Squeaky clean, or a dark secret?
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Squeaky clean, or a dark secret?

The Reserve Bank of Australia is facing a corruption scandal involving a subsidiary company, Securency, which allegedly paid bribes to secure overseas contracts for its banknote-printing business. The whistleblower in the case has also alleged that senior officials in the RBA itself were aware of the affair but failed to act.

The case has strong parallels to the AWB scandal. The monopoly wheat exporter, previously the Australian Wheat Board, made illegal payments to Saddam Hussein's regime in Iraq to circumvent United Nations sanctions. The payments were in the form of ''trucking fees'' to companies that never trucked any wheat. Australia had signed up to the sanctions and would soon be at war in Iraq.

The APS may be as upstanding as its leaders say it is, but the public can't check if that's true.

The APS may be as upstanding as its leaders say it is, but the public can't check if that's true.

Photo: Michel Mossop

The AWB and the Reserve were (and the latter still is) highly respected organisations. Former prime minister John Howard told the Cole inquiry into the AWB scandal that he never had any suspicions of the company, ''it hadn't crossed my mind that it would have behaved corruptly''. He ''believed the best'' about AWB simply because it was highly respected. The former government kept up denials that the AWB was involved in any wrongdoing right up until the point that it became absolutely obvious (due to excellent records kept by Iraqi officials, uncovered after the second Gulf War).

What the cases have in common is that few people thought these bodies could harbour corruption. Having a good reputation is no safeguard. It may even encourage corruption because perpetrators know that they are less likely to be viewed with suspicion.

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It raises a question for the Australian Public Service: it believes itself to have little corruption and promotes that image, but does that put it in danger?

The Public Service Commission says in its 2010-11 State of the Service Report that the ''APS is generally regarded as having one of the highest reputations for integrity of comparable public services around the world''. It bases this on the 2010 Transparency International's corruption perceptions index, which shows Australia was perceived as the eighth-least corrupt country.

Transparency International does great work. Its survey is perception-based because actual corruption is, by its nature, hidden and hard to measure. However, the methodology has a weakness. If corruption is hidden successfully, it won't show up in the index.

Former NSW premier Morris Iemma led an administration not unfamiliar with allegations of corruption. Possibly irked by unkind comparisons, he once suggested that the Commonwealth might be in denial and have similar problems without knowing. His at least were out in the open, being investigated by the Independent Commission Against Corruption.

The Commonwealth lacks a corruption-fighting body with investigative powers for the public service. The Australian Commission for Law Enforcement Integrity oversees the federal police, Australian Crime Commission and Customs service, and performs a valuable integrity function for these agencies. The commission's legislation will be strengthened and its coverage extended if the Law Enforcement Integrity Legislation Amendment Bill 2012 now before the parliament is passed. It is a good model.

The joint parliamentary committee that oversees the commission recommended a national anti-corruption body for Commonwealth agencies. The government rejected the proposal in a brief statement, saying ''no single body should be responsible'' and there is ''a range of bodies and government initiatives that promote accountability and transparency''. This missed the point. The committee did not suggest abolishing the Australian National Audit Office, the Commonwealth Ombudsman or the Australian Commission for Law Enforcement Integrity and replacing them with a single commission. Any integrity system relies on a number of complementary institutions. Ours is missing a national corruption-fighting agency.

Most states already have such agencies covering their whole public services as well as bodies that investigate police. The NSW Independent Commission Against Corruption was the first, then the Queensland Crime and Misconduct Commission and the West Australian Crime and Corruption Commission. Tasmania and now South Australia and Victoria are establishing similar bodies. They not only have an investigation role but perform a crucial preventive function: the fact that they exist makes the risks of corruption higher, so they act as a deterrent.

The Commonwealth also lacks effective whistleblower protection. New legislation has been stuck in the Parliament since the Rudd government (see A. J. Brown's expert view on the following page). Corporate whistleblowers in many ways have better rights than federal public servants who uncover wrongdoing. The Australian Securities and Investments Commission publicises that ''the Corporations Act makes victimisation of whistleblowers a crime'' and outlines how they can make protected reports. The Securency case was raised by a whistleblower. We don't go as far as the United States, which gives corporate whistleblowers large rewards - whistleblower Brad Birkenfeld received $US104 million last month - but we at least protect them.

Audit committees look at spending but not staffing, even though a corrupt decision to employ an incompetent crony has huge cost.

The lack of investigation and disclosure mechanisms makes corruption more likely. Corruption in any organisation is a function of motive, opportunity and risk. That is: are people inclined to act corruptly (for whatever possible motives), are they given opportunities to do so, and what is the chance they may be caught? In the Commonwealth, this last element, the risk of detection, is noticeably weaker than in the states.

The Commonwealth does not have a long-standing culture of corruption, as compared with, say, NSW, with its history from the Rum Corps through the Askin government. That does not mean it will never acquire one. Once corruption is allowed to develop and spread, it is like a noxious weed, difficult to eradicate. At present, we simply don't know if the Commonwealth's fields are weed-free, or only look that way from the distance.

Corruption can arise in many different ways. It is not only through handling funds or property, but also in employment, contracts, and what public servants do after they retire.

Money and assets are reasonably well protected through a series of overlapping institutions. Internal audit in most agencies is relatively independent. Audit committees have an independent external member, who today is often the chair of the committee. The Institute of Internal Auditors monitors and maintains professional standards. If all else fails, there is also external audit of financial statements by the ANAO, which will detect egregious fraud and corruption.

There are no similar independent mechanisms for ensuring that staffing decisions (recruitment, termination, promotion) below the SES level are free of corruption. Audit committees look at spending but not staffing, even though a corrupt decision to employ an incompetent crony has huge cost. What is more, complaints about corrupt processes are easily dismissed as sour grapes on the part of unsuccessful applicants.

This contrasts with the People's Republic of China. The director of the centre for international and comparative political philosophy at Tsinghua University, Professor Daniel Bell, gave a talk on its system at the recent Institute for Public Administration Australia conference. Promotion is based largely on examination and intensive referee checks from both supervisors and subordinates. Bell told the story of a prominent case where staff expressed concern about whether a promotion was justified. In response, the agency posted the examination results and referee comments on a wall, so everyone could see the decision had been made on merit and the promotee was clearly best.

In tendering, though there are rules to prevent conflicts of interest and awarding contracts to family and friends, these are similarly opaque to external scrutiny. Registers of conflicts of interest are not well maintained and updated, and even if there is a conflict it is not always managed.

While most APS staff and tender selection is done through diligent and hard work by dedicated and ethical panels, there is no external and transparent scrutiny mechanism to provide an assurance that this always happens. At the extremes, public servants can complain to their agency head, but not outside. If the agency head is (or is perceived to be) complicit in corruption in the agency, then staff have nowhere to go. That is where whistleblower protection or a national corruption body are needed.

Finally, Australia is well behind other advanced countries in managing conflicts when a public servant leaves. The practice of public servants leaving to join firms to which they have given work over many years is so widespread that many see it not as corruption but career management. One departmental head sent a message to his staff before retiring asking them to hire him to do consultancy work. They duly did. It was not seen as an issue. By contrast, the NSW Independent Commission Against Corruption devotes a good part of its website to the post-separation problem, and has a much tougher regime than the Commonwealth.

A prohibition on public servants doing any work after they leave would be a stupid waste of skills and experience. It is also illegal. As noted by the Public Service Commission, ''it is not currently possible under Australian law to impose post-separation employment restrictions … and to ensure that those restrictions are enforceable'' (though there is a 12-month ban on being a professional lobbyist). The commission suggests ways to manage potential conflicts but few agencies heed the advice.

Sometimes, it makes sense for someone to have outside employment related to their public service job. For example, former Defence personnel are often hired by firms with Defence contracts because the pool of knowledge of the relevant military hardware is limited. Where the possibility of corruption arises is when people use their public service position to gain unfair personal advantage.

It is, of course, hard to tell whether a public servant is misleading a tender process corruptly in the interests of their post-public service career or is just making a bad decision. There is a wide range of post-separation employment possibilities. This is why in many parts of the world there is an outright bad on public servants leaving to take a job in a firm with which their agency has done business. Rather than try to sort it out case by case, they make sure the problem can never arise.

We are unlikely to go that far, so entrenched is the practice, but an anti-corruption commission would at least serve to keep the corrupt end of the range at bay.

Stephen Bartos is the executive director of ACIL Tasman and a former senior public servant.

s.bartos@aciltasman.com.au