Managing conflicts of Interest

A conflict of interest occurs when the private interests of a public sector officer interfere, or appear to interfere, with the performance of their official duties.

As the integrity of public sector officers and processes is fundamental to the rule of law, conflicts of interest are a major risk in all areas of government. It is therefore crucial that they be identified and managed. If they are not, public officials may put private interests above the public interest; thereby compromising their work and creating a catalyst for serious misconduct and corruption.

Having transparent, effective policies and procedures for identifying, disclosing and managing conflicts of interest will enable your organisation to:

• reduce the opportunities for corruption or improper conduct
• deal more easily with unfounded accusations of bias
• demonstrate its commitment to good governance by addressing an issue that is commonly associated with corruption and misconduct
• demonstrate that it is performing its role in a fair, unbiased manner.
  

Key concepts

Private interests

Private interests are those personal, professional or business interests that can benefit or disadvantage us as individuals, or others we may wish to benefit or disadvantage. They also include the personal, professional or business interests of individuals or groups we associate with (e.g. relatives, friends or even rivals and enemies).

Pecuniary private interests, or ‘material personal interests’, involve an actual or potential financial gain or loss, but money does not necessarily have to change hands. For example, people have a pecuniary interest if they (or a relative or other close associate) own property, hold shares, have a position in a company bidding for government work, or receive benefits (such as concessions, discounts, gifts or hospitality) from a particular source.

There are legal requirements for declaring and managing pecuniary interests in many areas of the public sector.

Non-pecuniary interests do not have a financial component. They may arise from personal or family relationships, or involvement in sporting, social or cultural activities. They include any tendency toward favour or prejudice resulting from friendship, animosity, or other personal involvement with another person or group.

For example, a public official’s membership of a club, or personal affiliations or associations with individuals or groups, including family and friends could be the source of interests that could conflict with the public interest in a particular situation.

Personal values can also lead to a conflict of interest if they affect the proper performance of public duty.

Public duty

All public sector officials have a duty to put the public interest above their own personal or private interests when carrying out their official duties.

This principle applies to:

• employees of commonwealth, state and local governments
• members of boards and committees
• councillors
• academic and non-academic staff of public universities
• casual and contract staff
• consultants and volunteers
• anyone delivering government programs and services, whether for remuneration or not.

Public interest

The public interest is the collective interest of the entire community— not the sum of individual interests nor the interest of a particular group.

Defining the public interest can be difficult on a day-to-day level. However, public sector officials can fulfil their public duty to put it first by carrying out their duties fully and effectively within established ethical frameworks; and identifying and managing any actual, perceived or potential conflicts of interest.

Under the Public Sector Ethics Act 1994, this involves:

• restricting the extent to which a private interest could compromise, or be seen to compromise, their impartiality when carrying out their official duties
• abstaining from involvement in official decisions and actions which could be compromised by their private interests and affiliations
• avoiding private action in which their access to inside information as a result of their official duties could be seen as an improper advantage
• refraining from using  their official position or government resources for private gain
• ensuring there can be no perception that they have received an improper benefit that could influence the performance of their official duties
• refraining from taking improper advantage of their official position or privileged information gained in that position when seeking employment outside the public sector.

An actual conflict of interest involves a direct conflict between a public official’s current duties and responsibilities and existing private interests.

A perceived or apparent conflict of interest can exist where it could be perceived, or appears, that a public official’s private interests could improperly influence the performance of their duties – whether or not this is in fact the case.

A potential conflict of interest arises where a public official has private interests that could conflict with their official duties in the future.

Types of conflict

A poorly managed perceived or apparent conflict of interest can be just as damaging as a poorly managed actual one. The critical factor is that public officials must not only behave ethically, they must be seen to do so.

Conflicting duties

Competing interests or conflicting duties are another type of conflict. These can occur where a public sector officer:

• finds that part of their principal job involves taking on another public sector or community-based role (e.g. when a position in a major government department includes being a member of the board of a statutory authority over which the department has some responsibility)
• has multiple roles, and finds that confidential information acquired in the course of their principal role could be useful to their work in another role.

Conflicts in these circumstances are not always recognised because no private interest is involved or apparent.

The result can be poor performance of one of the roles, at best, and unlawful or improper decision making at worst. This risk is greater if the organisations in question have a competitive relationship, or where one has a regulatory or review role in relation to the other.

As for conflicts of interest, the principle that all public decisions must be impartial and based on the merits of the situation without regard to improper considerations still applies. Many of the mechanisms for managing conflicts of interest can also be used to manage these situations.

When conflicts of interest become misconduct

Conflicts of interest are not wrong in themselves — public officials’ private interests will occasionally be in actual, perceived or potential conflict with their duty to put the public interest first. However, it is the decision to put their own interests first which is inappropriate and may amount to misconduct.

Where a conflict exists, it should be dealt with in a transparent and accountable way. Even the mere perception that a conflict of interest has influenced an outcome can undermine public confidence in an organisation’s integrity.  Having a clear policy which details specific reporting procedures and staff who are fully aware of their obligations to disclose any conflicts of interest are effective ways of ensuing that they are handled appropriately, before they give rise to allegations of misconduct.

Identifying a conflict of interest

The key test for determining if there is an actual or perceived conflict of interest is to ask whether a reasonable disinterested person would think a public sector officer’s private relationships and interests could conceivably conflict or appear to conflict with their official role.

Balancing public duty and private interest

A conflict between public duty and private interest is not always avoidable, as public officials are also private citizens with private interests.

See the Managing conflicts of interest in the public sector: toolkit for strategies to deal with such a situation if it occurs.

To balance these competing interests you need to develop policies and strategies that enable you to identify and manage the risks and satisfy probity requirements. At the same time, you need to avoid impinging on the rights of the individual, discouraging employees from disclosing conflicts of interest, or deterring people from working in the public sector.

Developing effective policies

The guiding principles for policy development are:

• protect the public interest
• support transparency and accountability
• promote individual responsibility and personal example
• build a supportive organisational culture.

In developing and implementing a policy that will allow your organisation to manage conflicts of interest before problems arise, you should:

• identify the types of conflicts of interest that typically arise
• develop an appropriate policy, management strategies and responses
• educate your staff, managers and the senior executive, and disseminate the policy throughout your organisation
• lead through example
• communicate your organisation’s commitment to its policy and procedures for managing conflicts of interest to stakeholders (including contractors, clients, sponsors and the community).
• enforce your policy
• review it regularly.

Managing conflicts of interest

The primary goal of systems to manage conflicts of interest is to ensure that decisions are made – and are seen to be made – on proper grounds, for legitimate reasons and without bias. To do this:  

Identify areas of risk

Private interests that could create conflicts of interest include:

• financial and economic interests (such as debts or assets)
• family or private businesses
• affiliations with for-profit and not-for-profit organisations
• affiliations with political, trade union or professional organisations and other personal interests
• involvement in secondary employment that potentially conflicts with an official’s public duties
• undertakings and relationships (such as obligations to professional, community, ethnic, family, or religious groups in a personal or professional capacity, or relationships to people living in the same household)
• enmity towards, or competition with, another person or group.

Areas of work or organisational functions that create a high risk for potential conflicts of interest include (but are not limited to):

• interacting regularly with the private sector
• contracting and procurement
• inspecting, regulating or monitoring of standards, businesses, equipment or premises
• issuing qualifications or licences
• providing a service where demand exceeds supply
• allocating grants of public funds
• issuing, or reviewing the issue of, fines or other sanctions
• providing subsidies, financial assistance, concessions or other relief to those in need
• making determinations or handing down judgement about individuals or disputes
• having discretion concerning planning or development applications
• carrying out regulatory tests and procedures
• making appointments to positions
• carrying out functions that are subject to close public or media scrutiny.

Develop strategies and responses

Rules about what is expected of staff and management should distinguish between individual responsibilities and the responsibilities of the organisation, and ensure that staff and managers are able to:

• recognise all actual, perceived and potential conflicts of interest as they arise
• disclose conflicts of interest and clearly document the strategies implemented to manage them
• monitor the effectiveness of strategies chosen.

Above all, it is vital that you ensure that decision-making procedures at all stages can be audited for integrity and transparency, and can be justified.

Educate staff and senior managers

All members of the organisation, from contract workers, volunteers and external agents, to senior managers and board members should have access to policies and other information that will help them to identify and disclose a conflict of interest.

Managers need to know how to manage conflicts of interest effectively to help maintain the organisation’s functional integrity.

Include education on conflicts of interest as part of your induction program and in ongoing education for staff and management. Training materials should give clear and realistic descriptions of the circumstances and relationships that can lead to conflicts of interest, and focus on practical examples of how to resolve them.

Lead by example

Effective implementation of a conflicts of interest strategy requires thought, effort and commitment from the top. Managers need to clearly and unambiguously model compliance and appropriate behaviour.

They should also encourage their staff to disclose conflicts of interest and help them resolve or manage a conflict of interest by:

• considering carefully whether a reasonable person in possession of the facts would be likely to think that the organisation’s or individual’s integrity was at risk from an unresolved conflict of interest
• weighing the interests of the organisation, the individual, and the public interest when determining the most appropriate solution.

Communicate with stakeholders

The perception that a conflict of interest is not being managed properly can be very damaging – regardless of how well it is in fact being managed. You should therefore communicate your commitment to your policies and procedures to all your stakeholders, including the general community.

You should also inform the people you deal with about your conflicts of interest policies and the potential consequences of non-compliance – such as the termination of a contract, or criminal prosecution for corruption. You could follow the example of many public sector organisations and use a ‘statement of business ethics’ to communicate your ethical and accountability obligations.

Enforce the policy

Once the policy is in place, it is essential to strictly enforce it— and it must be seen to be enforced. To help achieve this, clearly set out the consequences for non-compliance and ensure that employees are aware of them. Such sanctions may range from being a disciplinary matter, to sanctions for abuse of office or prosecution for corruption. They must all be enforceable.

To discourage those who might try to benefit, directly or indirectly, from a breach of the policy, you could provide redress through measures such as retrospective cancellation of affected decisions and tainted contracts, and exclusion of beneficiaries from future processes.

You should also put in place monitoring mechanisms for detecting non-compliance, and processes for managing complaints.

Review the policy

Institute a periodic review of at-risk areas within your organisation and its activities for potential conflicts. At the same time, review your current assumptions and preventive measures, and identify any new measures required to deal with emerging conflicts of interest.

Ensure that all staff are kept up-to-date on any changes to the policy or procedures, and provide support mechanisms to help managers review and improve their skills in identifying, resolving and managing conflicts of interest.

Responsibilities

Organisations

Essentially, an organisation’s responsibilities in this area are to:

• provide a clear and realistic description of what circumstances and relationships are likely to lead to conflicts of interest for those in the organisation
• ensure staff and managers know what is required of them in relation to identifying and declaring conflicts of interest (when, in what situations, how etc.)
• develop formal procedures to allow staff and managers to disclose their interests in a transparent manner
• provide staff and managers with relevant and effective strategies to manage conflicts of interest appropriately
• develop appropriate procedures for managing conflicts of interest.

Managers and supervisors

The role of managers and supervisors includes implementing and giving effect to the organisation’s policies on a day-to-day basis, and demonstrating how the policy should work by setting an example when their own conflicts arise.

Individual public sector officers

Regardless of their level, each person in an organisation has a responsibility to follow policy and procedural requirements for managing conflicts of interest.

They must:

• be aware of potential conflicts of interest that might affect them
• if possible, avoid any obvious conflicts that they encounter
• promptly identify and disclose any actual or potential conflicts of interest that might affect (or might be perceived to affect) the proper performance of their work