Report
Annual report and Accounts 2019 to 2020
Making gambling fairer and safer
Board performance
The Board met formally ten times during the year. It monitors and receives regular reports from its Audit and Risk, Remuneration, National Lottery and National Lottery Competition Committees.
Meeting attendance by commissioners can be found in the following charts. This was based on the number of meetings each commissioner was eligible to attend as a member of the relevant committee.
| Commissioner | Board | Audit and Risk Committee | Remuneration Committee | National Lottery Committee | National Lottery Competition Committee |
|---|---|---|---|---|---|
| Bill Moyes (Chairman) | 10/10 | N/A | N/A | N/A | N/A |
| John Baillie 1 (Interim Chair of Audit and Risk Committee) | 10/10 | 2/4 | N/A | N/A | 9/10 |
| Carol Brady MBE | 8/10 | N/A | 2/2 | N/A | 9/10 |
| Stephen Cohen (Chair of National Lottery Competition Committee) | 10/10 | N/A | N/A | N/A | 10/10 |
| Alison Hastings 2 | 3/3 | N/A | 1/1 | 3/3 | N/A |
| Sarika Patel 3 | 5/6 | 3/3 | N/A | N/A | N/A |
| Trevor Pearce 4 CBE QPM (Chair of National Lottery Committee and Remuneration Committee) | 10/10 | N/A | 1/1 | 7/7 | N/A |
| Simone Pennie 5 | 1/1 | 1/1 | N/A | 2/2 | N/A |
| Jonathan Scott | 10/10 | N/A | N/A | 7/7 | N/A |
| Catharine Seddon (Senior Independent Director) | 9/10 | 4/4 | N/A | N/A | 10/10 |
| Number of meetings in year | 10 | 4 | 2 | 7 | 10 |
1. Became Interim Chair of Audit and Risk Committee from December 2019.
2. Chair of Remuneration Committee until the end of her appointment on 30 August 2019.
3. Chair of Audit and Risk Committee until the end of her appointment on 25 November 2019
4. Became Chair of Remuneration Committee from September 2019. 5) Appointment ended on 31 May 2019.
5. Appointment ended on 31 May 2019
Board meetings
Board meetings provide the opportunity for robust and constructive challenge and debate amongst board members and senior management. As part of this process, Commissioners are required to disclose any potential conflicts of interest, as set out in the Code of Conduct for Commissioners.
During the year, a significant amount of time in formal board meetings was focused on monitoring progress against the delivery of the Commission’s Corporate Strategy, taking action to protect consumers from harm, and consideration of the policy issues relating to the next National Lottery Licence Competition.
Consistent with good practice, the Board undertook a Board Effectiveness Review. It found the standard of performance was high, but did identify some areas where effectiveness could be improved, centring on the size and scope of Board meetings, and the role and activities of Board members. It also recommended the creation of a Finance and Performance Committee, which will come into effect in 2020-21. An action plan was put in place to address all of the recommendations.
The Board is supported by a number of committees, all of which are outlined on the following pages. Details of the committee members and their attendance can be found in the table above, while the remit and responsibilities of each committee are set out in the Terms of Reference, which are on our website.
Commissioners also spend time outside of board and committee meetings attending events and engaging with stakeholders, as well as providing non-executive advice on strategic projects.
Senior Independent Director
Consistent with the UK Corporate Governance Code and with DCMS guidance, the Board has appointed a Senior Independent Director (SID) from among its current members.
The role of the SID is to provide a Board-level lead for high standards of governance, conduct the appraisal of the Chairman and act as a route to resolve any concerns about the operation of the board. Catharine Seddon was appointed as Senior Independent Director in June 2017.
Audit and Risk Committee
The Audit and Risk Committee supports the Board and the Accounting Officer in their responsibilities by monitoring the integrity of the Commission’s annual statutory financial statements, reviewing the Commission’s governance, internal control and risk management systems, and by reviewing the internal and external audit services. Audit and Risk Committee are the champions of the Commission’s public interest disclosure which can be found on the Commission’s website as part of the corporate governance framework. In addition to Commissioners, the Audit and Risk Committee also has an independent member, Chris Andrew, who was appointed on 2 January 2019 following the departure of previous independent member, Ann Harris.
Remuneration
The Remuneration Committee supports the Board and the Chief Executive in their responsibilities for performance management, senior appointment departures and HR policies and practices. It also monitors progress with regards to culture, including the results of (and actions resulting from) annual colleague engagement surveys.
National Lottery Committee
The National Lottery Committee advises the Board and the Chief Executive in relation to the exercise of certain Commission functions under the National Lottery etc. Act 1993. The Committee has decision making powers in a number of areas delegated to it by the Board.
In the last year, the Committee has received a range of proposals from the Operator and approved, or recommended to the board for approval.
A significant part of the Committee’s business is engagement with and review of the National Lottery operator’s strategy and performance.
National Lottery Competition Committee
The National Lottery Competition Committee advises the Board and the Chief Executive in respect of the National Lottery 4th Licence Competition, and through oversight of the progress of the Competition. The Committee has decision making powers in a number of areas delegated to it by the Board. As well as Commissioners, the Committee also has an independent member, David Rossington who was appointed on 1 August 2018.
The Senior Responsible Officer for the Competition, John Tanner, has also been a member of the Committee since November 2019.
Regulatory Panel
The Regulatory Panel determines some licence applications and deals with significant regulatory decisions which may include the revocation of licences. The Regulatory Panel sat on three separate occasions during 2019-20, with each case requiring two or three Commissioners to attend for a full day hearing in addition to substantial preparation and review time. All of these cases came as a result of licence reviews.
Advisory Board for Safer Gambling (ABSG)
The ABSG provides independent advice to the Commission on research, education and treatment programmes needed to support the new National Strategy to Reduce Gambling Harms, along with the associated funding requirements. The ABSG is chaired by Dr Anna van der Gaag CBE.
Digital Advisory Panel (DAP)
The DAP comprises of six experts from the digital sector, including specialists in networks, social media, retail and logistics. The Panel meets on a bi-monthly basis and provides the Commission with advice on matters regarding technology, digital trends and the implications for the Commission as a regulator. The DAP is chaired by Andy Payne.
Expert Advisory Group (EAG)
Concentrating on the National Lottery, the Expert Advisory Group provides advice and recommendations to the Fourth National Lottery Competition team. Members have expertise in different areas such as procurement, economics, digital and commercial. The EAG is chaired by Professor Paul Grout.
Risk and internal control framework
The Commission’s risk and assurance framework accords with Treasury guidance and is designed to manage risk to a reasonable level. It is based on a process designed to identify and prioritise the risks to achieving the Commission’s policies, aims and objectives, to evaluate the likelihood of those risks being realised and the impact should they be realised and to manage those risks efficiently, effectively and economically.
Risk is identified and managed at workstream level with each programme holding a risk register that, as a minimum, incorporates priority operational risks. Operational risks are reviewed at the Finance & Performance Group (FPG) meeting monthly. The FPG agrees risks to be escalated to the Executive Group for ratification and onward submission to the board.
The Board and Executive also identify corporate risks that are likely to impact or change the environment within which the Commission operates, using several methods to ensure sufficient coverage has been achieved.
This involves putting in place controls and actions to keep the level of residual risk within an acceptable level. The key risks and the framework are reviewed regularly by the Audit & Risk Committee and the Executive.
Risk management architecture
As an integral element of its risk and assurance framework, the Commission has an established corporate approach to risk management. Clearly defined accountabilities exist for all relevant parties, including the roles and responsibilities of the Board, management and employees. The Commission’s Accounting Officer, in conjunction with the Board, is responsible for ensuring that an appropriate corporate governance framework is in place. The Commission measures its tolerance for risk against four distinct areas, each of which will have varying acceptable residual levels of risk:
- operational and policy delivery
- financial and value for money
- compliance – legal and regulatory
- credibility.
The Board and Audit and Risk Committee – oversee the arrangements put in place for the risk management function which operates within the Commission. This includes Board risk sessions at least bi-annually with the Audit and Risk Committee reviewing the risk register when required.
Finance and Performance Group (FPG) – coordinates and reports on delivery of the current business plan, and analysis of operational financial, performance and resource data to inform recommendations to Executive for decision.
Executive Group – own and manage risk. The board then reviews corporate risks on a bi-annual basis to ensure context, actions, risk ownership and processes are co-ordinated and fit for purpose.
The risk management strategy – the strategy outlines the objectives and policies for identifying and managing risk to the achievement of the Commission’s strategic objectives and business plan. This also includes the Commission’s tolerance or appetite for risk. The framework sets out management roles and responsibilities, the process for identifying and recording risk, allocating ownership of risk, evaluating risk, determining responses to risk and monitoring and reporting on progress in managing risk. The framework applies to all levels of the organisation up to the corporate risk register.
The Commission’s risk tolerance is expressed through the level of residual risk judged acceptable for each risk identified.
Risk owners are required to identify and implement mitigating actions to reduce the residual risk value to an acceptable level.
The Commission’s governance framework sets out how the Board manages its affairs and which matters are delegated to the Chief Executive, or to other employees or committees. This is reviewed periodically, with the most recent changes to the overarching framework being made in May 2017. Specific aspects of this framework have however, been reviewed more recently (and within the last financial year), such as the terms of references for Committee meetings.
The internal audit programme focuses on the requirement to provide assurance that the risks faced by the Commission are properly managed and controlled. Where control weaknesses are identified, these are drawn to the attention of senior managers, who are responsible for determining and implementing an appropriate response.
In their annual report, the Commission’s internal auditors for 2019-20 (PwC) provide an independent opinion on the adequacy and effectiveness of the Commission’s system of internal control, together with recommendations for improvement.
During the year, PwC carried out specific reviews on the following subjects:
- external Statistics Reporting
- information and Data Security
- governance and Assurance
- financial Systems – Purchase to Pay & Expenses
- payroll Systems Transition
- 4th National Lottery Licence Competition
- operator Compliance Programme.
No fundamental weaknesses were identified in the Commission’s control and assurance processes.
Financial Management
Our expenditure continues to be modified to reflect the demands on the Commission arising from changes in the regulatory landscape.
The Commission’s fee income continues to be subject to uncertainty (for example, due to consolidations and closures) that we attempt to mitigate through regular review and re-forecast of income. Whilst we forecast prudently, in the event of losing a further significant proportion of our income, there remains a risk that we may not be able to reduce our expenditure (which is largely employee-based) as swiftly as needed to avoid larger in-year deficits than currently planned within the medium-term financial plan.
These risks are addressed as part of the budgeting process, through prudent planning and long-term management of reserves. Throughout the year, the risk to the Commission’s income and expenditure profile is continually reviewed through close monitoring of actual income and expenditure and forecasts.
The Commission holds reserves as a matter of prudent financial management, principally so that it can fund substantial legal action in furtherance of its regulatory objectives, manage short-term fluctuations in its licensing income, and provide for foreseeable but not yet certain liabilities such as dilapidations. At present the Commission calculates that reserves of £3.5 million meet this requirement. Reserves are currently in excess of this amount and plans are in place to reduce these by the end of 2020-21 in order to fund some organisational changes to ensure that we remain fit for purpose. The Commission will take account of the impact of COVID-19 on fee income and will review the adequacy of the reserves policy in the new circumstances. As an arms-length body the Commission does not hold reserve to cover terminal liabilities as these would be met by its parent government department.
To ensure we maintain tight control over our expenditure we continually review our procurement arrangements.
A central contracts database is in place to ensure that procurement processes are compliant and all contracts are brought in line with central frameworks where applicable.
There have been no reported actual or attempted frauds at the Commission during 2019-20.
However, given the high profile of the gambling industry and the Commission within the public domain, it is important that the Commission remains proactive in identifying instances where there is potential for fraud and corruption. The quality assurance mechanisms which have been developed for the compliance and enforcement processes depend on accurate, timely and complete information to help safeguard the Commission's professional integrity and improve operational efficiency.
Internal control framework
The Commission has in place a wide range of internal controls to manage the risk of failure to achieve strategic objectives. These include: Organisational structure and delegation of authority The Commission is currently organised into business areas and functions that bring together related operational, project and thematic activity.
Authority to make decisions and authorise expenditure is delegated to the appropriate level of responsibility within each business area.
Policies and procedures
Comprehensive policies and supporting procedures are in place across the Commission at a corporate and operational level. A thorough review of all financial policies was undertaken during 2018-19 to ensure that they remain compliant with Managing Public Money (MPM) and that they reflect best practice. An updated suite of financial policies, reviewed under the MPM project, was in place during the financial year. The appropriateness of Commission policies and procedures is periodically reviewed by internal audit as part of the audit plan.
Operational and financial reporting
The Commission reviews and updates its business plan on an annual basis and prepares an annual budget to support the delivery of the plan. The budget also considers risks and uncertainties to ensure that these can be mitigated where possible. Both of these elements are reviewed and approved by the Board along with progress against the business plan. Financial performance is reported to the Board on a monthly basis. In addition, the Commission also undertakes monthly financial re-forecasts to ensure that financial management of the Commission remains robust. This is reviewed by the Board.
Review and sign-off of actions
The Commission has a series of checks and balances in place across the organisation to ensure that decisions and outcomes are appropriately reviewed. Quality assessment reviews have been undertaken within a number of the compliance areas to ensure that regulatory activity continues to be of high quality. Management also reviews outputs within a range of frontline and support areas to ensure accuracy and relevance. These controls are subject to internal and external audit review as part of the internal audit plan and external audit fieldwork.
Public interest disclosure policy
The Commission has a public interest disclosure policy in place for the confidential reporting of unlawful conduct or malpractice. The policy is readily available online for all employees and is available to the public via the website. As part of their induction programme all new Commission employees are required to confirm in writing that they have read the Code of Conduct, including the public interest disclosure policy.
Personal data incidents
There have been no substantive security incidents during 2019-20 (nil during 2018-19).
Effectiveness of internal controls
The Commission's senior management reviews the operational effectiveness of the current internal controls using a Board Assurance Framework. This is supported by the annual programme of internal audit reviews into the design of controls and whether those controls have been operating effectively. Through their work during the year, the internal auditors have concluded:
Generally satisfactory with some improvements required
Governance, risk management and control in relation to business critical areas is generally satisfactory, except for the two areas listed below. There are some areas of weakness and non-compliance in the framework of governance, risk management and control which potentially put the achievement of objectives at risk. Some improvements are required across all areas we reviewed to enhance the adequacy and effectiveness of the framework of governance, risk management and control.
The opinion set out above relates to our internal audit plan, except for the following areas:
- financial Systems (purchase to pay and expenses)
- The National Lottery 4th Licence (financial plans and forecasts).
In these two isolated areas, our opinion is as follows.
Major improvements required
There are significant weaknesses and non-compliance within discrete parts of the framework of governance, risk management and control which put the achievement of organisational objectives at risk.
Improvements are required to improve the adequacy and effectiveness of governance, risk management and control.
Following the issue of the internal audit reports on Financial Systems and the National Lottery Competition programme’s financial plans and forecasts, we have responded to the high risk findings to the satisfaction of the internal auditors.
National Audit Office - Gambling Regulation report
In February 2020, the National Audit Office released its report on Gambling Regulation: problem gambling and protecting vulnerable people.
The recommendations and the Commission’s response to those recommendations are summarised in the following paragraphs.
The Commission should: Build on its high-level definition of vulnerability to articulate clearly how it interprets which consumers may be vulnerable under what circumstances, and how its work is intended to address this.
The Commission's actions: We are continuing to develop our understanding of vulnerability. This builds on the Statement of Principles, references to vulnerability in our corporate strategy and our customer interaction guidance.
The Commission should: Do more to translate its high-level intended consumer outcomes into what they mean in practical terms, to help determine progress in achieving these objectives.
The Commission's actions: We are developing new metrics that will look at the impact of our work on all three of the licensing objectives with a particular focus on protecting consumers from harm.
We are also restructuring our existing governance framework and will be setting up a new Finance and Performance committee to establish a new performance framework and monitor performance against it. This includes the development of sharper KPIs.
Recommendations
The Commission should:
Enhance its analytical capability to better identify consumer harm and make greater use of the intelligence it has available.
The Commissions's actions:
We are reaching out to regulators that the NAO’s review team have recommended as having particularly sophisticated methods of collecting/ analysing consumer data. We are keen to explore transferable lessons/ practices which could feed into to a wider review of our current approach.
The Commission should:
Develop a more strategic approach to influencing gambling operators to raise standards in protecting consumers.
The Commission's actions:
We have undertaken research into the considerations that shape consumer behaviour, which included the extent to which an operator’s reputation influenced consumer choice.
Whilst the evidence on the benefits of league tables to raise standards is inconclusive, we are looking at comparative info available in other regulated sectors.
The Commission should:
Develop a deeper understanding of the causes and impacts of gambling related harm.
The Commission's actions:
The National Strategy to Reduce Gambling Harms, that we led on the development and publication of in 2019, places a strong focus on understanding gambling related harms. We continue to call on partners to work with us on the next steps of this work.
Aside from the national strategy we have published two other pieces of work designed to improve understanding around gambling related harm. In 2018 we published our Harms measurement framework, which considers how harms can be measured and understood better. We also published two scoping studies exploring the best approaches to take to measuring harms and setting up a longitudinal study.
The Commission should:
Review whether the arrangements for consumers when things go wrong are working effectively.
The Commission's actions:
In 2018 we made changes to the LCCP and published guidance and standards for licensees and ADR providers respectively on complaints handling. This year we intend to research consumers’ experiences of making complaints and seeking redress against licensees. The findings of the research will inform next steps.
The Commission should:
Review the suitability of the current licence fee model, and what it means for the regulatory approach, to address the challenges identified in this report and ensure that gambling regulation can adapt to changing risks to consumers.
The Commission's actions:
We are developing advice on future fees arrangements for discussion with our Department sponsor (DCMS).
Principle risks and uncertainties facing the Commission
The principal risks and uncertainties are managed through the Commission’s corporate risk register as part of the internal control framework. The most significant risks facing the Commission as of the end of March 2020 are as follows.
Income from fees and grant-in-aid does not cover expenditure
Existing mitigations:
- project underway to explore the case for a fees review
- modelling of impact of COVID-19.
Planned mitigations:
- develop and implement robust cost saving plans to reduce expenditure
- proceed with fees review work in conjunction with DCMS to ensure future income streams can meet our expenditure requirements
- develop the Commission's Medium-Term Financial Plan (MTFP) to ensure future income streams can meet expenditure requirements.
We fail to run a successful and effective competition for the forth National Lottery licence
Existing mitigations:
- engagement with Distributors to keep them up to date with progress and ensure their contributions are included.
- second round of Market Engagement completed.
- draft ITA and Licence made available to potential applicants 2 December 2019.
- DCMS Finance uplift agreed, including increase in financial monitoring and controls
- consolidated programme objectives, ensuring all stakeholders agree them.
- OBC 2020-2023 submitted to DCMS on 8 January.
Planned mitigations:
- changes to Licence and ITA will be made available to potential applicants between close of 22/1 market engagement round and competition launch
- lessons learned work to current end of design phase complete with improvement plans due
- Market engagement to date has taken account of emerging market concerns regarding COVID-19 and the Programme has fed into a DCMS impact assessment. Post-lockdown we are increasing the level of engagement with the market and testing specific impacts on consortium and bid development to inform Board decision making on competition timing.
Fail to manage the transition from the Third to the Fourth licence in a coherent way
Existing mitigations:
- licensing obligations are currently in place to support an effective handover (for example, asset condition is guaranteed for two years post expiry of the Third Licence)
- appointed dedicated internal leads for the management of the transition risk and associated decisions on technology
- completed deep dives into specific areas of operations and data (including technology, finance and logistics) and presented relevant data to the market.
Planned mitigations:
- establish the technology requirements for transition e.g. Cyber security standards, contract novation, handover, financial costs and maintaining technical performance during handover.
- Heads of Terms of Enabling agreement to be shared with market before competition launch.
- Heads of Terms of Co-operation agreement to be shared with market before competition launch.
Governance statement Next section
Remuneration and staff report
Last updated: 17 July 2023
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