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Cost recovery implementation statement, V1.4

Version 1.4 June 2018

26 June 2018

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Financial and non-financial performance

a) Financial performance

2015-16 Actual
$'m
2016-17 Actual
$'m
2017-18 Budget
$'m
2018-19 Estimate
$'m
2019-20 Estimate
$'m
A: Revenue
Revenue from Government 3.177 2.574 2.388    
Sale of goods and services 141.539 139.037 142.341    
Other revenue and gains 0.148 0.012 0.120    
Total A 144.864 141.623 144.849    
B: Expenses
Employee expenses 66.168 78.781 80.782    
Suppliers 57.849 61.686 60.836    
Depreciation and amortisation 4.672 4.286 6.835    
Write-down and impairment of assets 0.105 1.961      
Total B 128.784 146.715 148.453    
Surplus (deficit) 16.080 (5.092) (3.604)    

Note 1: The financial information in above tables for 2018-19 and 2019-20 will be updated following finalisation of financial information by the Department in July/August 2018.

Note 2: As per 2016-2017 Annual report, a different accounting treatment for corporate costs in 2017 has required the 2016 balances to be restated for comparative purposes.

TGA's activities are primarily cost recovered from industry except for the cost of the medicines and chemicals 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 deficit in 2016-17 is approximately $2.08 million under the approved budget. Revenue was impacted by the unexpected fall in revenue in prescription medicine applications and evaluations compared to budget and prior year trends. Employee expenses ended up $7.0 million below budget due to tight Departmental recruitment controls.

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[4] 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.

Self-assessment rating and summary of overall performance
KPI Performance rating Comments
KPI 1. Regulators do not unnecessarily impede the efficient operation of regulated entities Met

The performance rating of met is supported by successful participation in formal stakeholder forums and participation at industry events. This has led to smaller face-to-face workshops and increased opportunities for our staff to improve their knowledge of emerging technologies and provide industry with an opportunity to increase understanding of our regulatory requirements.

Additionally, we have implemented a number of initiatives under the Business Improvement Program aimed at reducing compliance costs to industry.

KPI 2. Communication with regulated entities is clear, targeted and effective Substantially met The performance rating of substantially met is based on medical device timeframes for application audits not being met, although these timeframes are not mandated in legislation. The legally-mandated timeframes for medical device conformity assessment were met in 100% of cases.
KPI 3. Actions undertaken by regulators are proportionate to the regulatory risk being managed Met

The performance rating of met is supported by our risk management approach in regulating therapeutic products, including identifying entities at risk of unintentional or deliberate non-compliance, and the collection of intelligence in relation to alleged breaches of the Therapeutic Goods Act 1989 and the Therapeutic Goods Regulations 1990.

Evidence of actions undertaken by regulators that are proportionate to the regulatory risk is also outlined in our laboratories targeted testing of medicines and medical devices according to the risk they pose to the public, monitoring of the market for signals of potential non-compliance and the scheduling of manufacturer inspections based on compliance records.

Additionally, we can communicate regulatory requirements and compliance expectations quickly and directly to market-entry applicants.

KPI 4. Compliance and monitoring approaches are streamlined and coordinated Substantially met The performance rating of substantially met is because we do not yet have a fully mature compliance and enforcement framework with graduated sanctions and penalties. While we have a sound compliance structure in place, we do not yet have a range of regulatory tools which allow us to use the full range of compliance approaches. This is being addressed under the reform program.
KPI 5. Regulators are open and transparent in their dealings with regulated entities Met

The performance rating of met is demonstrated through our continued efforts towards raising awareness of our regulatory framework through industry workshops and the publication of educational material, as well as maintaining telephone and email based information lines.

We also publish regular performance activity reports on our website.

KPI 6. Regulators actively contribute to the continuous improvement of regulatory frameworks Met The performance rating of met is supported by our stakeholder engagement through market research, continued business improvements and interactions with other regulators.

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

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

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