CORRUPTION AND INTEGRITY IN THE NSW PUBLIC SECTOR: an assessment of current trends and events DECEMBER 2018 This publication is available on the Commission’s website www.icac.nsw.gov.au and is available in other formats for the vision-impaired upon request. Please advise of format needed, for example large print or as an ASCII file. ISBN 978-1-921688-83-6 © December 2018 – Copyright in this work is held by the Independent Commission Against Corruption. Division 3 of the Copyright Act 1968 (Cwlth) recognises that limited further use of this material can occur for the purposes of “fair dealing”, for example study, research or criticism, etc. However if you wish to make use of this material other than as permitted by the Copyright Act, please write to the Commission at GPO Box 500 Sydney NSW 2001. Level 7, 255 Elizabeth Street Sydney, NSW, Australia 2000 Postal Address: GPO Box 500, Sydney, NSW, Australia 2001 T: 02 8281 5999 1800 463 909 (toll free for callers outside metropolitan Sydney) TTY: 02 8281 5773 (for hearing-impaired callers only) F: 02 9264 5364 E: [email protected] www.icac.nsw.gov.au Business Hours: 9 am–5 pm Monday to Friday CORRUPTION AND INTEGRITY IN THE NSW PUBLIC SECTOR: an assessment of current trends and events DECEMBER 2018 Contents Foreword 4 Chapter 4: Incentives, cues and motivations 22 Executive summary 5 The Commission’s observations 23 Soft signals and behaviour 23 Chapter 1: Introduction 8 Success fees and commissions 25 Using this report 8 What to do about it 25 Chapter 2: Setting the scene – whole-of- Chapter 5: Speaking up 26 government trends 9 Facts and figures 26 Nature of the public service 9 Emerging issues 27 Blurring of lines between public, private and Observations from Commission investigations 29 not-for-profit sectors 10 Investigating complaints 30 Constrained markets 10 Better practice tips 31 Organisational change 10 Legislative and regulatory developments 12 Chapter 6: Conflicts of interest 32 Private sector attitudes to ethics and corruption 13 Observations about practices 32 The decline of cash 13 Identifying and managing a conflict of interest is Open government and commerce 13 challenging 33 The gig economy 14 Areas for attention 34 Technology 14 Cybercrime 14 Chapter 7: Undue influence on decision- making 39 Evidence from Commission investigations 39 Chapter 3: Australia and NSW in perspective 16 Observations about lobbying 40 Techniques used by vested interests 41 Australia’s report card 16 Fabricated news and disintermediation 43 Other states 19 Snapshot of the NSW public sector workforce 19 Other NSW data 20 Systemic issues 20 2 © NSW ICAC Corruption and integrity in the NSW public sector: an assessment of current trends and events Chapter 8: Human resources 44 Appendix 1: Methodology 73 Corruption risks in the recruitment process 44 Employment screening 46 Appendix 2: Systemic issue categories 75 Use and oversight of contingent workers 47 Applying to individuals 75 Payroll fraud issues 48 Applying to business units or organisations 76 Behavioural red flags 48 Applying to organisational processes 77 Chapter 9: Procurement and contract Appendix 3: Public sector spending, management 50 revenue and assets 78 Getting the basics wrong 50 Key changes in the nature of government procurement 51 Appendix 4: Commission operations 79 Innovation 52 Appendix 5: Endnotes 81 The cost of participating in procurement processes 54 New and emerging themes 54 Chapter 10: Regulation and accreditation 62 The regulator lacks independence 62 Inadequate oversight 66 Regulatory discretion 67 Chapter 11: Non-government organisations 68 Regulatory framework for NGOs 68 Other recipients of government funds 69 Challenges to managing NGOs 72 Complaints about NGOs 72 Summary of corruption risk in NGOs 72 © NSW ICAC Corruption and integrity in the NSW public sector: an assessment of current trends and events 3 Foreword This report by the NSW Independent Commission Against Corruption (“the Commission”) is an important addition to its body of corruption prevention work. It describes the state-of-play with regard to both corrupt conduct, and conduct that is conducive to corruption in the NSW public sector. All NSW public sector agencies should take a zero-tolerance approach to corruption and serious misconduct that is uncovered in the workplace. Ideally, however, agencies should be equally committed to preventing misconduct or, at the very least, building a workplace climate that is resistant to misconduct in all its forms. Agencies should also be fostering a climate of integrity and accountability. This report assists this objective by identifying areas that are susceptible to corruption and describing relevant prevention tips, red flags and case studies. By global standards, NSW is rightly regarded as not having a significant level of public sector corruption. Citizens can go about their regular dealings with government; safe in the assumption that they will not have to pay or offer a bribe for services they require. But, despite this sanguine assessment, the Commission retains a significant caseload of investigations, and reported incidents of corrupt conduct continue to attract a high level of public concern. As this report indicates, there can be no room for complacency. If systemic and operational weaknesses are not addressed, corruption can take hold and cause significant damage to an agency’s finances, productivity and reputation. The issues, examples and suggestions contained in this report will assist agencies to target the areas of greatest risk. We encourage all public sector executives and employees in integrity roles to read this report. The Hon Peter Hall QC Patricia McDonald SC Stephen Rushton SC Chief Commissioner Commissioner Commissioner 4 © NSW ICAC Corruption and integrity in the NSW public sector: an assessment of current trends and events Executive summary As the NSW Independent Commission Against misconduct. The report notes that, in many situations, Corruption (“the Commission”) nears its 30th year of an agency’s workplace climate can create the operations, it is timely to take stock of the nature of preconditions for misconduct; that is, poorly designed corruption and integrity in the NSW public sector. processes and perverse incentives can lead to unintended consequences. This report does just that – in effect, it is a scan of the contemporary factors that contribute to corruption and This chapter examines some of the key performance other serious forms of misconduct. It also canvasses indicators, targets or rules that might encourage a number of emerging trends, hotspots, case studies misconduct. It also outlines some basic advice and notable practices that have been brought to the for agencies to consider when designing Commission’s attention. performance indicators. For agencies to understand their vulnerabilities, it is Chapter 5 deals with the issue of speaking up and useful to have an overall understanding of the shifting reporting misconduct. Reporting by whistleblowers public sector landscape. remains the number one method for detecting corruption. However, the pervasive nature of social In chapter 2, the report highlights: media and other technologies means that it is becoming increasingly easy – and socially acceptable • changes in the way government services are – to broadcast complaints or opinions about delivered (for example, commissioning and behaviour. Agencies therefore need to be aware that contestability reforms and the blurring of lines complaints about misconduct may not necessarily between public, private and not-for-profit arrive via conventional reporting channels. sectors) The chapter also lists some of the common • risks associated with poorly executed change mistakes that agencies make when managing management, which, in the Commission’s internal complaints, such as failing to incorporate experience, can be associated with an increase whistleblower protection measures in an investigation in the risk of corrupt conduct plan and disregarding information that arrives via • the impact of technological, legislative and unofficial channels. social change. Chapter 6 addresses conflicts of interest that continue On global measures of corruption, integrity and to be a source of many complaints to the Commission. transparency, Australia generally sits within the top In particular, concealed conflicts of interest are often 10% of countries. Nevertheless, Australia is just one correlated with complaints about procurement and of eight countries that has experienced a statistically recruitment activities, compliance and regulatory significant fall on Transparency International’s functions and the development application process. Corruption Perception Index. Chapter 3 provides further information on Australia’s ranking across a The chapter also points to the potential for the range of integrity measures. gig economy to aggravate risks associated with secondary employment and the potential for social The Commission’s analysis of contemporary media to change the way in which conflicts of interest investigation reports also points to a number of are detected. systemic factors that are associated with the incidence of corrupt conduct. Some of the factors that stand out Finally, this chapter also sets out some of the common include poor management of information, unfettered practices and rationalisations used by conflicted discretion or authority and governance failings. The individuals to justify their failure to make a full analysis suggests corruption prevention