Background

The Therapeutic Goods Administration (TGA) is responsible for the regulation of the manufacture and supply of medicines, including complementary and over-the-counter medicines, in Australia, to protect public health and safety. The Therapeutic Goods Act 1989 gives effect to the regulatory powers required to fulfil this role. The TGA is a division of the Commonwealth Department of Health and Ageing (Health).

Manufacturers of non-prescription medicinal products must be licensed or certified to manufacture. Approval by the TGA is only granted if the proposed manufacturing premises are compliant with the Australian Code of Good Manufacturing Practice for Medicinal Products (Code of GMP). Products supplied to the public must also be approved by the TGA.

Compliance with regulatory requirements is monitored by the TGA. Where a manufacturer or a product is not compliant with regulatory requirements, the TGA has a range of actions available to reduce possible risks to public health and safety.

This audit

The objective of this audit was to assess the TGA's regulation of non-prescription medicinal products. In particular, it addressed the systems, procedures and resource management processes used to:

• confirm new manufacturers comply with requirements for the manufacture of non prescription medicinal products;
•  monitor manufacturers and medicines to ensure requirements continue to be met; and
•  manage non-compliance.

The progress and timeliness of this audit was adversely affected by limitations in the TGA's information and records management. Where necessary, the Australian National Audit Office (ANAO) has made estimates in key areas, for the purpose of this report.

Key findings

Licensing and certification of manufacturers (Chapter 2)

About 40 per cent of manufacturers of non-prescription medicinal products supplying the Australian market are directly approved by the TGA. Some 25 per cent of the manufacturers are located in Australia and 15 per cent overseas.

Before TGA approval to manufacture is granted, it undertakes an audit so that compliance with the Code of GMP can be assessed. The TGA does not measure, or have a standard or target for, the timeliness of the approval process. This limits the TGA's ability to manage and monitor this aspect of its regulatory process.

The remaining approximately 60 per cent of manufacturers supplying the Australian market are located overseas, and are certified by an overseas regulator. These regulators are in countries with which Australia has either a Mutual Recognition Agreement (MRA) or Memorandum of Understanding (MOU)/cooperative arrangements.

The TGA carries out a formal assessment to establish regulatory equivalence to Australian manufacturing standards for MRA signatories. However, this is not common practice for MOUs/cooperative arrangements. The TGA advised that this is because there was already a mutual understanding of each other's regulatory practices.

Regular reassessment of regulatory equivalence is undertaken through an international inspection cooperation scheme for most countries that are signatories to the agreements. However, for some countries, reassessments have been done on an informal basis only. The ANAO also found that one MOU established in 1993 had not been formally reassessed to ensure standards had remained appropriate.

The TGA plans to implement new, and maintain existing, agreements. However, this is not supported by a strategic plan and appropriately allocated funding. The ANAO considers that a strategic plan to manage, fund and maintain these agreements would increase assurance that overseas standards continue to be equivalent to those in Australia, for the benefit of all stakeholders.

Preparing and executing the audit program (Chapter 3)

Manufacturers approved by the TGA are subject to regular audit. An audit frequency matrix determines the time to next audit. This is based upon two risk parameters: the products manufactured; and compliance with the Code of GMP from the previous audit. However, the rationale for assigning audit frequencies for these risk parameters has not been documented, nor supported by a systematic risk analysis.

The audit frequency may be varied from that indicated by the risk parameters. However, the reasons for the variation are often not documented, reducing transparency and accountability for these discretionary judgments.

The ANAO also found that the level of compliance with the Code is not recorded on the TGA's management information systems. Other information on these systems was incorrect or out of date. As well, more reliable records are necessary to support an automated audit scheduling tool, which is shortly to be implemented.

Monitoring arrangements limit the TGA's ability to assess, and be accountable for, performance in the execution of the audit program.

Overall, the TGA's audit program is behind schedule and the majority of audits are conducted after the due date. For a sample of audits conducted in recent years, Australian audits had, on average, a due date of 16 months after the previous audit, but were conducted after 22 months. For overseas audits, the comparable figures were 21 and 30 months respectively.

Many audits that have not been conducted by their due date are not considered overdue by the TGA. In part, this is because the TGA does not consider audits overdue if they are less than six months past their due date. The ANAO also found that the TGA has accepted audit assessments by regulators in countries with which Australia has no GMP agreement. In other cases, the TGA advised that it has rescheduled audits to later than the due date, because of adverse international circumstances.

The TGA advised that the risk of unsafe products does not increase because a manufacturer has not been audited according to the TGA's defined risk treatments. It considers that there are other safeguards, such as adverse reaction reporting, which would assist in identifying whether an audit should be conducted as a matter of priority.

The TGA's view that some manufacturers have acceptable compliance, on grounds other than a TGA audit, is not supported by systematic risk-based processes. Further, the TGA does not have documented contingency plans to support its regulatory obligations when international events prevent it from executing the overseas audit program.

The TGA is planning to increase the number of its auditors. However, it has not conducted a strategic assessment of the impact of the increase on the backlog of audits for non-prescription medicine manufacturers.

Conducting manufacturer audits (Chapter 4)

There was a marked increase in effort on non prescription medicine manufacturer audits in 2003. The TGA advised that the increase was risk based, following the Pan Pharmaceuticals Limited enforcement action. Non-prescription medicine manufacturers were targeted, the length of audits increased, and more unannounced audits used.

The TGA did not undertake a structured risk assessment to guide these changes. Nor has it assessed the broader lessons for the future of the targeting of non-prescription medicine manufacturers.

Checklists and/or proformas are not used to plan and collect audit evidence, although auditors are encouraged to develop personal aide memoires. This practice limits transparency to stakeholders, and provision of management assurance regarding consistency in the conduct and reporting of audits.

The Code of GMP defines outcomes rather than processes. Consequently, there is a risk that auditors will identify deficiencies inconsistently, unless clear guidance and adequate definitions are provided. The TGA has instituted several systems to improve consistency, but progress on some initiatives has not matched expectations or has been only partial.

Audit consistency continues to be a concern of the industry. Instances were cited where manufacturers perceived auditors to assess a practice as deficient, when it had previously been accepted.

The ANAO considers that the TGA could increase the transparency and accountability of its audit processes. For example, more robust and transparent procedures for the handling and resolution of complaints, appeals and disputes would greatly assist in addressing manufacturer concerns.

Addressing manufacturer non-compliance (Chapter 5)

Almost all TGA audits of non-prescription medicine manufacturers identify deficiencies against standards. The TGA uses a risk-based approach to allow most of these manufacturers to continue to manufacture, while deficiencies are addressed (known as audit close out).

Evidence of corrective action taken or proposed by manufacturers is required before close out. However, guidance to auditors on what is acceptable evidence is limited. The ANAO found that some corrective action reported by manufacturers was subsequently found to have been inadequate.

For an estimated 20 per cent of audits, the TGA assessed the level of a manufacturer's compliance as a potential risk to public health and safety. These audits are reviewed to determine appropriate action to be taken.

There is a range of enforcement action available. Some action, such as requiring regular reporting by manufacturers, and the placing of restrictions on overseas manufacturers, is not supported by documented operational procedures.

There was a marked increase in enforcement action against non-prescription medicine manufacturers in 2003. It is not clear, given the limitations of the TGA's management information, whether the increase reflected a serious decline in manufacturer compliance, or was the result of changes to the TGA's approach to compliance auditing and enforcement.

In general, enforcement action is timely. However, the TGA does not have timeliness or performance standards to assist in the management of enforcement action.

A significant enforcement action in 2003 took 12 weeks from initial audit action to the suspension of the manufacturer's licence. In this case, the TGA did not have contingency plans in place in the event of access to the manufacturer's premises becoming difficult, as occurred. The TGA advised that a vast amount of work was undertaken during the 12 week period. A thorough and independent review of key enforcement actions, such as this case, would assist the TGA to assess its regulatory performance and identify lessons for future regulatory action.

The TGA does not have systematic monitoring arrangements to ensure that the action it proposes to manage non-compliance is undertaken. Also, approaches used to address non-compliance vary for similar cases and may not be in accord with operational procedures. While there is a degree of judgment involved, the limited nature of the TGA's records makes it difficult for management to assess whether variations are supported, at least for some audits.

The ANAO found that documentation of decisions regarding enforcement action was often incomplete or inadequate.

Monitoring compliance of approved products (Chapter 6)

There is a targeted monitoring system to address the potential risks to safety, quality and efficacy of non-prescription medicinal products. Several enhancements have been made to the elements of the system to increase their reliability and efficiency. For example, automation of the approval process for listing of medicines (mostly complementary medicines) has increased the reliability and efficiency of this process.

Laboratory testing is part of the TGA's strategy to identify unsafe non-prescription medicinal products. The TGA expends as much on testing as it does on audits of manufacturers of these products. Nevertheless, only one to two per cent of the 21 000 non-prescription medicinal products are subject to laboratory testing each year. The TGA advised that this is commensurate with the inherent risk of these medicines. Also, it is confident that the safety and quality of these products can be assured through other monitoring elements, such as adverse reaction reports.

The TGA does not have a systematic and structured approach to the use of priority testing when there is an increased risk exposure arising from limitations in manufacturer audits.

In addition, while the TGA's laboratories aim to undertake tests within specified time periods, these are not recognised as formal performance standards. They are often not met, particularly for prioritised testing.

Addressing product non-compliance (Chapter 7)

The TGA has several administrative measures available to respond to products that do not comply with conditions of listing or registration. Recent amendments to the Act have strengthened the TGA's ability to cancel and recall products.

Warning letters are the most frequently used means of addressing product non-compliance. However, TGA's management information systems do not capture information on the number, reasons or impact of warning letters issued.

In 2003, the TGA recalled 1 805 medicines due to deficiencies in their safety, quality or efficacy. The ANAO found that, generally, the TGA had an effective approach to planning and conducting these recalls. However, until recently, risk analyses undertaken to determine the danger and consequences presented by the defective product had not been documented.

Many recalls stem from manufacturing deficiencies. Corrective action undertaken by manufacturers is reviewed in the next GMP audit. However, formal feedback to the Product Regulator only occurs where the audit identifies unsatisfactory corrective action.

Limitations in the TGA's information systems restrict its ability to conduct trend analyses of recalls. The TGA is developing a new recalls system that will improve data capture for such analysis.

Management framework (Chapter 8)

The TGA operates on a full cost-recovery basis. However, fees and charges do not align with the costs. Hence non-prescription medicine manufacturers and sponsors do not have assurance that their payments are not, at least in part, cross subsidising other TGA activities.

Approximately 11 per cent of resources budgeted for the regulation of non-prescription medicines are expended on the licensing and compliance auditing of manufacturers. The other 89 per cent is expended on product regulation. Strategic plans and risk assessments do not provide documented details to support this distribution of regulatory effort.

The Act sets an overall strategic framework for the management of risk posed by therapeutic goods. The TGA has recently implemented a risk management policy. However, there are a number of ways in which more structured and consistent risk management would substantially enhance regulation of non-prescription medicines. These include: addressing differences in risk treatments between Australian and overseas manufacturers; improved monitoring of risk treatments; and assessing the impact of slippage on planned risk treatments.

Management information is often not captured in management information systems, or is not reliable or complete. In addition, the systems are not well integrated, limiting the TGA's ability to share information. The TGA is implementing a new audit management information system. However, current weaknesses in information need to be fully addressed to obtain the benefits from the new system.

There are also weaknesses in documentation. Some key regulatory decisions have not been supported by formal documentation, including reasons and supporting evidence. As well, files have not been well maintained.

There is inadequate information to support good performance management. The published effectiveness indicator provides only limited insight into the TGA's effectiveness in achieving its regulatory objective. A strengthened performance management system that includes statements of outcomes, key performance indicators and targets would better inform planning and management. It would also provide for better accountability to stakeholders.

Overall audit conclusion

The TGA has a structured framework for the regulation of risk presented by non-prescription medicinal products. This has regard to the risk presented by the type of product, and by the adequacy of manufacturing operations. However, more rigour around systems, procedures and resource management within the framework is required to provide assurance that non-prescription medicines are appropriately and cost-effectively regulated.

Aspects of risk management for non-prescription medicines require better articulation and structure, to support targeting and monitoring of risk treatments. This is the case both for manufacturers audited by the TGA, and for the almost 60 per cent of manufacturers audited by overseas regulators. Risk management would also be better informed by greater utilisation of information available.

The TGA's regulatory framework is supported by a substantial number of standard operating procedures. However, greater clarity and guidance is required for some key aspects of the TGA's regulatory functions. There are also some gaps in documented procedures.

Maintaining the quality, consistency and reliability of manufacturer audits, and of any enforcement actions, continues to be an area that requires management attention, as is recognised by the TGA and industry stakeholders. Initiatives recently implemented have the potential to improve the integrity of these processes, but require management focus, better information support, and monitoring of effectiveness for the assurance of all stakeholders.

Decision-making, including reasons for particular action and enforcement, requires more structured documentation, especially when discretionary judgments have been made.

Key information obtained through the TGA's regulatory functions is often not captured, or not utilised for the purposes of monitoring and analysis of trends. Information that is recorded is often unreliable, limiting its value for management purposes. Better management of information is required to inform the TGA in its regulation of non-prescription medicines.

Performance management arrangements are insufficient to support sound management of regulation, and accountability to stakeholders. Performance indicators provide limited insight into the effectiveness of the regulation of non-prescription medicines, and of manufacturer compliance.

Transparency to manufacturers and sponsors can be enhanced, both to facilitate manufacturers' ability to comply with regulatory requirements, and to improve the TGA's accountability for its actions.

Recommendations and the Department of Health and Ageing's response

The ANAO made 26 recommendations aimed at strengthening the regulation of non-prescription medicinal products.

The Department of Health and Ageing's full response to this audit can be found at Appendix 15. The Department also provided the following summary:

The Department acknowledges the work of the ANAO in conducting this audit, and the contribution such audits make to continuous improvement in the public sector.
The Department notes that the TGA:

• has a legislative framework and documented procedures;
• is subject to international and peer review;
• has governance structures appropriate to its position within a department of state;
• has a structured framework for the regulation of the risk presented by non-prescription medicinal products; and
• a program of continuous improvement.

The Department notes that the audit commenced in October 2003, and many of the issues raised have already been addressed over the period of the audit as part of the TGA's continuous improvement program.

The Department agrees with all recommendations set out in the ANAO report.