Outsourced public service providers operate at a challenging interface: they are expected to act in an entrepreneurial manner, yet remain bound by public interests, legal requirements and political accountability. These multiple obligations call for clear rules governing responsibilities, oversight, transparency and control.

Recent reports on the Lucerne Social Insurance Centre WAS serve as a prime example of the issues that can arise when strategic and operational roles are not clearly separated. The focus here is not merely on individual accounts or meeting minutes, but on the governance structure as a whole.

For boards of directors, executive boards, departments and local authorities, the following questions, amongst others, arise:

• What information must be made available to the full board of directors?
• Who is authorised to undertake operational tasks?
• How are conflicts of interest identified and disclosed?
• Who approves remuneration, expenses and individual contracts?
• How can overall supervision be exercised effectively and proportionately?
• Are decisions, approvals and changes documented in a way that allows for digital traceability?

An organisation can fulfil its tasks efficiently and cost-effectively whilst at the same time exhibiting significant governance weaknesses. This is demonstrated by the expert report on the internal investigations conducted by Professor Isabelle Häner at WAS. Good operational performance is no substitute for clear processes.

Conflicts of role and interest

The combination of different roles is a particularly sensitive issue. Members of the board of directors are expected to provide strategic oversight of the organisation. If they simultaneously take on operational duties or have a contractual relationship with an affiliated company, conflicts of loyalty, information and interest may arise.

This does not automatically mean that a particular course of action is unlawful. However, it does mean that the organisation requires robust rules. These include, in particular:

• disclosure of personal and financial interests;
• recusal from decisions in which one has a personal interest;
• separation and clear demarcation between strategic management and operational activities;
• approval of contracts with officers by the relevant body;
• transparent documentation and regular review of roles and mandates.

Particularly in the case of outsourced public tasks, the question is not merely what is legally permissible. It is equally important whether a process is transparent, institutionally sound and can be accounted for to politicians, the public and supervisory bodies.

Remuneration requires a system

Remuneration models often only come under scrutiny when ambiguities arise. An amount may ultimately be appropriate yet still appear unreliable or difficult to trace due to a lack of processes.

A robust system should therefore distinguish between four levels:

• Legal basis
  What forms of remuneration, individual contracts and expenses are permissible?
• Responsibility
  Who submits applications for, approves and monitors the relevant services?
• Documentation
  What supporting evidence must be provided?
• Disclosure
  What information is disclosed internally and to the public?

Individual contracts awarded to board members deserve particular attention. Whilst they may be objectively justified, they carry an increased risk of self-contracting or self-approval, a blurring of roles and inconsistent billing. Depending on the organisation, a flat-rate basic remuneration combined with strictly regulated additional contracts may therefore be the better solution. It is advisable to establish a general framework, whilst also providing for a specific process at the operational level. For example, a dual-control principle must also be implemented in concrete terms. What is crucial is not merely that ‘someone’ approves, but who checks what for whom, at what level of the hierarchy, and on the basis of which documents.

Compliance, Internal Control Systems and Management Accounting (“Good Governance”)

Compliance is more than simply adhering to individual laws. It involves establishing a system that enables lawful, ethical and transparent conduct.

For public institutions and outsourced service providers, this includes in particular – depending on the institution’s size, focus and ownership strategy:

• up-to-date organisational and remit regulations;
• a clear service agreement;
• a risk register with assigned responsibilities;
• documented approval and control processes;
• periodic reports to the supervisory body and owners;
• rules governing secondary roles, recusal and conflicts of interest;
• a traceable filing system for resolutions and supporting documents.

In this context, financial control must not be limited to the final figure – a tailored and effective internal control system is required. This system must also be able to verify how an amount arose, who requested it, who approved it and whether the underlying service was provided.

Digital audit trails as a governance tool

Digital systems can significantly improve traceability. However, they are no substitute for a clear chain of responsibility. An electronic workflow is only useful if roles, approvals and rights to make changes are correctly defined.

In practice, the following questions, amongst others, should be answered:

• Are original documents and approvals stored in an audit-proof manner, and are changes to records versioned?
• Is it possible to identify who created, amended or approved a data record?
• Are access rights restricted to the necessary extent?
• Can audits and spot checks be carried out efficiently?
• Are data protection and retention obligations taken into account?

Version control is particularly crucial for records. Subsequent editorial corrections must be distinguishable from changes to the content. A digital audit trail not only ensures the reliability of evidence but also builds trust.

Independent assessment with a sense of proportion

An external investigation must not lead to either a prejudgement or a blanket exoneration. Its quality is demonstrated by whether it clearly distinguishes between the relevant facts:

• What has been documented?
• What is legally permissible?
• What is organisationally appropriate?
• Where are there gaps in controls?
• Which findings relate to individuals, and which to the institution?
• Which measures are proportionate and feasible?

Equally important is the distinction from ongoing regulatory, criminal or political proceedings. An investigation can identify governance shortcomings without assessing criminal liability. Conversely, the absence of a breach of the rules may mean that processes still need to be improved.

BPS Legal supports companies, institutions, outsourced public service providers and local authorities in the legal and organisational assessment of such issues. Matthias R. Schönbächler, MLaw, solicitor and partner, combines perspectives from public law, commercial law and digital law. BPS Legal advises and assists with:

• governance and compliance reports;
• the review of roles, responsibilities and conflicts of interest;
• regulations governing remuneration, expenses and individual contracts;
• the establishment and improvement of internal control systems and management accounting;
• independent fact-finding investigations;
• legal issues relating to outsourced public tasks;
• digital approval, documentation and audit processes.

Our team would be excited to discuss your specific situation with you in person and in confidence. Please feel free to contact us anytime with any questions regarding governance, public law and commercial law.