries Act prescribes that any unexpended money could be carried forward as a credit in the next financial year, the Treasury had invoked the PFMA, which states that a public entity that must submit a budget may not accumulate surpluses without prior written approval from the Treasury.

“It was the tension between these two acts which prompted the chair [of the portfolio committee] to seek a legal opinion. This included whether the PFMA trumps the Lotteries Act, the question of whether the NLC is a public entity because it does not receive funding from the national revenue fund, and if there is any basis for the R300m to be returned to the NLC,” Adhikarie said.

She said section 3(3) of the PFMA provides that in the event of any inconsistency between the PFMA and other legislation, the PFMA prevails.

On the question of whether the NLC was a public entity, as defined in the act, she said, “The fact that it does not receive funding from the national revenue fund is neither here nor there.

“There can be no doubt that the NLC meets all the jurisdictional requirements of a national public entity, in that it is governed by a board which is established in terms of national legislation, it is fully or substantially funded from money imposed in terms of national legislation and it is accountable to parliament.”

Adhikarie said accounting authorities of public entities listed in the PFMA must submit formal requests to Treasury to retain surpluses.

In a further report to the committee, Duncan Pieterse, director-general of the Treasury, said during the 2021/22 financial year, the NLC had not been able to submit its application to retain the surplus for the 2020/21 financial year because of outstanding audit issues.

While the NLC had advised Treasury of the outstanding audit issues, when the audit was finalised in February 2020, it had not submitted an application to retain its surplus within the stipulated 30 days. The R300m was calculated based on national the Treasury’s formula, he said.

The current lottery board was appointed in 2022 and Scholtz was appointed in 2023, with a mandate to clean up a corrupt and dysfunctional institution.

GroundUp has recently reported on a co-ordinated campaign, within parliament and outside it, pushing for the dismissal of Scholtz and the dissolution of the NLC’s board led by Pityana.

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