Audit of Conflict of Interest Management

Table of Contents

• Executive Summary
• Conformance with Professional Standards
• Introduction
  • Background
  • Audit Objectives
  • Scope
  • Approach and Methodology
  • Authority
• Findings, Recommendations and Management Response
  • Governance and Risk Management
• Controls for Managing Conflicts of Interest
• Appendices
  • Appendix A: Audit Criteria
  • Appendix B: Acronyms

Executive Summary

Conflict of interest (COI) in the federal government is defined as a situation in which a public servant has personal interests or outside activities that could conflict with the performance of his or her official duties and responsibilities. Public servants have a duty to report all real, potential or perceived conflicts of interest and resolve them in the public interest.

Conflict of interest is governed by the Treasury Board (TB) Policy on Conflict of Interest and Post-Employment and the Values and Ethics Code for the Public Sector. Statistics Canada has implemented an agency Code of Conduct that integrates the fundamental values and commitments of the Values and Ethics Code of the Public Sector.

At Statistics Canada, the promotion, implementation and monitoring of conflict of interest is led by an assistant chief statistician, who serves as the integrity and respect champion and by the Director General, Human Resources Branch. To support the objectives of the Code of Conduct, the agency has implemented the Values and Ethics Program. Conflict of interest is an activity within this program.

The objectives of the audit were to provide the Chief Statistician and Statistics Canada's Departmental Audit Committee with reasonable assurance that:

• Statistics Canada has established a governance framework to support the effective management of conflict of interest; and
• Effective control mechanisms for managing conflict of interest are in place and consistently applied to ensure compliance with the Policy on Conflict of Interest and Post-Employment, the Values and Ethics Code for the Public Sector and Statistics Canada's Code of Conduct.

The scope of this audit included an examination of the adequacy and effectiveness of the controls over the management and handling of conflict of interest. The audit conducted an assessment of the management of conflict of interest activities from January 2015 to July 2016.

Why is this important?

The agency faces unique risks due to the nature of the information it collects, processes and reports back to Canadians. Employees in various roles have access to confidential and sensitive information that, if used unethically or released prematurely, could have a direct impact on the outcome of the economy, the competitiveness of private industry and the reputation of the agency. The confidence of the public depends not only on the agency's ability to manage information, but also on the knowledge that Statistics Canada has controls and processes in place to ensure employees conduct their business in an ethical manner, including avoiding situations that could lead to an actual, potential or perceived COI situation.

Key Findings

The conflict of interest program is a part of the agency's Values and Ethics Program. Roles, responsibilities, and accountabilities for the management of conflict of interest within the agency are clearly defined and communicated.

The agency has program activities in place to administer conflict of interest reports and provide employees with information and tools to make disclosures. However, the agency has not taken a risk-based approach to the management of the program. Focusing efforts on higher risk areas would help improve the effectiveness of the program and help ensure that conflicts are resolved in the public interest. A risk-based approach would allow the agency to better monitor and report on the effectiveness of program activities in order to make future program improvements.

Processes and procedures are in place for the identification, reporting and administration of conflict of interest situations. Information and tools on the reporting process are communicated to employees.

Conflict of interest disclosures were processed and decisions were made; however, documentation on conflict of interest files was not always sufficient or complete to substantiate decisions, and demonstrate whether any follow-up was taken to ensure risks to the agency are mitigated. The audit also showed that the time taken to process each conflict of interest disclosure varied significantly and that the agency has not established timelines for processing disclosures.

Overall Conclusion

Statistics Canada has established a governance framework to support the management of conflict of interest. Developing a risk-based approach to the design of program activities would help increase the effectiveness of the program.

Control mechanisms are in place to ensure compliance with the Policy on Conflict of Interest and Post-Employment. The audit showed a need to increase consistency and to strengthen documentation of conflict of interest situations and ensure effective follow-up.

Conformance with Professional Standards

The audit was conducted in accordance with the Internal Auditing Standards for the Government of Canada, which includes the Institute of Internal Auditors (IIA) International Standards for the Professional Practice of Internal Auditing.

Sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the findings and conclusions in this report, and to provide an audit level of assurance. The findings and conclusions are based on a comparison of the conditions as they existed at the time, against pre-established audit criteria. The findings and conclusions are applicable to the entity examined, and for the scope and time period covered by the audit.

Steven McRoberts
Chief Audit and Evaluation Executive

Introduction

Background

Statistics Canada collects, compiles, analyzes and publishes statistical information on the economic, social and general conditions of the country and its people, including conducting a census of population and a census of agriculture. Statistical information has a wide variety of uses and can have a significant influence on economic and social policy and business decisions. Some employees of the agency, through their work on statistical surveys, are privy to this information in advance of public consumption.

Conflict of interest in the federal government is defined as a situation in which a public servant has personal interests or outside activities that could conflict with the performance of his or her official duties and responsibilities. Public servants have a duty to report all real, potential or perceived conflicts of interest and resolve them in the public interest.

The Treasury Board of Canada (TB) Policy on Conflict of Interest and Post-Employment and the Values and Ethics Code for the Public Sector govern conflict of interest. In addition, the agency has set forth a Code of Conduct that integrates the fundamental values and commitments of the Values and Ethics Code of the Public Sector with specific expectations for the behaviour of all Statistics Canada employees. The Code of Conduct states that employees are expected to acknowledge that they have read and understood their obligations to adhere to the requirements contained in the VECPS, Statistics Canada's Code of Conduct, and the Policy on Conflict of Interest and Post-Employment.

To support the objectives of the Code of Conduct, the agency has implemented the Values and Ethics Program. Conflict of interest is an activity within this program.

Conflict of interest is a government-wide issue. In addition to having access to confidential information, public servants are responsible for making important public-service decisions that must be made in the public interest. This includes making employment appointments and the awarding of contracts for goods and services. It is therefore critical that Statistics Canada have a corporate culture in place that includes a sound ethical framework and fosters ethical behaviour in all employees.

Due to the inherent risk of potential conflicts for Statistics Canada's employees, this audit was included in the Integrated Risk-Based Audit and Evaluation Plan 2016/2017 to 2020/2021.

Audit Objectives

The objectives of the audit were to provide the Chief Statistician and Statistics Canada's Departmental Audit Committee with reasonable assurance that

• Statistics Canada has established a governance framework to support effective management of conflict of interest; and,
• effective control mechanisms for managing conflict of interest are in place and consistently applied to ensure compliance with the Policy on Conflict of Interest and Post-Employment, the Values and Ethics Code for the Public Sector and Statistics Canada's Code of Conduct.

Scope

The scope of this audit included an examination of the adequacy and effectiveness of the controls over the management and handling of conflict of interest. Specific areas that were examined include:

• the assignment of roles and responsibilities with respect to the conflict of interest management framework;
• governance, monitoring and reporting of the conflict of interest sub-program;
• assessment of operational risks related to conflict of interest;
• communication/training/sign-off processes in place to remind employees of their obligation; and,
• the business process in place to address and follow up on potential conflicts of interest as they are identified.

The audit assessed the management of conflict of interest activities from January 2015 to July 2016.

The following sub-programs were out of scope and therefore not covered by this audit:

• the management of disclosure of wrongdoing under the Public Servants Disclosure Protection Act;
• the prevention of harassment and discrimination; and,
• informal conflict management.

Approach and Methodology

The audit approach included an examination of relevant documentation, interviews with key management and staff across the organization, and testing. During the examination phase, the audit team reviewed the governance, risk-management and control processes and procedures in place to manage conflict of interest at Statistics Canada.

The testing of a sample of judgmentally-selected confidential reports included:

• a review of the management of conflict of interest disclosures and decisions made;
• communication with stakeholders;
• documentation and record keeping; and,
• follow-up on recommended actions.

This audit was conducted in accordance with the Internal Auditing Standards for the Government of Canada, which includes the Institute of Internal Auditors (IIA) International Standards for the Professional Practice of Internal Auditing.

Authority

The audit was conducted under the authority of the approved Statistics Canada Integrated Risk-Based Audit and Evaluation Plan 2016/2017 to 2020/2021.

Findings, Recommendations and Management Response

Governance and Risk Management

The effective management of conflict of interest at Statistics Canada depends on the awareness and participation of employees, labour relations advisors and management across the agency to ensure that conflict of interest situations are identified, reported and managed. A robust governance and accountability framework is essential to mitigate risks related to conflict of interest.

Policy framework for managing conflict of interest

Guidance and direction for the management of conflict of interest within federal departments and agencies is embedded in two key documents: the 2012 TB updated Values and Ethics Code for the Public Sector (VECPS) and the 2012 TB Policy on Conflict of Interest and Post-Employment.

The VECPS sets out the expectations that public servants uphold the highest ethical standards to conserve and enhance public confidence in the honesty, fairness and impartiality of the federal public sector. In addition, the VECPS states, that, with respect to conflict of interest, public servants shall act, at all times, with integrity and in a manner that will bear the closest public scrutiny. They shall never use their official roles to inappropriately obtain an advantage for themselves, or to advantage or disadvantage others; and shall take all possible steps to prevent and resolve any real, apparent or potential conflicts of interest between their official responsibilities and their private affairs in favour of the public interest.

The TB Policy on Conflict of Interest and Post-Employment sets out departmental responsibilities and expected results for the management of COI. It provides direction and measures to assist organizations and public servants in effectively dealing with real, potential and apparent COI situations that could arise during and after employment in the public service.

Roles, responsibilities and accountabilities for the management of conflict of interest are clearly defined and communicated

At Statistics Canada, conflict of interest, along with disclosure of wrongdoing and political activities is managed by the Values and Ethics program. The program has identified and communicated its objectives for COI and developed a Statistics Canada Code of Conduct (Code). Under the Code, employees are expected to think about the potential impact of their actions and decisions on all interested parties (such as the public, coworkers, subordinates and others), in terms of what is right or wrong, even if it is not prescribed by a legal or regulatory framework.

Roles and responsibilities for the management of conflict of interest are set-out in the Code. The Code notes that the Chief Statistician is committed to ensuring that the Values and Ethics Code for the Public Sector, the Statistics Canada Code of Conduct and the internal disclosure procedures are implemented effectively in the organization.

The Integrity and Respect Champion, who is an assistant chief statistician, promotes awareness of the various programs, provides strategic direction for the development of the conflict of interest program and supports a team of officers in their responsibilities in guiding managers and employees.

The Director General, Human Resources Branch (DGHR) is the senior conflict of interest officer and has been delegated the authority to resolve conflict of interest situations.

Within the Human Resources Branch, the Classification, Labour Relations, Compensation and Regional Services Division manages the Values and Ethics Program, advises management on strategic COI program issues, implements COI program initiatives and action plans, provides training on COI matters and administers COI confidential reports.

All managers at all levels are expected to demonstrate leadership in respecting the Code and its underlying policies. Managers should exemplify the values of the public sector, as they are in a position of influence and authority. They are responsible for fostering a positive culture of values and ethics in their organization as well as ensuring that employees are aware of their obligations under the various instruments.

All employees are expected to acknowledge that they have read and understood their obligation to adhere to the requirements of the Values and Ethics Code for the Public Sector, Statistics Canada's Code of Conduct and the Policy on Conflict of Interest and Post-Employment.

Under the Human Resource Delegation of Authority instrument, the DGHR, in consultation with program management, has the authority to approve COI decisions involving changes to the management of employee assets and outside activities. Decisions are taken following an analysis of risk related to several factors, including the specific duties performed by the individual and their position in the agency, versus the disclosed activity.

COI program activities are in place but have not been developed based on an assessment of program risks

The agency relies on the awareness and diligence of management and employees to identify and report on COI situations. Improvements to the COI program have focussed on ensuring that information, support, administrative processes and tools are available to employees to manage COI.

The TB Policy on Conflict of Interest and Post-Employment requires departments to conduct planned activities for the COI program based on an assessment of operational risks. The Multi-year Values and Ethics Action Plan for 2014/2015 to 2016/2017 included an activity to conduct a risk assessment in the spring of 2016. The audit found that this activity has not yet been conducted.

Interview evidence revealed that the Human Resources Branch has held some preliminary discussions on risks with senior management. These discussions led to the conclusion that there may be higher risks in fields with access to the Business Register system, or to key indicators prior to release to the public. However, no specific actions or targetted controls were developed to mitigate these risks.

The audit noted that another federal government department that handles sensitive financial information has taken a mandatory approach to conflict of interest reporting for potential conflicts. Given the risk that the nature of the sensitive financial information could cause a conflict between personal and professional duties, employees are required to attest annually that they understand the conflict of interest rules at their department. They are also required to disclose whether they directly or indirectly hold any publicly-traded securities (investments) and, if so, to fill out a conflict-of-interest report. A COI report must be filled out whether or not they view the investment as a real, potential or apparent conflict of interest. At Statistics Canada, a COI report is only filled out if a staff member believes there is the possibility of a COI.

Interviews with directors revealed that employees have a strong understanding of their responsibilities with regard to the confidential and sensitive nature of the information they access. However, the relationship between the nature of information and the inherent risk of a potential, apparent or real COI situation is not well understood. Guidance and training specific to the agency may allow employees to better understand, identify, report and mitigate conflicts related to their daily work activities.

The Executive Management Board (EMB), the Human Resources Committee and the Departmental Audit Committee (DAC) provide oversight and management of the COI program. During the fall of 2016, the DGHR made a presentation to the EMB and the DAC on the Values and Ethics Program activities. This presentation also included the Integrity and Respect Framework and the Multi-year Values and Ethics Action Plan.

Information was provided to the EMB and DAC on the number and type of confidential reports received in 2015 and 2016. From January 2015 to July 2016, 58 confidential conflict of interest reports were received: 60% were for outside activities; 24% were for assets; 10% were for both outside activities and assets; and 5% were for relationships. The number of reports made is not compared to any benchmarks from other departments or other defined targets linked to COI outreach activities.

Using a risk-based approach in the design of program activities allows the agency to focus efforts on areas that possess a greater risk for conflict between employee personal interests and employment responsibilities. This may include the implementation of additional training and awareness or the implementation of mandatory reporting requirements for some areas.

Other benefits of a risk-based approach include making efforts to increase the likelihood of reporting and resolving COI situations in the public interest before they have an impact on the agency's operations and reputation. This approach may also decrease the risk of future conflicts at the agency as employees have the opportunity to make decisions regarding their outside activities with full awareness of how it could conflict with their employment.

Finally, a risk-based approach would help the agency to better assess and monitor the performance of program activities. The TB Policy on Conflict of Interest and Post-Employment requires the Chief Statistician as the deputy head to monitor and report on the performance of the organization in preventing and effectively managing real, apparent or potential conflicts of interest in favour of the public interest. Targetting activities to specific areas and analyzing trends in COI reporting provides the agency with information on whether activities are effective in preventing and managing COI and may lead to program improvements.

Recommendations:

It is recommended that the Assistant Chief Statistician, Corporate Services and Chief Financial Officer ensure that:

• program activities are designed and implemented based on an assessment of operational risks, and that there is periodic monitoring and reporting on the effectiveness of these activities.

Management response:

Management agrees with the recommendations.

• The Human Resources Branch, in consultation with senior management, will conduct an evaluation of COI risks throughout all of Statistic Canada's program areas and identify targetted activities and a monitoring schedule to review the effectiveness of these activities
• Deliverables and timeline: The Director, Classification, Labour Relations, Compensation and Regional Services Division will develop a COI-risk matrix, identify different levels of risk for different COI activities, and include the monitoring requirements of different risk activities by December 2017.
• The Human Resources Branch will conduct a review of resources to ensure that there is an appropriate number of resources tasked with covering COI program activities.
• Deliverables and timeline: The Director, Classification, Labour Relations, Compensation and Regional Services Division will review the resources required to sufficiently deliver COI program activities by June 2017.

Controls for Managing Conflicts of Interest

The agency has identified and communicated processes and procedures for the identification, reporting and administration of COI situations

The TB Policy on Conflict of Interest and Post-Employment requires employees to be educated in matters of COI. Training and promotion of information help bring awareness to employees of situations that could lead to conflict of interest. Clear and easily accessible documentation, guidelines and tools are essential for employees to identify and report COI situations and obtain assistance in managing such issues.

Education on conflict of interest at Statistics Canada has focused on providing all employees with information on their responsibilities with respect to COI reporting requirements at various points in their career. Upon joining the organization, employees must acknowledge that they understand Statistics Canada's Code of Conduct requirements of the COI program, and their values and ethics responsibilities are reinforced by the mandatory course “Orientation to the Public Service” offered by the Canada School of Public Service. During yearly performance management discussions, employees must acknowledge the Values and Ethics Code for the Public Sector. Census employees were also presented with information on their values and ethics responsibilities at the start of the last census cycle. Upon cessation of employment with Statistics Canada, employees are required to complete an electronic questionnaire, which reminds them of their responsibilities under the TB Policy on Conflict of Interest and Post-Employment.

In addition, there are annual reminders sent to all employees regarding COI responsibilities and, from time to time, information is sent out on potential COI situations such as the receipt of hospitality, gifts and other benefits from outside parties.

Guidance and tools related to the management of COI can be easily found on the Internal Communications Network, and procedures and processes are in place to assist employees in identifying, reporting and managing COI issues. Information is provided to guide employees in reporting on COI situations, including templates that describe outside activities and assets that may cause a potential conflict with their professional duties. Information is also available on post-employment measures, TB policy requirements, and key contacts within the agency for any questions.

The audit found that processes and guidelines for the administration of COI reporting across the agency are clear and well defined. Employees are informed that confidential reports are to be reviewed by their director and the departmental COI officer, and that a determination will be made whether or not a COI exists. The labour relations advisor provides guidance and recommendations. A formal response indicating the outcome of the review will be provided to the employee. Should it be determined that a real, apparent or potential conflict of interest exists, the employee will receive direction on appropriate actions that must be taken to ensure the identified type of COI is mitigated or eliminated.

Conflict of interest disclosures are processed and decisions are made; documentation to substantiate that the agency process was followed was incomplete

COI activity reports should clearly identify the COI situation and the steps taken to determine whether a conflict exists. Decisions should be made and communicated to employees in a timely manner. Where a conflict exists, processes should be in place to follow up and determine whether the employee has taken the appropriate action to resolve the conflict.

The documented process for confidential reports is as follows. An employee will fill out a confidential report and send it to the Classification, Labour Relations, Compensation and Regional Services Division. A labour relations officer will analyze the report. This analysis may include further discussions with the employee in order to gain more insight into the potential conflict. Finally, upon consultation with the employee's managers, a determination is made on whether or not a conflict exists. If no conflict exists, this information is communicated to the employee.

If a conflict or potential conflict exists, a standing panel is convened that may include senior management of the respective program area, the Director General, Human Resources Branch and the labour relations officer. This standing panel will make the final decision about how the to mitigate the risk of conflict, which may include ceasing outside activities or divesture of assets. The decision is communicated to the employee and the employee's manager. Evidence is requested to substantiate that the employee has completed the recommended actions.

The audit team reviewed a sample of 17 confidential reports out of the 58 submitted between January 2015 and July 2016 to determine whether the proper steps were followed in accordance with the agency process. Among the files, 12 came from employees in the National Capital Region and 5 files came from employees residing in the regions. COI decisions were made for all of the 17 files, however, evidence on file was not always sufficient to determine how decisions were made, communicated and followed up.

In 3 of the 17 files reviewed, there was no evidence on file that the final decision was communicated to the employee and the employee's manager. In two of these cases, a COI was found to exist and there was no evidence that follow-up was conducted to substantiate that the employee had mitigated the conflict. Without effective communication and follow-up, the agency cannot confirm that the employee has taken all the necessary actions required to mitigate risks to the agency.

In addition, the agency does not have service standards for the time taken to render COI decisions and the audit found that the time taken for the reports examined varied significantly. According to the sample that was reviewed, the time taken to make a decision varied from 5 days to 113 days. COI decisions should be made in a timely manner in order to ensure that conflicts are resolved before risks materialize.

In 11 files that were reviewed, there was insufficient evidence, such as records of decision on file, to support the decision. Of these files, 5 came from the regions where no evidence was kept on COI decisions made. The reporting process for regional employees is different from the process used at headquarters. Through interviews, the audit found that COI confidential reports originating from regional offices are managed by regional HR managers with the support of head office labour relations advisors. Testing showed that head office labour relations advisors were not consulted on these files. An email was sent to the regional HR managers recently to remind them of their responsibilities in this regard.

Interviews with labour relations advisors indicated that they respond to, but do not log, informal COI inquiries. Informal requests are a good source of information on potential COI issues at Statistics Canada and should be tracked to identify potential COI trends for future training, outreach and communication activities.

Recommendations:

It is recommended that the Assistant Chief Statistician, Corporate Services and Chief Financial Officer ensure that:

• all decisions made on COI reports are effectively substantiated, communicated and followed up on with employees and their immediate supervisors; and,
• a service standard is developed for the timeline to process COI reports.

Management Response:

Management agrees with the recommendations.

• A checklist will be developed and placed on each file to ensure that all steps in the process are followed and acted upon.
• Training on process will be provided to labour relations practitioners.
• Templates for each type of action will be developed.
• Service standards for making COI decisions and responding to employees will be developed and communicated to staff. These will be divided into simple or complex cases, and will be monitored and reported on annually.

Deliverables and timeline: The Senior Labour Relations Advisor, Classification, Labour Relations, Compensation and Regional Services Division will:

• develop a file checklist to ensure that all steps in the process are followed and acted on by June 2017;
• implement the training program and provide it to labour relations advisors by September 2017; and,
• develop templates for type of action by September 2017.

The Director, Classification, Labour Relations, Compensation and Regional Services Division will:

• Develop a service standard for the timeline to process COI reports by June 2017.

Appendices

Appendix A: Audit Criteria

Appendix B: Acronyms