ANAO Insights on Management of Conflicts of Interest

ANAO Management of Conflicts of Interest 1
ANAO Insights on Management of Conflicts of Interest 2

The ANAO Audit Insights of 29 June 2020 contains many insights into how the Australian National Audit Office (ANAO) expects government entities to identify and manage Conflicts of Interest.

But these insights and points made below are not just of use for those in government. They also show how Industry and Business can deal with government in a way that meets its Probity requirements.

And the ANAO’s recommendations give a roadmap for Industry and Business, showing how they can structure their own internal arrangements and policies in a manner that will meet the changing landscape relating to Conflicts of Interest that I am certain will take place over the next few years.

Here are the key insights from the ANAO – Audit Insights on the management of conflicts of interest by Australian government entities in procurement activity and grants programs:

What is a Conflict of Interest (according to the ANAO)

A conflict of interest occurs where a person’s personal interests, affiliations or relationship prejudices impact on their impartiality, or might be perceived by a reasonable person as potentially prejudicing their impartiality, or result in an incompatibility with the duties owed to the entity undertaking a procurement or administering grants.  

Conflicts of interest may also extend to organisations as whole, including non-Commonwealth third party organisations.

When do Conflicts of Interest arise?

Conflicts of Interest may arise in situations where:

  • a person has been offered a gift or benefit by a person or organisation involved in bidding for a procurement or grant.
  • an organisation has been contracted to provide advice to an Australian Government entity in relation to a grants program or procurement activity, and the organisation also has a commercial relationship with a grant applicant or procurement tenderer.

How should entities behave?

Effective management of conflicts of interest should be a central component of an entity’s integrity framework.

Poor practice, or the perception of poor practice, in the management of conflicts of interest will undermine trust and confidence in an entity’s activities.

Conflict of Interest Requirements that must be complied with

For APS employees

The Australian Public Service (APS) Code of Conduct requires that APS employees take reasonable steps to avoid any real or apparent conflict of interest.  Where conflicts cannot be avoided, the relevant provisions of the Public Service Act 1999, the Public Governance, Performance and Accountability Act 2013 (PGPA Act), and Public Governance, Performance and Accountability Rule 2014 (PGPA Rule) require that persons must disclose details of any material personal interest.  

Where Accountable Authorities are a board

For those Australian Government entities where the accountable authority  is a board, board members must generally exclude themselves from any discussion or decision regarding the matter on which they have a conflict.

Conflict of Interest requirements in the CGRG and CPRs

The Commonwealth Grant Rules and Guidelines (CGRGs) and the Commonwealth Procurement Rules (CPRs) also have provisions relating to conflicts of interest.

Under the CGRGs, accountable authorities should ensure that entity policy and management processes for conflicts of interest relating to grants are published to support probity and transparency.  

While there is no equivalent requirement under the CPRs, publishing policies can assist an entity in making third parties more aware of what situations may constitute conflicts of interest.

In my view, any government entities that do not have Conflict of Interest policies in place now will be required to put these in place over the next 12 months, in light of the current changing landscape relating to Conflicts of Interest in Australia.

Rachelle Hare – Blaze Busines & Legal

Actions to be taken by entity accountable authorities

Entity accountable authorities must promote the ethical management of public resources and establish and maintain appropriate systems relating to risk management and oversight and internal controls.

1. Conflict of Interest Policies

This includes policies and procedures regarding the management of conflicts of interest. Such policies and procedures should apply to all contractors, consultants and advisory bodies employed by, or associated with, the entity.

In order to comply with section 16 of the PGPA Rule, conflict of interest policies must be approved by the entity accountable authority.

In relation to procurement, communicating entity expectations and acceptable practices to suppliers or potential suppliers — through the publishing of policies — can be an effective mitigation strategy. The strategy should be aimed at decreasing the number of offers of gifts, benefits or hospitality made to their staff.  

The content of policies should be influenced by an entity’s operating environment.

2. Policies regarding gifts and benefits

Entities should also ensure that policies on conflict of interest management are consistent with policies relating to gifts and benefits.

3. Importance of making declarations

Both types of policies should reinforce the importance of declaration, and particularly where the staff member is offered gifts or hospitality from a potential tenderer or grant applicant.

4. Regular review of policy framework is required

Entities should periodically review the operation of their policy framework to determine whether it is operating effectively. Key areas to be addressed in any reviews include the completeness and accuracy of disclosures and registers, and whether documented management responses have been properly implemented.

Identifying Conflicts of Interest

1. Declarations used to identify conflicts

It is common for entities to rely on declarations from employees, contractors and advisory bodies to identify any conflicts that may require management.  

2. Declarations must also be scrutinised against other known information

It is important that declarations be scrutinised and considered against other information known to the entity, to identify any associations and potential conflicts that have not been declared.  

This is an interesting requirement by the ANAO. It goes further than most people would expect, and requires those receiving a Conflict of Interest Declaration to take positive steps to query the declaration and make other enquiries about information known to the entity. It is not clear where this obligation to make separate enquiries begins or ends. For example, does the entity have to enquire of its staff whether they individually know information that should have been disclosed within a Conflict of Interest Declaration?

Rachelle Hare – Blaze Business & Legal

3. Extra processes required for high risk activities

Entities should identity any procurement or grant arrangements or circumstances that involve elevated risk of conflicts.

In these instances, the entity should ensure that processes involve a proportionate level of scrutiny, and determine whether a grant- or procurement-specific declaration of conflict is appropriate for any staff, contractors or consultants involved.

Conflict of Interest Declarations

1. Form of Conflict of Interest Declarations

Declarations are generally made through completing a form or template supplied by the relevant entity.

In appropriate cases, consideration should be given to whether these forms should include requiring persons to declare any social media activity or similar action that could reasonably generate perceived conflicts of interest.

2. When Conflict of Interest Declarations should be made

It is important that declarations be made before the person or entity begins work, and that they are completed in full and signed.

Declarations should be timely and relevant. For example, reliance cannot reasonably be placed on general declarations made by firms when they are appointed to a procurement panel in advance of individual work assignments being entered into

3. Who should submit a Conflict of Interest Declaration

Every relevant person and organisation should submit a declaration, even if they don’t belive they have a conflict of interest. This provides a higher degree of assurance than only requiring a declaration when the individual or organisation considers they do have a conflict.

4. When Conflict of Interest Declarations should be updated

An appropriate process should be implemented to monitor whether disclosures may need to be updated, including in cases where the role of individuals change.

5. Electronic system for recording Conflicts of Interest

Ideally, entities should have an electronic system for declaring and recording conflicts of interest. One of the potential advantages of such systems is that they enable the entity to undertake data analysis to identify potential conflicts with other parties.

6. Other protective measures to be implemented

To guard against the risk that relevant persons fail to disclose their conflicts of interest, additional measures can be put in place including:

  • an internal reporting or complaint-handling function that allows staff and external parties to report perceived or actual conflicts as well as other integrity concerns;
  • a data analytics program that can identify suspicious transactions, events or relationships that may reflect a conflict of interest;
  • appointing a probity auditor; and
  • conducting background and due diligence checks on potential staff, suppliers, contractors and business partners.

Managing Conflicts of Interest

Appropriate management of identified conflicts of interests requires entities to take an active rather than passive approach. An active approach should include a number of key elements:

1. Avoiding conflicts

Avoiding conflicts of interest is an effective management approach.

2. Using Information Management Systems

Integrating conflict of interest processes into information management systems can deliver enhanced efficiency and assurance. For example, these can automatically identify when a Board Member has a conflict and needs to excuse themselves from part of a meeting.

3. Ensuring Separation of Duties

Conflicts may also be avoided or mitigated through separation of duties.

For example, where an entity plays a role in the preparation of a grant/procurement proposal — such as through providing advice to a grant applicant/tenderers on their proposal that it will later assess — a clear separation should be maintained between entity staff or advisors involved in these respective roles. This will assist in maintaining the objectivity of the assessment stage.  

4. Guarding against employment offers from tenderers or grant applicants

A conflict of interest will arise if a person who is involved in a grant or tender assessment process applies for a job with, or is offered a job by, an organisation who is also applying/tendering for the same grant or procurement process.

There are a variety of ways in which entities can manage conflicts in these circumstances. For example, they could include provisions in contracts with successful tenderers to restrict the employment of (former) government employees who managed the tender process. Similar provisions may be included in requests for tender to preclude the solicitation, enticement or engagement of particular employees during the process.  

5. Making sure that employees understand when a conflict should be declared

Employees should be advised that applying for a job in an entity that is tendering for work, or applying for a grant from a program in which they are involved, is a conflict that should be declared.

6. Promoting ethical behaviour through guidelines

Entities may also put into place other arrangements that are based on the goodwill of parties and their perceptions of mutual benefit, rather being legally enforceable.  

For example, broad policy guidelines which include suggested periods of time that an employee should wait after leaving the public service before they work in business areas that have direct contact with their former entity.

Some entities, such as the Department of Defence, have also developed common understandings of ethical behaviour with relevant industry associations to help promote the acceptance of agency guidelines.

7. Promoting a consistent approach to managing conflicts

Entities should take a consistent approach to how similar conflicts are managed.

This can be assisted through including relevant guidance in entity policies and procedures.  Guidance should also be provided to grant applicants/tenderers and external advisory bodies or assessment panels.

8. Considering Conflict of Interest Declarations collectively rather than individually

Where grant and procurement activities involve significant numbers of material conflicts, management can be assisted through considering declarations collectively rather than individually. This enables entities to assess consistency and more fully inform its consideration of the appropriate management approach.

Unfortunately, little guidance is given about what “considering declarations collectively rather than individually” actually involves.

Rachelle Hare – Blaze Business & Legal

9. Using probity registers to document how conflicts have been managed

Properly maintained probity registers are a useful way of maintaining line of sight between identified conflicts and resultant management actions.

10. Developing a specific plan for managing identified conflicts

For high-risk activities, consideration should be given to developing a specific plan for managing the identified conflicts (Conflict Management Plan).  

11. Monitoring adherence to the Conflict Management Plan

Plans should incorporate a mechanism for managers to monitor whether relevant employees or other parties are adhering to the Conflict Management Plan.  

12. Recording Declarations of conflicts in Board Papers

For entities where the accountable authority is a board, entities should ensure that board papers consistently record declarations of conflicts and board members absenting themselves from any discussions and decisions on items in which a board member has a conflict.  

13. Periodic Reporting to the Accountable Authority

Depending on the nature of the entity’s activities, it may also be appropriate for the accountable authority to receive periodic reporting on conflict of interest issues.

Culture, training and awareness raising

1. Leadership sets the tone of a culture

An entity’s culture with respect to the management of conflict of interest will be determined by the ’tone at the top’ set by its leadership.

2. The acts of the CEO and senior leadership will highlight for employees what behaviour is acceptable

It is the entity’s senior leadership (particularly the CEO) that employees look to, to determine what behaviour is acceptable and what is not.  

This is particularly important where entities are operating in an environment where there may be close personal and professional links between entity staff and those in organisations that stand to benefit from entity procurement and grant decisions.

3. An appropriate culture can be encouraged through these actions

An appropriate culture can be encouraged through manager’s discussing conflicts of interest and reviewing conflict of interest declaration forms during key stages of procurement and grant processes.

Entity leadership needs to demonstrate that the completion of conflict declarations is important and not just a perfunctory exercise in record-keeping.

This can be done through follow-up actions by management where conflicts declarations are not completed or not kept up to date, providing conflicts of interest training to relevant staff, ensuring that escalation is required where conflicts are declared, and requiring reporting on conflicts to ensure Conflict Management Plans are actioned.

4. A culture valuing expedient processes is more likely to contain unmanaged Conflicts of Interest

Unmanaged conflicts of interest are more likely where entity culture values expedient processes that are irrespective of risks to integrity.

In some cases, conflicts can result in corrupt behaviour when individuals are motivated by private interests and personal profit.

How to promote compliance with Conflict of Interest requirements

Compliance with conflict of interest requirements can be promoted through regular awareness raising and on-the-job and formal training.

The impact of these activities can be reinforced through staff and contractors completing probity awareness declarations.

Such declarations can acknowledge receipt of probity awareness training and materials, and agreement to abide by and implement conflict procedures, including notifying their employing entity of any probity issues and declaring any conflicts of interest.  

Entities can also assist compliance by highlighting to employees the consequences of disregarding conflict of interest processes, including disciplinary action or termination of employment.

Conclusion

The ANAO Audit Insights contains a number of insights into how Conflicts of Interest can be identified and managed by government entities. They also show Industry and Business how they can deal with government in a way that meets its Probity requirements.

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