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Why A Conflict Of Interest Declaration Is Crucial For Protecting Your Business

Date Published: October 26, 2020 | Last Updated: January 25, 2024 | By Khai Ngo

conflict of interest declaration is an essential tool in ensuring that everyone involved in discussions or decisions regarding your organisation is serving in the best interest of the business.  

Recently, it was revealed that the Federal Coalition government was aware of a conflict of interest of staff involved in the $30m land purchase near Western Sydney Airport but failed to act upon it. Despite making self-declared conflicts of interest, it was found that six staff were involved with one particular adviser that was permitted to continue to work on the project despite declaring a conflict of interest.

The result? A piece of land known as the Leppington Triangle being sold for $26.7m more than what it’s valued (at the taxpayers’ expense).

While all staff did declare conflicts of interest, failure to act on this was equally detrimental, with negative exposure of the program and in this case, the government, for not appropriately identifying and addressing this conflict.

This is one of many types of conflicts of interests that businesses and organisations often find themselves at risk of.

By implementing conflict of interest declarations and making them a regular part of your organisation’s screening practices, you can have peace of mind that everyone is doing their best to make non-biased and informed decisions.

What is a Conflict of Interest?

A conflict of interest can exist when it’s likely that an employee could be influenced, or could be perceived as being influenced, by their personal interests while they’re carrying out their duties.

There are three types of conflicts of interests:

  1. Real – where there is a direct conflict between current personal interests and everyday official duties.
  2. Apparent – where it could be perceived that an individual’s personal interests are having an improper influence on official duties, regardless of whether or not this is the case.
  3. Potential – where personal interests are not currently but could potentially come into direct conflict with official duties.

Conflicts of interest are relatively common and don’t always become a problem, as long as they’re managed properly. 

However, if a conflict of interest isn’t appropriately managed, then it could potentially damage the reputation of your organisation and even potentially breach laws in severe cases.

It’s important to remember that a conflict of interest doesn’t just concern the parts of an individual, but also those of immediate family members. This means that employees need to disclose any private, financial or other interests of any of their immediate family (which includes spouses or partners and children). 

Any conflicts can be disclosed by filling out a conflict of interest declaration form and submitting it to your organisation. An example of a Conflict of Interest declaration form used by the Commonwealth Ombudsman.

Why Do You Need a Conflict of Interest Declaration?

A conflict of interest declaration is an easy way to ensure that your organisation’s integrity is maintained and that there is no bias in your decisions.

Regardless of the nature of an organisation, integrity must be maintained to ensure trust between the organisation, its customers and society. 

Furthermore, conflict of interest declarations demonstrates your organisation’s efforts to promote transparency and ensure the way you operate is above board.

Some Examples of When a Conflict of Interest Declaration Would Be Needed

There are a few different situations that would require an individual to submit a conflict of interest declaration. Here are a few examples:

  • When an employee is dealing with a complaint and their partner/spouse is a decision-maker in the organisation that’s being complained about. For example, an auditor has a spouse working in a company that you’re currently auditing. This relationship could influence the outcome of the audit.
  • When an employee has a strong social and personal relationship with the area within the organisation, this could be seen as a conflict of interest. For example, the spouse of a manager applies for a position in the same organisation where this manager has the ability to influence the hiring decision.
  • When an employee is dealing with an organisation in a private capacity, for any reason, they should be cautious of their involvement with any complaints being made about that organisation. For example, an individual may use a particular accounting firm for their personal finances, and this accounting firm has recently been engaged to look after the organisation’s finances.
  • Bias could be seen as a conflict of interest when an individual has particular views surrounding a subject which could mean that they don’t have an open mind to specific situations. For example, an individual may have a bias towards public achievements, particularly in the clinical research industry. These types of biases that can influence research design and the retention of research participants that can detrimentally affect the integrity of projects.

How to Manage a Conflict of Interest

While it’s better to avoid conflicts of interest altogether, this isn’t always possible and means that sometimes the conflict of interest needs to be acknowledged and managed in a way that a third party would be happy with.

Each case needs to be assessed individually as the circumstances surrounding any conflict of interest will be different.

There is a whole range of options for management, but here are some recommended actions:

  • The duties of an employee could be adjusted or altered so that they no longer carry out any roles that could put them in a position where there is a direct conflict of interest.
  • Allow the employee to continue in their role, but put in place safeguards which address any real or apparent conflict of interests.
  • In extreme situations, employees could be asked to dispose of financial interests.

The conflict of interest should be reported if an employee does submit a conflict of interest and it requires a management strategy or if their disclosure could raise concerns about codes of conduct and potential breaches.

When in doubt, it’s always best to report any potential conflicts and refer to your own company’s conflict of interest policy. A great example of a conflict of interest policy is the Commonwealth’s Ombudsman’s guidelines for APS employees. 

Steps to Be Taken

  1. The first step is to cease any further interaction of an employee with an organisation once a conflict of interest arises.
  2. A complaint (that is neutral) should be recorded with the employee’s supervisor that includes the reasons for the conflict of interest, even if it is only apparent or potential.
  3. The duties regarding the conflict of interest should be transferred over to another employee who doesn’t have any conflicts, via their supervisor.
  4. The individual with a conflict of interest should make sure that they don’t make any comments or get involved in any conversations with other employees regarding the situation that they’ve been removed from. This could create bias with the other employees.
  5. A conflict of interest declaration needs to be completed and submitted to make sure that everything gets reported officially.
  6. Suppose an employee is confident that they can stay neutral and have an open mind, despite a conflict of interest. In this scenario, the best approach is to have a discussion with the managers involved to work out whether any action needs to be taken. There should be a record of the discussion, and a conflict of interest declaration should be completed anyway.

How to Minimise Conflict of Interest

  • Check your organisation’s rules and any guidelines that could apply to your organisation to make sure you understand your obligations surrounding conflicts of interests.
  • Make sure that your organisation has a written conflict of interest policy and that all staff and board members appropriately understand the policy.
  • Try and create a culture that encourages staff to disclose any conflicts not only when they join the organisation, but that it is also a regular agenda item so that its information can be kept up to date as new clients and employees are introduced.
  • Ask if there are any conflicts to be disclosed in every board meeting. Ensure minutes are accurately recorded, and in particular, have a record on the voting process and results.
  • Consider whether an auditor would think that you or any staff were acting in the best interest of your organisation or yourself. If there is any doubt at all, it’s best to submit a conflict of interest declaration.
  • Staff may not automatically be removed from the situation if they have a conflict of interest. Hence, businesses need first to encourage staff to declare it to allow the organisation to determine if a conflict of interest exists.

Key Takeaways When It Comes to a Conflict of Interest Declaration

It’s crucial to maintain transparency and integrity in any organisation.

A conflict of interest declaration is necessary to ensure the duties of an individual are carried out appropriately and not to the detriment of a fair outcome.

By creating a culture that encourages employees to declare any potential conflicts, you can significantly reduce the risks in your organisation.

At Accurate Background, we are experienced in recommending when a conflict of interest declaration may be necessary. Get in touch to find out when and how this may be applicable for your organisation.