Strengthening integrity in financial management

Financial management in the government sector includes procuring, contracting, general expenditure and cash handling.

It is an area vulnerable to misconduct and corruption as it can involve large sums of money, devolved decision making, and relationships with stakeholders and suppliers whose integrity is unknown.

Dishonest public officers will potentially exploit weaknesses in financial management controls and practices. Examples of how they may do this include:

• overriding financial controls and systems
• taking advantage of lax financial controls or systems
• splitting invoices to remain under delegated limits or avoid competitive quotes and tenders
• raising or approving false invoices for goods and services never ordered or received
• raising or approving duplicate invoices
• using or releasing confidential information to benefit or disadvantage suppliers, friends or family members
• using allocated money, or reallocating money, for purposes it was not intended for
• setting up fake companies, including with friends and family, to funnel public money
• varying contracts without proper process.

Often there are red flags that someone may not be doing the right thing and is trying to cover up their actions.

Public officers must be alert to behaviours that may indicate misconduct or corruption such as:

• intentionally not declaring or understating conflicts of interest
• living a lifestyle above apparent means or experiencing financial difficulties
• overspending budgets regularly without good reason
• delaying or avoiding audits and reviews without good reason
• destroying or not keeping records to support financial decisions
• becoming overly controlling of financial processes including not taking leave and being unwilling to share duties
• having overly familiar relationships with suppliers, such as, accepting inappropriate gifts, benefits or hospitality   
• favouring expediency over proper processes.

Threats can also come from people outside the public authority such as clients, suppliers and stakeholders.

Public officers must be alert to irregular or unusual requests, actions and behaviours of individuals the public authority does business with such as trying to gain favour through giving gifts or high pressure sales techniques. Public officers must know how to report these activities and not hesitate to do so.

1. Base financial management controls and practices on:

• thorough assessment of risks
• good understanding of accountability requirements
• recommendations for better practice by anti-corruption agencies and integrity bodies.

2. Routinely consider integrity in financial management by including it as part of the public authority’s integrity framework and risk management arrangements.
3. Educate public officers in high-risk roles about the signs of misconduct and corruption. Make reporting pathways accessible to all public officers, clients, suppliers and stakeholders, and take reports of suspicious activities and behaviours seriously. Information from individuals speaking up can be more effective at detecting misconduct and corruption than an audit function.
4. Enforce rigorous due diligence processes to give confidence and assurance that the public authority should be working with a particular supplier. The process must be designed to understand whether a supplier is genuine, capable, reliable and financially viable; has the required licences and status; and is of good integrity. Where suppliers subcontract work, apply diligence through contracting and procurement arrangements.
5. Routinely monitor and review financial management controls and practices to ensure they are working as intended, and public officers are complying with them. Too often, anti-corruption agencies and other integrity bodies have noted that, while clear financial instructions and practices exist, relevant public officers were not following them.