Managing Conflicts of Interest in FMA Agencies
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The audit objective was to determine whether Australian Government agencies were implementing appropriate policies and processes to identify and manage conflicts of interest.
1. The success of Australian Government agencies in achieving their objectives is strongly influenced by the effectiveness of governance arrangements, the proficiency and integrity of staff at all levels and the robustness of decisions. As an institution, the Australian Public Service (APS) depends on its integrity to look after the public interest and maintain public trust.1 To this end, public officials must ensure that decisions or advice are not adversely affected by ‘conflicts of interest’, which can result from self‑interest, private affiliations, or the likelihood of personal gain or loss.
2. The management of conflicts of interest is an issue of significance nationally and internationally, in both the public and private sectors. In view of the billions of dollars in programs and services that APS agencies deliver each year, ensuring that significant or material conflicts are dealt with appropriately can be critical to the probity of government spending and decisions.
3. Over the last two decades, collaborative partnerships, co‑production, and stakeholder engagement, have become more central to government decision making processes. Ministerial advisory committees, for example, draw together expertise from industry, academia, state governments, or community groups to provide advice that is integral to policy design and strategic priority setting. Subject specialists from outside the APS also provide essential knowledge and integrity to support grant selection and procurement activities. While these practices offer many benefits, conflicts of interest are an inherent risk, and can commonly arise.
4. Whether advice is provided from within the public sector or from external sources, it is essential that individuals meet accepted APS values and behaviours when advising government or conducting business on its behalf. Risks must be managed to meet government’s business objectives, while maintaining beneficial stakeholder relationships and public accountability.
5. Australia, as with many other countries, has generally drawn on overseas studies2 in establishing suitable approaches to limit the impact of conflicts of interest on public duties. Recent Australian National Audit Office (ANAO) reports3 indicate that effective management of conflicts of interest remains an important aspect of accountability in the public sector, and agencies should maintain vigilance in this regard.
6. Within the APS, chief executives have a responsibility to establish governance arrangements, including policies and procedures to promote awareness of conflict of interest obligations and encourage appropriate declaration of personal interests.4 While the nature and extent of these arrangements will depend on the type of business undertaken and the associated risks, each agency should set out key principles and pathways to identify and manage conflicts of interest consistent with government requirements.
7. Timely implementation of suitable procedures within an agency can assist in the early identification of potential and actual conflicts of interest and allow these to be handled appropriately, before they give rise to allegations of misconduct or undermine the reputation of the agency or the government.
Audit objective and scope
8. The audit objective was to determine whether Australian Government agencies were implementing appropriate policies and processes to identify and manage conflicts of interest. To form a conclusion against the audit objective, the ANAO adopted the following high level criteria:
- agencies have appropriate policies and procedures to manage potential or actual conflicts of interest and the risks these may pose; and
- agencies implement and monitor conflict of interest processes consistent with their own policies.
9. The audit consisted of 2 main phases. Phase 1 focused on an assessment of the conflict of interest policies and processes in place across 25 agencies, including the completion of a survey, and the provision of supporting documentation to the ANAO for assessment. Phase 2 included fieldwork in eight of the 25 agencies to assess their implementation of conflict of interest policies and practices. The audit included only Financial Management and Accountability Act 1997 agencies (19 Departments of State and six statutory agencies—see Appendix 2). It did not cover bodies subject to the Commonwealth Authorities and Companies Act 1997.
10. The Australian Government spends billions of dollars on programs and services each year, and has established requirements for the ethical conduct of public officials, including probity and accountability. Conflicts of interest are recognised through the APS ethical framework as a significant public sector risk, potentially leading to misunderstandings or misconduct, and undermining probity and reputation. Even a perception that a conflict exists can be damaging and is best dealt with promptly and effectively.
11. Implementing appropriate policies and processes at the agency level and for key program activities helps to promote a consistent understanding of conflict of interest obligations and responsibilities. It also allows agency staff and stakeholders to become familiar with the key requirements to identify, declare and mitigate conflict of interest risks.
12. Many public sector agencies were active in promoting conflict of interest obligations, using well-established over-arching policies or ethical conduct manuals that incorporated comprehensive conflict management provisions. However, considerable variability in the quality, scope and usefulness of high level policy documents was evident across the 25 audited agencies, particularly in relation to approaches for promoting, implementing and monitoring key aspects of conflict of interest provisions. Such variability can undermine assurance that conflict of interest provisions are being met to an acceptable standard across the APS.
13. To better focus conflict of interest arrangements on key risks, approximately half of the audited agencies would benefit from: tailoring their high level policies to specific agency business; incorporating clearer definitions and responsibilities; a more systematic approach to determining the severity of conflicts and appropriate mitigation strategies; use of management plans and registers to assist in monitoring activities; and generally strengthening records of potential or actual conflicts of interest and mitigation actions taken.
14. The involvement of external advisors or experts in government decisions, program design and delivery, requires careful management of conflicts of interest. Of the committees and grants examined as part of the audit, implementation of conflict of interest provisions was generally acceptable in most agencies. Some larger agencies and those with well‑established grant programs exhibited substantially more developed management arrangements, providing a higher level of confidence in the probity and integrity of decisions and advice.
15. However, there were several instances of inconsistency in the application of agency policies and a lack of transparency in procedures undertaken and records maintained. Accordingly, some agencies need to pay more attention to key aspects of their business activities, in particular the application of conflict of interest provisions to committee processes and grant rounds.
16. The ANAO has made one general recommendation, to encourage APS agencies to focus on the risks of conflicts of interest as part of agencies’ regular review of risks. This should include consideration of key agency risks and appropriate tailoring of policies and processes to achieve better performance against government legislation and policy.
Key findings by chapter
Agencies’ Conflict of Interest Policies and Procedures (Chapter 2)
17. Agency chief executives have a responsibility to promote ethical behaviour across the agency, including the establishment of policies and guidelines to facilitate effective management of conflicts of interest among APS employees. Policies and procedures should: be tailored to key business and specific risks to the agency; provide consistent and relevant messages; prompt declarations of conflict of interest for all relevant staff; encourage the use of registers of private interests and include monitoring of compliance with mandatory requirements.
18. In the 25 audited agencies, approaches to conflict of interest management varied in terms of quality, coverage and diligence. Several agencies demonstrated a high level of awareness, with top-down approaches encouraging a sound culture to manage conflicts of interest. A structured and proactive approach to conflict of interest declaration and mitigation was often supported by usefully constructed agency policies, usually providing succinct principles and pathways for identifying, managing and monitoring compliance with APS requirements.5
19. However, many agencies showed weakness in one or more key aspects of policy coverage or practice. Areas for attention included: developing tailored top level conflict of interest policies and other guidance materials to better support awareness and compliance; including a clear method to determine the severity of conflicts, linked to specific management strategies; better use of management plans and registers to record mitigation action for declared conflicts of interest; and improving the visibility of outcomes. Strengthening these areas would provide more assurance that APS conflict of interest provisions were being consistently and adequately promoted, and specific agency risks addressed.
20. The Australian Public Service Commission (APSC) issues mandatory requirements for the annual disclosure of interests for senior executive service (SES) and other personnel in sensitive positions. In a sample of eight agencies, compliance rates varied, with only four agencies demonstrating full compliance with the annual disclosure requirement. Monitoring in some agencies was of a very high standard, with use of electronic or well organised manual systems in place. Disclosure for non‑SES personnel, where relevant, was an area where agencies could generally improve. Key matters included: unclear procedures, delegation to Branch level without clear monitoring in place, and a lack of mechanisms to determine compliance in some agencies. Central coordination, automated systems, and requiring all staff to submit a disclosure statement at least annually, were among the strategies used by some agencies to improve performance in relation to the annual disclosure requirement. Several agencies also employed effective follow‑up processes to obtain a higher level of compliance.
21. Greater clarity around the mandatory and non-mandatory requirements for the SES disclosure of interest and other officials would assist to achieve better compliance, strengthening confidence in public sector integrity. In this respect the APSC’s guidance material could be made more succinct and focused.
Advisory Committees (Chapter 3)
22. Advisory committees play an important role in shaping policy and programs through the advice they provide to agencies and ministers. Even where these committees do not exercise decision making power, they can influence policy directions and government priorities.6 Committees providing high level advice to ministers or chief executives must maintain an acceptable level of impartiality and transparency. In many respects, this can be difficult and sensitive, as the expertise a member brings to the committee is frequently a potential source of conflict of interest.
23. Most of the agencies examined demonstrated suitable conflict of interest practices. Particularly effective approaches included well-balanced committee membership, and reliable support through: clear terms of reference; comprehensive induction packages; and meeting processes that reinforced conflict of interest principles early and throughout the committee proceedings.
24. Some agencies would benefit from strengthening these controls, keeping in mind that committee members may influence policy directions and government priorities, even in the absence of decision-making powers. In addition, strengthening the nomination and appointment processes, and ensuring transparency of interests prior to appointment, would enhance probity.
Peer Review Grant Selection (Chapter 4)
25. The Australian Government provides substantial funding each year for grants across a broad range of research, industry and community sectors. Some of these grant programs use subject specialists (peers from within a particular or similar field of knowledge) to assess and select grants for funding. The probity and impartiality of recommendations and decisions of grant selection panels is one of the key principles for equitable grant selection under the Commonwealth Grant Guidelines (CGGs).
26. The risk of conflict of interest is inherently high for peer review processes as research professionals or industry experts employed to assess and select grant applications often have professional affiliations with applicants, and/or may also be competing for funding from the agency or other granting bodies. The ANAO examined six agencies’ approaches to peer review through a sample of grant selection processes, collectively involving $776 million in grants. Each of these agencies had generally sound guidance material and conflict of interest controls in place for assessors and selection panels. Agencies implementing high value grant programs and/or agencies with longer-term grant programs generally demonstrated a higher level of awareness of conflict of interest obligations and risks. These agencies often had more established mechanisms to instruct and monitor external assessors and selection panel members in making appropriate declaration of conflicts and complying with mitigation action when required.
27. There are opportunities for some agencies to adopt a more structured approach to managing conflicts of interest in peer review grants. In particular, smaller agencies or those with lesser or infrequent granting responsibilities should ensure that their processes are consistent with government expectations. In this respect agencies could strengthen their approaches so that the level of risk that different conflicts can pose to an agency or program is defined, recognised and dealt with appropriately as part of grant program design and establishment, and throughout the granting process.
Summary of agencies’ responses
28. The responses from the agencies audited in Phase 2 of the audit and from the Australian Public Service Commission (APSC) are presented in summary form below, and in full at Appendix 1.7
Australian Institute of Criminology
29. The Australian Institute of Criminology (AIC) acknowledges the role of the ANAO in ensuring that agencies establish sound governance arrangements, promote awareness and encourage public officials to declare real and perceived conflicts of interest.
30. The feedback and advice received from the ANAO on the AIC’s current framework for managing conflicts of interest has been appreciated and the AIC will work to enhance its procedures and practices accordingly. The AIC agrees with the ANAO recommendation.
Australian Public Service Commission
31. The Commission supports the recommendation in the proposed audit report. Managing risks to the integrity of the APS as part of the normal enterprise‑wide risk review process, including risks arising from poor management of conflicts of interests, is good business practice.
32. The proposed audit report considers that greater clarity is needed around the mandatory and non‑mandatory requirements for APS employees to disclose conflicts of interest, and that the Commission’s guidance could be made more succinct and focused. The report also suggests that some terms used in the Commission’s guidelines could be more clearly defined to promote a more consistent understanding of the requirements across APS agencies.
33. The Commission’s guidance on official conduct (APS Values and Code of Conduct in Practice: A guide to official conduct for APS employees and Agency Heads), including conduct relating to conflicts of interest, is currently under review. The report’s conclusions are sensible and will be drawn on as part of that review.
Australian Research Council
34. The Australian Research Council (ARC) agrees with the recommendation and acknowledges the importance of identifying and managing conflicts of interest, particularly in the peer review process. The ARC remains committed to minimising risks relating to conflicts of interest and ensuring its processes are transparent. The ARC regularly reviews its conflict of interest framework to ensure the effectiveness of relevant policies and processes and will continue to monitor compliance with conflict of interest provisions.
Department of the Environment
35. The Department of the Environment agrees with the recommendation. The finding of the report largely relates to processes and practices covered in the Department’s management of conflict of interest. The Department acknowledges the positive outcomes of this audit and will use them to further strengthen its approach to its management of conflict of interest.
Department of Health
36. The Department of Health notes the audit report and agrees with the recommendation.
Department of Industry
37. The Department of Industry acknowledges the contribution the ANAO makes to ensure that agencies establish sound governance arrangements, promote awareness and encourage public officials to declare real and perceived conflicts of interest.
38. The positive feedback on the Department’s framework to address conflict of interest and declaration of interest matters has been appreciated. The Department agrees with the recommendation.
Department of Social Services
39. The Department of Social Services (DSS) welcomes the findings of the audit report on Managing Conflicts of Interest in Financial Management and Accountability (FMA) Agencies. DSS notes the recommendation that agencies give specific attention to potential conflicts of interest as part of enterprise‑wide risk reviews.
40. As part of its ongoing commitment to improving internal risk management practices, DSS is currently reviewing its strategic and operational risks to ensure alignment with the Department’s strategic direction. The review will include key business risks and changes in governance practices, including compliance with the Public Governance, Performance and Accountability Act 2013 which will come into effect on 1 July 2014.
National Health and Medical Research Council
41. The National Health and Medical Research Council agrees with the recommendation in the proposed report and already has mechanisms in place to implement the recommendation.
The recommendation is based on findings from fieldwork at the audited agencies and is likely to be relevant to other Australian Government agencies. Therefore, all Australian Government agencies are encouraged to assess the benefits of implementing this recommendation in light of their own circumstances, including the extent to which the recommendation, or part thereof, is addressed by practices already in place.
Recommendation No. 1
To reduce the risks posed by conflicts of interest, the ANAO recommends that APS agencies as part of their normal enterprise wide risk reviews, give specific attention to conflicts of interest matters. In particular, such reviews should carefully consider the agency’s key business risks, changes in APS governance practices and cooperative obligations to stakeholders.
Australian Institute of Criminology: Agreed.
Australian Public Service Commission: Agreed.
Australian Research Council: Agreed.
Department of the Environment: Agreed.
Department of Health: Agreed.
Department of Industry: Agreed.
Department of Social Services: Supported.
National Health and Medical Research Council: Agreed.
 Australian Public Service Commission (APSC), State of the Service Report 2012–13, Chapter 3; and APSC, Strengthening a values based culture—A plan for integrating the APS Values into the way we work, 2013.
 Organisation for Economic Co‑operation and Development (OECD) Conflict of Interest Policies and Practices in nine EU Member States—A comparative review, Sigma Paper No.26, 2007; OECD Toolkit for Managing Conflict of Interests in the Public Service, 2005; and OECD Managing Conflict of Interest in the Public Service—OECD Guidelines and Country Experiences, 2003. [Internet] available from <http://www.oecd.org/gov/ethics/managingconflictofinterestinthepublicservice.htm> [accessed May 2014]. Also refer to Appendix 4 for further reference materials.
 Conflict of interest issues have been raised in recent ANAO audits reports, for example: ANAO Audit Report No.11 Delivery of the Filling the Research Gap under the Carbon Farming Futures Program 2012–13; No.29 Regulation of Commonwealth Radiation and Nuclear Activities 2013–14.
 Refer to the Financial Management and Accountability Act 1997 Act, the Commonwealth Procurement Rules (CPRs) and the Commonwealth Grant Guidelines (CGGs). The Public Governance, Performance and Accountability Act 2013 (PGPA Act 2013) will come into force on 1 July 2014, and also contains conflict of interest requirements.
 Section 13 of the Public Service Act 1999 provides the APS Code of Conduct and specifically section 13(7) states that ‘an APS employee must disclose, and take reasonable steps to avoid, any conflict of interest (real or apparent) in connection with APS employment.’ Guidance provided by the Australian Public Service Commission (APSC) supporting the Code of Conduct includes: the APSC Circular 2007/1; In whose interest 2008; and APSC Values and Code of Conduct in practice: guide (under review).
APS Values and Code of Conduct in Practice: a guide to official conduct for APS employees and Agency Heads, Chapter 4.11 Conflicts of Interest, p. 11.
 There were eight agencies included in Phase 2 of the audit, however the Department of Resources, Energy and Tourism was abolished due to Machinery of Government changes on 18 September 2013, and responsibility for its functions were moved to the Industry portfolio. Due to its policy responsibilities the APSC included a formal response to the audit.