On this page: a) Financial performance | b) Non- financial performance

a) Financial performance

TGA's activities are primarily cost recovered from industry except for the cost of the scheduling function for which an appropriation is provided by the Government. In addition, the TGA continues to receive appropriation funding in the form of an interest equivalency payment for funds held in the TGA special account (reserves).

The surplus in 2015-16 was the result of underspends in employee expenses due to lower staffing levels, and higher revenue because the number of products cancelled from the ARTG were lower than anticipated upon introduction of the ACE scheme.

Detailed financial performance information is discussed with industry representative bodies at bilateral meetings held each year.

The TGA aims to maintain reserves to provide a buffer for volatility in revenue streams (the number and type of evaluation applications) and respond to major external or unplanned impacts (recalls, product tampering). Depreciation is also accumulated for the replacement of assets. The Government expects the TGA to manage within its cost recovery resources and therefore investment in new, or replacement of existing, business systems, must also come from the responsible management of these reserves. The target for the reserve balance is set at around 20% of operating expenses. While in 2015-16 the TGA's reserves remained above that target they reduced in 2016-17 as a result of the costs of implementing the 2016-17 Budget measure "Improving the Regulation of Therapeutic Goods in Australia"which involves expenditure of $20.4 million from TGA reserves over four years.

Financial performance by industry sector group is included in Appendix 1.

b) Non- financial performance

The Australian Government has developed a framework to measure the performance of regulators. The Regulator Performance Framework comprises six outcome-based key performance indicators (KPIs) to articulate the Government's overarching expectations of regulator performance:

1. Regulators do not unnecessarily impede the efficient operation of regulated entities
2. Communication with regulated entities is clear, targeted and effective
3. Actions undertaken by regulators are proportionate to the regulatory risk being managed
4. Compliance and monitoring approaches are streamlined and coordinated
5. Regulators are open and transparent in their dealings with regulated entities
6. Regulators actively contribute to the continuous improvement of regulatory frameworks.

This framework has been applied since 1 July 2015 with the first assessment period being the 2015-16 financial year. The TGA reports annually^[3] to stakeholders on performance against a set of agreed KPIs. A series of qualitative and quantitative outputs and evidence to assess the TGA's achievement of the KPIs and associated measures were developed in consultation with the Australian Therapeutic Goods Advisory Council and the TGA-Industry Consultative Committee (TICC). These KPIs were endorsed by the then Assistant Minister and published on the TGA website in June 2015. For more information on the TGA's KPIs please visit: TGA key performance indicators.

The TGA's self-assessment against the KPIs was externally validated by the TICC which comprises industry and consumer representatives. In terms of feedback on whether the self-assessment process provided sufficient, reliable and current evidence to support our overall performance rating of met, TICC members either agreed or somewhat agreed. Members noted that this is the first report of its kind, and although the majority of the evidence matrices are appropriate and an effective tool for assessing our compliance against the KPIs, the matrices should be subject to continuous improvement to ensure relevance.

Overall the TGA has met the requirements of the Framework through meeting KPIs 1, 3, 5 and 6 with 'strong performance' against these measures and through substantially meeting KPIs 2 and 4. The 2015-16 report is published on TGA's website, a brief summary is provided below.

Risk assessment

A cost recovery risk assessment for the regulatory reform program was undertaken resulting in a medium risk rating for TGA's cost recovery arrangements. The cost recovery risk rating of medium is based on assessment of the criteria using the Charging Risk Assessment (CRA) template. The key medium to high risks for cost recovery are that the amount to cost recover exceeds $20 million, the source of recovery is through fees and levies, they involve an existing Act of Parliament (for TGA charges to be reviewed) and many stakeholders will be affected.

The most likely risks identified for any ongoing changes to cost recovery arrangements were:

• cost recovery fees creating a disincentive to products entering the market;
• inherent risks in implementing diverse cost recovery arrangements; and
• potential for misunderstanding of how fees and charges are calculated.

These risks are addressed by:

• continued improvements in regulatory and administrative functions;
• implementing best practice in activity based costing (ABC) methodology;
• working closely with stakeholders and industry representatives to mitigate the cost impact to business; and
• ensuring charging practices are aligned to our services and are transparent and defensible.

From a regulatory perspective risk management is applied to regulating therapeutic goods by:

• identifying, assessing, and evaluating the risks posed by therapeutic goods before they can be approved for use in Australia (pre-market assessment or evaluation);
• identifying, assessing, and evaluating the risks posed by manufacturing processes before a manufacturer is issued with a licence to manufacture therapeutic goods (licensing of manufacturers); and
• identifying, assessing, and evaluating the risks that may arise following approval of the product and licensing of the manufacturer (post-market surveillance).

Footnotes

3. More detailed information about TGA's regulatory and corporate activities can be found in the annual Performance Statistics Report.