National Lottery Distribution Fund annual report and accounts for the year ended 31 March 2022
Published 19 July 2022
© Crown copyright 2022
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Presented to Parliament pursuant to section 33(3) of the National Lottery etc. Act 1993 as amended by the National Lottery Act 1998.
Ordered by the House of Commons to be printed 19 July 2022
ISBN 978-1-5286-3472-4
House of Commons number: HC 524
Unique ref: E02760773
© Crown copyright 2022
Performance report
Overview
This overview explains what the 2021-22 financial statements show, how the National Lottery Distribution Fund (NLDF) operates, and the key risks that the NLDF faces.
The 2021-22 financial statements
The NLDF was established in 1994 at the time the National Lottery was launched, to receive and hold monies generated by the National Lottery for good causes. Section 21 of the National Lottery etc. Act 1993 places the NLDF under the control and management of the Secretary of State for Digital, Culture, Media and Sport.
This is the twenty-eighth set of accounts to be prepared for the NLDF. These financial statements account to Parliament for the receipt of National Lottery income and its allocation and distribution to the lottery distributing bodies. The Statement of Comprehensive Net Expenditure shows income from the National Lottery and investments in addition to the amounts drawn down and operating expenses for the year; the Statement of Financial Position shows the financial position at the year end, and the Statement of Cash Flows shows the movement in cash over the year.
Where the money comes from
The National Lottery is currently operated by Camelot UK Lotteries Limited (Camelot) under licence from the Gambling Commission. The current (third) National Lottery licence expires on 31 January 2024. The principal categories of income into the NLDF for the year to 31 March 2022 comprise:
- a proportion of National Lottery ticket sales, as determined by the licence granted to the operator (the primary contribution to the fund)
- a share of operator profits when such profits are greater than the profits forecast in the original bid to operate the third National Lottery Licence (the secondary contribution to the fund)
- any prizes which are not claimed within 180 days of the draw date for National Lottery games, or 180 days of the close of any scratchcard or interactive instant win game
- interest earned on unclaimed prizes while they remain in the Players’ Trust Fund (a trust account which receives all prizes due and only reimburses the operator when prizes have been paid to National Lottery players), together with the reclaim of tax deducted on interest when received by the fund’s corporate trustee
- any licensee penalty, for relating to errors in the operator’s communications or the working of their mobile app, and
- income from National Lottery ancillary activities e.g. income from commercial transactions which utilise the existence of the National Lottery for profit. In this way the NLDF shares in the benefits of any commercial activities which are derived from their connection with the National Lottery
- In March 2022 the Gambling Commission decided to take enforcement action against Camelot related to failures in its mobile app between 2016 and 2020 and determined a fine of £3.15 million
Under the current licence, the main portion of the money passing to the NLDF is calculated as the major share of the pool that is left after deducting from sales the value of prizes, lottery duty, retailer commission, and retention by the current operator.
Where the money goes
Funds held by the NLDF are apportioned to the arts, sports, heritage and community (charitable, health, education, and environment) causes as determined by the proportions detailed in the National Lottery etc. Act 1993. The share of the funds received by each lottery distributing body in 2021-22 is shown in notes 9 and 12.
Governance of the fund
Sound management of the NLDF plays a pivotal role in managing the flow of funds between the operator and the lottery distributing bodies, which issue the funds to the National Lottery beneficiaries, for ‘good cause projects’.
In managing the NLDF, the department works closely with the Gambling Commission which is responsible for awarding the National Lottery operating licence and the regulation of the National Lottery. It ensures, among other things, that the operator makes the correct payments to the NLDF. Within the framework of regulation set by the government, the role of the Gambling Commission is to monitor and report on the performance of the National Lottery operator and to enforce the terms of its Section 5 licence. This includes ensuring that the operator complies with licence terms relating to the banking, record keeping and security of monies received, as well as their remittance to the NLDF. The Gambling Commission does not handle any applications for National Lottery funds or distribute any National Lottery good cause income.
In addition, the department works with the Commissioners for the Reduction of the National Debt (CRND) whose role is to invest the funds held in the NLDF, in accordance with directions issued by HM Treasury. The funds are invested in collaboration with CRND until they are required by the lottery distributing bodies to make payments to successful grant applicants (or to meet administrative expenses). The department distributes funds to the lottery distributing bodies on request and accounts to Parliament for the flow of funds.
The Financial Directions, supported by a Statement of Financial Requirements, for each distributor establishes a financial framework within which their lottery distribution activities are to be conducted. Individual distributors are sponsored either by the department or by one of the devolved administrations in Scotland, Wales or Northern Ireland.
The Secretary of State issues the Financial Directions for all lottery distributing bodies sponsored by the department and, with the consent of relevant ministers, for devolved distributors in Wales. The Secretary of State’s consent is required for the issuing (and changing) of Financial Directions to devolved lottery distributors in Scotland and Northern Ireland by the relevant Secretary of State.
Permanent Secretary statement
As Accounting Officer of the NLDF, I seek annual assurances from the Accounting Officer of each lottery distributing body that it has in place adequate systems of internal control for the efficient, effective and equitable distribution of lottery monies. In particular, lottery distributing bodies’ Accounting Officers are asked to confirm to me annually that they are satisfied that their body has complied with its current lottery Financial Directions; has adequate internal and external audit arrangements in place; has adequate arrangements for detecting and responding to inefficiency, conflict of interest and fraud and for minimising losses of lottery grants, and maintains risk assessment and control procedures and risk registers.
My officials seek supporting information about lottery distributing bodies’ systems and their approach to financial and risk management; this can include advice from the distributors’ sponsors in my own department and in the relevant devolved administrations. Significant issues arising in relation to distributing bodies’ systems are reported up the hierarchy including to the department’s Audit and Risk Committee as necessary.
Up to and including the 2021-22 financial year, the National Lottery has generated £43.7 billion for good causes since its launch in 1994[footnote 1], and has benefited over 670,000 projects, large and small. The majority of National Lottery grants are under £10,000 reaching many organisations. A further £2.2 billion has been raised in income from investment.
The performance analysis provides some analysis of trends and sustainability issues.
Whilst the COVID-19 pandemic affected the country in many ways, National Lottery sales proved to be very resilient. Tickets sales via retail and online now exceed pre-pandemic levels.
Key risks
Liquidity risks
Liquidity risk is the risk that an entity will encounter difficulty raising liquid funds to meet liabilities as they fall due.
The income into the NLDF is available to the lottery distributing bodies for drawdown to pay grant commitments and operating expenses. Lottery distributing bodies can only draw down funds which are in their apportioned share of the portfolio. Currently, the total of the balance of the NLDF is invested in overnight call notice deposits allowing for maximum liquidity. As a result of the policies and procedures outlined above, the department considers that all significant liquidity risks are appropriately managed.
Interest rate risks
Interest rate risk is the risk that the fair value of a financial instrument will fluctuate due to changes in market interest rates. The financial assets of the NLDF are invested with CRND which manages its investments.
The investments made by CRND are made in accordance with directions made by HM Treasury. The average return on the investments in the financial year was 0.19% (2020-21: 0.10%). The department does not consider that the NLDF is exposed to any significant interest rate risks because of the nature of the assets held.
Foreign currency risks
The NLDF is not exposed to any foreign exchange risks, as all the NLDF holdings and transactions are in pound sterling.
Investment risk
HM Treasury has directed CRND that the NLDF may hold investments specified in the Trustee Investments Act 1961. This restricts investments to mainly government issues such as gilt-edged stock and limits the amount that can be invested outside cash and cash equivalents.
The department’s strategy is to avoid negative income returns over a three month period. The department regularly reviews its investments in partnership with CRND.
During the financial year, the NLDF invested its funds with CRND whose operations are carried out by the UK Debt Management Office (DMO). CRND charges the NLDF for its investment management.
Operational risk
On 15 March 2022, the Gambling Commission announced a preferred applicant to operate the 4th National Lottery licence, from 1 February 2024 onwards. That decision is currently being challenged in the Courts and, as a result, the process of awarding the licence was suspended, in accordance with the relevant legislation. This has caused a delay to the planned transition timetable from the 3rd to the 4th licence. However, in June the High Court approved a request from the Commission to lift the suspension, which will, subject to any appeals, allow the commission to start the transition process and works towards implementing the 4th licence in full. DCMS will work with the Commission as necessary to mitigate the risk of any delay to good causes realising the benefits of the 4th licence.
Staffing and organisation
The cost of the department’s staff engaged on NLDF matters are charged to the NLDF in proportion to the amount of time spent in discharging the Secretary of State’s functions under the National Lottery etc. Act 1993, as amended. As a public sector employer, the department is bound by the Equality Act 2010. The Act’s public sector equality duty came into force in 2011 and requires all bodies exercising public functions to:
- eliminate discrimination, harassment, victimisation and any other conduct that is prohibited by or under this Act
- advance equality of opportunity between persons who share a relevant protected characteristic and persons who do not share it
- foster good relations between persons who share a relevant protected characteristic and persons who do not share it.
The department is an equal opportunities employer, which does not discriminate against staff or eligible applicants for posts on the grounds of gender, marital status, race, colour, nationality, ethnic origin, religion, disability, age or sexual orientation.
Sustainability report
The department is committed to supporting and promoting sustainable development. We endeavour to reduce our use of materials, energy and water, minimise waste production, procure sustainably and minimise our carbon footprint.
As the NLDF is managed and operated within the department, disclosure regarding sustainability reporting can be found in the 2021-22 department annual report and accounts which will be available, when published, on the department’s website.
Non-financial information
Anti-bribery
The department ensures that all of its staff involved in the NLDF are aware of their obligations under the Bribery Act 2010, and ensure that any gifts received or hospitality offers are compliant with this legislation, as well as the Civil Service Code.
Anti-corruption
All department employees (including those that work on the NLDF) are responsible for ensuring their behaviour meets the standards expected of them in accordance with the Civil Service Code and the Department’s Standards of Conduct. See the department annual report and accounts 2021-22 for more detail.
Respect for human rights
The NLDF is an administrative function within the department, and as such the human rights implications of NLDF are minimal. NLDF places reliance on lottery distributing bodies to ensure respect for human rights in the distribution of NLDF funds.
Social matters
The NLDF contributes to significant social impacts, being part of the process for delivering funding for good causes through lottery distributors. The department is aware of this impact and seeks to ensure that the lottery distributors maximise the social benefit of the monies they drawdown from the NLDF.
Future plans
The department will, when appropriate, engage the incoming licensee for the fourth licence to understand their vision for the future of the National Lottery and their plans to balance growth and innovation with the protection of participants and propriety. In the meantime, the Gambling Commission will continue to hold the incumbent operator to account for effective delivery over the remaining period of the third licence and of relevant transition obligations.
Important events which have occurred since the year end
These are shown in note 14 to the accounts.
Performance analysis
The trend over the last ten years for income, expenditure (i.e. drawdowns by lottery distributing bodies), amount held for lottery distributing bodies, and the grant liabilities of lottery distributing bodies (discussed below) are shown in the chart and table below.
NLDF ten-year financial trends
| Year | Total Income (£m) | Drawdown by lottery distributing bodies (£m) | Amount held for lottery distributing bodies (£m)[footnote 2] | Grant liabilities of lottery distributing bodies (£m)[footnote 3] |
| 2012-13[footnote 4] | 1,936 | 1,547 | 1,543 | 2,298 |
| 2013-14 | 1,700 | 1,628 | 1,612 | 2,861 |
| 2014-15[footnote 5] | 1,963 | 1,929 | 1,643 | 3,198 |
| 2015-16[footnote 6] | 1,934 | 1,843 | 1,731 | 2,962 |
| 2016-17 | 1,638 | 1,826 | 1,540 | 3,042 |
| 2017-18 | 1,644 | 1,824 | 1,356 | 3,104 |
| 2018-19 | 1,615 | 1,682 | 1,282 | 2,869 |
| 2019-20 | 1,801 | 1,808 | 1,259 | 2,552 |
| 2020-21[footnote 7] | 1,833 | 1,852 | 1,222 | 2,154 |
| 2021-22[footnote 8] | 1,838 | 1,571 | 1,461 | 2,474 |
Income
The National Lottery has raised £43.7 billion for good causes since its launch, of which £1.8 billion was received by the NLDF during 2021-22 (2020-21: £1.8 billion). A further £2.2 billion of investment returns on the balance held in the NLDF has been earned since launch. £1.6 billion was drawn down in 2021-22 by lottery distributing bodies to meet grant payments for good causes and expenses.
There is not a linear relationship between ticket sales and income generated for the NLDF. This is a result of the way the current (third) National Lottery licence operates, where each type of lottery product returns varying proportions to good causes.
Overall, sales were heavily supported by positive performance in the core Lotto game, which was aided by a number of key events such as the regular ‘Must Be Won’ draws, and particularly strong sales for EuroMillions. The latter benefitted both from a series of natural extended rollovers, along with planned ‘Super Minimum Jackpot Guarantee’ and other events. From a channel perspective, the proportion of sales made through digital channels continued to increase slightly, following significant growth throughout 2020/21. Digital sales return a higher proportion of sales to good causes, partly due to the fact that they do not contribute any retailer commission. The department, along with the National Lottery family, are fully engaged in a range of actions to deliver the strongest possible returns to good causes from the National Lottery over the remainder of its current licence period. This includes measures to increase awareness of good cause projects in order to maximise good cause income.
Lottery distributing bodies’ grant liabilities and commitments
Lottery distributing bodies’ grant liabilities and commitments for 2021-22, and for 2020-21 (restated) are shown in the table below.
At the year end the amount held for lottery distributing bodies was £1.5 billion (31 March 2021: £1.2 billion).
Total grant liabilities at 31 March 2022 were £2.5 billion, a £0.3 billion increase from the £2.2 billion at the prior year end. In addition to these grant liabilities, contingent liabilities at 31 March 2022 totalled £0.5 billion (31 March 2021: £0.4bn). Contingent liabilities arise when a lottery distributing body has decided in principle to fund a project, but the liability recognition criteria are not yet met. These contingent liabilities are disclosed as a note in the lottery distributing bodies’ financial statements.
Managing the fund balances
Distributors are expected to commit the maximum amount prudent to programmes and grants, taking account of projected National Lottery income, available balances in the Fund, existing liabilities and other factors such as likelihood of partnership funding.
Liabilities are made for several years into the future, and it is the case that a proportion of liabilities at 31 March 2022 will relate to distributors’ grant decisions made in previous years. Distributors have a range of mechanisms at their disposal to respond to reduced income, both in managing their existing liabilities and creating new ones.
The department continues to work with lottery distributing bodies to maintain fund balances at an appropriate level to manage income level fluctuations between years and to ensure commitments already made by lottery distributing bodies can be met. In addition, the department, working with the lottery distributing bodies, has developed a suite of key performance indicators that enables the department to monitor their financial sustainability.
From its ongoing interactions and oversights as described earlier, the department is assured that the distributors have well developed strategies to ensure affordability of existing liabilities and proposed spending programmes within a falling income scenario.
The further reduction in the grant liabilities and contingent liabilities of the lottery distributing bodies is one indicator of the distributors’ management of current and anticipated income levels. The department will continue to maintain its close interest in lottery distributors’ management of National Lottery funds. In particular, the department will continue to discuss with distributors the impact of income trends on their budgets.
Lottery Distributors are provided with a monthly report containing National Lottery income data and appropriate commentary. Distributors are also provided with indicative good causes income along with a commentary on progress being made to maximise returns to good causes. We continue to work with the distributors to ensure data shared remains useful and robust in aiding distributors in deciding future grants strategy.
Lottery distributing bodies’ grant liabilities and commitments
The figures shown in the table below are based on amounts recorded in the lottery distributing bodies’ unaudited 2021-22 accounts. 2020-21 figures are restated with audited figures, as unaudited figures were disclosed in the 2020-21 NLDF accounts.
| 2021-22 | 2020-21 (Restated) | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Grant liabilities due within one year | Grant liabilities due later than one year and not later than five years | Grant liabilities due later than five years | Total | NLDF balance available | Grant liabilities made against future income flows | Contingent liabilities | Total commitments made against future income flows | Total liabilities | NLDF balance available | Grant liabilities made against future income flows | Contingent liabilities | Total commitments made against future income flows | ||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | ||
| Arts Council England | 185,497 | 31,326 | 0 | 216,823 | 193,769 | (23,054) | 0 | (23,054) | 216,485 | 210,562 | (5,923) | 0 | (5,923) | |
| Arts Council of Wales | 16,078 | 4,415 | 0 | 20,493 | 26,165 | 5,672 | 0 | 5,672 | 10,887 | 22,120 | 11,233 | 0 | 11,233 | |
| Creative Scotland | 17,309 | 847 | 0 | 18,156 | 41,367 | 23,211 | 0 | 23,211 | 19,320 | 37,619 | 18,299 | 0 | 18,299 | |
| Arts Council of Northern Ireland | 1,470 | 0 | 0 | 1,470 | 8,185 | 6,715 | 4,505 | 2,210 | 1,251 | 6,381 | 5,130 | 4,405 | 725 | |
| British Film Institute | 37,382 | 0 | 0 | 37,382 | 50,942 | 13,560 | 7,702 | 5,858 | 44,140[footnote 9] | 53,120 | 8,980[footnote 10] | 4,536 | 4,444[footnote 11] | |
| Sport England | 286,699 | 343,472 | 0 | 630,171 | 191,285 | (438,886) | 8,585 | (447,471) | 271,098 | 176,608 | (94,490) | 16,410 | (110,900) | |
| Sport Northern Ireland | 3,135 | 0 | 0 | 3,135 | 17,940 | 14,805 | 4,876 | 9,929 | 3,627 | 16,143 | 12,516 | 40,649 | (28,133) | |
| Sport Scotland | 6,566 | 253 | 0 | 6,819 | 54,992 | 48,173 | 0 | 48,173 | 5,297 | 51,957 | 46,660 | 0 | 46,660 | |
| Sport Wales | 57 | 0 | 0 | 57 | 15,054 | 14,997 | 0 | 14,997 | 305 | 12,810 | 12,505 | 356 | 12,149 | |
| UK Sport | 5,003 | 3,578 | 0 | 8,581 | 35,548 | 26,967 | 191,565 | (164,598) | 9,857 | 42,238 | 32,381 | 246,255 | (213,874) | |
| National Lottery Heritage Fund | 214,173 | 300,488 | 101,614 | 616,275 | 427,088 | (189,187) | 200,993 | (390,180) | 696,457 | 328,747 | (367,710) | 115,811 | (483,521) | |
| National Lottery Community Fund | 464,530 | 444,964 | 2,374 | 911,868 | 398,649 | (513,219) | 110,578 | (623,797) | 875,477 | 263,583 | (611,894) | 14,937 | (626,831) | |
| Total | 1,237,899 | 1,129,343 | 103,988 | 2,471,230 | 1,460,984 | (1,010,246) | 528,804 | (1,539,050) | 2,154,201 | 1,221,888 | (932,313) | 443,359 | (1,375,672) |
Operating costs
Expenses incurred in operating the fund by the department (which includes the external audit fee), CRND and by the Gambling Commission for regulating the National Lottery are met from the fund and totalled £27.2 million for 2021-22 (2020-21: £18.2 million), of which £26.8 million (2020-21: £17.8 million) related to the Gambling Commission.
Costs incurred by the Gambling Commission relating to the competition to award the fourth National Lottery Licence, which is due to come into operation on 1 February 2024, were £24.1m (2020-21 £15.1m). The increase compared to the prior year is in line with expectations due to greater resources required as the evaluation stage of the competition concluded with the Gambling Commission’s announcement on 15 March of a preferred and reserved applicant to operate the licence.
The table below shows a summary of costs since 2017-18. The Gambling Commission 2021-22 annual report and accounts provides further information on this as well as its continuing role as regulator of the lottery. These can be found on their website, www.gamblingcommission.gov.uk.
| DCMS (note 4) | Gambling Commission (note 5) | CRND | Total | |
|---|---|---|---|---|
| £m | £m | £m | £m | |
| 2017-18 | 0.3 | 3.7 | 0.1 | 4.1 |
| 2018-19 | 0.3 | 6.6 | 0.1 | 7.0 |
| 2019-20 | 0.3 | 16.1 | 0.1 | 16.5 |
| 2020-21 | 0.3 | 17.8 | 0.1 | 18.2 |
| 2021-22 | 0.3 | 26.8 | 0.1 | 27.2 |
Amount held for lottery distributing bodies
The NLDF balance available in the fund at 31 March 2022 is held in investments by CRND as set out in note 7 to these accounts. The allocation of these funds across the twelve lottery distributing bodies in 2021-22 can be seen in note 9 to these accounts.
CRND publishes an annual report and accounts for the National Lottery Fund Investment Account, which it administers. Copies can be requested directly from CRND. Further information on the investment management role of CRND can be found on its website, www.dmo.gov.uk.
Signed:
Sarah Healey
Permanent Secretary and Accounting Officer
Department for Digital, Culture, Media & Sport
12 July 2022
Accountability report
The accountability report is divided into three sections: the corporate governance report, the remuneration and staff report, and the parliamentary accountability disclosures.
The corporate governance report provides information on the governance of the NLDF. The remuneration and staff report provides information on the remuneration of those charged with governance of the NLDF, and other relevant information on staff costs.
The disclosure of this information complies with best practice standards of corporate governance and contributes to the NLDF’s accountability to Parliament by virtue of providing a transparent and full account of the corporate governance structure of the NLDF and other relevant information.
Corporate governance report
Directors’ report
Governance structure
The department is responsible for the oversight of the National Lottery regime. Details of the governance arrangements are contained in the governance statement in this annual report.
Directorships and other significant interests
Board members completed their annual declarations of interest. Board members are asked to declare any relevant interests in agenda items at the start of each board meeting and absent themselves from those discussions. No directorships or other significant interests were held by executive board members which may have conflicted with their management responsibilities relating to the NLDF.
Ministers and board members’ remuneration
The details of ministers’ and board members’ remuneration are set out in the remuneration and staff report in the department’s annual report and accounts.
Reporting of personal data related incidents
There were no reported instances of personal data related incidents during the period relating to the NLDF.
As the NLDF is managed and operated within the department, disclosure can be found in the 2021-22 annual report and accounts which will be available, when published, on the department’s website.
Statement of Responsibilities of the Secretary of State, Accounting Officer and the Gambling Commission
Under section 33(1) of the National Lottery etc. Act 1993 (as amended by the National Lottery Act 1998), HM Treasury has directed the Secretary of State for Digital, Culture, Media and Sport to prepare for each financial year a statement of accounts in the form and on the basis set out in the Accounts Direction, a copy of which may be obtained from the finance team within the department. The accounts are prepared on an accruals basis and must give a true and fair view of the National Lottery Distribution Fund’s state of affairs at the year end and of its income and expenditure, Statement of Financial Position and cash flows for the financial year. HM Treasury has appointed the Permanent Secretary of the Department for Digital, Culture, Media and Sport to be the Accounting Officer for the National Lottery Distribution Fund.
Secretary of State responsibilities
In preparing the accounts, the Secretary of State is required to comply with the requirements of the Government Financial Reporting Manual and in particular to:
- observe the Accounts Direction issued by HM Treasury, including the relevant accounting and disclosure requirements, and apply suitable accounting policies on a consistent basis
- make judgements and estimates on a reasonable basis
- state whether applicable accounting standards as set out in the Government Financial Reporting Manual have been followed, and disclose and explain any material departures in the accounts
- prepare the financial statements on a going concern basis, unless it is inappropriate to presume that the fund will continue in operation
- confirm the Annual Report and Accounts as a whole is fair, balanced and understandable and take personal responsibility for the Annual Report and Accounts and the judgements required for determining that it is fair, balanced and understandable.
Accounting Officer responsibilities
The responsibilities of an Accounting Officer, including responsibility for the propriety and regularity of public finances for which the Accounting Officer is answerable, for keeping proper records and for safeguarding the National Lottery Distribution Fund’s assets, are set out in Managing Public Money published by HM Treasury.
My responsibilities over the National Lottery Distribution Fund extend to the receipt of National Lottery revenues from the operator, their placement with the Commissioners for the Reduction of the National Debt and disbursements to the lottery distributing bodies. The Gambling Commission is responsible, using the powers set out in the National Lottery etc. Act 1993, as amended by the National Lottery Act 1998, and in the licence granted to the current operator under section 5 of the 1993 Act, for ensuring that the current operator meets their obligations under the licence, including their financial obligations to the National Lottery Distribution Fund. I have no locus in operational matters related to the licence.
The department is notified of amounts due to be paid to the National Lottery Distribution Fund by the current operator; this is overseen by the Gambling Commission. The Gambling Commission’s commissioners are also required to report after the end of each financial year to the Secretary of State on the exercise of their functions during the year. The Accounting Officer of the Gambling Commission has provided me with a statement of assurance and in this he outlines the compliance work undertaken at Camelot during the year ended 31 March 2022 which has led him to be satisfied that the payments to the National Lottery Distribution Fund during the year ended 31 March 2022 are complete and accurate in all material respects.
As Accounting Officer, I have taken all steps that I ought to have taken to make myself aware of any relevant audit information and to establish that the fund’s auditors are aware of that information. So far as I am aware, there is no relevant audit information of which the auditors are unaware.
I take personal responsibility for the annual report and accounts and confirm that they as a whole are fair, balanced and understandable, as are any judgements used to determine this view.
Governance statement
This statement sets out the governance structure, risk management framework and internal control procedures that have operated within the department and consequently applied to the NLDF during the financial year 2021-22, and accords with HM Treasury guidance.
Oversight of the National Lottery
The department is responsible for the policy and legal framework of the National Lottery regime and works closely with the Gambling Commission (GC), the independent regulator of the National Lottery. Amongst other things, the GC monitors and reports on the performance of the current operator and enforces the terms of its Section 5 licence. The department maintains oversight of the GC’s activities through appropriate controls, including a management statement covering regularity and propriety issues, and through an established series of regular meetings and ad hoc interactions.
The amounts raised through the National Lottery for Good Causes are paid into the NLDF which is managed and run by staff employed by the department. National Lottery monies are independent of government and are distributed by independent lottery distributing Bodies at arm’s length from Government. The department implements appropriate controls over the National Lottery distributors, including financial directions, to ensure propriety, regularity and accountability in their handling of National Lottery monies drawn down. DCMS seeks annual confirmation from all Lottery Distributors of key systems of internal control in relation to their handling of National Lottery good cause income.
Compliance with the Corporate Governance code
The department fully complies with the HM Treasury and Cabinet Office Corporate Governance Code for central government departments, with the following variations:
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The Senior Pay Committee (SPC), comprising the Permanent Secretary, Lead Non-Executive Board Member, a second Non-Executive Board Member and the Director of People and Workplace, fulfils the role of a Nominations and Governance Committee, primarily to scrutinise the incentive structure
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The Head of Internal Audit attends the Audit and Risk Committee (ARC) rather than the Departmental Board (DB) and the ARC chair reports risks, issues and an overview of the committee’s work at each DB meeting
Approach to risk management in the department
The Risk Team has completed a range of activities during the year, including the creation of a risk management framework, review of the Executive Risk Register, development of a Risk Appetite Statement and delivered a risk management training package. This work was focused on the high level top down risk management arrangements in DCMS. The Risk Team is now focusing on the bottom up activities and establishing effective and efficient processes embedded into the culture of DCMS teams.
The Department’s approach to risk management follows the HM Government’s Orange Book Principles.
Further details on risk management activities can be found in the governance statement of the DCMS annual report and accounts 2021-22. This will also include information about the board committee structure, its attendance records and coverage of its work.
Assurance exercises
All the NLDF Directors with delegated budgets were surveyed to seek assurance against existing risk management practices and controls, whilst also inviting proposals for improvement. Interviews to probe the underlying issues and findings were held with a sample of Directors, alongside reviews with functional teams to validate the conclusions. In-depth panel sessions were held with each Director General, their Director teams and key representatives from corporate teams to agree the key insights and actions. As a new practice, a final challenge session was held with all Director Generals, the Accounting Officer and an independent member of the Department’s Audit and Risk Committee.
The NLDF established a permanent Risk Team towards the end of 2021, responsible for implementation of the risk management framework, with oversight and challenge from the Executive Board and its committees. The team provides scrutiny and advice on risk registers for relevant committees, working closely with risk owners to support and strengthen reporting. It conducts strategic risk sessions to identify and articulate key risks and monitors mitigations. The team collaborates closely with the Governance Team, Public Bodies and Project Delivery Centre of Excellence.
Board performance and effectiveness
The HM Treasury and Cabinet Office Corporate Governance in Central Government Departments: Code of Good Practice requires all departments to undertake an annual Board effectiveness evaluation. In 2021-22, the department focused this exercise on Executive Board (EB) and its committees. It found that the structure was the right one for the department and that EB and its committees were operating effectively to their respective terms of reference.
Additionally, in January 2022 the DB considered its role in providing challenge and advice on strategic issues and agreed that it would meet fewer times per year but be supported by a new, more regular Non-Executive / Executive meeting to ensure Non-Executives were able to regularly scrutinise and challenge delivery, policy and corporate change implementation.
Information management
All Boards and committees are provided with a range of management information in order to review the department’s performance and capability.
The department’s Delivery Unit provides consistent data, insight and assessment of departmental priorities. This enables the department to obtain a greater view on delivery, anticipate success, identify emerging problems and allow for data driven decision making.
Economic crime
The department’s Economic Crime Strategy and supporting Policy towards all economic crimes, including fraud, bribery and corruption is one of zero tolerance, whether in the core department or the public bodies for which it is responsible. The department’s acceptance to loss from economic crime, as detailed in the Risk Appetite Statement, is minimal. The department’s Economic Crime Strategy and Economic Crime Response Plan sets out the arrangements for reporting and responding to economic crimes, including fraud. The Strategy, Policy and Plan have been reviewed and updated in line with Cabinet Office guidelines and approved and noted by the ARC and the Performance, Assurance and Risk Committee (PARCo).
The main emphasis of the Strategy and Policy is on economic crime prevention, achieved through risk assessment, process design informed by awareness of fraud risk, and by keeping staff alert to risks.
DCMS has 2 Co- Senior Officers at EB level who are responsible for ensuring that the department’s overall arrangements for managing the risk of economic crime are appropriate and proportionate to that risk. They are the Director of People and Workplace and the Director of Finance and Commercial who are also accountable to the Board for the department’s performance in countering all economic crime including, but not limited to fraud, bribery and corruption; ensure that any lessons learned are translated into strengthened departmental controls; and ensure the department undertakes an annual fraud risk assessment exercise.
The core department works with its public bodies and the Cabinet Office to identify and counter fraudulent activities, and the DCMS lottery bodies operate a Lottery Bodies Forum where they share fraud information and best practice. Through working with the Cabinet Office Centre of Expertise for Counter Fraud and supporting public bodies, the department will continue to strengthen its processes and controls to reduce the risk of fraud. Over the coming year, the department will continue to offer training and awareness activities, drawing on their own and the Cabinet Office’s expert knowledge.
The Economic Crime Response Plan details the processes, procedures and escalation routes that should be followed at all times, and by all staff members, where a suspected fraud arises, ensuring the Department maximises the opportunity to attempt to recover funds. The department also recently introduced a Debt Management Strategy that allows for any and all monies deemed to have been lost to economic crime practices and be considered as Debt, to be actively pursued through a 3rd party.
Emergency measures required to tackle effects of the global pandemic necessitated DCMS and their ALBs to tolerate a higher than normal level of risk in providing sufficient funding at pace. There was an expectation that there would have been an increase in the number of suspected frauds impacting lottery funding, which will be fully determined after post-event testing and fraud measurement analyses are completed.
Public bodies will also continue to work with their counter fraud specialists, other lottery bodies and appropriate enforcement agencies on any suspected allegations of economic crime and will notify the department’s core CF team and other stakeholders and their audit and risk committees, as soon as they occur.
Lottery distributing bodies
We report in this section on any matters of interest arising in the lottery distribution network, in seeking to be assured about onward regularity and propriety in the handling of good cause monies.
The Sports Council Northern Ireland (SCNI) is one of twelve lottery distributing bodies that are funded by the NLDF. The distribution of good causes funding for sport in Northern Ireland is channelled through SCNI, an arms-length body of the Department for Communities Northern Ireland (DfCNI) and operates under the brand identification Sport Northern Ireland (SportNI).
SportNI continues to work closely with the NI Audit Office to move to a position where all its outstanding accounts can be certified by the National Audit Office and the 2020-21 accounts have been presented for approval to the Board. There is no indication that any issues in respect of regularity will be highlighted in the outstanding accounts. DfCNI remains content that there has never been any indication of deficiency with the Lottery Accounts across the delayed years and that the ongoing scrutiny of the lottery accounts is due to potential read-across of issues that may arise in the Exchequer Accounts of SportNI.
In the meantime, it is DfCNI’s view, based on its sponsorship and accountability arrangements that SportNI continues to operate effectively as a Lottery Distributor and in meeting the requirements of the Policy Direction and the broad strategic direction for Sports Development. DFCNI continues to apply pressure on the NLDF Budget expenditure and intends to initiate a process to refresh the current Lottery Policy Direction during 2022-23.
Other key governance activities
Internal audit annual report
With the agreement of the Accounting Officer and the ARC, the GIAA decided not to conduct an audit of NLDF in 2021-22 due to the NLDF’s low risk to the department and the levels of assurance that the annual audits had received in previous years (respectively: 2013-14: substantial, 2014-15: moderate and 2015-16: moderate).
Conflicts of Interest policy and procedure
All members of the DB, ARC and EB are required to declare any personal or business interest which may, or may be reasonably perceived (by a member of the public), to influence their judgement in performing their functions and obligations. Where a board member declares a potential conflict at meetings, it is recorded in the minutes and the board member takes no part in the meeting for the duration of that item of discussion.
Whistleblowing
DCMS’s Raising a Concern Policy and Procedure (also known as Whistleblowing) is published on the department’s intranet. DCMS has 3 independent nominated officers whom staff can approach anonymously to report any concerns they may have about perceived wrongdoings or something that goes against the Civil Service Code (i.e. integrity, honesty, objectivity, impartiality). In the 2021 People Survey DCMS obtained a score of 86% for inclusion and fair treatment (level with 2020). In addition, 90% of staff reported that they were aware of the code, 57% knew how to raise a concern under the code, and 78% confirmed they were confident that a raised concern under the code would be properly investigated.
Further information on key governance activities
Further information on key governance activities, including highlights of board committee reports, may be found in the governance statement of the DCMS annual report and accounts 2021-22 which is subject to audit, and will be available, when published, on the department’s website.
Such key governance activities include:
- Core department and shared services
- Group write-offs
- Tax Policy for off-payroll appointees
- Ministerial directions
- Personal Data Incidents
- Accounting Officer System Statement
- Internal Audit Annual Report
Accounting Officer’s conclusion
I have considered the evidence provided regarding the production of the annual governance statement - including from the department’s governance structures, reviews of our public bodies and the independent advice provided by the ARC. I conclude that the department has satisfactory governance and risk management systems in place with effective plans to ensure continuous improvement.
Remuneration and staff report
Remuneration policy
Operationally, the NLDF is part of DCMS, and the staff who administer the NLDF and prepare the fund’s annual report and accounts are employees of DCMS. The NLDF has no employees of its own and, therefore, there are no disclosures to make under a remuneration and staff report for NLDF itself.
Administration of the NLDF is undertaken on a part-time basis by a small number of officials in the department, whose costs are reimbursed by the NLDF. The department does not recharge the NLDF for the remuneration costs of departmental ministers or the Departmental Board.
Management and control of the NLDF is vested in the Secretary of State. Details of the composition of the department ministers and board and remuneration information may be found in the remuneration report of the DCMS annual report and accounts 2021-22 which is subject to audit, and will be available, when published, on the department’s website.
Parliamentary Accountability Disclosures
Regularity of expenditure (this section is subject to audit)
Losses and Special Payments
There were no losses or special payments made in 2021-22 or 2020-21 relating to NLDF.
Gifts
There were no gifts made by NLDF in 2021-22 and 2020-21.
Remote Contingent Liabilities
There were no remote contingent liabilities in 2021-22 and 2020-21 relating to NLDF.
Fees and charges
NLDF does not provide services to external and public sector customers.
Signed:
Sarah Healey
Permanent Secretary and Accounting Officer
Department for Digital, Culture, Media & Sport
12 July 2022
The Certificate and Report of the Comptroller and Auditor General to the Houses of Parliament
Opinion on financial statements
I certify that I have audited the financial statements of the National Lottery Distribution Fund for the year ended 31 March 2022 under the National Lottery etc. Act 1993.
The financial statements comprise the National Lottery Distribution Fund’s:
- Statement of Financial Position as at 31 March 2022;
- Statement of Comprehensive Net Expenditure, Statement of Cash Flows and Statement of Changes in Amount Held for Lottery Distributing Bodies for the year then ended; and
- the related notes including the significant accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and UK adopted International Accounting Standards.
In my opinion, the financial statements:
- give a true and fair view of the state of the National Lottery Distribution Fund’s affairs as at 31 March 2022 and its increase in realised amount held for lottery distributing bodies for the year then ended; and
- have been properly prepared in accordance with the National Lottery etc. Act 1993 and HM Treasury directions issued thereunder.
Opinion on regularity
In my opinion, in all material respects, the income and expenditure recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.
Basis for opinions
I conducted my audit in accordance with International Standards on Auditing (UK) (ISAs UK), applicable law and Practice Note 10 Audit of Financial Statements of Public Sector Entities in the United Kingdom. My responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of my certificate.
Those standards require me and my staff to comply with the Financial Reporting Council’s Revised Ethical Standard 2019. I have also elected to apply the ethical standards relevant to listed entities. I am independent of the National Lottery Distribution Fund in accordance with the ethical requirements that are relevant to my audit of the financial statements in the UK. My staff and I have fulfilled our other ethical responsibilities in accordance with these requirements.
I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.
Conclusions relating to going concern
In auditing the financial statements, I have concluded that the National Lottery Distribution Fund’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work I have performed, I have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the National Lottery Distribution Fund’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
My responsibilities and the responsibilities of the Accounting Officer with respect to going concern are described in the relevant sections of this certificate.
The going concern basis of accounting for the National Lottery Distribution Fund is adopted in consideration of the requirements set out in HM Treasury’s Government Financial Reporting Manual, which require entities to adopt the going concern basis of accounting in the preparation of the financial statements where it anticipated that the services which they provide will continue into the future.
Other information
The other information comprises information included in the Annual Report, but does not include the financial statements nor my auditor’s certificate and report. The Accounting Officer** is responsible for the other information.
My opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in my certificate, I do not express any form of assurance conclusion thereon.
In connection with my audit of the financial statements, my responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or my knowledge obtained in the audit or otherwise appears to be materially misstated.
If I identify such material inconsistencies or apparent material misstatements, I am required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work I have performed, I conclude that there is a material misstatement of this other information, I am required to report that fact.
I have nothing to report in this regard.
Opinion on other matters
In my opinion, based on the work undertaken in the course of the audit:
- the parts of the Accountability Report subject to audit have been properly prepared in accordance with Secretary of State directions made under the National Lottery etc. Act 1993; and
- the information given in the Performance and Accountability Reports for the financial year for which the financial statements are prepared is consistent with the financial statements and is in accordance with the applicable legal requirements.
Matters on which I report by exception
In the light of the knowledge and understanding of the National Lottery Distribution Fund and its environment obtained in the course of the audit, I have not identified material misstatements in the Performance and Accountability Report.
I have nothing to report in respect of the following matters which I report to you if, in my opinion:
- I have not received all of the information and explanations I require for my audit; or
- adequate accounting records have not been kept by the National Lottery Distribution Fund or returns adequate for my audit have not been received from branches not visited by my staff; or
- the financial statements and the parts of the Accountability Report subject to audit are not in agreement with the accounting records and returns; or
- certain disclosures of remuneration specified by HM Treasury’s Government Financial Reporting Manual have not been made or parts of the Remuneration and Staff Report to be audited is not in agreement with the accounting records and returns; or
- the Governance Statement does not reflect compliance with HM Treasury’s guidance.
Responsibilities of the Secretary of State, Accounting Officer and the Gambling Commission for the financial statements
As explained more fully in the Statement of Responsibilities of the Secretary of State, Accounting Officer and the Gambling Commission, the Secretary of State for Digital, Culture, Media and Sport, is responsible for:
- maintaining proper accounting records;
- the preparation of the financial statements and Annual Report in accordance with the applicable financial reporting framework and for being satisfied that they give a true and fair view;
- ensuring that the Annual Report and accounts as a whole is fair, balanced and understandable;
- internal controls as the Accounting Officer determines is necessary to enable the preparation of financial statement to be free from material misstatement, whether due to fraud or error; and
- assessing the National Lottery Distribution Fund’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Accounting Officer anticipates that the services provided by National Lottery Distribution Fund will not continue to be provided in the future.
Auditor’s responsibilities for the audit of the financial statements
My responsibility is to certify and report on the financial statements in accordance with the National Lottery etc. Act 1993.
My objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a certificate that includes my opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Extent to which the audit was considered capable of detecting non-compliance with laws and regulations including fraud
I design procedures in line with my responsibilities, outlined above, to detect material misstatements in respect of non-compliance with laws and regulations, including fraud. The extent to which my procedures are capable of detecting non-compliance with laws and regulations, including fraud is detailed below.
Identifying and assessing potential risks related to non-compliance with laws and regulations, including fraud
In identifying and assessing risks of material misstatement in respect of non-compliance with laws and regulations, including fraud, we considered the following:
- the nature of the sector, control environment and operational performance including the design of the National Lottery Distribution Fund’s accounting policies.
- Inquiring of management, the Department for Digital, Culture, Media and Sport’s head of internal audit and those charged with governance, including obtaining and reviewing supporting documentation relating to the National Lottery Distribution Fund’s policies and procedures relating to:
- identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
- detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and
- the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations including the National Lottery Distribution Fund’s controls relating to the National Lottery etc. Act 1993, Statutory Instrument 2010 No. 2863 ‘The Apportionment of Money in the National Lottery Distribution Fund Order 2010’ and Managing Public Money.
- discussing among the engagement team, including significant component audit teams, how and where fraud might occur in the financial statements and any potential indicators of fraud.
As a result of these procedures, I considered the opportunities and incentives that may exist within the National Lottery Distribution Fund for fraud and identified the greatest potential for fraud in the following areas: revenue recognition, posting of unusual journals and grant payments made by Lottery Distributing Bodies. In common with all audits under ISAs (UK), I am also required to perform specific procedures to respond to the risk of management override of controls.
I also obtained an understanding of the National Lottery Distribution Fund’s framework of authority as well as other legal and regulatory frameworks in which the National Lottery Distribution Fund operates, focusing on those laws and regulations that had a direct effect on material amounts and disclosures in the financial statements or that had a fundamental effect on the operations of the National Lottery Distribution Fund. The key laws and regulations I considered in this context included the National Lottery etc. Act 1993, Statutory Instrument 2010 No. 2863 ‘The Apportionment of Money in the National Lottery Distribution Fund Order 2010’ and Managing Public Money.
Audit response to identified risk
As a result of performing the above, the procedures I implemented to respond to identified risks included the following:
- reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described above as having direct effect on the financial statements;
- enquiring of management, the Audit and Risk Committee and in-house legal counsel concerning actual and potential litigation and claims;
- reading and reviewing minutes of meetings of those charged with governance and the Board and internal audit reports; and
- in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
I also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including significant component audit teams and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
A further description of my responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of my certificate.
Other auditor’s responsibilities
I am required to obtain evidence sufficient to give reasonable assurance that the income and expenditure reported in the financial statements have been applied to the purposes intended by Parliament and the financial transactions conform to the authorities which govern them
I communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit.
Report
I have no observations to make on these financial statements.
Gareth Davies
Comptroller and Auditor General
National Audit Office
157-197 Buckingham Palace Road
Victoria
London
SW1W 9SP
15 July 2022
Financial statements
Primary statements
Statement of Comprehensive Net Expenditure for the year ended 31 March 2022
| 2021-22 | 2020-21 | ||
|---|---|---|---|
| Note | £000 | £000 | |
| Income | |||
| Income from the National Lottery | 2 | 1,834,968 | 1,832,010 |
| Investment income | 3 | 2,559 | 1,061 |
| Total income | 1,837,527 | 1,833,071 | |
| Less: operational costs | |||
| Department for Digital, Culture, Media and Sport | 4 | (307) | (365) |
| Gambling Commission | 5 | (26,841) | (17,802) |
| Other expenses | (69) | (69) | |
| Total operational costs | (27,217) | (18,236) | |
| Net realised income for distribution | 1,810,310 | 1,814,835 | |
| Amounts authorised for payment to lottery distributing bodies | 9 | (1,571,214) | (1,851,922) |
| (Decrease)/increase in realised amount held for lottery distributing bodies | 239,096 | (37,087) | |
| Total comprehensive income/(expenditure) | 239,096 | (37,087) |
All transactions are in respect of continuing operations.
The notes form an integral part of these accounts.
Statement of Financial Position as at 31 March 2022
| 2021-22 | 2020-21 | ||
|---|---|---|---|
| Note | £000 | £000 | |
| Current assets | |||
| Receivables | 6 | 26,452 | 31,236 |
| Investments held by CRND | 7 | 1,435,262 | 1,191,017 |
| Total current assets | 1,461,714 | 1,222,253 | |
| Current liabilities | |||
| Payables: amounts falling due within one year | (730) | (365) | |
| Total assets less liabilities | 1,460,984 | 1,221,888 | |
| Represented by: | |||
| Realised amount held for distributing bodies | 1,460,984 | 1,221,888 | |
| Amounts held for lottery distributing bodies | 9 | 1,460,984 | 1,221,888 |
The notes form an integral part of these accounts.
Signed:
Sarah Healey
Permanent Secretary and Accounting Officer
Department for Digital, Culture, Media & Sport
12 July 2022
Statement of Cash Flows for the year ended 31 March 2022
| 2021-22 | 2020-21 | ||
|---|---|---|---|
| Note | £000 | £000 | |
| Cash flows from operating activities | |||
| Cash received from National Lottery operator | 1,839,752 | 1,830,636 | |
| Cash paid for operating expenses | (26,852) | (18,164) | |
| Cash paid to lottery distributing bodies | 9 | (1,571,214) | (1,851,922) |
| Net cash inflow/(outflow) from operating activities | 8 | 241,686 | (39,450) |
| Cash flows from investing activities | |||
| Cash paid to CRND for investment | (1,812,900) | (1,812,472) | |
| Cash received from CRND for distribution | 1,571,214 | 1,851,922 | |
| Net cash inflow/(outflow) from management of liquid resources | (241,686) | 39,450 | |
| Change in cash | - | - |
All investment income is reinvested by CRND.
The notes form an integral part of these accounts.
Statement of Changes in amount held for lottery distributing bodies for the year ended 31 March 2022
| Note | £000 | |
|---|---|---|
| Amount held for lottery distributing bodies at 31 March 2020 | 1,258,975 | |
| Total comprehensive (expenditure)/income 2020-21 | (37,087) | |
| Amount held for lottery distributing bodies at 31 March 2021 | 1,221,888 | |
| Total comprehensive (expenditure)/income 2021-22 | 239,096 | |
| Amount held for lottery distributing bodies at 31 March 2022 | 9 | 1,460,984 |
The notes form an integral part of these accounts.
Notes to the financial statements
1. Statement of accounting policies
1.1 Basis of accounting
These accounts have been prepared in accordance with the Accounts Direction given by HM Treasury. This Direction has been applied consistently in dealing with items that are considered material to the accounts. The accounting policies apply International Financial Reporting Standards (IFRS) as adapted or interpreted for the public sector by the Government Financial Reporting Manual (FReM).
The particular policies adopted by the fund are described below.
1.2 Basis of preparation
These accounts have been prepared on a going concern basis.
1.3 Accounting convention
These accounts have been prepared under the historical cost convention, modified to account for the revaluation of assets at fair value.
1.4 Functional and presentational currency
These accounts are presented in pound sterling, the functional currency of the fund, and all values are rounded to the nearest thousand pounds (£000).
1.5 Nature of account balances
Balances held in the NLDF remain under the stewardship of the Secretary of State for Digital, Culture, Media and Sport. The share of the fund attributable to each lottery distributing body at the date the Statement of Financial Position was signed, and shown in these accounts, has been certified by the Secretary of State for Digital, Culture, Media and Sport as being available for distribution by each body in respect of current and future committed liabilities.
1.6 Recognition of National Lottery income
Proceeds from the National Lottery due to the NLDF from the operator, are calculated on an annual basis as set out in the Section 5 Licence. Payments are made to the NLDF each week on the basis of actual sales and prizes. The amounts recognised in these accounts for the National Lottery primary contribution include income receivable on ticket sales from 1 April 2021 to 31 March 2022.
Actual prizes, together with National Lottery duty and an element of the operator’s fixed costs relating to sales, are deducted from weekly sales. The balance is pooled, to be shared between the operator and the good causes income.
The operator must seek approval from the Gambling Commission for any promotional events that may reduce the net weekly proceeds into the NLDF. The Gambling Commission will only permit these promotions if they are satisfied that there will be a positive return on the investment.
The National Lottery primary contribution also includes income due to the NLDF from the sale of scratchcards. Under the terms of the licence, income is collected by the operator and paid to the NLDF on packs of cards once a pack becomes settled. This occurs 30 days after a pack is activated or once 60% of the low tier prizes have been won, whichever is the sooner.
The secondary contribution relates to the profits of the operator. When the operator makes a profit greater than the one that it had predicted in its bid, it will share these profits with the good causes. The amount is based on a formula that varies depending on how much the actual profit before interest and tax varies from the forecast. This secondary contribution is recognised when it becomes payable to the NLDF. The Gambling Commission notifies the NLDF of the level of secondary contribution income.
National Lottery prizes that remain unclaimed for 180 days after a draw, or closure of a scratchcard game or interactive instant win game, are paid to the NLDF. Accruals have been made for prizes expiring on or before 31 March 2022 but not yet paid to the NLDF.
Licensee penalty payments are penalty payments made by the operator to the NLDF when it has breached the terms of its operating licence. Licensee penalty payments are imposed by the Gambling Commission.
Payments for ancillary activities and adjustments for the National Lottery Promotion Unit are recognised when the cash is receivable by the department.
It has been assessed that IFRS 15: Revenue from Contracts with Customers applies to National Lottery income on the basis there is a legally binding contract in place. In accordance with IFRS 15, revenue should only be recognised as the subsequent sale or usage occurs.
1.7 Recognition of amounts drawn down by lottery distributing bodies
The amounts recorded as drawn down by the Lottery Distributing Bodies represent their actual cash claims.
1.8 Investments
The Investments are financial assets.
HM Treasury has directed CRND that the NLDF may hold investments specified in the Trustee Investments Act 1961. This restricts investments to mainly government issues such as gilt-edged stock and limits the amount that can be invested outside cash and cash equivalents. Investments are held in order to collect contractual cash flows of principal and interest on specified dates therefore under IFRS 9 investments held by CRND are valued in these accounts at amortised cost. These accounts only disclose the cash flows for the movement of cash between CRND, the NLDF and the lottery distributors.
HM Treasury has directed CRND, under sections 32(1) and 32(2) of the 1993 Act that the NLDF may be invested in those investments specified in paragraphs 1, 2, 3, 5, 5A, 5B, 9 and 9A of Part II of Schedule 1 of the Trustee Investments Act 1961 in such manner as CRND shall, at its absolute discretion, determine.
Having taken account of the department’s wish to avoid negative income returns over a three-month period, but without prejudice to their absolute discretion, CRND intends to exercise its investment powers in accordance with the investment framework.
The department regularly reviews the investments in partnership with CRND.
1.9 Investment income
Investment income is recognised when it is receivable.
1.10 Cash and cash equivalents
Cash and cash equivalents are cash in hand and deposits held with the bank. It is the policy of the NLDF to hold a nil cash balance whenever possible and to transfer all funds to CRND for investment on the day of the receipt. Cash transferred to CRND is treated as investments in the Statement of Cash Flows in accordance with IAS 7.
1.11 Financial instruments
The fund accounts for financial instruments in accordance with IAS 32 Financial Instruments: Presentation; IFRS 9: Financial Instruments and IFRS 7: Financial Instruments: Disclosures.
A financial instrument is any contract that gives rise to a financial asset in one entity, and a financial liability in another. All financial instruments are initially measured at fair value plus or minus transaction costs. Subsequent measurement requires all financial instruments to be classified as measured at amortised cost or measured at fair value, with the classification made at the time it is initially recognised.
NLDF has classified all investments, receivables and payables as measured at amortised cost.
1.12 Impact of new IFRS and Financial Reporting Manual amendments*
The International Accounting Standards Board (IASB) has issued IFRS 17 (Insurance Contracts). This is expected to be effective for accounting periods beginning on or after 1 January 2023. This standard is not anticipated to have a material effect on NLDF in future reporting periods. There are no other standards and interpretations in issue yet to be adopted that the NLDF anticipates will have a material effect on future reporting periods.
2 Income from the National Lottery
| 2021-22 | 2020-21 | |
|---|---|---|
| £000 | £000 | |
| Primary contribution | 1,708,954 | 1,724,322 |
| Secondary contribution | 11,214 | 8,142 |
| Unclaimed prizes | 111,038 | 100,144 |
| Interest on Players Trust Fund | - | (1,200) |
| Licensee penalty | 3,150 | - |
| Income from ancillary activities and other items | 612 | 602 |
| 1,834,968 | 1,832,010 |
The net interest on the Players’ Trust Fund for 2019-20 (a separate Trust established by the Licensee for the protection of players, under Condition 19 of the Section 5 Licence) was deemed receivable by the NLDF, at that time, by the Trustees (the Law Debenture Trust Corporation plc). However, no interest was received in 2020-21, which resulted in the reversal in 2020-21.
These categories are defined in the ‘Where the money comes from’ section of the Performance report overview.
3 Investment income
| 2021-22 | 2020-21 | |
|---|---|---|
| £000 | £000 | |
| Interest received on investments | 2,559 | 1,061 |
The NLDF’s objective is to provide for the lottery distributing bodies’ liquidity needs, and to maximise returns over the medium term. The range of permitted investments is restricted to those contained within a direction made by HM Treasury, and is implemented by CRND.
All investments in 2021-22 were held as call notice deposits. The increase in investment income is due to an increase in the average interest rate on deposits in 2021-22 to 0.19% (2020-21: 0.10%).
4 Operational costs: Department for Digital, Culture, Media and Sport**
| 2021-22 | 2020-21 | |
|---|---|---|
| £000 | £000 | |
| Administrative costs | 281 | 339 |
| External auditor’s remuneration | 23 | 23 |
| Bank charges | 3 | 3 |
| 307 | 365 |
The external auditors did not provide any non-audit services in 2021-22 (2020-21: nil).
5 Operational costs: Gambling Commission
| 2021-22 | 2020-21 | |
|---|---|---|
| £000 | £000 | |
| Funding recovered by the department | 26,889 | 17,853 |
| National Lottery operator licence fee income | (48) | (51) |
| Amount payable to the department | 26,841 | 17,802 |
The department recovers the net costs of running the Gambling Commission from the NLDF. The net cost consists of the grant-in-aid paid to the Gambling Commission less the licence fee income received by the Gambling Commission and surrendered to the department as appropriations-in-aid.
The increase in funding recovered by the department is due to additional Gambling Commission expenditure in 2021/22 on the fourth National Lottery Licence competition. The design of the fourth licence reflects a significant change to the current licence and the Gambling Commission’s costs in 2021/22 reflect the scale of work as it moved from the Invitation to Apply stage to the evaluation and announcement stage. The evaluation included four final-stage applications - the largest number since the first licence was awarded in 1994. In April 2022, the Gambling Commission published an update on the whole life costs of awarding the 4th National Lottery Licence and its regulatory oversight of the National Lottery operation over its ten year life span (2024-34). This did not include the Gambling Commission’s costs in defending the current legal challenge against the outcome of the 4th licence competition, which will be drawn down from the NLDF and accounted for in the usual way as with the Commission’s other expenditure on the 4th licence.
The operator licence fee income is the sum of payments made by the National Lottery operator, for each new Section 6 licence granted for new National Lottery games.
6 Receivables
| 2021-22 | 2020-21 | |
|---|---|---|
| £000 | £000 | |
| Net income due as a result of draws prior to year end | 26,452 | 31,236 |
| 26,452 | 31,236 |
The carrying value of receivables is measured at amortised cost.
7 Reconciliation of investments held by CRND at cost to amounts held for lottery distributing bodies
| At 31 March 2022 | At 31 March 2021 | |
|---|---|---|
| Cost | Cost | |
| £000 | £000 | |
| Investments held by CRND | 1,435,262 | 1,191,017 |
| Receivables (note 6) | 26,452 | 31,236 |
| Payables | (730) | (365) |
| Balance held | 1,460,984 | 1,221,888 |
Under s32 of the National Lottery etc. Act 1993, all monies held by CRND are regarded as “Investments by the Secretary of State”. Investments represent call notice deposits that are demand deposits primarily with the Debt Management Account and a small proportion held with the National Loans Fund (NLF), and are measured at amortised cost.
The funds are held in a revolving investment fund. This means that investment returns are re-invested directly into the fund. The funds are repayable on demand within one working day. For further details on the investing activities of CRND, refer to the NLDF Investment Account published by CRND.
The carrying value of payables is measured at amortised cost. Payables are in respect of accruals for the department’s recharges.
8 Reconciliation of (decrease)/increase in amounts held for lottery distributing bodies with net cash inflow/(outflow) from operating activities
| 2021-22 | 2020-21 | |
|---|---|---|
| £000 | £000 | |
| Decrease in realised amounts held for distributing bodies | 239,096 | (37,087) |
| Investment income | (2,559) | (1,061) |
| 236,537 | (38,148) | |
| Increase in National Lottery operator receivables | 4,784 | (1,374) |
| Increase in payables for operating expenses | 365 | 72 |
| Net cash inflow/(outflow) from operating activities | 241,686 | (39,450) |
9 Amounts held for lottery distributing bodies at 31 March 2022
Beneficiary sectors
| Arts | Sport | National Lottery Heritage Fund | National Lottery Community Fund | Total | |
|---|---|---|---|---|---|
| £000 | £000 | £000 | £000 | £000 | |
| Share of income from National Lottery | 366,994 | 366,994 | 366,994 | 733,986 | 1,834,968 |
| Less share of operational costs | (5,443) | (5,443) | (5,443) | (10,888) | (27,217) |
| Share of net operational proceeds | 361,551 | 361,551 | 361,551 | 723,098 | 1,807,751 |
| Amount authorised for payment to lottery distributing bodies | (371,437) | (347,000) | (263,722) | (589,055) | (1,571,214) |
| Investment income | 512 | 512 | 512 | 1,023 | 2,559 |
| (Decrease)/increase in balance available | (9,374) | 15,063 | 98,341 | 135,066 | 239,096 |
| Amounts held for lottery distributing bodies at market value at 1 April 2021 | 329,802 | 299,756 | 328,747 | 263,583 | 1,221,888 |
| Amounts held for lottery distributing bodies at market value at 31 March 2022 | 320,428 | 314,819 | 427,088 | 398,649 | 1,460,984 |
Amounts held for lottery distributing bodies at 31 March 2022 (continued)
Arts bodies
| Arts Council England | Creative Scotland | Arts Council of Wales | Arts Council of Northern Ireland | British Film Institute | Subtotal - arts | |
|---|---|---|---|---|---|---|
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Share of income from National Lottery | 256,088 | 32,662 | 18,350 | 10,276 | 49,618 | 366,994 |
| Less share of operational costs | (3,798) | (484) | (272) | (153) | (736) | (5,443) |
| Share of net operational proceeds | 252,290 | 32,178 | 18,078 | 10,123 | 48,882 | 361,551 |
| Amount authorised for payment to lottery distributing bodies | (269,440) | (28,476) | (14,059) | (8,333) | (51,129) | (371,437) |
| Investment income | 357 | 46 | 26 | 14 | 69 | 512 |
| (Decrease)/increase in balance available | (16,793) | 3,748 | 4,045 | 1,804 | (2,178) | (9,374) |
| Amounts held for lottery distributing bodies at market value at 1 April 2021 | 210,562 | 37,619 | 22,120 | 6,381 | 53,120 | 329,802 |
| Amounts held for lottery distributing bodies at market value at 31 March 2022 | 193,769 | 41,367 | 26,165 | 8,185 | 50,942 | 320,428 |
Amounts held for lottery distributing bodies at 31 March 2022 (continued)
Sport bodies
| Sport England | Sport Scotland | Sport Wales | Sport Northern Ireland | UK Sport | Subtotal - sport | |
|---|---|---|---|---|---|---|
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Share of income from National Lottery | 227,536 | 29,726 | 16,515 | 9,542 | 83,675 | 366,994 |
| Less share of operational costs | (3,375) | (439) | (245) | (142) | (1,242) | (5,443) |
| Share of net operational proceeds | 224,161 | 29,287 | 16,270 | 9,400 | 82,433 | 361,551 |
| Amount authorised for payment to lottery distributing bodies | (209,801) | (26,293) | (14,050) | (7,616) | (89,240) | (347,000) |
| Investment income | 317 | 41 | 24 | 13 | 117 | 512 |
| (Decrease)/increase in balance available | 14,677 | 3,035 | 2,244 | 1,797 | (6,690) | 15,063 |
| Amounts held for lottery distributing bodies at market value at 1 April 2021 | 176,608 | 51,957 | 12,810 | 16,143 | 42,238 | 299,756 |
| Amounts held for lottery distributing bodies at market value at 31 March 2022 | 191,285 | 54,992 | 15,054 | 17,940 | 35,548 | 314,819 |
10 Financial instruments
IAS 32 Financial Instruments: Presentation, IFRS 9: Financial Instruments and IFRS 7: Financial Instruments: Disclosures, have been applied. IFRS 7 requires disclosures that allow users of the accounts to evaluate the significance of financial instruments for the entity’s financial position and performance, and the nature and extent of risks arising from financial instruments during the period.
NLDF investments are held by CRND at amortised cost and due to the nature of these funds the NLDF is not exposed to the degree of financial risk faced by business entities.
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty raising liquid funds to meet liabilities as they fall due.
The investments in CRND deposits are primarily held with the Debt Management Account which is invested in overnight call notice deposits allowing for maximum liquidity. As a result of the policies and procedures outlined above, the department considers that all significant liquidity risks are appropriately managed.
Credit risk
Credit risk is the risk of financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations.
The investments in CRND deposits are primarily held with the Debt Management Account with only a small proportion held with the National Loans Fund. These deposits are obligations of HM Government and therefore considered to have no exposure to credit risk. Receivables relate to income due as a result of draws prior to year end. These monies are also considered to have no exposure to credit risk as legislation requires the operator to transfer these monies to the NLDF.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk for the NLDF relate to changes in market interest rates. The interest return on investments is closely linked to the official Bank Rate. The department does not consider that the NLDF is exposed to any significant interest rate risks because of the nature of the assets held.
11 Related party transactions
The NLDF is maintained under the control and management of the Secretary of State for Digital, Culture, Media and Sport. The department is considered to be a related party. During the year, a number of staff employed by the department worked on NLDF related activities and the NLDF used a number of the assets owned by the department. These costs were recharged to the NLDF by the department and are reflected in note 4 of the accounts.
The department is also the sponsoring department of the UK-wide and England-based lottery distributors. These bodies are therefore also considered related parties.
CRND, which is ultimately part of HM Treasury, is also considered a related party. Payments made to CRND during the year total £69k.
The Gambling Commission, whose role is to monitor and provide assurance that the payments to the NLDF during the year are complete and accurate in all material respects, forms part of the department group accounts and is a related party. Net payments made to the Gambling Commission totalling £26.8 million were recharged to the NLDF by the department and are reflected in note 5.
No minister, board member, key manager or other related party has undertaken any material transactions with the NLDF during the year.
For further details please see the 2021-22 department annual report and accounts.
12 Lottery distributing bodies’ share of fund
The percentages received by each lottery distributing body were set out in sections 22 and 23 of the National Lottery etc. Act 1993, as amended by section 6 of the 1998 Act and section 7 of the 2006 Act and subsequent secondary legislation.
The current percentages, as amended by Statutory Instrument 2010 No. 2863 ‘The Apportionment of Money in the National Lottery Distribution Fund Order 2010’ are as follows:
| 1 April 2020 to 31 March 2021 (%) | 1 April 2021 to 31 March 2022 (%) | |
|---|---|---|
| Arts | 20.000 | 20.000 |
| Sport | 20.000 | 20.000 |
| National heritage | 20.000 | 20.000 |
| Charitable, health, education and the environment | 40.000 | 40.000 |
| Arts | 1 April 2020 to 31 March 2021 (%) | 1 April 2021 to 31 March 2022 (%) |
| Arts Council England | 13.956 | 13.956 |
| Creative Scotland | 1.780 | 1.780 |
| Arts Council of Wales | 1.000 | 1.000 |
| Arts Council of Northern Ireland | 0.560 | 0.560 |
| British Film Institute | 2.704 | 2.704 |
| Total arts | 20.000 | 20.000 |
| Sport | 1 April 2020 to 31 March 2021 (%) | 1 April 2021 to 31 March 2022 (%) |
|---|---|---|
| Sport England | 12.400 | 12.400 |
| Sport Scotland | 1.620 | 1.620 |
| Sport Wales | 0.900 | 0.900 |
| Sport Northern Ireland | 0.520 | 0.520 |
| UK Sport | 4.560 | 4.560 |
| Total sport | 20.000 | 20.000 |
13 Contingent Liabilities
4th National Lottery Licence Legal Costs
In March 2022, the Gambling Commission announced a preferred application to operate the 4th National Lottery licence, which is due to come into operation on 1 February 2024. That decision is being challenged in the Courts. The National Lottery etc. Act 1993 section 31 grants powers to DCMS to draw administration expenses associated with the National Lottery from the NLDF, subject to HM Treasury approval. This approval process will be followed when necessary in relation to the legal challenge against the outcome of the 4th National Lottery licence competition.
14 Events after the reporting period
Date accounts authorised for issue
No events occurred up to the date the accounts were approved by the Accounting Officer for issue to Parliament, which was the date the Comptroller and Auditor General signed the audit opinion.
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Includes deductions made by the Operator for approved Investment expenditure and the National Lottery Promotions Unit (NLPU). Overall the National Lottery has raised more than £45 billion for good causes. ↩
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The amount held for lottery distributing bodies is shown after operational costs of the NLDF. ↩
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The grant liabilities and commitments of the lottery distributing bodies, are derived from the bodies, in line with their own accounting policies. These liabilities are not included in the NLDF’s own Financial Statement (below). ↩
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2012-13 income benefited from significant ticket sales, generated by the Olympic Games inspired Millionaires’ Raffle and two extended EuroMillions rollovers and an unclaimed prize of £64 million. ↩
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2014-15 income includes the transfer of funds on the closure of Olympic Lottery Distribution Fund (OLDF) of £149 million. ↩
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2015-16 income benefited from a 15-week Lotto rollover following the introduction of the 59-ball Lotto game, and two extended EuroMillions rollovers. ↩
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2020-21 grant liabilities are revised in line with the lottery distributing bodies own accounts. ↩
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Grant liabilities for 2021-22 are unaudited, and subject to change. Lottery sales proved very resilient over the period of the COVID-19 pandemic. ↩
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Restated ↩
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Restated ↩
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Restated ↩