Risk-based principles for managing conflicts of interest
The Public Service Act 1999 (PS Act) requires employees to take reasonable steps to avoid any conflict of interest, real or apparent, in connection with their employment. The Public Governance, Performance and Accountability Act 2013 (PGPA Act) also requires officials of Commonwealth entities to perform their functions in accordance with certain standards of behaviour. This includes exercising their powers, performing their functions and discharging their duties with the same degree of care and diligence that a reasonable person would exercise. This would involve avoiding conflicts of interest (COIs).
However, in some instances COIs cannot completely be avoided. Sometimes they are inherent in doing business and undertaking our work.
The PS Act and the PGPA Act require employees to disclose details of any material personal interest in connection with their employment.
For further information on material personal interest, refer to RMG-203 General duties for officials.
The Commonwealth Procurement Rules set out that officials undertaking procurement must seek to prevent corrupt practices by recognising and dealing with real, potential and apparent conflicts of interest and not accepting inappropriate gifts or hospitality.
Where a real, or apparent COI exists, it creates serious risks for entities and for the individual which must be identified and managed appropriately. When managing COI, it is beneficial to apply risk-based principles to ensure balanced responses and effective mitigations. Entities should tailor their risk management arrangements to suit the nature of their operations and the risks they face.
The Commonwealth Grants Rules and Principles sets out that officials must disclose material personal interests in relation to grants administration, including Ministers recording in writing, any conflicts of interest relating to a decision to approve a grant.
Conflicts of interest may arise at any stage of the grants administration process, officials should establish processes to manage misconceptions of potential or real conflicts, including putting in place risk-based principles to ensure the appropriate identification and management of potential and/or real conflicts. Entities should ensure that policy and management processes for conflicts of interest in grants processes are published to support probity and transparency.
For further information, refer to the Commonwealth Risk Management Policy.
Conflict of interest principles provides a one-page diagram of the risk-based principles.
Principle 1 - Know
COIs are common - considering COIs must be a normal part of doing business
Conflicts of interest arise in the context of:
- the different operations of the government, including, but not limited to, national security and emergency activities
- the people or entities we engage with
- the information we have access to
- the decisions we make or can influence and
- how we undertake our duty or an activity.
Certain activities will be more prone to COI. It is important to understand the key objective of the activity, including its risk profile, and any third parties involved. Not all material interests will lead to a conflict, and not all conflicts will have a severe impact. It is crucial to evaluate the context in which the material interest is declared, as the potential impact of conflicts can vary.
To assist in understanding the key objective of the activity, clearly define what you are trying to achieve, its alignment to the government’s strategic objectives, and any obligations you need to abide by.
Understand the risk profile of the activity you are undertaking – some activities may have a greater risk of conflict of interest
Know the party you are engaging – some parties may be a greater source of COI due to their interests, operating practices and past performance.
Principle 2 - Disclose
Material personal or business interests relating to the affairs of the entity must be disclosed to allow COI to be identified
A 'material' personal interest has the potential to give rise to a real or apparent conflict of interest. Personal interests do not give rise to a COI unless there is a real or sensible possibility of conflict (not simply a remote or theoretical possibility of conflict).
Personal interests can include, but not limited to:
- Personal (for example, family and social) relationships
- Interests of family members
- Relationships formed socially, through work (including previous employment) or engagement with the community
- Cultural and sporting affiliations, including sponsorships
- Political, professional or voluntary affiliations
- Board and advisory roles, including for profit/not for profit organisations and body corporate positions
- Secondary employment, including company directorships
- Nomination or standing for public office
- Business, investments and shareholdings
- Other significant sources of income.
Be aware of what material personal interests or duties could be relevant to the role or activity being undertaken - consider their impact or potential impact.
Material interest may be disclosed through declaration or due diligence checks.
Material interests must be assessed to identify if they conflict with interests of the Commonwealth Government and the professional requirements of public servants – consider real and apparent conflicts. The principle of ‘If in doubt, declare’ should always apply to officials and those engaged by officials.
When assessing materiality, consider:
- the potential for any secondary personal or business benefits, or loss, for the person or organisation being engaged
- the potential impact of the interest on the decision-making process
- the degree to which the interest could influence the outcome
- how closely the interest is linked to the specific issue or decision being made, and
- whether the interest could create a bias or prejudice.
Once material interests have been identified, either through declaration or due diligence checks, a delegate of sufficient seniority and experience will need to make an independent decision on whether there is a conflict of interest. Conflicts should be disclosed and made available to relevant stakeholders. It is essential to ensure that privacy principles are adhered to, and that personal information is managed in accordance with privacy laws.
Be aware that some types of COI are required to be avoided by law, government policy, or professional duty.
Principle 3 - Assess
Assessing COIs involves assessing managing risks against risk tolerance parameters in the context of the activity
When assessing a material interest to verify the level of COI risk it poses, a delegate should scrutinise and understand the disclosed material interests relevant to the COI.
When scrutinising interests as part of the risk assessment process. delegates should consider:
- the nature and value of the interest,
- the potential negative consequences if the interest takes precedence,
- the history of similar interests causing issues, and
- how the situation might be perceived externally.
Use your entity’s risk assessment to evaluate the likelihood and consequences of the risk materialising.
It is important to recognise that apparent conflicts may escalate into real conflicts, so understanding and managing them from the outset is crucial. It is also important to reassess COI if there are changes to business or personal circumstances.
It may not be possible or appropriate to avoid or eliminate the conflict, for example it may be appropriate to engage an individual or entity with the most experience or expertise in a field, but such an individual/entity may have connections which could, if left unmanaged, give rise to bias, improper influence or unintended benefit or detriment.
Ensure any potential impacts from the conflict are evaluated against what your entity considers is an acceptable level of risk for the specific situation.
Be sure to specify how the COI will be actively managed within risk tolerance parameters, applying proportionate management strategies.
If an improper influence or unintended benefit/detriment arising from the conflict cannot be managed, then the conflict must be avoided.
Once COI risks have been identified, apply proportionate mitigations to reduce the likelihood of negative outcome of the conflicts being realised.
Consider the strategic objectives of the activity, level of risk, nature of conflict, and risk tolerance, and embed fit for purpose and proportionate mitigations in the design of the activity to manage risk within tolerance.
Design mitigations based on the nature of the conflict aimed at reducing the likelihood of the risk, and have mitigations focused on managing consequences prepared should the risk eventuate.
Principle 4 - Manage and Review
Managing COI is an ongoing activity
COIs are to be managed so that the best interests of the Commonwealth are not compromised.
Where individuals or organisations engaged by the Commonwealth have a real or apparent COI, the conflicts and mitigations must be documented in a management plan, endorsed by the relevant delegate, and managed and monitored in accordance with the management plan.
In managing the conflict, that management plan should be subject to ongoing review (for example, when there has been a change in circumstances or other action is appropriate).
The management plan for a COI will usually be based on one of the following risk mitigation strategies, or a suitable combination of these as detailed in the table the ‘6 Rs’.
