How to manage conflicts of interest
A recent ICAC report sets out how public sector officials should manage the line between personal interest and public duty.
- 36% of matters reported to the NSW Independent Commission Against Corruption in 2019 involved issues concerning personal interests.
- Public sector organisations should have a policy in place so staff can understand and identify what constitutes a conflict of interest.
- Organisations need to take a proactive approach to detect any conflicts of interest.
By Amity Delaney
Officials working in the public sector have a duty to work for the public good and not let personal interests affect how they perform their jobs. But not all do – and the consequences can be dire.
Gary Goodman was the CFO of the Botany Bay Council in Sydney until 2015. But from 1997 to 2015, he approved fraudulent invoices to the council totalling more than A$5 million and made more than A$600,000 of personal purchases on council credit cards. He used the money to benefit himself and shower gifts on four on-again, off-again girlfriends. He paid a girlfriend’s mortgage, bought her a Mercedes and gave “pocket money” to his lovers.
The council’s business unit was losing millions as Goodman and corrupt colleagues siphoned off money through false or inflated invoices. Goodman demanded suppliers send in the invoices, then had them pay him money.
As Greg Wright, the administrator of Bayside Council (formed when Botany Bay and Rockdale councils merged in 2016), told the local Southern Courier newspaper, this loss of funds badly affected what services the council could deliver to the community.
The community had “been deprived of the benefit, services, assets and facilities that the millions of dollars embezzled might have brought,” Wright said.
Conflicts of interest in the public sector may not involve blatantly criminal behaviour such as Goodman’s, but about one-third (36%) of the matters reported to the NSW Independent Commission Against Corruption (ICAC) in 2019 involved issues concerning personal interests.
The ICAC’s 2019 Managing Conflicts of Interest in the NSW Public Sector report states: “Managing conflicts of interest is important because citizens rightly expect that public officials, or their close connections and associates, should never be in a position to obtain an undue personal benefit as a result of the public official doing their job.”
So how should government agencies and officials manage that line between personal interest and public duty?
Picture: Gary Goodman.
Identifying conflicts of interest
In its report, the ICAC outlines six criteria for identifying conflicts of interest:
- favour or disfavour
- “could” adversely influence
- convergence of interests
- remote or insignificant interest
- conflicts of duties
- apprehended bias (what a reasonable, rational person would see as a conflict of interest).
Most people would agree there is a conflict of interest if an official awards someone a contract or job in the public sector because of a personal relationship with them. However, not giving someone a contract because of a personal dislike can also be a conflict of interest.
There’s also a conflict of interest if an official’s personal interest could be favoured over public duty. That conflict of interest should be identified and flagged even if the official has done nothing untoward.
Surprisingly, conflicts of interest can arise even when the interests of the official and the agency align (convergence of interests).
“This situation is risky because it can allow an official to rationalise their failure to disclose a conflict by claiming that ‘everyone benefits’ or ‘nobody is harmed’. It is irrelevant that the agency may also benefit,” notes the ICAC’s report.
This was a defence used by NSW Department of Justice project manager Leslie Reynolds when he recommended Khader Ghamrawi’s construction businesses be allocated maintenance work on corrections facilities in NSW.
Reynolds had accepted cash payments from Ghamrawi and had a pool installed at his home. But despite that, Reynolds believed there was no conflict of interest because he genuinely thought Ghamrawi’s company was the best for the job.
The ICAC, however, took a different view. In 2017, it found that Reynolds was corrupt.
Conflicts of interest do not arise if an official’s personal interest is so insignificant or remote that their decision is of no benefit to them or any of their connections.
A similar problem to conflicts of interest is called conflict of duties. This occurs when an official has two or more public duties that are incompatible. This is different from conflicts of interest because there is no personal interest involved.
“Public sector staff should decline social invitations with suppliers and other parties they interact with.”
Steps to prevent conflicts of interest
The ICAC report advises public sector organisations to have a conflict of interest policy in place so staff can understand and identify what constitutes a conflict of interest.
The organisation should also identify the areas in which there is a higher risk of conflicts of interest. High-risk areas include units that deal with:
- contract management
- issuing fines and penalties
- awarding grants.
Additional controls should be placed in these high-risk areas, including:
- additional training to help officials identify conflicts of interest
- requiring additional checklists and sign-offs
- preventing staff from self-selecting the matters they work on
- monitoring records and electronic logs.
Public sector staff should also take steps to avoid unnecessary conflicts of interest, such as not pursuing secondary employment and declining social invitations with suppliers and other parties they interact with.
What happens if there is a conflict of interest?
Any potential conflicts of interest should be disclosed in writing to a manager or other relevant authority figure, says the ICAC report. Officials in senior and/or high-risk roles should also declare any personal interests in writing in a register.
“The relevant manager should review the written declaration of a conflict of interest and prepare a plan for managing and monitoring it,” the report advises.
That plan should involve assessing the risks, documenting a management response, and then implementing and monitoring its progress.
Of course, staff may fail to disclose potential conflicts of interest, the report warns. So managers should take a proactive approach. Data analytics can be used to identify any suspicious transactions, audit logs should be regularly checked, and due diligence should be conducted on potential staff, suppliers, contractors and business partners.
If conflicts of interest fall through the cracks of this framework, they should be dealt with swiftly and thoroughly, the ICAC insists. Failure to manage conflicts of interest can lead to a drop in confidence in the public sector.
And with the 2019 Edelman Trust barometer showing less than half the population trusts government institutions, that’s not something anyone wants.
The ICAC has prepared advice for public officials about managing corruption risks that could arise during the COVID-19 pandemic. Download the 2019 Managing Conflicts of Interest in the NSW Public Sector here.