Separation of New Zealand Food Safety Authority and MAF

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1 Separation of New Zealand Food Safety Authority and MAF 7 May 2007 Report to the State Service Commission Doug Martin

2 Preface This report has been prepared for the State Services Commission by Doug Martin from Martin, Jenkins & Associates Limited (MartinJenkins). MartinJenkins is a New Zealand based consulting firm providing strategic management support to clients in the public, private and not-for-profit sectors. Our over-riding goal is to build the management capability of the organisations we work with. We do this by providing strategic advice and practical support for implementation in the areas of: organisational design and strategy public policy and issues management evaluation and research financial and economic analysis human resource management MartinJenkins was established in 1993, and is privately owned and directed by Doug Martin, Kevin Jenkins and Michael Mills.

3 Contents Introduction 1 The Approach 2 1. Accountabilities of MAF and NZFSA 4 2. Legislative Requirements 9 3. Financial Impacts Shared Services Human Resource Impacts Future Work Programme Recommendations 22

4 Introduction 1 The State Service Commission (SSC) has been asked by the Government to provide advice on the implications of separating the New Zealand Food Safety Authority (NZFSA) from the Ministry of Agriculture and Forestry (MAF), thereby creating a new Public Service department administering Food Safety. 2 The SSC has engaged Doug Martin as the external consultant to undertake the project. The schedule to the contract envisages a two-stage reporting process for the consultant: i ii the provision of advice to SSC on the possible structural options arising from the separation of NZFSA from MAF and a discussion of the relative merits of each option. The SSC would consider this advice and recommend alternative structures to the Ministers of Food Safety and Agriculture. The Ministers in turn would indicate their preferred structural option for the separation; following the identification of the preferred structural option, the provision of advice on the detailed financial, legal and human resource implications of separating NZFSA from MAF. The SSC would then provide the Minister of State Services with detailed advice on the implications, following which Ministers would then decide whether or not to proceed with the separation. 3 The first report was submitted on 30 March. It analysed three possible structural options. The analysis revealed a clear preference for an option that bases the establishment of a new department administering food safety on the current services and outputs of NZFSA as it presently operates as a semi-autonomous body attached to the Ministry of Agriculture. The SSC agreed that this was the preferred option and recommended accordingly to the Ministers of Food Safety and Agriculture. The Ministers, in turn, accepted the SSC s recommendation and expressed a strong preference that, if the separation were to occur, it should be implemented by 1 July This report deals with the issues relevant to the second stage of the reporting process. It provides advice to the SSC on the detailed financial, legal and human resource implications of separating NZFSA from MAF in accordance with the preferred option, and on a work programme for implementing the preferred option by 1 July Separation of New Zealand Food Safety Authority from MAF 1

5 The Approach 5 Within the context of the preferred structural option for the separation of NZFSA from MAF, the report has three principal objectives: i to provide sufficient detail on the financial, legal and human resource implications of the separation to allow Cabinet to make a final decision on whether or not to proceed; ii to define the work programme required to implement the preferred option by 1 July 2007; iii to ensure that both department s can operate in a sustainable manner. 6 Both MAF and NZFSA established project teams to focus on the following key areas: i ii legal requirements, including process requirements; the financial implications of the separation incorporating; corporate service capability requirements of NZFSA and the consequential impacts on MAF; identification of services to be shared and the associated cost allocations; identification of one-off costs of the separation (e.g. recruitment costs); the establishment of balance sheets for the new department and MAF, including the impact on other financial statements; iii the human resource implications of the separation, incorporating; the required corporate service functions and supporting positions in the NZFSA; the identification of the positions consequentially affected in MAF (Corporate); the identification of the scope for the transfer of affected staff from MAF (Corporate) to NZFSA; iv the protocols required to govern the relationship between MAF and NZFSA, having regard to the essential linkages between their respective functions. 7 A comprehensive report encompassing all of the issues pertinent to the final Cabinet decision was provided by MAF as an input into the review. This, in turn, provided the basis for the consultant s report to the SCC. The detailed workings that underpin the MAF report and that were attached as Appendices have been produced as a separate document to this report. Separation of New Zealand Food Safety Authority from MAF 2

6 8 Fonterra, the Meat Industry Association and the Ministry of Foreign Affairs and Trade were consulted on the implications of the separation. 9 The report is structured as follows: Part 1 confirms the accountabilities of MAF and NZFSA under the preferred structural option, and the supporting governance documentation; Part 2 summarises the legal requirements for effecting the separation, including process requirements; Part 3 summarises the overall financial impacts of the separation; Part 4 discusses the approach to the services to be shared between MAF and the new department, including the governance structure and documentation; Part 5 summarises the human resource impacts of the separation; Part 6 defines the work programme required to effect the separation by 1 July 2007; Part 7 contains the recommendations. Separation of New Zealand Food Safety Authority from MAF 3

7 1. Accountabilities of MAF and NZFSA 10 As noted earlier, the Ministers of Agriculture and Food Safety have agreed that the preferred option is to base the establishment of a new department administering food safety on the services and outputs that NZFSA is currently responsible for as a semiautonomous body within MAF. As part of the input into the first report to the SSC, NZFSA and MAF, at the request of the Minister for Food Safety, identified, by Vote, the outputs delivered by NZFSA and MAF and the relationship between those outputs. The results of this analysis were attached as Appendix 2 to the first report. 11 MAF and NZFSA have continued to refine the description of their respective roles, with a particular focus on inter-face between NZFSA, Biosecurity New Zealand (BNZ) and MAF Policy. The results of this work are contained in Appendices A and B of the separate document. It is important to appreciate that whilst nearing completion the descriptions remain work- in- progress. 12 The key objectives for the future are to: align responsibilities with essential expertise; align essential legislative delegations with responsibilities; avoid unnecessary duplication of effort and any confusion of responsibilities; capture synergies arising from common competencies between staff in NZFSA and BNZ in particular. 13 There are two areas where further clarification of responsibilities is required: leadership of international agricultural trade policy including Sanitary and Phytosanitary (SPS) roles, and the delivery of animal health certification and surveillance under the Animal Products Act. International Trade Policy and SPS 14 In respect of leadership of international trade policy, within the MAF/NZFSA setting, MAF Policy leads efforts to reduce the effects of trade barriers and other trade distortions impacting on exporters of primary products, including non-tariff barriers such as sanitary and phytosanitary measures. This involves work under the WTO Doha Development Agenda and Implementation, Free Trade Agreements and Closer Economic Partnerships, and Bilateral trade and cooperation. MAF s overarching focus on international trade, together with its expertise on economics and trade means that, within the MAF/NZFSA setting, leadership on international agricultural (and forestry) trade policy should be confirmed as resting with MAF Policy. Separation of New Zealand Food Safety Authority from MAF 4

8 15 In respect of SPS roles, MAF Policy, BNZ and NZFSA all provide input into such things as the setting of export standards, the provision of policy advice on SPS assurances and international arrangements and international coordination. NZFSA and BNZ provide both general policy and technical input into the development of agency and New Zealand positions on SPS issues, and have particular roles in leading New Zealand s input to the standard setting bodies recognised by the SPS Agreement and in working with competent authorities of trading partners. 16 The current mechanism for coordinating this effort is the SPS Forum and the SPS Coordination Group. The SPS Forum is chaired by MAF Policy and includes BNZ and NZFSA. MFAT attends for part of the meetings. The forum focuses on high level policy and strategy to achieve a whole of government perspective on SPS trade issues. Agreements reached in the forum guide negotiations on specific market access and technical issues. Both the SPS Forum and SPS Coordination Group provide a formal and regular mechanism for SPS related information sharing and consultation to take place so that robust SPS policy positions have developed. 17 Whilst the SPS Forum has provided a useful mechanism for coordinating efforts on SPS issues, the creation of a new department administering food safety provides an opportunity to sharpen accountabilities for ensuring cooperation at all levels in the respective departments and normalising relationships. Once these accountabilities and associated protocols are established, the focus of the SPS Forum should change. This issue is discussed further in paragraph Until recently MAF Policy has supported Codex work and has funded the Codex Committee sessions for Milk and Milk Products hosted in New Zealand. Over the past year, the Codex team at NZFSA has begun to subsume much of the Codex work carried out by MAF Policy. MAF Policy s interests are now more limited to assessing the effects of Codex standards in the wider trade and generic policy and sector performance areas. Under these circumstances it is appropriate that the Crown funding for the Milk and Milk Products Committee should be allocated to and managed by NZFSA. 19 The respective responsibilities of NZFSA and BNZ can be summarised as follows: BNZ is responsible for the administration of the Biosecurity Act including responsibility for animal and plant health. NZFSA is responsible for the administration of the Food Act (amongst other things) including responsibility for public health in the context of imported foods and for the importation, manufacture, sale and use of agricultural compounds and veterinary medicines under the Agricultural Compounds and Veterinary Medicines Act; Separation of New Zealand Food Safety Authority from MAF 5

9 BNZ and NZFSA will continue to have responsibility for the provision of official assurances to the competent authorities of foreign governments: Under the Animal Products Act, BNZ for germplasm and live animal exports, and NZFSA for all other animal products; Under market access arrangements for the export of plants and plant products, BNZ for phytosanitary assurances and NZFSA for food safety and related assurances; BNZ undertakes surveillance of plant and animal health in the context of the Biosecurity Act, the results of which are used as the basis of official assurances for animal and plant product exports 20 Recognising the essential linkages between BNZ and NZFSA and the need for efficient and effective service delivery, it is important to establish agreements that allow for: the use of BNZ surveillance programs to enable more stringent animal and plant health assurances required for NZFSA certification; both NZFSA and BNZ having the ability to authorise or accredit each others staff under legislation administered, and use them to maximise efficiencies. 21 These agreements should form schedules to the over-arching relationship agreement. Inter-departmental Relationships 22 As noted previously, the establishment of a new department responsible for administering food safety creates a platform for establishing a new set of expectations concerning the quality of relationships between NZFSA, MAF and MFAT, most notably in areas where essential linkages exist between their respective responsibilities. This emerged as the principal concern of Fonterra and Meat Industry New Zealand. These organisations were less concerned about machinery of government and more about outcomes, in particular that their engagement with responsible government departments was not compromised by a lack of cooperation/turf warfare between them on key issues of concern, particularly in international trade. This concern centred particularly on the relationship between NZFSA and MAF. 23 As a general observation, in the future considerably more will need to be done to build a culture of cooperation between NZFSA and MAF at all levels in the respective departments. There is still a tendency to go it alone on issues of key mutual concern. The State Services Commissioner, in reviewing the position description and performance agreement for the Chief Executive of NZFSA, should identify as a key area of accountability the development of a mature and cooperative relationship with MAF and MFAT at all levels. This expectation should similarly be expressed/ strengthened for the DG MAF. External stakeholders in particular would welcome Separation of New Zealand Food Safety Authority from MAF 6

10 consultation with the State Services Commissioner in the development of the position description and performance expectations for the Chief Executive of NZFSA. 24 It is within this context that the role of the SPS Forum and Coordination Group should be considered. The SPS Forum has, in a sense, been the default option, reflecting the lack of maturity in the relationship between NZFSA and other parts of MAF. It has become a decision-making forum, where perfectly good decision-making processes already exist. There is a risk that decisions are taken on issues within the wrong context, that is, through an SPS lens only. Whilst the SPS Forum and Coordination Group should continue in the short-term, the Forum s focus should ultimately shift to one of regular engagement between Deputy Secretaries for the purpose of information exchange only, including the development of SOI s. 25 In terms of the future relationship between NZFSA and MAF, the first report to SSC indicated that an over-arching relationship agreement was proposed, under which will sit specific schedules relating to particular areas of the relationship-policy advice, operational relationships, emergency response and the like. In the event that Cabinet decides to proceed with the separation, this agreement and accompanying schedules will need to be in place by 1 July. The important point is that the expectations expressed in the over-arching agreement and supporting schedule cascade down through both departments. It was also noted that the Officials Committee on Food Safety, which is chaired by NZFSA, would continue to function as per current arrangements. Emergency Response 26 As noted in the first report to SSC, the National Response Centre (NRC), chaired by the DG of MAF, responds to major biosecurity, food safety or related threats. The DG has decision making rights. For major events, the NRC reports to relevant Ministers and ODESC and DESC. The report noted that NRC should be retained, but flagged that consideration should be given to the establishment of a similar centre in NZFSA to lead on food events with impacts on agriculture (e.g. an E-coli event related to horticulture). The paper also noted the potential for ambiguities at the boundaries of the responsibility between MAF and NZFSA, such as a BSE outbreak. 27 The possibility of ambiguities at the boundaries of the responsibilities of MAF and NZFSA raises the question of whether one official only should be responsible for major biosecurity, food or related threats. 28 Whilst this possibility has merit, and perhaps warrants further consideration, it would have the effect of cutting across the respective legislative accountabilities of MAF and NZFSA, as defined in the Biosecurity Act, the Animal Products Act, the Food Act and the Health Act. The important point is that if NZFSA is to mirror the NRC framework to Separation of New Zealand Food Safety Authority from MAF 7

11 deal with food safety emergencies, then a mechanism will need to be developed to ensure that the swiftness of the required response is not delayed by uncertainties over which department should take the lead. ODESC is the appropriate forum to consider issues of this nature. Separation of New Zealand Food Safety Authority from MAF 8

12 2. Legislative Requirements 29 MAF has largely completed a review of the legislation relating to the separation of NZFSA (see Appendix C of the separate document). In essence, NZFSA can be set up as a separate department of state by Order in Council under the State Sector Act. The Ombudsmen Act will also need to be amended by Order in Council to include the new department. 30 In respect of the State Sector Act, Schedule 1 would be amended to insert New Zealand Food Safety Authority into the list of Departments of the Public Service. This would be by way of an Order in Council made under section 30A of the State Sector Act. The Order could also apply the employee provisions relating to the reorganisation as provided in section 30C of the Act. 31 In respect of the Ombudsmen Act, Schedule 1 would be amended to insert New Zealand Food Safety Authority in the list of departments subject to the Ombudsmen Act. This would also have the consequential effect of applying the Official Information Act 1982 to the NZFSA. The amendment would be by Order in Council under section 32 of the Ombudsmen Act. 32 A number of Acts should be consequentially amended, as the opportunity arises, following the establishment of NZFSA: The Flags and Emblems and Names Protection Act. NZFSA should be included in section 20(3) of the Act to ensure that its international brand is protected for trade reasons. This amendment could be included in a Statutes Amendment Bill; The Health Act. Section 22C(2)(h) should be amended to delete reference to Ministry of Agriculture and Forestry and insert New Zealand Food Safety Authority. This section relates to disclosure of health information for the purpose of administering the Animal Products Act and will be rendered inoperative at the point of separation. This could also be included in a Statutes Amendment Bill; The Animal Products Act Crown Law advise the Prime Minister cannot allocate functions under the Act to two government departments (and also two Chief Executives and most likely two Ministers) without an amendment to the Act. In the short term, the allocation of responsibilities and powers can be managed by way of a delegation, but the government s goal of clearly separating accountabilities between MAF and NZFSA can only be met by an amendment to the Act The Prime Minister will need to allocate responsibility for the Animal Products Act the Agricultural Compounds and Veterinary Medicines Act, the Food Act and the Wine Act. Separation of New Zealand Food Safety Authority from MAF 9

13 3. Financial Impacts Costs of Separation Operational and Set-up costs 33 The design and costing of the proposed corporate structure for the separate departments is based on the existing corporate resource levels for MAF, which were approved by Cabinet in 2005 following an independent review of MAF s corporate capability. The key assumptions that underpin the costings are: they are based on current expenditure and/or the 2006/07 budget, with no allowance for cost increases; the new corporate positions in the NZFSA structure are costed at estimated base salary plus 45% on-costs, being the variable costs in the 2006/07 budget for MAF Corporate; the potential savings identified by MAF are based on actual salaries saved plus specific on-costs, which vary from 8% to 33%; the estimated payment for shared services is based on the proposed allocation for corporate overheads for 2007/2008; allowance has been made for the direct transfer of staff from to MAF to NZFSA. 34 On this basis, the on-going operating cost of separating NZFSA from MAF is estimated to be $2.95 million per annum. One-off set-up costs for MAF and NZFSA amount to an additional $0.63million. Separation of New Zealand Food Safety Authority from MAF 10

14 35 The make-up of the additional costs is summarised as follows (refer Appendix D of the separate document for detailed costings). Costs of Separation Operating Costs Cost to NZFSA Additional Expenses Less reduced payment to MAF for Corporate Services Net Cost to NZFSA Cost to MAF Reduced payment from NZFSA for Corporate Services Less possible cost savings Net Cost to MAF $000 s 3,436-1,971 1,464 1, ,483 Total Additional Operating Costs 2,948 One-Off Costs NZFSA MAF Total Additional One-Off Costs The additional costs arise from the indivisible and non-scalable nature of some of the necessary corporate infra-structure for running a department. For example, both MAF and NZFSA will require a CEO, CFO and other key personnel. Accountability and audit requirements will also need to be met and resourced separately by each department. While there will be some reductions in infra-structure requirements for MAF, they do not fully off-set the increased costs from establishing NZFSA as a new department. 37 Thus, the additional expenses of $3.436 million for NZFSA are primarily a reflection of the need for an extra 15 full-time positions to build the corporate service capability of NZFSA as a new stand-alone department. On the other hand, the consequential reduction in MAF FTE s arising from reduced infra-structure requirements amounts to the equivalent of 4 full-time positions. The savings arising from these and other initiatives (principally transfers from the D-G s office to NZFSA, off-set by the need for an additional FTE to manage shared services) amounts to $0.49 million. Separation of New Zealand Food Safety Authority from MAF 11

15 38 The additional costs are considerably less than previous estimates of separating NZFSA from MAF, principally because of the identification of opportunities for shared services, most notably in information management (IM). The services that will be shared between the NZFSA and MAF include those of both a transactional (FMIS, accounts payable and receivable, payroll) and tactical (IM, procurement, contracts management) nature. These, together with contracts for specialist advice, will result in a payment from NZFSA to MAF of $5.9 million (80% of which is accounted for by IM). This represents a reduction of $1.97 million in the payment that is currently made by NZFSA to MAF. Funding the Additional Cost 39 Clarity is required concerning the funding of the separation because the human resource impacts and hence the implementation path vary depending on the funding option selected. 40 There are three options to fund the costs of separating NZFSA from MAF: i ii iii fully fund the costs through Crown Revenue; fully fund through a mix of Crown and third party revenue (in line with cost recovery policies in MAF/NZFSA); or fund either wholly or partially, through baseline savings. 41 The first option would allow the separation to occur without any impacts on support service delivery in MAF or NZFSA or on levies on industry. It would also mean that the human resource impacts of the separation were minimal, thereby smoothing the implementation path. This option would however, represent a departure from current policies on cost recovery. 42 The second option, partial cost recovery, cannot be implemented in the 2007/08 year because the cost recovery regulations have already been set for that year. However, the Crown could fully fund the additional costs in 2007/08, and move to partial cost recovery from 2008/ As with option (i), this option would allow the separation to occur without any impacts on support service delivery in MAF or NZFSA, and smooth the implementation path. It is also consistent with current cost recovery policies. On the other hand, increasing levies to fund the separation would be negatively received by levy payers (industry), some of whom have concerns about the impacts of the separation on the ease with which they will engage with government agencies, particularly on trade access issues. 44 In respect of option (iii), funding the separation either wholly or partially from baseline savings could be achieved either through savings from the corporate groups, and/or Separation of New Zealand Food Safety Authority from MAF 12

16 savings from the operating business groups through an increase in the corporate charge. Up to $2.9 million in savings would be required. In either case, a reassessment of the human resource impacts of the separation would be required and as a consequence of this, the implementation path. 45 For example, if the costs were to be funded from within corporate services, the initial analysis undertaken by MAF indicates that it would have up to 8.6 surplus FTE s within its corporate group, after allowance is made for the transfer of staff to NZFSA. It is possible that some of these surplus staff could be re-deployed to NZFSA. Failing this, a one-off redundancy cost of approximately $0.34 million would be incurred. MAF do not believe that their corporate services would be left in a viable state. 46 An adjustment of this magnitude would represent a departure from the recent investments in MAF s corporate capability, given the non-scalable and non-divisible nature of a number of the corporate service functions. The implementation process for the separation would also be more time-consuming, given the required processes to be undertaken for the transfer of staff to NZFSA and for the management of surplus staff. This would make it difficult to achieve separation by 1 July On the other hand, if the savings were funded by an increase in the corporate charge to the operating business groups in MAF and NZFSA (or some combination of a higher charge and savings in corporate support) then the negative impact on the quality and quantity of corporate services would be eliminated or reduced. However, the cost of corporate services would be disproportionate to the size of the vote, there would be no incentive for corporate groups to be efficient in the delivery of services, and some (albeit relatively small) reductions in outputs may be required to fund the increase. 48 In summary, a decision to fund the additional costs from baseline savings will have greater human resource impacts and further complicate implementation, given the need to manage both staff transfer and surplus staffing processes. A 1 July commencement would be difficult to achieve in these circumstances. Working Capital 49 MAF currently has low working capital balances and must carefully manage its liquidity. The establishment of separate balance sheets for MAF and NZFSA, and the consequent allocation of balance sheet items to the two departments, will reduce the flexibility of each department to manage working capital and may increase liquidity risks. Whilst cashflow demands of the two departments can be managed by increasing the frequency of appropriation draw-downs, it would be prudent to review their cashflow requirements in the future to establish whether a one-off capital injection is required to bring working capital to manageable levels. Separation of New Zealand Food Safety Authority from MAF 13

17 Future Replacement of Fixed Assets 50 There is currently no surplus cash available within MAF and as a consequence future capital acquisitions will need to be funded from future depreciation flows. Capital expenditure forecasts suggest that future depreciation flows will be insufficient to fund capital expenditure requirements, with potential funding shortfalls of $2.2 million in 2007/08 and $0.5 million in 2008/ The separation of balance sheets will exacerbate MAF s position. This is because the forecast capital shortfall of $2.2 million to 2007/08 comprises a shortfall of $3.5 million in MAF, offset by a $1.2 million funding surplus in NZFSA. With the separation of the balance sheets, the NZFSA funding surplus will need to be retained within NZFSA for future capital replacement. 52 A one-off capital injection of $1.2 million may therefore be required for MAF to ensure that its projected capital shortfall is not further exacerbated by the separation of balance sheets. Management of Future Fixed Asset Liabilities 53 A significant proportion of the fixed assets used by NZFSA are either owned or leased by MAF, which creates future liabilities in the form of future depreciation expense or lease payments. These future fixed asset liabilities will need to be managed by allocating ownership of assets to each department where possible, or by establishing clear responsibilities for future liabilities through shared services agreements. Separation of Accounts 54 The establishment of a separate entity in FMIS for NZFSA is unlikely to be completed by 1 July, to coincide with the start of the new financial year. However, the existing chart of accounts is sufficiently segregated to allow MAF and NZFSA to continue to operate using existing systems and bank accounts, while still maintaining the ability to report separately at a later date, once the necessary changes have been made. Separation of New Zealand Food Safety Authority from MAF 14

18 4. Shared Services 55 MAF and NZFSA have substantially reached agreement on the services that they can share, separately provide, or jointly contract (Appendix E of the separate document provides the full description). The governance arrangements and service agreements remain areas for further work. 56 NZFSA propose to purchase the following services from MAF corporate, for a proposed payment of $5.9 million: Contract Management; Procurement Services; Financial Services (FMIS and Accounts); Payroll; Information Management. 57 There is need for a reasonable period of stability and certainty in the shared services relationship between NZFSA and MAF, particularly in areas of major investment such as IM and FMIS. An overarching agreement between NZFSA and MAF covering a term of 5 years would provide reasonable certainty, given the natural life-span of the major investments, and would also provide the government with some assurance on the on-going containment of costs. A review after, say, 2 or 3 years should be built into the agreement. Given that NZFSA has been accessing MAF infra-structure for many years, a 5 year commitment is not unduly onerous. The schedules to the over-arching agreement would comprise the service level agreements for each of the services being purchased by NZFSA. 58 In respect of the governance arrangements, the key is to keep the structure simple. A committee comprising the Chief Executives of MAF and NZFSA, supported by their respective corporate service heads would suffice, serviced by the new position of Manager, Shared Services. The two Chief Executives would have equal say. The Committee s terms of reference would be to: establish the over-arching agreement for shared services, which would provide the framework for the negotiation of the detail of services on a service by service basis (the ensuing Service Level Agreement s would become schedules to the over-arching Shared Service Agreement); approve the Service Level Agreements for each service and decide any outstanding issues arising from the service by service negotiations; agree on major strategic investments for shared infra-structure, including the capital and operating funding required to support these; Separation of New Zealand Food Safety Authority from MAF 15

19 agree, where required, on applications to Treasury or Cabinet for baseline or new funding relating to shared services (including proposals from either party to separate services currently shared); review the operation of the shared services initiative after 2 or 3 years. 59 The governance structure, the overarching agreement, and the supporting SLA s should ideally be in place by 1 July. If this is not feasible, then transitional arrangements will be necessary to ensure continuity of services. Separation of New Zealand Food Safety Authority from MAF 16

20 5. Human Resource Impacts 60 Assuming that the costs of the separation are fully funded, the human resource impacts are minor. 61 The State Services Commissioner will need to appoint an Acting Chief Executive, who will assume the responsibilities of the Chief Executive of NZFSA from the date of establishment NZFSA as a public service department. 62 In respect of employees who occupy positions that are responsible for the discharge of the functions that are being transferred to NZFSA as a public service department, only one position will substantively change as a result of the separation (Director Corporate Affairs) and this will require a separate change process. All other employees will be offered appointments by the Chief Executive to positions in the new department that are the same as their present positions on their current terms and conditions of employment. The legislative authority for this will be by way of an Order in Council under section 30C of the State Sector Act. Compensation will not be available to such employees because of the operation of section 30E of the State Sector Act. 63 As noted in section 3, provision has been made for 15 new positions to enhance the corporate capability of NZFSA as a new department. The breakdown of these is as follows: 2 new executive assistant positions, one for the Director, Corporate Affairs and one for the Director, Finance; 2 new finance positions, including the new position of Director, Finance; 3 new HR positions, including the new position of Manager, HR; 2 planning advisers; 2 new positions in IM, including the new position of Chief Information Officer (the current establishment in IM will be reduced by 1, which means a net addition of 1 FTE); 3 new positions in Legal, including a new position of Chief Legal Adviser; 1 new position in Ministerial Servicing; 1 new position responsible for SPS co-ordination. 64 For an organisation of the size of NZFSA, these additional positions are assessed as being the minimum necessary for viable corporate support as a stand-alone department, having regard to the extent of shared services between MAF and NZFSA. Recruitment will commence for these new positions immediately following the establishment of the new department. Separation of New Zealand Food Safety Authority from MAF 17

21 65 The Director positions in NZFSA will need to be re-sized to take account of their enhanced accountability as second-tier positions. The State Services Commissioner will size the Chief Executive s position once the position description is finalised. 66 In respect of MAF, the consequential staffing impacts are small, amounting to a reduction of 4 positions, 2 from legal services (MAF will not fill 2 existing vacancies), and 2 from human resources (which will possibly be transferred to NZFSA). As noted previously, this reflects the non-scalable and non-divisible nature of those support services which have a whole of organisation focus (e.g. Strategy and Performance Group, Strategic Maori Unit, Corporate Assurance and Risk). 67 Despite the reduction in the size of MAF, the level of support services proposed is not excessive. 68 As noted earlier, MAF has made a preliminary assessment of the impact on corporate services if the shortfall of $1.5 million in funding was to be met by savings in the corporate services baseline. Most of the shortfall would come from the disestablishment of 8.6 FTE s, a number of whom could possibly be appointed to positions in NZFSA (which would reduce redundancy costs only). The disestablished positions are spread fairly evenly across the corporate groups and MAF is of the view that it would threaten the viability of its corporate services. It would also introduce additional complications to implementation and make a 1 July implementation date unlikely. 69 A consultation document is in preparation from a MAF perspective and will be finalised and distributed to affected staff as soon as Cabinet makes the final decision to proceed. NZFSA should input into this document to ensure that all affected staff can view the totality of the change. Separation of New Zealand Food Safety Authority from MAF 18

22 6. Future Work Programme 70 The work programme required to establish the new Food Safety Department is set out below, together with the agency responsible for each of the work-streams and the associated timeline. This has been pitched at a relatively high level. Work-stream Relationship Agreements Prepare and agree on over-arching relationship agreement between MAF and NZFSA, together with supporting MOU s etc Review the appropriate mechanism for dealing with responses to biosecurity, food and related threats Legal Prepare drafting instructions for Orders in Council under the State Sector Act and the Ombudmens Act Responsible Agency MAF/NZFSA DPMC (ODESC) SSC Timeline Required by 1 July Required by 1 July OIC s need to be promulgated by 1 July Prepare drafting instructions for amendments to the Health Act and the Flags, Emblems and Names Protection Act Prepare drafting instructions for amendments to the Animal Products Act Prepare instrument of delegation under the Animal Products Act Prepare instruments for Prime Minister to allocate responsibility under various Acts NZFSA NZFSA MAF/NZFSA MAF/NZFSA For incorporation in a Statutes Amendment Bill. Not required by 1 July. Not required by 1 July, but ideally the amendment should be made this year. Required to be executed by 1 July Required to be executed by 1 July Separation of New Zealand Food Safety Authority from MAF 19

23 Work-stream Finance Establish a separate entity in FMIS for NZFSA. This requires: Set up of new chart of accounts Separation of existing ledger systems Separation of existing balance sheets Development of reporting Establish separate debtor and creditor accounts Establish new bank accounts and change deposit and payment interfaces Change administrative functions (eg filing, stationery, processes, insurance) Staff recruitment. Responsible Agency MAF Timeline 3 to 6 months for separate chart of accounts Shared Services Prepare and agree over-arching Shared Services Agreement MAF/NZFSA Ideally by 1 July Negotiate SLA s service by service MAF/NZFSA Ideally by 1 July Establish governance structure MAF/NZFSA Ideally by 1 July Establish SLA s or appropriate documentation for contracted specialist services Agree on transitional arrangements for continuity of services where necessary MAF/NZFSA MAF/NZFSA Ideally by 1 July Required by 1 July as default option Separation of New Zealand Food Safety Authority from MAF 20

24 Work-stream Human Resources Draft position description for CE NZFSA for consultation with Ministers and Stakeholders Finalise position description following feedback from consultation Size the position of CE NZFSA and establish remuneration level Responsible Agency SSC SSC SSC Timeline Draft available by end of May Early June Mid-June Decide on and announce Acting CE NZFSA SSC Mid June Prepare and release consultation document on proposed changes arising from the separation of NZFSA from MAF Finalise and announce final decisions following feedback from consultation Effect the transfer of affected staff from MAF to NZFSA in accordance with contractual obligations Appoint non-affected staff currently engaged in NZFSA to the new department on current terms and conditions of employment (OIC backing). Letters of offer of appointment to each staff member to be prepared in advance Re-deploy affected position in NZFSA to new position in new department MAF/NZFSA MAF/NZFSA MAF/NZFSA Acting CEO, NZFSA Acting CE NZFSA Release end of May Second week in June Completed by 1 July With effect from 1 July With effect from 1 July Re-size Directors positions in NZFSA Acting CE NZFSA Following 1 July-results backdated to 1 July Advertise and recruit to new positions in NZFSA Acting Director NZFSA Commence process post 1 July Separation of New Zealand Food Safety Authority from MAF 21

25 7. Recommendations 71 It is recommended that SSC: a) In respect of the accountability of NZFSA and MAF Agree to incorporate within the position description and performance agreement for the Chief Executive of NZFSA clear accountability for the establishment of a mature and cooperative relationship with MAF and MFAT at all levels in the new department Agree to replicate this accountability in the performance agreement for the DG of MAF Note that external stakeholders would appreciate being consulted on the position description for the CE of NZFSA In light of the enhanced accountability on the CEs of both NZFSA and MAF, note that the SPS Forum should cease to be a decision-making mechanism and become a forum for Deputy Secretaries to exchange information, including on the development of SOIs Note that MAF and NZFSA will be proceeding to negotiate and conclude by 1 July an over-arching relationship agreement, with SLAs governing the essential linkages between the two departments being attached as schedules Note that ODESC should oversee a review of the mechanism for responding to biosecurity, food and related risks, having regard to the ambiguities that exist at the boundaries of MAF/NZFSA responsibilities Note that Crown funding for the Milk and Milk Products Committee should be transferred to NZFSA Note that NZFSA and MAF are continuing to refine the descriptions of their respective accountabilities and responsibilities b) In respect of legal implications of the separation Note that a new Public Service Department administering food safety can be established by an Order in Council made under the State Sector Act 1988 Note that an Order in Council under the Ombudsmen Act will also be required to bring the NZFSA under the Act Note that consequential amendments will be required in due course to the Health Act 1956 and the Flags, Emblems and Names Protection Act 1981 and that these could be included in a Statutes Amendment Bill Separation of New Zealand Food Safety Authority from MAF 22

26 Note that an amendment will be required to the Animal Products Act to enable the Prime Minister to allocate functions and powers to more than one department, CE or Minister Note that, in the interim, the government s objectives in relation to the exercise of functions and powers under the Animal Products Act can be met by way of a delegation c) In respect of the financial impacts of the separation Note that the additional cost of establishing NZFSA as a public service department is $2.95 million per annum, with one-off costs of $0.63 million Note that the additional costs arise largely from the non-scalable and nondivisible nature of whole of department focussed corporate services in MAF, with the result that the savings possible in MAF from reduced infrastructure fall well short of the additional costs incurred by NZFSA in building necessary corporate capability Note that notwithstanding the cost is considerably less than previous estimates because of the opportunity of shared services between NZFSA and MAF, to the value of $5.9 million Note that the additional costs could be funded either fully by the Crown, by a combination of Crown funding and levies (not possible to fully implement until 2008/09), or from existing baselines Note that clarity is required on the funding option because it will affect the extent of the human resource impacts and the implementation path Note that a decision to fund the additional costs from baseline savings will complicate the implementation path and make a 1 July start-up date unlikely Note that a one-off capital injection of $1.2 million may be required to ensure that MAF s available capital funding is not disadvantaged by the proposed separation of balance sheets Note that it would be prudent to review the working capital requirements of NZFSA and MAF once NZFSA is established as a separate department Note that it will not be possible to establish a separate entity in FMIS for NZFSA by 1 July, but that the existing chart of accounts is sufficiently segregated to allow MAF and NZFSA to continue to operate with existing systems and bank accounts, while maintaining the ability to report separately at a later date once the necessary changes have been made d) In respect of shared services Note that NZFSA and MAF have largely reached agreement on the services that will be shared, jointly contracted, and provided separately Separation of New Zealand Food Safety Authority from MAF 23

27 Note that in order to secure a reasonable period of stability and certainty in the shared services relationship, particularly in areas where major investments are involved, MAF and NZFSA should put in place an overarching agreement for a term of 5 years, with a review clause after 2 or 3 years Note that this over-arching agreement will provide the framework for the negotiation of service by service SLA s Note that this agreement, together with the SLA s, should ideally be in place by 1 July, but that if this proves not to be feasible, transitional arrangements will need to be put in place to ensure continuity of service Note that the preferred governance model is a committee comprising the Chief Executives of MAF and NZFSA, supported by their respective corporate service heads, and serviced by the Manager, Shared Services, in which both departments have equal voice e) In respect of the human resource impacts Note that if the additional costs are fully funded, the human resource impact will be minor Note that the State Services Commissioner will be required to appoint an Acting Chief Executive NZFSA for a 1 July start-up Note that only one staff member currently employed within NZFSA, the Director Corporate Affairs, will be affected by the change Note that non-affected staff currently employed within NZFSA will be offered the same position in the new department on the same terms and conditions of employment, and that compensation for technical redundancy will not be available to such employees as a consequence of the operation of section 30E of the State Sector Act Note that 4 positions are surplus in MAF as a result of the separation, two of which are currently vacant, with the remaining two employees likely to be offered positions in NZFSA on the same terms and conditions of employment, and that compensation for technical redundancy will not be available to such employees as a consequence of the operation of section 30E of the State Sector Act Note that the 15 new corporate service positions in NZFSA are assessed as the minimum necessary for an organisation of the size of NZFSA, having regard to shared services; Note that a consultation document is being prepared and will be distributed to affected staff immediately following the Cabinet decision f) In respect of the work programme Separation of New Zealand Food Safety Authority from MAF 24

28 Note the programme of work required to establish NZFSA as a new public service department Separation of New Zealand Food Safety Authority from MAF 25

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