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There is scope to reduce the balances held in the National Lottery Distribution Fund, which stood at 2.7 billion in March 2004, according to a report published today by Sir John Bourn, head of the National Audit Office. But significant reductions could take time and lottery distributors face a range of uncertainties and risks in managing their balances.

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The balances in the National Lottery Distribution Fund increased steadily from the start of the National Lottery nearly ten years ago and peaked at 3.7 billion in 1999. Since then balances have fallen but the target announced by the Secretary of State for Culture, Media and Sport in 2002 for total balances to halve by 2004 has not been met. Within the March 2004 total of 2.7 billion, the balances held by the 15 individual distributors ranged from just over 2 million to nearly 943 million. The Heritage Lottery Fund and the New Opportunities Fund together held over 1.6 billion, 61 per cent of the total balances.

Increased commitments by distributors to pay grants to deserving projects could have a significant impact on existing balances. The National Audit Office found that, according to their own policies, distributors have scope to make additional commitments totalling nearly 450 million. It would, however, take time for the impact to be felt as there can be considerable time lags between grant commitments being made and the grants actually being paid. This is especially the case with high value grants as these are often for large projects which can take a long time to complete and involve payment over a number of years. The report recommends that individual distributors identify whether they have the capacity to fund more commitments without compromising value for money. In the short term, distributors should set interim targets for reducing their balances; in the long term, distributors should hold no more money in the National Lottery Distribution Fund than is necessary to cover any short term differences between their income and expenditure.

Distributors face uncertainty about future lottery distribution arrangements, income levels and expenditure factors which they have to take account of in making decisions about the scope for further commitments. The share of lottery proceeds that the good causes receive could change and there is no guarantee about the amount of money that will be raised from lottery ticket sales. Distributors are especially uncertain about the impact of the proposed Olympic lottery games on the existing good causes. The report recommends that the Department for Culture, Media and Sport should set a clear timetable for making decisions about future distribution arrangements. It should also seek to enhance confidence in the projections of future lottery income which that it provides to distributors to help them plan their grant programmes.

Distributors lack confidence in the forecasts of expenditure that projects provide and the report suggests how distributors might work with projects to improve them. Most distributors also need to estimate more accurately the amount of cash they need to withdraw from the National Lottery Distribution Fund to cover the payments they expect to make, which could have financial benefits in terms of the rate of return achieved.

"Balances held in the National Lottery Distribution Fund are not delivering the intended benefits in the community. Although the balances have started to fall, there is scope to reduce them further and those distributors with the largest balances, in particular the Heritage Lottery Fund and the New Opportunities Fund, can make the biggest contribution. However the Department for Culture, Media and Sport also has a role in helping distributors to manage effectively the opportunities and risks in seeking to reduce balances."

Sir John Bourn


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