Summary and Recommendations

• Background to our inquiry
• What is a conflict of interest?
• Did we find conflicts of interest?
• CPIT’s policies and procedures
• CPIT Council involvement
• Recommendations

Background to our inquiry

Christchurch Polytechnic Institute of Technology (CPIT) is a “polytechnic” as defined in the Education Act 1989. Brylton Software Limited (BSL) is a private Christchurch-based education software company.

During 2003, senior CPIT representatives were introduced to BSL personnel. After a series of meetings and negotiations, the parties entered into an unincorporated joint venture business relationship (the Joint Venture). The Computing Offered On-Line (COOL) programme¹ was created specifically for the Joint Venture during mid-2003, using the information technology platform that BSL had already developed.

In June 2004, both CPIT and the Hon. Bill English MP asked the Auditor-General to inquire into allegations that conflicts of interest existed for certain CPIT representatives who also held shareholding interests in BSL.

This report considers CPIT’s management of two of its representatives – Mr Richard Belton and Ms Vicki Buck – both of whom also had interests in BSL. Mr Belton is employed by CPIT on a fixed-term agreement as the Curriculum Alignment Project Director. Ms Buck is contracted as a part-time Development Manager for CPIT.

Overall, we found that there were two streams of activity occurring from April to December 2003 involving both CPIT and BSL. First, CPIT and BSL were establishing a formal business relationship through a joint venture. Second, the individual parties – and later, the Joint Venture – were preparing to deliver² the COOL programme. The development of the COOL programme and the business relationship were separate but closely related activities.

These events formed the background for our considerations of whether conflicts of interest existed.

What is a conflict of interest?

Conflicts of interest can have both legal and ethical dimensions.

We consider that there are generally accepted expectations about what constitutes a conflict of interest in the public sector.

In the public sector, a conflict of interest exists where a person’s duties or responsibilities to a public entity could be affected by some other separate (and usually private) interest or duty.

Public perceptions are important. It is not enough that public officials must actually be honest and impartial; they should also be clearly seen to be so. Labelling a situation as a “conflict of interest” does not mean that corruption or some other abuse of public office has in fact occurred. But a perception of the possibility for improper conduct – no matter how unfair to the individual – can be just as significant.

The existence of this risk, or a likely perception of this risk, is what creates the conflict of interest. Whether or not the person would actually compromise himself or herself is irrelevant.

In our view, there are two aspects to dealing with a conflict of interest:

• Identification. A conflict of interest needs to be identified and disclosed to the necessary people in a timely and effective manner.
• Management. Decisions need to be made about what, if anything, needs to be done to adequately avoid or mitigate the conflict of interest.

For this inquiry, there are no specific laws that apply to CPIT or its representatives. Nor do any other regulatory directives bind CPIT. Therefore, we are not investigating any potentially unlawful acts. However, there are public sector ethical conflict-of-interest expectations that would apply to CPIT.

We examined whether CPIT had ensured compliance with relevant internal policies and any contractual obligations. We considered CPIT’s further judgements or actions, and whether they were reasonable, based on public sector ethical expectations.

Did we find conflicts of interest?

Mr Belton has a shareholding in BSL, but his work at CPIT has never brought him into contact with issues regarding BSL. Accordingly, CPIT’s activities involving BSL never created a conflict of interest for Mr Belton.

Ms Buck has two different types of interest in BSL, as an investor and as a member of the governing body. Together, her shareholding and directorship show that she has a keen awareness of and involvement with the company. She has been involved in the COOL programme and the Joint Venture.

Ms Buck was present at 2 of the earliest meetings between BSL and CPIT. In fact, she was the person making the introductions. She had a conflict of interest then. However, in our view, it was adequately identified and managed at the time.

The meetings and discussions between CPIT and BSL in June, July, and the beginning of August 2003 were the most critical stage in the establishment of the Joint Venture business relationship. CPIT’s Chief Executive, Mr John Scott, excluded Ms Buck – deliberately, it seems to us – from the meetings during this time. This is what we would expect. There was no conflict between her CPIT duties and BSL interests during this period.

Very soon after CPIT and BSL had (at least informally) reached the point where they wished to establish a business relationship and develop the COOL programme, Ms Buck became involved again, and she quickly became a key person. Initially, in her CPIT role, she was involved in preparing to market the COOL programme to Partners in Education and the public (from mid-August). Later, her involvement became broader, particularly once the Joint Venture Committee had a de facto existence (by late-September 2003). In our view, each of these roles raised a conflict of interest.

When it was proposed that Ms Buck become a member of the Joint Venture Committee in early September, CPIT obtained written legal advice about whether this was permissible. Ms Buck also sought her own legal advice at around the same time. These were responsible actions to take.

The tenor of both sets of legal advice was that Ms Buck’s membership of the Joint Venture Committee would not be unlawful. We do not take issue with this legal advice. However, in addition to legal requirements, our inquiry has also considered how well CPIT took account of public sector ethical expectations.

We consider that a problem existed because CPIT allowed Ms Buck to be put in a position which gave her the opportunity to use her CPIT-funded time, resources, and position to enhance the value of her private financial interests in BSL.

We wish to emphasise that there is no evidence that Ms Buck acted to misuse her position.

Disclosure of conflict of interest

It is clear that all the key people in CPIT management were aware that Ms Buck had a connection with BSL when she became involved in marketing the COOL programme from August 2003 onwards.

Ms Buck disclosed her “foot in both camps” – being the Development Manager for CPIT as well as being a company director and shareholder in BSL – a number of times between April and September 2003. While only one of these disclosures was in writing, Ms Buck never attempted to disguise or hide her interests in BSL.

CPIT’s management of conflict of interest

Overall, we are satisfied that the conflicts of interest were identified and disclosed. However, these conflicts of interest raised a serious management issue for CPIT. It was up to CPIT to make the decisions, where necessary, about placing limits on Ms Buck’s CPIT activities.

CPIT told us that Ms Buck’s conflict of interest was “adjudged to not be material or problematic”. The belief of CPIT’s senior management at the time seems to have been that, so long as her interests were well known, and no-one objected to her involvement, it was acceptable for her to participate.

CPIT stands by the decisions it made at that time.

We consider that it would have been prudent for CPIT management to have:

• excluded Ms Buck from anything other than the most peripheral involvement in the COOL programme; and
• declined to consent to her appointment to the Joint Venture Committee as a representative of BSL.

As of 5 November 2004, Ms Buck resigned her membership of the Joint Venture Committee. She remains the Development Manager for CPIT, and her private interests in BSL still exist. This does not create a conflict of interest at present because her CPIT duties do not intersect with any Joint Venture initiatives.

CPIT’s policies and procedures

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.

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

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 recommendations, which are listed at the end of this Summary.

CPIT Council involvement

Conflicts of interest can present political or reputation risks for an organisation. Strategic risk management is a legitimate matter of concern for the governing body of an organisation.

We are satisfied that some, albeit brief, mention was made to the CPIT Council about Ms Buck during consideration of the developing business relationship between CPIT and BSL. Councillors were aware – in general terms – of Ms Buck’s role at CPIT, and they would have been aware of her high profile in the community. However, her connections and involvement were not the subject of any discussion by councillors. While the Council certainly took an interest in the Joint Venture agenda item, it focused its attention on other matters.

We consider that it would have been prudent for:

• CPIT management to have told the CPIT Council more about Ms Buck’s connections with BSL, her involvement with both the business relationship and the COOL programme, and how this situation was being managed; and
• the CPIT Council to have asked CPIT management more questions about Ms Buck’s connections with BSL, her involvement with the Joint Venture and the COOL programme, and how this situation was being managed.

Recommendations

1. We recommend that CPIT review its conflict-of-interest policies, and that any new or expanded policy or policies:
   • apply to independent contractors to CPIT;
   • are supported by a set of procedures (to assist CPIT managers by detailing the possible mitigation actions that can be adopted for different situations, and the process for agreeing and monitoring the effectiveness of mitigation actions when a conflict of interest has been identified and requires managing); and
   • describe the full range of situations that can give rise to conflicts of interest, such as “passive” interests (i.e. shareholdings) and conflicts of interest that can arise at other than governance level and outside formal meetings.
2. If CPIT retains the conflict-of-interest provisions in the Code of Professional Practice, we recommend that CPIT:
   • revise the applicability criteria of the Code of Professional Practice so that it applies to all independent contractors to CPIT, as well as staff, managers and the Chief Executive;
   • draft procedures for how to comply with the expectations of the Code of Professional Practice; and
   • ensure that, where relevant, contract templates for independent contractors provide for compliance with all CPIT corporate policies, practices, procedures, and codes of conduct.
3. If CPIT retains the Staff Involvement in Outside Activities policy, we recommend that CPIT:
   • revise the applicability criteria of the Staff Involvement in Outside Activities policy so that it applies to independent contractors to CPIT;
   • draft procedures to assist with implementation of the Staff Involvement in Outside Activities policy; and
   • consider requiring CPIT employees and independent contractors to disclose "passive" interests in other entities where those interests could intersect with their CPIT responsibilities.

1: The COOL programme is a suite of 4 courses designed to enhance students’ basic computing skills in using 4 Microsoft® software products: Word, Excel, Powerpoint, and Access.

2: CPIT, as the educational institution, was responsible for delivery of the COOL programme. However, BSL, CPIT and the Joint Venture were all involved in various ways, including marketing the programme. The income from the programme was shared between these 3 parties, in accordance with the Joint Venture Agreement.