Financial management

Industry funds

NRS funds are managed in accordance with the National Residue Survey Administration Act 1992 and the Financial Management and Accountability Act 1997.

Each participating industry is consulted on the level of reserve it wishes to maintain within its industry equalisation account (IEA) with the aim of providing for contingencies while at the same time making the best use of industry funds. Tendering and contractual arrangements for the procurement of goods and services, particularly analytical testing, are managed in accordance with the Australian Government’s Commonwealth Procurement Guidelines.

NRS programs are operated on a full cost-recovery basis, with the costs of services funded by the relevant industries. If new activities are required by an industry already involved with NRS, in most cases existing industry funds could be used to support the new activity while adjusted levy arrangements are established. However, when a new service is required by an industry not already funding an NRS project, funding for that service must be established before it can commence. Depending on circumstances, this could be achieved by the implementation of a levy, coupled with a direct payment to initiate residue testing activities. NRS advises and consults with industry if changes to levy rates are required.

Inputs and allocation of costs

Externally funded laboratory evaluations operate as independent projects and are funded under contractual arrangements with relevant industries. All other residue testing costs incurred by NRS, except those associated with community service obligations, are recovered through industry-based levies or direct payments by industry.

Costs associated with laboratory performance and business support programs form part of the indirect costs of other projects, and an appropriate proportion of the expense is included in the costs of those projects. Indirect costs are attributed proportionately to projects, taking into account sample numbers and staff time.

Risk management

The major risk for NRS is the potential for major fluctuations in the demand for NRS services: this could result in over- or under-utilisation of NRS expertise and resources.

Large increases in demand could occur within the following scenarios:

• government initiatives requiring the monitoring of a large, previously unmonitored, sector of production
• the establishment of a trade-driven requirement for a substantial new activity within a short timeframe
• the identification of a residue with the potential to cause a threat to trade, for which an extensive residue testing project would be needed at short notice
• the recovery of an industry from a significant production setback (e.g. drought, disease, market closures, industry restructures) leading to increased production levels to counter low incomes in previous years.

Large decreases in demand could occur if current participating industries withdraw from NRS or suspend activities due to monetary constraints or changed market entry requirements.

Another important potential risk is the failure of a contracted laboratory to properly identify or measure a chemical residue, particularly one with high consumer or trade sensitivity. To minimise the possibility of this happening, a comprehensive laboratory proficiency testing program is run in parallel with NRS testing activities.

A low risk is associated with information technology (IT) support for NRS, particularly the database that holds all residue results. The database is used for reporting results to industry and to Australian, state or territory authorities within tight timeframes, and is also used to generate recipient-created tax invoices for laboratory testing. The Australian Government Department of Agriculture, Fisheries and Forestry (the Department) outsources most of its IT services, including the maintenance of network hardware and software. The Department has defined service levels and activities (including regular data backups) as a component of those service levels that reduce the risk of losing data. The NRS database is maintained by an external IT service provider, who ensures that the data tables are backed up each night.

The risks outlined above, should they occur, could pose problems in the areas of finance, analytical capability and staffing. The magnitude of risks associated with new commodities or analytical requirements is extremely situation-specific. However, in all but extreme circumstances, NRS is well placed and well structured to respond quickly and effectively to any new requirements for services.

During 2007–2008, NRS management continued to assess critically any emerging technical, business and security risks that had the potential to impact adversely on its ability to deliver required residue testing services to stakeholders.

Outsourced service delivery

Through the Department, NRS receives a number of corporate services, including IT, financial transaction processing, legal services, human resources services and property management. In addition to the contracted laboratories providing analytical services for NRS, an external IT provider maintains the NRS database. The NRS annual report is also written, designed and printed by external providers.

In addition, in-kind assistance is provided by inspection staff from AQIS, who collect samples on behalf of NRS at export abattoirs.

Data protection and privacy

NRS holds an extensive database of residue data in a wide range of commodities. The database can be drawn on by participating industries and governments for the purposes of gaining or maintaining market access or for the setting and review of standards.

Data release is carefully managed under the ‘Release of Information’ requirements of the National Residue Survey Administration Act 1992 (the Act) to ensure confidentiality and privacy. Information released to a relevant authority or appropriate person is used only for the purpose of monitoring, traceback or regulation of residues and contaminants.

The results of NRS residue monitoring projects are provided to participating industries and are published each year in the annual report. Information from NRS projects that identifies particular people or their property is released only to government authorities (i.e. Australian, state or territory government authorities responsible for the monitoring or regulation of agricultural and veterinary chemical residues and contaminants), or to individuals (non-regulatory persons) approved by the Department as being appropriate persons to be granted access to the information under paragraph 11(2) (b) of the Act.

The current database is about 10 years old, and has been adapted over time to improve and extend its functionality, but the current system can support only a paper-based approach to sample recording and management. This restriction means that it is difficult to introduce improvements in effectiveness, efficiency and automation, while at the same time risk exposure is amplified. Plans are underway to redevelop the NRS database and information management system to include web-based applications which improve data links between the NRS, sample collectors, sample handlers, analytical laboratories and participating industries. Design specifications are under development and tenders will be called in November 2008. NRS expects the redeveloped NRS database to be operational by December 2009.

Fraud control

NRS operates under the fraud control plan of the Department.

The administrative arrangements for NRS involve additional responsibilities for financial management and the control of assets. These have required fraud management strategies for five areas identified as requiring scrutiny:

• building security (high risk)
• purchasing (including use of the Australian Government credit card) and payment of accounts (high risk)
• investment of industry funds (medium risk)
• asset control (medium risk)
• access to commercial-in-confidence information (low risk).

Key features of the overall strategy include segregating duties to avoid individuals carrying sole financial responsibility for transactions, enhancing the degree of independent checks on financial transactions, and raising staff awareness in order to prevent fraud.

As insurance against external fraud, NRS generates and reconciles invoices from the laboratories (its main service providers) against actual test results received, thereby preventing double or unsubstantiated invoicing.

No instances of fraud were detected during 2007–2008.

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