Part 1: Introduction

What is a conflict of interest?

1.1
Put most simply, a conflict of interest can arise where two different interests overlap.

1.2
In the public sector, there is a conflict of interest where:

A member's or official's duties or responsibilities to a public entity could be affected by some other interest or duty that the member or official may have.

1.3
The other interest or duty might exist because of:

• the member's or official's own financial affairs;
• a relationship or other role that the member or official has; or
• something the member or official has said or done.

What is this guidance about?

1.4
Conflicts of interest need not cause problems when they are promptly disclosed and well managed. Yet many queries to our Office, and a number of our inquiries and reports in recent years, have concerned the management of conflicts of interest.

1.5
In this guidance, we explain how to understand conflicts of interest in a public sector context, and how to identify, disclose, and manage them. We do not prescribe a set of rules, but we suggest an approach for dealing with issues when they arise.

1.6
This guidance represents our view of what constitutes good practice in the public sector.

Conflicts of interest are natural and unavoidable

1.7
Every member or official of a public entity has a number of professional and personal interests and roles. Occasionally, some of those interests or roles overlap. This is almost inevitable in a small country like New Zealand, where communities and organisations are often close-knit and people have many different connections.

1.8
Conflicts of interest sometimes cannot be avoided, and can arise without anyone being at fault. They are a fact of life. But they need to be managed carefully.

Conflicts of interest can create risks

1.9
The existence of a conflict of interest does not necessarily mean that the member or official concerned has done anything wrong, or that the interests of the public entity have suffered.

1.10
A conflict of interest, if not well managed, might lead to misconduct. But labelling a situation as a "conflict of interest" does not mean that corruption or some other abuse of public office has occurred. To say that a conflict of interest exists, and that it needs to be managed, is not an indication of a lack of trust or faith in the member or official concerned. Usually, there is no suggestion that the member or official has taken advantage of the situation for their personal benefit or been influenced by improper personal motives (nor that they are likely to do so). The member or official, and their colleagues, will often sincerely believe that they will never behave improperly. But the reasonable perception of an outside observer of the possibility for improper conduct can be just as significant when considering how to manage the situation.

1.11
The public entity needs to consider whether there is a reasonable risk that the situation could undermine public trust and confidence in the member or official or the public entity. Public perceptions are important. It is not enough that public sector members or officials are honest and fair; they should also be clearly seen to be so.

1.12
Managing conflicts of interest well is not only good practice, but it also protects the public entity and the member or official involved. A conflict of interest that is hidden, or that is poorly managed, creates a risk of allegations or perceptions of misconduct, or of other adverse consequences such as litigation.

Conflicts of interest are especially significant in the public sector

1.13
Impartiality and transparency in administration are essential to maintaining the integrity of the public sector. Where activities are paid for by public funds or are carried out in the public interest, members of Parliament, the media, and the public will have high expectations. They expect people who work in the public sector to act impartially, without any possibility that they could be influenced by favouritism, or improper personal motives, or that public resources could be misused for private benefit.

1.14
Members and officials need to take great care to avoid situations where they could be accused of using their position to further their personal interests.

1.15
Behaviour that may be permissible in a private company might be unacceptable in the public sector. For example, under the Companies Act a company director is required to disclose when they have a personal interest in a transaction, but may then be permitted to vote on the transaction. Similarly, small businesses in the private sector may often employ and contract with family members as a matter of course. Yet such practices may be unacceptable – or at least require careful management – in a public entity.

Why does the Auditor-General have a role in this area?

1.16
The Auditor-General is the auditor of all public entities, and has an interest in encouraging them to carry out their activities lawfully and responsibly.

1.17
A public entity's annual audit report could be affected by breaches of law or inadequate disclosure of related party transactions. Also, under his performance audit and inquiry functions, the Auditor-General may examine matters concerning a public entity's use of its resources, or its compliance with its statutory obligations, or matters appearing to show a lack of probity by a public entity or its members, office holders, or employees. These functions sometimes involve inquiring into and reporting publicly on the management of conflicts of interest by a public entity or someone working for a public entity. The Auditor-General also has specific statutory functions under the Local Authorities (Members' Interests) Act 1968.

1.18
Other monitoring agencies also have a role in this area. In particular, the State Services Commissioner has a leadership role in advising and guiding State servants and agencies within the State services on matters of integrity and conduct. The Commissioner may also issue a code or codes of conduct to public service departments, most Crown entities, the Parliamentary Service, and the Parliamentary Counsel Office, setting minimum standards. The primary goal behind these functions and powers is to strengthen trust in the State services, and reinforce the spirit of service to the public.¹

Who does this guidance apply to?

1.19
This guidance will be useful to any member or official who works for a public entity.²

1.20
Our guidance is not just for senior managers and their advisors. It is relevant to all people who are members of, or who are employed by, a public entity. Personnel at all levels of a public entity may need to identify and disclose conflicts of interest, or help to manage conflicts of interest.

1.21
Sometimes it may also be appropriate to apply this guidance to someone who works closely with a public entity but who is a consultant or contractor rather than an employee.

Members of local authorities

1.22
We have published separate detailed guidance about the legal requirements concerning conflicts of interest that apply to members of local authorities.3 This guidance complements, but does not supersede, our more specific guidance for members of local authorities.

What do public entities and members and officials need to do?

1.23
There are several aspects to managing conflicts of interest effectively:

• Public entities and members and officials need to understand what a "conflict of interest" is, and be aware of the different ways in which it can arise. In Part 2, we discuss the nature of conflicts of interest, including the sources of rules and expectations and the types of other interests that can give rise to a conflict of interest.
• Public entities should establish policies and procedures, as a tool for helping them and their members and officials to identify and deal with conflicts of interest. We discuss policies and procedures in Part 3.
• Members and officials should identify and disclose a conflict of interest as soon as it arises. We discuss this in Part 4.
• In each case, the public entity (or, sometimes, the member or official concerned) needs to consider what action (if any) is necessary to best avoid or mitigate any effects of the conflict of interest. We discuss this in Part 4.

1.24
In Part 5, we set out some case study scenarios, to show how conflicts of interest can arise, and be managed, in practice.

1: See the State Services Commission's publications listed in Appendix 1.

2: See the definitions of "public entity" and "member or official" in the Glossary. Our guidance is aimed at the executive arm of government. Accordingly, it does not apply to the judiciary or to members of Parliament (other than Ministers) – although any reader may find the guidance useful. Members of Parliament are required to disclose certain interests under Standing Orders 164-167 and Appendix B of the Standing Orders of the House of Representatives.

3: See Guidance for members of local authorities about the law on conflicts of interest (2007). The previous (August 2004) edition was called Conflicts of interest – A guide to the Local Authorities (Members' Interests) Act 1968 and non-pecuniary conflicts of interest.