Internal Audit Report - Conflict of Interest

1.0 Objectives, Scope, Approach and Criteria

1.1 Objectives

The objectives of the audit were to review, assess and report on:

• the current level of compliance with CIHR's Conflict of Interest Policy; and,
• the consistency of the policy with the spirit and intent of the Values and Ethics Code for the Public Service of Canada.

1.2 Scope

The audit was limited to the verification of the adequacy of the controls in place for effectively applying CIHR's Conflict of Interest Policy. In addition, a comparative analysis of the current policy with the Values and Ethics Code for the Public Service of Canada was completed to verify consistency with its spirit and intent.
The audit did not include an assessment of the effectiveness of decisions made in regards to disclosures of conflicts of interest nor the corrective actions taken.

1.3 Audit Approach

The methodology followed in carrying-out the audit included the following:

• examining the CIHR's Conflict of Interest Policy as well as other related CIHR's documentation such as the document entitled "Confidentiality and Privacy Issues in Peer and Relevance Review" and the Policy on the Offer, Acceptance, or Solicitation of Gifts, Hospitality, Honoraria and Other Benefits.
• reviewing the Values and Ethics Code for the Public Service issued by Treasury Board;
• conducting interviews and consultations with CIHR's Legal Counsel, Corporate Secretary and selected employees from the Human Resources Branch, Modern Management Office, Records Management, Knowledge Creation Program Delivery and Research Capacity Development units. The selection of the interviewees was based on their knowledge of the processes and their involvement in applying the Conflict of Interest Policy's measures;
• documenting and analyzing procedures followed within the organization for identification, assessment and mitigation of conflict of interest disclosures; and,
• reviewing the Confidential Reports maintained on file for all employees.

1.4 Audit Criteria

In order to satisfy the above objectives, the following criteria were used:

• there are clear lines of accountability concerning the application and management of the Conflict of Interest Policy;
• there are satisfactory policies and procedures to prevent or resolve conflict of interest situations;
• effective systems and controls are in place to make sure that the best effort has been deployed to encourage employees and non-employees to identify real, perceived or potential conflicts of interest;
• there is adequate documentation to support conflict of interest assessment and mitigation;
• proper guidelines are available to employees to help them identify real, perceived or potential conflicts of interest situations;
• annual training sessions or reminders are in place to inform employees of the policy provisions and to collect information on conflicts of interest should these arise;
• CIHR's policies and procedures are consistent with the Values and Ethics Code for the Public Service; and,
• conflict of interest disclosures are secured in a central repository, and treated in complete confidence, in accordance with the Privacy Act.

2.0 Background

Confidence in government is embedded in trust and trust is fostered in government when it meets the Canadian public's expectations for fair and effective public service through ethical and transparent activities. As a result, codes of ethics and professional conduct in the Canadian government have been in place in one form or another since 1973, and the latest initiative was the issuance, in 2003, of the Values and Ethics Code for the Public Service by Treasury Board of Canada Secretariat in the purpose of setting the values and ethics of public service to guide and support public servants in all their professional activities.

CIHR has a responsibility to help its employees and non-employees identify real, perceived or potential conflict of interest situations so that appropriate actions can be taken. For the purpose of this report, "non-employees" refers to any individual who is a member of the following: Governing Council and its Standing Committees, Scientific Directors, Institute staff excluding Ottawa Based Institute Staff (OBIS), Institute Advisory Boards and Peer Review Committees.

By addressing conflicts in a responsible manner, the integrity of CIHR, its employees and non-employees can be upheld. The CIHR's Conflict of Interest Policy was approved by the Governing Council in June 2000 and applies to Members of CIHR's Governing Council, officers and staff members of CIHR; it also includes the Institutes, the Advisory Boards and the Scientific Directors of Institutes.

The policy defines a conflict of interest as being a situation where an individual, or the organization he or she represents or has an interest in, has a real, perceived or potential, direct or indirect competing interest with CIHR's activities. This competing interest may result in the individual, or others related to them or entities in which they have an interest, being in a position to benefit from the situation or in CIHR not being able to achieve a result which would be in the best interest of CIHR. 

In addition to the corporate policy, there are different types of documents within CIHR which relate to conflicts of interest. They include:

1. The Policy on Conflict of Interest, Confidentiality and Privacy Issues in Peer and Relevance Review (CCIP) which applies to Scientific Directors, Assistant Directors and Institute staff, members of Governing Council and its Standing Committees and members of the Institute Advisory Board. CCIP has the objective of addressing issues of conflict of interest and implementing the laws of the Privacy and Access to Information Acts in regards to the information entrusted to CIHR by applicants to research funds.
2. Policy on the Offer, Acceptance or Solicitation of Gifts, Hospitality, Honoraria and other Benefits with the objective of ensuring that the objectivity and impartiality of CIHR employees or the integrity of the government are not compromised by the acceptance, offering or solicitation of gifts or other benefits.
3. CIHR Peer Review Process - Policies and Responsibilities of Grants Committee Members and CIHR Peer Review Process - Policies and Responsibilities of Awards Committee Members. These documents outline the responsibilities of Grant and Awards Peer Review Committees' members as well as CIHR's procedures that reviewers, Chairs and Scientific Officers must follow in conflict of interest situations.

3.0 Key Risk Factors

As Canada's premier health research funding agency, CIHR must ensure that there is segregation between the decision-making about funding activities and the activities of its non-employees and employees that may be involved in research activities. To this end, mitigating risks associated with the real, perceived or potential conflicts of interest is crucial to the maintenance of CIHR's reputation. These risks include the following:

• risk of occurrences of real, perceived or potential conflicts of interest should roles and responsibilities not be well defined and/or understood;
• risk of inconsistent practices and/or inefficiencies if the Conflict of Interest Policy and its stipulations are not formally defined and communicated;
• risk that situations may exist where an employee's professional judgment in performing his duties may be compromised, or have the appearance of being compromised, should intentional or unintentional non-disclosure of a conflict of interest occurs; and
• risk of negative publicity and lasting harm to CIHR's reputation should instances of non-compliance are not resolved by CIHR in an appropriate and timely manner.

4.0 Audit Findings

4.1 Conflict of Interest Policy

4.1.1 CIHR's Conflict of Interest Policy was issued three years before the release of the Values and Ethics Code for the Public Service; therefore, the policy is no longer up-to-date particularly since the Code has new definitions, references and requirements.

4.1.2 Within the organization, it is not clear as to which policy, CIHR's policy approved in 2000 or the Code, is currently in force to prevent and manage conflicts of interest.

4.1.3 The responsibility to ensure that the Conflict of Interest Policy is effectively applied in CIHR has been on the hiring unit within the Human Resources branch and consequently restricted only to new employees. The Human Resources branch, through the role profiles of its Compensation Advisors, has defined their responsibilities with respect to Conflict of Interest measures as follows: 1) verify all Conflict of Interest reports submitted by new employees; 2) conduct follow-ups for those outstanding; 3) provide appropriate managers with information concerning any potential conflicts; and, 4) initiate an annual call letter to employees and follow through with legal counsel where necessary.

The review of the Conflict of Interest files did not provide any evidence that follow-ups were conducted or that any call letters had been sent to employees since the creation of CIHR. According to Human Resources staff, these roles relating to conflicts of interest are not being fully performed due to the lack of resources.

4.1.4 Although the current Conflict of Interest Policy was originally developed by the Governance and Corporate Secretary branch, no work related to the implementation and/or management of the policy with regard to employees has ever been performed by this branch.

4.1.5 The Director of Governance and Corporate Secretary's role has been to facilitate the movement of CIHR's business to Governing Council, including the approval of the Conflict of Interest Policy in 2000, as well as ensuring that Governing Council members - at the time of their appointment - are aware of the Conflict of Interest Policy and send in their completed and signed Conflict of Interest Acknowledgement form to the Governance and Corporate Secretary branch. In the event of a disclosure of a real, perceived or potential conflicts of interest, the legal counsel is consulted for advice.

4.1.6 Members of the Institute Advisory Boards and Standing Committees also receive a copy of the Conflict of Interest Policy and the Conflict of Interest Acknowledgment form. However, the Governance and Corporate Secretary branch has not managed the process such as following up on ensuring acknowledgement forms are completed and returned, promoting and interpreting the Conflict of Interest Policy.

The Director of Governance and Corporate Secretary acknowledges that a greater role could be played by her branch to promote the Policy and its implementation and interpretation with IAB members, as well as with members of the Standing Committees of Governing Council.

4.1.7 The Conflict of Interest Policy is not easily accessible. It is published on CIHR's web site located at the third level under "About CIHR" and under "How we are governed", and not posted on the Intranet.

4.2 Values and Ethics Code for the Public Service

4.2.1 The Treasury Board of Canada Secretariat released the "Values and Ethics Code for the Public Service" (also referred to as the Code), on September 1, 2003. The Code applies to the departments and agencies for which the Treasury Board is the employer - those listed in Part I, Schedule I of the Public Service Staff Relations Act, thus, it does not formally apply to CIHR. However, it does state that the Code is a policy of the Government of Canada and that public service institutions not covered by the Code (such as CIHR) should comply with it.

4.2.2 A Senior Official, as defined in the Values and Ethics Code for the Public Service Interpretation Guide, "is designated by the President to inform, support and advise public servants on their professional conduct in connection with the Code. His role is primarily that of facilitator to public servants. He must listen to the ethical dilemmas of public servants and offer avenues of resolution. In addition, he has a responsibility to provide public servants with awareness, training and educational activities and materials". According to CIHR's Delegation of Human Resources Signing Authorities issued in October 2003, the Vice-President, Services and Operations, has full authority to 1) determine if potential conflict of interest exists; and 2) take action if potential conflict of interest exists. However, the designation of the Senior Official, as defined in the Code, has not been formalized and documented as part of the corporate policy.

Currently, within the federal government, this responsibility is not exclusively assumed by the human resources function. A review of the list of senior officials in 76 federal organizations published on the Public Service Human Resources Management Agency of Canada Website revealed that this responsibility is given to Assistant Deputy Ministers in approximately 20% of cases and to the Director, Human Resources in the same proportion. The others have given this responsibility to a variety of functions.

4.2.3 Mutual employees/employer responsibilities are clearly defined in the Code. The former are responsible for ensuring that they comply with the Code and that they exemplify, in all their actions and behaviours, the values of public service. In particular, they have to: 1) report all outside activities, assets, and direct and contingent liabilities that might give rise to a conflict of interest with respect to their official duties; 2) review their obligations under the Code every time a major change occurs in their personal affairs or official duties; and, 3) assure compliance with the Code when negotiating financial arrangements with outside parties.

CIHR and senior managers have a particular responsibility to exemplify, in their actions and behaviours, the values of public service. It is expected that they will take special care to ensure that they comply at all times with both the spirit and the specific requirements of the Code. In particular, they have to: 1) ensure that the Code is part of the conditions of employment; 2) ensure that employees are informed of the requirements of the Code on an annual basis; 3) encourage and maintain an ongoing dialogue on public service values and ethics within the organization; 4) ensure that mechanisms and assistance are in place to help employees raise, discuss and resolve issues of concern related to the Code; 5) determine the appropriate method for an employee to comply with the Code in order to avoid conflicts of interest; and, 6) ensure that the personal information is secured.

4.2.4 In October 2003, the Code was distributed to all existing employees. Since then, CIHR's letter of offer to all future CIHR's employees has been adapted to the Code's requirements. A copy of the Code is provided to new employees along with the letter of employment. New employees are also informed that "the Code is a key policy for the management of Human Resources and is part of their conditions of employment. All employees are responsible for ensuring that they comply with this Code". New employees are encouraged to declare conflict of interest or potential of conflict related to the Code by completing a Confidential Report and returning it to Human Resources upon reporting for duty.

4.2.5 According to the CIHR's cover memorandum accompanying the distribution of the "Values and Ethics Code for the Public Service", the latter applies to all CIHR employees and replaces the previous Conflict of Interest and Post-Employment Code. There is no mention of the CIHR's Conflict of Interest Policy.

Employees were asked to sign an acknowledgement of receipt of the Code; however, a total of 206 acknowledgments were found on file for the 267 employees of CIHR on the date of distribution of the Code. The Code is also available through CIHR's Intranet site under "Policies" - "HR's Links to Treasury Board Policies and Guidelines".

4.2.6 Although employees have been provided with a copy of the Code and informed that compliance forms part of their terms and conditions of employment, no formal training has been offered to employees in relation to conflicts of interest. An informal presentation was held in January 2004 to which an attendance record was not kept. Therefore, employees' compliance with the intent of the Code may be hindered by a limited knowledge about what is required from them in relation to identifying and declaring conflict of interest situations. Best practice is to go beyond confirming that employees have received the Code and read it. The organization must ensure that they understand it. That is more than just signing an acknowledgement of receipt.

4.2.7 At the time of hiring, all employees are encouraged to declare conflicts of interest or potential conflicts by completing a Confidential Report and returning it to Human Resources upon reporting for duty. Confidential reports must be properly completed within sixty days of appointment to a position, secured in a central repository and treated in complete confidence, in accordance with the stipulations of the Code.

The testing performed on the confidential reports revealed the following:

• Confidential Reports with disclosure of conflicting outside activities and/ or financial holdings are being filed in Records Management in a cabinet for secret documents equipped with a single combination with access restricted to the unit's employees;
• Confidential Reports with no disclosure of conflicting outside activities and/ or financial holdings were for the majority being destroyed by the Human Resources branch. For the sampled period from January 1, 2004 to February 4, 2005, eighty one employees were hired by CIHR. Only fifteen (19%) confidential reports without disclosure were retained; they were all signed within sixty days of appointment. It was not possible to verify whether Confidential Reports for other employees were completed within sixty days of appointment;
• at the time of the audit, the Confidential Reports' file located in the Records Management unit contained a total of thirty seven completed Confidential Reports. The review of Confidential Reports revealed that thirteen reports included disclosures of outside financial holdings or activities. Out of the thirteen disclosures, two did not contain sufficient detail on the disclosed interest, while only three had adequate evidence of review and assessment of the situation. The remaining disclosures had no evidence of assessment or review and follow-up documentation;
• we came across an employee's résumé indicating the employee's active involvement in outside activities in the research field, and yet, no evidence of disclosure of conflicting activities on a confidential report was found.

4.2.8 Even though the Code does not require that "blank" Confidential Reports be kept by the organisation, the fact that Confidential Reports with no declaration of conflicting assets or activities are being destroyed leaves CIHR in a position of not knowing whether or not a particular employee has failed to disclose a conflict should a potential conflicting situation be discovered.

4.2.9 A formal process has not been established for documenting conflict of interest disclosures identification and assessment. In addition, the lack of detailed information on the conflicting activities disclosed complicates the identification and assessment processes.

4.2.10 There is no mechanism to ensure that employees actually file Confidential Reports within 60 days of entering positions as required by the Code. This is a significant problem since it leaves CIHR vulnerable not knowing whether employees are in real, perceived or potential situations of conflicts of interest.

4.2.11 CIHR has not established formal procedures for managing and resolving conflict of interest situations:

• administrative procedures and up-to-date information relevant to conflicts of interest including real-world examples assist employees to better understand the policy. In the absence of such processes, employees may not be able to recognize conflicts; therefore, management may not be able to manage conflicts in a timely manner;
• based on discussions with Human Resources staff, the current procedure for assessing and handling conflict of interest disclosures is to consult the Treasury Board of Canada Secretariat's Interpretation Guide to the Code, the appropriate director or Vice-President and in some cases to seek advice from the legal counsel. This process is not documented as part of a formal procedure and consequently, may not be applied consistently.

5.0 Recommendations

R-1 CIHR's Senior Management should ensure that the Conflict of Interest Policy approved by the Governing Council in 2000 is updated in order to comply with the spirit and intent of the Values and Ethics Code for the Public Service.

R-2 To exercise better governance on real, perceived or potential conflicts of interest, a robust corporate ethics program should be developed within the organization. This program should focus on CIHR's values. (See Appendix 2)

R-3 The CIHR's Conflict of Interest Policy should be supported by systems and processes to ensure its effective implementation. This should include clear lines of accountability as well as the development and implementation of formal procedures for the assessment, analysis and resolution of conflict of interest disclosures. Also, proper documentation should be maintained as evidence of review and assessment.

Appendix 1 - Management Response

CIHR management's formal response to each of the recommendations identified through the audit is provided below.

Summary of Recommendations and Management Action Plan

Appendix 2 - Corporate Ethics Program

Generally, the essentials of a corporate ethics program include the following:

• a well-drafted and enforceable Code of Ethics and Business Conduct;
• a "protected" mechanism for bringing complaints, concerns and Code interpretation questions forward;
• an effective training and reinforcement program which seeks to communicate standards of proper business conduct;
• an agreement to comply with the Code as a condition of initial and continued employment, with compliance incorporated into business objectives as well as individual performance appraisals;
• accountability and reporting mechanisms, including proper measurement, auditing and feedback;
• most importantly, a tangible commitment by senior management and leadership by the Governing Council in overseeing the corporate compliance program.