National Audit Office NAO

It is important to manage conflicts of interest. Not only can they bring decision -making into disrepute but often the perception of conflict alone is enough to cause concern. This can lead to reputational damage and undermine public confidence in the integrity of institutions.

A failure to recognise a conflict of interest can give the impression that the organisation or individual is not acting in the public interest. More seriously, if left unresolved, some conflicts can result in criminal action, for example fraud, bribery or corruption through abuse of position.

Conflicts of interest can arise from system or policy design. Changes in public service provision have created devolved delivery models. Private or semi-private organisations assess service needs and then, either directly or indirectly, provide the service. For example, GPs could be both commissioners and providers of services for clinical commissioning groups. They are responsible for selecting providers and deciding on spending, while potentially being involved in delivering some of those services.

When the Department of Health planned the reform of the health system in England which occurred in April 2013, it recognised the proposals increased the likelihood of conflicts of interest. But it felt the benefits outweighed the risks, so the Health and Social Care Act 2012 explicitly outlines how to manage conflicts. 3 The design of the reformed system means there is the potential for some GPs to profit personally from the decisions of commissioners, for example by commissioning services from a provider to which they have links.

Academies is another sector where conflicts occur and in some cases, they have not been appropriately managed. Academy trusts are charitable companies limited by guarantee, so must comply with relevant charities and companies law. This legislation includes the requirement that trustees act in the trust’s interest, and disclose all related party transactions in its annual report and accounts. Academies must also comply with the Academies financial handbook. This guidance previously prohibited trustees from ‘benefiting personally’ from their relationship with a trust. However, the new guidance for the year ended 31 August 2014 says all related party transactions should be ‘at cost’, without any profit element.

Local Enterprise Partnerships are another area of potential risk. These were established in 2011 as voluntary partnerships between local authorities and businesses to help lead economic growth and job creation. They decide what the local priorities should be for investment in roads, buildings and facilities in defined areas. Members are drawn from the public and private sector, with the chair coming from business. There has been some media attention questioning the impartiality of funding decisions given the risk that some members have business interests and could benefit personally, for example in planning applications. However, we have not yet looked at this and therefore can not comment on the extent to which there is an issue. The government has developed an assurance framework which sets out how conflicts of interest should be dealt with.

Revenue&Customs Prosecutions Office (example from NAO financial audit)

In 2005 - 06, the Comptroller and Auditor General qualified the accounts of the Revenue and Customs Procurement Office and highlighted procurement irregularities. The chief operating officer had engaged his wife to do a human resource review in 2005 - 06. In 2006 - 07, he made payments to a company owned by his wife of which he was the company secretary. Payments over 2 years totalled £ 97, 907 (including VAT). There were no clear procurement controls (including inadequate separation of duties), no code of conduct and the organisation failed to alert HM Treasury before the transaction. It was also not disclosed as a related party transaction.

Source: Revenue and Customs Prosecutions Offi ce Resource Account 2006 - 07; Select committee on public accounts, Memorandum by the Comptroller and Auditor General updating his reports HC 273 of 2005 - 06 and HC 870 of 2006 - 07, May 2008

Priory Federation of Academies (example from Department for Education investigation)

An investigation into the Federation found a history of employing relatives of staff. The former chief executive officer (CEO) employed his wife at the federation, and also his daughter, son and the former finance director’s son.

The CEO’s daughter was engaged as a consultant from May 2010 to April 2011 at a cost of £ 55, 585. This figure was not declared in the 31 August 2011 accounts as a third party transaction. The investigators were told it was not clear from guidance what constitutes a ‘ close relative’– the trigger for a declaration. His son was employed for 5 months from February 2011 and paid around £ 19,000. His wife was paid £ 6,030 in October 2008 for consultancy.

The CEO resigned and was subject to police investigation in 2012 - 13.

Source: Department for Education. Internal Audit, Investigation Report on Priory Federation of Academies Trust, March 2012.

The BBC reported on the case of a former director general of commissioning at the Department of Health, who in 2009, 3 months after leaving his position, became Global Head of Healthcare at KPMG. Having been responsible for designing ways of commissioning healthcare, the individual then worked for a company that was bidding for many of the contracts resulting from his reforms.

The individual sought advice on his career move from the Advisory Committee on Business Appointments (ACoBA), as he was required to do. The appointment had been approved subject to a 3 - month waiting period and a 12 - month ban on lobbying ministers. His successor at the Department of Health also joined KPMG a year later. He did not have to seek ACoBA approval as he had only served as ‘ acting’Director General of Commissioning. However, the Department gave its approval and imposed the same conditions on him. KPMG went on to win 3 NHS related contracts.

KPMG stated that “ both men had actively observed and fully complied at all times with the restrictions placed on them … KPMG has ensured that neither was involved in contract bids which would have been in conflict with those restrictions. KPMG requires all new joiners to sign a confirmation that they will comply with specific requirements to act with integrity and ensure that conflicts of interest do not occur. These contracts have been awarded via competitive tenders under formal public sector procurement processes. ”

The legislation does not criminalise corporate hospitality or other expenditure which is reasonable and proportionate. It is accepted that this is a recognised and established part of doing business. But in some instances it may be perceived that the real purpose behind the expenditure is to influence an individual in order to secure business or a business advantage.

Transparency is an important part of holding individuals to account for their actions. Since 2010, government has required departments to publish online, information about hospitatlity, gifts, travel and meetings with external organisations for ministers, the most senior officials and special advisors.