Part 5: Contractual obligations and relevant policies and procedures

• Contractual obligations for Mr Belton and Ms Buck
• CPIT corporate policies and procedures
• CPIT policies and procedures relevant to conflicts of interest
• Summary
• Recommendations

5.1
In this Part we discuss the contractual obligations on Mr Belton and Ms Buck to declare any conflicts of interest. We also outline CPIT’s relevant corporate policies and procedures and how they apply to the circumstances of this inquiry, and include some recommendations for CPIT.

Contractual obligations for Mr Belton and Ms Buck

Mr Richard Belton

5.2
When negotiating his fixed-term employment agreement with CPIT in 2002, Mr Belton was asked to disclose any interests. This led him to notify CPIT in writing of his shareholding in BSL. His documented disclosure in his employment agreement of his interest in BSL goes over and above any obligations arising from the relevant CPIT policies that apply to him. Our inquiry has found that Mr Belton complied with his contractual requirements.

Ms Vicki Buck

5.3
Ms Buck’s contract requires her to tell CPIT about potential conflicts of interest. The contract states:

Think Inc Limited shall consult with Christchurch Polytechnic if intending to consider other contract work with any other business or organisation which may have the potential of a conflict of interest. An agreement in regard to the contract being considered must be reached with Christchurch Polytechnic.

5.4
In our view, this clause in Ms Buck’s contract does not apply to the circumstances under review. This is because Ms Buck was not intending to undertake any “contract work” for BSL. It was her ownership interest in the company and company directorship and their conflict with her work for CPIT that were problematic. This said, Ms Buck interpreted her contract to mean that she should notify CPIT of any involvement or directorships in other entities. She told us that she did so. We accept that CPIT, through Mr Scott and more latterly Ms Buck’s other colleagues, was aware of her connections with BSL.

CPIT corporate policies and procedures

5.5
All CPIT’s corporate policies are summarised in a shortened form in the User Friendly Guide to CPIT Policies (the Guide). The Guide is given to all new permanent and fixed-term appointment staff when they start with CPIT, as part of their face-to-face induction with the Human Resources Division. In addition, all new staff are required to accept responsibility for becoming familiar with the staff code of practice by signing a statement to this effect. The Guide is refreshed at reasonably regular intervals and then redistributed to staff. The latest version (fifth edition) of the Guide is dated July 2004.

5.6
The full details of all of CPIT’s corporate policies and their associated procedures (where applicable) can be found in the Academic Policies and Procedures Manual and the Corporate Policies and Procedures Manual. Both manuals are also available electronically through the CPIT computer network.

How CPIT policies apply to Mr Belton and Ms Buck

5.7
Mr Belton’s fixed-term employment agreement expressly requires him to abide by all of CPIT’s policies, practices and procedures, and codes of conduct that are adopted by either the CPIT Council or CPIT management.

5.8
Ms Buck advised us that she had received a copy of the Guide. Her contract with CPIT was signed in 1998, before some of the CPIT policies about conflicts of interest were put in place. The contract does not expressly require Ms Buck to abide by any of CPIT’s corporate policies, practices and procedures. Moreover, all of CPIT’s policies are expressed as applying to “staff”. Ms Buck is an independent contractor, not an employee, so none of the policies technically apply to her. Having said this, her arrangement had many similarities to an employment situation, and the members of the CPIT senior management team that we interviewed unanimously agreed that they would expect all contractors, including Ms Buck, to comply with the substance of all policies in any case.

CPIT policies and procedures relevant to conflicts of interest

5.9
CPIT has 3 corporate policies that are relevant to the scope of this inquiry. A full copy of each of these policies is provided at Appendix 2 (see pages 57- 66). The policies are:

• Code of Professional Practice;
• Staff Involvement in Outside Activities policy; and
• Disclosure and Conflicts of Interest policy.

Code of Professional Practice

5.10
CPIT’s Code of Professional Practice (the Code) was adopted on 30 November 2001. The Code has a 3-year review cycle and was designed to promote high ethical standards in CPIT and foster an understanding of CPIT’s expectations of staff. The Code applies to “all CPIT staff including managers and the Chief Executive”. The Code contains 3 particular expectations of staff that we considered pertinent to this inquiry:

…exercise their best professional and ethical judgement; make decisions based on appropriate, relevant information, without bias…

…take care to maintain the confidentiality, accuracy and privacy of official CPIT documentation to which they have access…

…ensure there is no actual or perceived conflict between their personal interests (including those of their immediate family) and their CPIT duties and responsibilities.

5.11
There are no documented procedures for ensuring compliance with the Code. It does however set out the broad options that could be followed if staff do not meet their obligations under the Code.

5.12
We found that the Code applies to Mr Belton. The written disclosures of Mr Belton’s interests in BSL are consistent with the Code.

5.13
The Code does not technically apply to Ms Buck. If it did, Ms Buck would have failed to meet one of the expectations in the Code, based on our view in Part 4 that there was, at times, a conflict of interest between Ms Buck’s private interests and her CPIT duties.

5.14
In our view, the Code should be revised as soon as possible to expressly apply to any independent contractors to CPIT who are not employees but who work for CPIT in a similar manner as Ms Buck.

5.15
In addition, we consider that all future contracts with companies where the services of one particular individual are being purchased (and contracts with particular individuals) should contain a provision binding those individuals to conduct themselves in accordance with all CPIT corporate policies, practices and procedures, and codes of conduct.

5.16
We also consider that it would be helpful to provide some procedures to support the Code. Such procedures would seek to clarify, by way of example, when written declarations are required, the frequency with which any routine disclosures will be sought from CPIT staff and contractors, and what range of “interests” need to be disclosed.

5.17
To supplement this information, we recommend that the procedures also include a comprehensive list of the mitigation options that can be employed when a conflict of interest has been identified. A list of some useful sources for preparing such a list can be found at Appendix 1 on pages 55-56.

5.18
In our view, when conflicts of interest have been identified, the proposed mitigation action should be documented, agreed between the relevant parties, filed appropriately, and monitored to ensure that the mitigation action or actions continue to achieve their purpose (as a change in circumstances may require the nature of the action(s) to be reconsidered).

Staff Involvement in Outside Activities Policy

5.19
The Staff Involvement in Outside Activities policy (the Staff Involvement policy) was established in February 1991, and is currently being reviewed by CPIT.²³ Consideration was given to the appropriate scope of this policy around the same time that CPIT management was discussing the establishment of the Disclosure and Conflicts of Interest policy (see paragraphs 5.27-5.33). The Staff Involvement policy states that:

…Staff members may be involved in business ventures/other work in addition to their primary employment at CPIT provided their outside activities are subordinate to and do not interfere with their primary employment CPIT position. If there is any conflict of interest this must be declared. Staff may be asked to choose between their CPIT position and outside employment.

5.20
The Staff Involvement policy applies to all staff. Of potential interest to this inquiry, the policy states that:

…if a firm with which a staff member has a financial interest tenders goods or services to CPIT, the interest of the staff member must be declared.

5.21
To support this provision in the Staff Involvement policy, all contracts for services are vetted by the Director of Finance and can be signed only by a member of the CPIT management team. Further, CPIT’s Contract Development Checklist requires the person managing the contracting process to identify any related parties, and to check whether any conflicts of interest have been identified and declared.

5.22
The Staff Involvement policy contains a list of some examples of conduct that are automatically considered to be unacceptable and a breach of the policy. Notwithstanding these few statements, the policy is not supported by any other written procedures (such as, how staff should declare any conflicts of interest, and to whom).

5.23
The Staff Involvement policy clearly applies to Mr Belton, but does not raise any issues in this situation.

5.24
The Staff Involvement policy does not apply to Ms Buck. Although contractual arrangements like Ms Buck’s may be an infrequent set of circumstances for CPIT, we recommend that this policy also be amended to apply to independent contractors who work for CPIT in a similar manner as Ms Buck.

5.25
Even if the Staff Involvement policy had applied to Ms Buck, her interests with BSL would still not have had to be formally disclosed under the policy. This is because the Joint Venture arrangement probably does not constitute the “tendering of goods and services” by BSL to CPIT. To this end, we consider that there is good reason for “passive” interests (such as shareholdings) to be better covered by the Staff Involvement policy.

5.26
In any case, both Mr Belton and Ms Buck had in fact disclosed their connections in BSL to their supervisors in various ways and at various times.

Disclosure and Conflict of Interest Policy

5.27

The Disclosure and Conflict of Interest policy (the COI policy) was considered by the CPIT Council in July 2003, and immediately adopted.²⁴ Broadly speaking, the purpose of the policy is to ensure compliance with the provisions of the Local Authorities (Members’ Interests) Act 1968 (the Act) so that “any significant conflicts of interest arising at governance level from any CPIT activities are declared, recorded and addressed”.

5.28
The Act applies only to CPIT Council members. It therefore has no relevance to the circumstances that are the focus of this inquiry.²⁵ However, the Act was used as the basis for the COI policy. The Act defines an indirect pecuniary interest as including situations where a member owns a 10% (or more) holding of shares in a company. This threshold has been adopted by CPIT for the COI policy’s definition of an “interest” or “concern”.

5.29
The policy applies to “all CPIT Council members, Council officers, and all members of CPIT’s management team and to all CPIT activities”. The policy requires declarations of concerns or interests in writing. A conflict of interest is defined as:

…the conflict or potential for conflict arising when a Council member or officer or management team member has a concern or interest in a matter or with a party with which CPIT is negotiating or doing business; that is, where the Council member or officer or Management Team member…has a direct or indirect pecuniary interest or may gain significant personal benefit.

5.30
The procedures for the COI policy provide for an annual disclosure of any interests or concerns. The Council Secretary keeps a register of these disclosures. The procedures also set out the process to follow when the CPIT management team or Council is deliberating or voting on a matter in which a member has declared a concern or interest.

5.31
Based on our interpretation of the definitions of “Council member”, “Council officer” and “Management Team member” in the COI policy, this policy does not apply to Mr Belton. While the Chief Executive can determine that the policy apply to other senior CPIT managers, we were not told that this was the case for Mr Belton.

5.32
The COI policy does not apply to Ms Buck.

5.33
Overall, we consider that CPIT’s COI policy is very good for ensuring compliance with CPIT’s legislative obligations in respect of pecuniary interests for Council members. We also commend CPIT because the COI policy applies to a wider group than just CPIT councillors, and because it has procedures for better ensuring compliance. However, the policy is not relevant to all the sorts of conflicts that can arise at other than governance level, or that arise outside formal meetings.

Summary

5.34
CPIT has 3 policies that are useful in helping to identify and manage some conflict-of-interest situations. The policies, in some instances, are supported by a set of procedures.

5.35
Two of the 3 policies applied to Mr Belton, but raised no issues in this situation.

5.36
CPIT’s corporate policies and procedures relevant to conflicts of interest did not apply at all to Ms Buck because she was not an employee. Because of this, Ms Buck takes the view that the disclosures she did make went over and above anything that she was required to do. In other words, she was being extra cautious and transparent in making the disclosures that she did because she did not technically have to do so. She has noted that, for CPIT councillors, a company shareholding of less than 10% does not need to be disclosed.

5.37
We commend the existence of the 3 policies. What this inquiry has highlighted, however, are some areas where the policies could be enhanced. CPIT could do this by either expanding 1 or all of the 3 policies, or drafting a new policy that consolidates the existing policies and addresses our following recommendations.

Recommendations

23: The current version of the Staff Involvement policy is dated December 2001.

24: The policy arose from recommendations made as part of the 1997 annual audit.

25: For more information on the Act, see Conflicts of Interest: A Guide to the Local Authorities (Members’ Interests) Act 1968 and Non-pecuniary Conflicts of Interest, the Controller and Auditor-General, ISBN 0-478-18121-3, August 2004. This publication is available on our website at www.oag.govt.nz.