Last month's article on nepotism in the Australian Tax Office and elsewhere ('Tip of the nepotism iceberg', Public Sector Informant, July 2017) attracted an unusually strong response from readers. A number of public servants, current and former, wrote in with their own stories of nepotism and other types of conflict of interest in the APS and offering interesting analyses of where the problems lie. The evidence is purely anecdotal, of course, and provides no sound basis for generalising. But the contrast with the resounding silence that usually follows my monthly articles suggests, at the very least, that the topic strikes a chord with many public servants. The broader issue of conflicts of interest, of which nepotism is one type, is worth further exploration.
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A conflict of interest, like corruption, is normally understood to involve a clash between the public duties of an official and his or her personal interests. The main difference from corruption is that a conflict of interest need not lead to actual wrongdoing whereas corruption necessarily implies wrongdoing. Conflicts of interest have always been a major focus of public sector ethics but attention has grown in the last two decades with the renewed interest in questions of governance in both the public and the private sectors.
In 2003, the OECD published a comprehensive report on how to deal with conflict of interest in government (OECD Guidelines for Managing Conflict of Interest in the Public Service). As the report noted, increased collaboration between governments and private companies has devolved more public functions on to non-government actors and has required government officials to engage more closely with commercial partners through the awarding and monitoring of contracts. Those employed in the private sector are often unfamiliar with public sector procedural values such as impartiality and may have difficulty meeting government standards. At the same time, public servants dealing with business people are exposed to more opportunities to cut corners and do favours for family and friends.
In the APS, recent controversy over spending on consultants in defence and related areas illustrates how conflicts of interest may arise when government officials are awarding contracts among a small group of expert consultants with whom they have close professional and personal relationships. A report last year by the Australian National Audit Office was highly critical of a contracting process between Air Services Australia and a Canberra-based group of consultants. It revealed a network of relationships between Defence department officials, defence contractors, private consultants and air services personnel which could give rise to serious conflicts of interests. Several of my correspondents referred to the unhealthily close connections between current managers and former colleagues now employed on lucrative short-term contracts.
APS policy on conflict of interest flows from the APS Values and Code of Conduct as set out in the Public Service Act. The Code requires "employees to take reasonable steps to avoid any conflict of interest, real or apparent, in connection with their employment". The code also obliges employees "to disclose details of any material personal interest". (A similar requirement is also included in the Public Governance, Performance and Accountability Act). As the Australian Public Service Commission indicates in its online guide The APS Values and Code of Conduct in Practice, the term 'material personal interest' (emphasis added) is intended to rule out any interests so trivial that they would not give rise to a genuine conflict of interest.
Most policies on conflict of interest refer to three types – real (or actual), apparent or perceived and potential. The Code, however, followed by the APSC guide, mentions only the first two types (real and apparent). The guide is also unusual in defining the difference between real and apparent conflicts in terms of whether or not they improperly influence the employee. Most definitions, by contrast, assume that conflict is about the situation - actual, perceived or potential - not the outcome. That is, a real conflict can exist without leading to wrongdoing, if the person manages it properly.
In practice, perhaps, these idiosyncrasies in definition have little effect on the policy. But they do reflect a certain carelessness about the concept which may be a symptom of a deeper reluctance to treat the issue with sufficient seriousness.
While the APS Code of Conduct requires public servants to disclose any material personal interest in connection with their employment, the legislation is silent on how such disclosure is to be made. The APSC has filled the gap in its guide, setting out a service-wide policy on disclosing interests and managing conflicts of interest. Agency heads and Senior Executive Service employees must submit an annual statement of their own and their immediate family's financial and other material interests, with SES employees reporting to agency heads and agency heads reporting to ministers. Agency heads are then responsible for managing any conflicts that arise.
Whether employees below the SES level are required to make regular disclosures is left to the discretion of agency heads. Heads may choose to introduce their own guidelines, perhaps singling out areas of particular sensitivity such as procurement and recruitment or allocating grants.
Disclosure for public servants, it is to be noted, is generally kept confidential between employees and their immediate superiors. There is no requirement for public disclosure, as there is for politicians. Nor is there a right for interested parties to access the interest statements of public servants with whom they are dealing, a right that applies in some other jurisdictions.
Given the great variety of activities performed by public servants as well as the range and complexity of possible conflicts of interest, it makes sense to devolve the detailed management of conflict of interest away from the centre and down to local managers. However, this leaves the onus on individual branch managers who may or may not choose to take the issue of disclosure seriously, depending on the extent of pressure from their superiors.
The attention paid by senior management to interest disclosure and to monitoring conflicts of interest varies greatly. A few years ago, the ANAO audited levels of agency compliance with conflict of interest requirements (Managing Conflicts of Interest in FMA Agencies (2014)). The audit assessed conflict of interest policies in 25 agencies, and included detailed field work on eight agencies. It uncovered a very mixed bag of performance, with some agencies being exemplary and others falling well short. At the SES level, all agencies formally required an annual disclosure of interests but only about half succeeded in achieving 100 per cent compliance. Rounding up recalcitrants was often seen as not worth the effort. For other employees, agency policies on disclosing interests and managing conflicts ranged from the comprehensive to the perfunctory.
The ANAO observed that the most effective conflict of interest policies in particular agencies tended to be tailored to the agency's specific area of activity, concentrating on conflicts that were most likely to arise for its own people in their own line of work. Such policies also included relevant examples of possible conflicts of interest with discussion of which conflicts were particularly serious and which could be ignored. A good example is the section on conflict of interest in DFAT's Conduct and Ethics Manual. By contrast, policies that did little more than repeat the general provisions in the Code and the APSC guide were unlikely to engage the interest of either staff or their managers.
The other key factor was the extent to which managers at all levels took time to actively monitor and manage possible conflicts within their areas of responsibility. As with all areas of organisational values and ethics, the tone is set at the top, with the attitude of the agency head. If the head is seen to insist on full disclosure and compliance, others are more likely to follow suit. If the head treats conflict of interest procedures as an irritating intrusion, a box-ticking exercise to be completed in the minimum time, his or her subordinates will quickly get the message.
Whether agency performance on conflict of interest has improved since the ANAO report is unclear. Anecdotal evidence suggests that the problems are still found in many parts of the APS. As my correspondents pointed out, conflicts of interest are particularly egregious when observed at the senior management level where they can have a demoralising effect on subordinates wanting to do the right thing.
One can sympathise with honest managers who baulk at the resources needed to implement an effective conflict of interest policy. They may also chafe at procedures that prevent them from making quick and easy decisions to employ people they know and trust. In their impatience they will find support from ministers who view private sector business practice as the model for efficient management and who are waging war against what they see as unnecessary red tape and regulation.
But high ethical standards always come at a cost. If politicians and the public want a public service committed to impartiality and the rule of law, which they do, they must put up with rules and procedures designed to uphold these values. Conflict of interest is a precursor to corruption and needs to be treated very seriously indeed.
Richard Mulgan is an emeritus professor at the ANU's Crawford School of Public Policy. richard.mulgan@anu.edu.au
