Revisiting the Lotto funds

Introduction

As in the case of the retention and use of public moneys by NICIL, the Government’s share of the proceeds from the sale of lottery tickets by the Canadian Bank Note (CBN) is kept in a separate bank account and used to meet public expenditure without Parliamentary approval. This practice has been subject to persistent criticisms from the Auditor General over the years as well as from the Public Accounts Committee (PAC).

This article takes a closer look at the Lotto Funds, especially in the light of the Attorney General’s legal opinion that prompted the Auditor General (Ag.) to cease raising concerns about the current arrangements.

Background

In 1995, the Government of Guyana and CBN entered into an agreement for the latter to conduct a national lottery. CBN agreed to pay a licensee fee to the Government of 24 per cent of the gross revenue received by CBN while the Government undertook not to permit another lottery of similar scope during the life of the agreement.

According to the report of the Auditor for 2010,  amounts totaling $3.787 billion were paid over to the Government as at 31 December 2010 of which $3.106 billion was expended, leaving a balance of $681 million. The 2011 report is not yet available.

Auditor General’s comments over the years

The Auditor General’s reports from 1992 onwards are available at the Audit Office’s website, except those for the years 1993 to 1999. The 2000 report highlighted the Auditor General’s concern about the retention and use of the Lotto funds from three perspectives:

* The Government’s failure to pay over the proceeds was a breach of Section 17 of the Financial Administration and Audit Act (now repealed and replaced by the Fiscal Management  and Accountability Act 2003);

* The incurrence of public expenditure without Parliamentary approval undermined the authority of Parliament; and

* The revenues and related expenditures were not captured in the public accounts of the Country.

The Auditor General could have reinforced his concern by referring to Article 216 of the Constitution that requires all revenues or other moneys raised or received by Guyana to be paid into the Consolidated Fund. The only exception is where an Act of Parliament permits: (a) payment into some other fund established for a specific purpose; or (b) funds to be retained by the authority receiving them to defray expenses of that authority. In addition, Articles 217 requires that no moneys shall be withdrawn from any public fund other than the Consolidated Fund unless the issue of those moneys has been authorised by or under an Act of Parliament.

Following the concerns raised by the Auditor General, the Government agreed to: (a) make transfers at the end of each year to the Consolidated Fund to the extent of funds utilised from the Lotto Funds; and (b) table a corresponding supplementary estimate in the National Assembly to ensure Parliamentary approval of the expenditure and the recording in the Public Accounts.

Although this proposal might not have been fully agreeable to the Auditor General, it was nevertheless a compromise arrangement. In this regard, in 2001 and 2002, the Government transferred amounts totalling $211.717 million and $208.770 million respectively to the Consolidated Fund. The reports of the Auditor General for 2003 to 2010, however, did not reveal any evidence of further transfers to the Consolidated Fund.

In its report for 2000-2001, the PAC’s comments on the matter reflected the sentiments of the Auditor General but in stronger terms. The PAC concluded that “This practice, apart from being a breach of Section 17 of the FAA Act as well as a usurpation of Parliamentary authority to incur expenditure, can and probably does lead to irregularities.”

The Auditor General’s reports for 2004 and 2005, prepared by the current Acting Auditor General, made no mention of the Lotto Funds in terms of their retention and use without Parliamentary approval. Instead, it referred to the Cabinet decision of 1996 establishing the Guyana Lotteries Commission and requiring the Lotto Funds to be subject to separate financial reporting and audit. This suggests that the Auditor General (Ag.) did not agree with the concern expressed by both his predecessor and the PAC, and that he saw nothing wrong with the Cabinet decision that appeared inconsistent with the Constitution and the FMA Act. In any event, government policy as reflected in a Cabinet decision cannot override the requirements of any Law.

The Auditor General’s reports for 2006 through 2008 reversed somewhat the position taken in 2004 and 2005 by repeating the concern of the predecessor Auditor General. Was it done to appease the PAC on its publicly stated views on the matter, or was it a change of heart? The reports stated that the expenditure incurred from the Lotto Funds “was within the National Sectors previously identified and was in accordance with the guidelines for access to the Lottery funding…”.

Attorney General’s opinion on the Lotto Funds and analysis thereof

On 19 May 2010, the Attorney General, as the Government’s legal advisor, issued the following concluding opinion to the Auditor General (Ag.):
The Lotto Funds, as moneys credited to the Development Fund of Guyana are popularly described, have been exempted from deposit into the Consolidated Fund as is made crystal clear by ART 216.

These funds are lawfully deposited in an Extra budgetary Fund called the Development Fund of Guyana established by the Government Lotteries Act CAP 80:07 since 1963. This fund is, however, subject to an audit by the Auditor General under the provisions of the Fiscal Management and Accountability Act 2003.

The Government Lotteries Act was promulgated in 1963 to provide for the promotion and conduct of Government lotteries. Readers would recall that in the 1960s, the Government was running a National Radio Bingo and therefore the Act would have been applicable to that arrangement.

The proceeds from the sale of tickets could not have been deposited into the Consolidated Fund simply because expenses, such as prize money and administrative costs, had to be met. It was only the surplus that was required to be paid into the Development Fund of Guyana established by the Act, and the Act did not specify what the Fund was to be used for. Should a deficit be incurred, however, that deficit shall be made good from the Consolidated Fund.

The current arrangement, which came into force in 1995, is not a Government lottery but one conducted by CBN in exchange for a licensee fee.

This is not the same as envisaged by the Act. In particular, there are no expenses to be met, hence the requirement for the fee to be paid over to the Consolidated Fund. In the National Estimates, there is a budget line item under revenue for “Fees and Fines”.

The Act defines Government lottery to mean a lottery organized and conducted by the Government Lotteries Control Committee under the provisions of the Act. This committee was responsible for, among others, (a) fixing the number and price for the sale of tickets; (b) appointing agents to sell tickets; (c) fixing the number and value of the prizes to be apportioned; and (d) determining the time, place and the manner in which drawings are to take place for allotting prizes.

The Cabinet decision of 1996 establishing the Guyana Lotteries Commission is a different arrangement and involves none of the above. Rather, the Commission manages the proceeds of the Lotto Funds and is to recommend the projects to be undertaken using the proceeds.

The fact that the Auditor General audits the Lotto Funds as a separate exercise is not the issue. The issue is one of good governance, transparency and proper accountability. At a forum organized by the Transparency Institute of Guyana Inc., in response to a question raised by a participant, the Auditor General (Ag.) publicly stated that he would revisit not only the issue of the Lotto Funds but also the controversy surrounding the operations of NICIL.

Conclusion

The retention and use of the proceeds of the Lotto Funds without Parliament approval is a source of public concern. Some are of the view that the proceeds should have been paid over to the Consolidated Fund and that Parliament should decide on how the money should be spent, and not the Executive. The Government, on the other hand, argued that there is no requirement to pay over the proceeds and that the expenditure incurred is subject to an audit by the Auditor General.

Putting aside all the legal ramifications, on a matter of principle, all public moneys should be deposited into the Consolidated Fund as the taxpayers’ fund, and no public expenditure should be incurred without the consent of the elected representatives of the citizens of Guyana, that is, Parliament.

If the laws are not clear on these matters, then let us amend them to make them clearer so that the above fundamental principle in public finance and administration is respected and observed. Meanwhile, we eagerly await the next report of the Auditor General.

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