Bureaucrats whose job is to measure goods have spoken of their fear of being harmed and offers of bribes as they check on illicit cigarette traders.
The concerns were raised in an auditor-general report tabled in federal parliament on Tuesday, which examined the industry department's National Measurement Institute.
Responsible for measuring $750 billion a year in traded goods, the institute has an agreement with the federal health department to undertake tobacco plain packaging information visits.
The auditor-general found the institute prioritised this work over its own responsibility for trade measure compliance.
"Further, the scope of this work has extended beyond the intended purpose of checking plain packaging to include examining whether traders are conducting illegal activities," the auditor found.
The report noted the health department paid the institute a retainer and penalised it if the expected number of visits did not occur.
Institute officers raised concerns about making the illicit tobacco compliance checks "and the risks to them associated with illegal activity".
"Officers have also reported incidents that occurred during visits, which indicated they were at physical and/or psychological risk," the report found.
"The (auditor) considers (the department's) response to officer concerns has been inadequate, given the seriousness of the matters raised and given its staff have no training in, or responsibility for, illicit tobacco matters and related criminality."
One inspector spoke of an incident in which a shop assistant went to the front door, locked it and removed the key, leaving him with no way to leave.
"After leaving the premises, I was followed and approached by the trader and offered what might be considered a bribe, not to report what I had witnessed in his store," the inspector said.
In another anecdote provided to the auditor-general, an officer went to a liquor outlet "and when inspecting a drawer which contained the tobacco to be inspected, identified a gun and knife in the same drawer".
"The liquor store attendant indicated that the gun was not real, and removed it from the drawer and took it elsewhere."
Some site inspections involved going to the premises of "underworld and bikie syndicates".
"Staff said they fear for their own and families' safety when conducting this type of work, especially when working in areas close to home. They felt that (the health department) need to involve the Australian Federal Police in these investigations."
The institute told the auditor-general in June it had developed a draft procedure for tobacco inspections.
"The draft procedure highlights the importance of safety of inspectors participating in the inspection program."
The health department told the auditor the monitoring and enforcement of plain packaging requirements was "an essential component of Australia's comprehensive approach to tobacco control".
"The inspection scheme undertaken by the National Measurement Institute achieves a high-quantity, low-time investment balance, to ensure that retailers of tobacco products receive the greatest possible exposure to compliance activities and information."
It said law enforcement agencies were engaged when suspected illicit tobacco products were found.
