Summary

We carried out a performance audit that looked at how conflicts of interest are dealt with in each of the three Auckland District Health Boards (the Auckland DHB, the Counties Manukau DHB, and the Waitemata DHB).

The nature of conflicts of interest

Our approach to assessing the management of conflicts of interest is derived from a wide range of New Zealand and overseas sources of guidance, and is set out in our recent guidance publication Managing conflicts of interest: Guidance for public entities.

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.

However, in a small country like ours, conflicts of interest in our working lives are natural and unavoidable. The existence of a conflict of interest does not necessarily mean that someone has done something wrong, and it need not cause problems. It just needs to be identified and managed carefully.

Conflicts of interest in DHBs

For DHBs, there are some statutory rules that apply to board and committee members, especially for meetings. In particular, a member who has a conflict of interest in a matter must make a disclosure that is recorded in the minutes and in a register. The member must not take part in the relevant deliberation or decision (unless the statutory partial waiver power is used).

Managing conflicts of interest can be especially difficult in DHBs. Several types of conflict of interest are quite specific to - and widespread within - the DHB sector, and are not always easy to manage. In part, this is because of three structural characteristics of the sector:

• Many board and committee members (especially elected members) may have those roles because they have a strong personal or professional interest in the health system, perhaps through operating or working for an organisation that receives funding from a DHB.
• Commercial product suppliers, especially pharmaceutical companies, are widely regarded as having a strong influence on the health system.
• Many senior clinicians, particularly specialist doctors, work part-time in the public sector (that is, as an employee of a DHB) and part-time in private practice.

These characteristics give rise to a number of situations or risks where interests may come into conflict. We encountered these frequently during our audit. In such situations, it is often not easy to decide where to draw the line between acceptable and unacceptable behaviour.

Policies and procedures

The three Auckland DHBs all have policies and procedures for staff that were specifically about managing conflicts of interest, and have had them for several years. The overall approach of the three Auckland DHBs is fairly similar, and in some areas their policy content is identical. The policies contain detailed examples and guidance about particular scenarios that could arise for DHB personnel. The policies and procedures could be enhanced by including further information or criteria for managers on how to assess the seriousness of a conflict of interest when it arises. In general, we were pleased with the content of the DHBs’ policies for staff , and satisfied that the policies do not require significant change.

Different conflict of interest issues can arise for members. In our view, it would be helpful for the Auckland DHB and the Counties Manukau DHB to develop a policy or other written guidance material about conflicts of interest that is aimed specifically at members.

All of the DHBs operate interests registers for board members and for senior staff. Most of the disclosures we saw recorded in the DHBs’ interests registers were of interests, rather than conflicts of interest. Using an interests register to record general ongoing interests is legitimate and helpful. However, DHBs are required to use the register to record members’ conflicts of interest.

Dealing with conflicts of interest in practice

Administrative and other staff in the DHBs who were most often likely to consider conflict of interest issues demonstrated a good understanding of conflicts of interest. The understanding of members, and of other managers and staff in operational departments, was variable.

Administrative staff took conflict of interest issues seriously when such matters came to their attention. They were sensitive to risks to the organisation, and we saw examples of cautious and sensible judgements about conflicts of interest. We saw very few examples of serious breaches of rules or expectations.

Other than routine written declarations of interests, we found that conflicts of interest were often dealt with orally. There was usually very little documentation.

We expected to see more documented examples of how particular conflicts of interest were managed, because good record-keeping assists risk management.

The distinction between interests and conflicts of interest is not always understood. Sometimes, after an interest or conflict of interest had been disclosed, DHBs did not always consider whether and how the situation should be assessed and managed. Many of the conflict of interest issues that are inherent in, or common throughout, the sector were well known but were often considered to be “too hard” to deal with. For example, although members were good at declaring their interests, it was not always clear that in meetings they considered whether those interests came into conflict in particular matters. This was particularly the case at the Auckland DHB and, to a lesser extent, at the Counties Manukau DHB. DHBs must ensure that they identify specific conflicts of interest at meetings, and that the affected members do not then participate in that particular matter unless the formal waiver procedures are used.

Because of the size of the DHBs, it was difficult for administrative staff to be confident that they were aware of all issues that might arise throughout the organisation, or that all people within the organisation complied with the relevant policies or expectations when a conflict of interest issue arose. Therefore, people we spoke to did not think it was possible to have complete assurance that all conflicts of interest were being identified and managed properly.

All of the DHBs’ conflicts of interest policies relied, at least to some extent, on the manager of the affected individual to make decisions about how to deal with conflicts of interest, rather than having all matters referred to a single or central decision-maker. Such managers may not have a great familiarity with the relevant policies. We consider that the DHBs could do more to raise awareness of how to manage conflicts of interest under their policies, especially among managers in operational departments.

Leadership, governance, management, and overall culture

The three Auckland DHBs all consider themselves to be highly ethical and conscientious organisations. They pride themselves on their organisational values. People at the DHBs have a strong professional understanding and acceptance of general values around ethics and integrity.

At both the Counties Manukau DHB and the Waitemata DHB, we formed the overall view that the chairpersons and chief executives were attentive to conflict of interest matters. Also, both the Counties Manukau DHB and the Waitemata DHB had administrative staff who took a proactive role in such matters.

By contrast, at the Auckland DHB it was not apparent to us that the board made any significant attempt to engage with conflict of interest issues. Such matters did not appear to have a high profile at meetings, and the board often did not consider whether particular members needed to be excluded.

Overall, people we spoke to at the Auckland DHB were not always clear who they should go to for advice about conflicts of interest. In our view, the Auckland DHB should assign a key administrative staff member or team the responsibility of leading, fostering, and co-ordinating the management of conflict of interest issues.

Some general lessons for dealing with conflicts of interest

Many public entities have interests registers to record various types of common and ongoing interests that might give rise to a conflict of interest in the future, and sometimes to record actual conflicts of interest that have been identified. This is reasonable, but DHBs need to be clear whether it is an interest or a conflict of interest that is being recorded.

Disclosing interests generally can be a useful precursor to disclosing and managing conflicts of interest in particular cases. However, it is not a substitute for doing so. In particular, the statutory requirements for members require them to declare and record conflicts of interest.

Interests cannot usefully be assessed in the abstract. It is necessary to consider whether the personal interest could affect or be affected by the matter that is before the DHB. Conflicts of interest are best assessed case by case. People may be connected to a matter in different ways, but sometimes it will be necessary to consider whether a possible connection is too remote or insignificant to realistically amount to a conflict of interest at all. Even if it is recognised as a conflict of interest, it may or may not be particularly serious.

The three DHBs have largely not taken advantage of the statutory waiver power that would enable them to make limited use of the knowledge and expertise of conflicted members. In our view, they might find it useful to do so. This power gives DHBs a flexibility that many other public entities do not have.

Risks of conflicts of interest in major contracts are not limited simply to the people who are on the evaluation panel or who are controlling the contracting process. Nor are they limited to the stages of formally assessing, recommending, and awarding a particular contract to a tenderer. They may arise at much earlier stages.

To say that there is a conflict of interest, and that it needs to be managed, is not an indication of a lack of trust or faith in the member or official concerned.

Conflicts of interest are sometimes natural, unavoidable, and inevitable (and to a considerable extent they are inherent in the DHB sector). Identifying and managing a conflict of interest is usually not about questioning the sincerity of an individual’s motives or intentions. Rather, what is important is being able to show that public decision-making is fair and sound.

None of our comments should be taken to mean that DHBs cannot involve people who have experience, knowledge, connections, or contacts with other organisations. Nor does it mean that members and staff cannot have other commercial relationships with their DHB. However, DHBs need to recognise that, because of this, there may sometimes be particular matters in which people should not be involved or should be involved in a limited way.

Our recommendations

We recommend that:

1. the three Auckland District Health Boards include in their conflicts of interest policies further information or criteria for managers about how to assess the seriousness of a conflict of interest to help managers decide what, if anything, needs to be done about particular conflicts of interest;
2. the Auckland District Health Board adopt a policy on conflicts of interest specifically to assist members;
3. the Counties Manukau District Health Board adopt a policy on conflicts of interest specifically to assist members;
4. the three Auckland District Health Boards take further steps to enable managers in operational departments to understand and apply the organisation’s conflicts of interest policies;
5. the Auckland District Health Board identify and record conflicts of interest of members for particular matters that arise at meetings, so that it is clear when a member should not participate in a specific matter (or when the formal waiver procedures may need to be considered);
6. the Counties Manukau District Health Board identify and record conflicts of interest of members for particular matters that arise at meetings, so that it is clear when a member should not participate in a specific matter (or when the formal waiver procedures may need to be considered); and
7. the Auckland District Health Board assign an administrative staff member or team the responsibility of leading, fostering, and co-ordinating the organisation’s management of conflict of interest issues.