A department spokeswoman said an external investigator had been brought in to determine whether the staff had breached the Australian Public Service code of conduct in relation to the outbreak.

This follows a damning report handed down in June by the former High Court judge Ian Callinan, who castigated the Australian Quarantine and Inspection Service, which is part of the department, for inefficiency, incompetence and systemic failure to do its job.

The former executive director of the AQIS, Stephen Hunter, moved aside immediately following the Callinan report and the Federal Government asked the Australian Public Service Commission to advise on whether disciplinary action was warranted against any other public servants.

The seven staff members who have now been referred for the formal investigation face penalties ranging from reprimands to dismissal if they are found to have breached the APS code of conduct, which sets out general standards of behaviour, work performance and ethical requirements for federal public servants.

The spokeswoman said it would be a formal investigation where the staff members would be afforded procedural fairness and given the opportunity to put their case.

"The investigation is being undertaken by an external investigator in order to ensure that the process is at arm's length from the department," she said.

The investigation was expected to be completed by the end of the year.

The Callinan report found that horse flu entered the country on four horses imported from Japan and taken to the AQIS quarantine station at Eastern Creek.