FISCAL YEAR 2002 FISCAL YEAR 2002 

RAPED MT ENT OF HEA LTH & HUMAN SERVICES • USA U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES 

PUBLIC HEALTH SERVICE 

FOOD AND DRUG ADMINISTRATION 

FDA's Annual 

Financial Report 

U.S. Department of Health and Human Services 

Food and Drug Administration 

Annual Financial Report 

Fiscal Year 2002


T A B LE O F C O NTENTS 

Page 

Message from the Deputy Commissioner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .i


Message from the Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii


Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii


Section I - Management Discussion and Analysis 

Agency Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-1


Foods Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-17


Human Drugs Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-25


Biologics Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-33


Animal Drugs and Feeds Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-41


Devices and Radiological Health Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-47


National Center for Toxicological Research Program . . . . . . . . . . . . . . . . . . . . . . . .I-55


Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-61


Section II - Consolidated Financial Statements 

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-2


Consolidated Statements of Net Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-3


Consolidated Statements of Changes in Net Position . . . . . . . . . . . . . . . . . . . . . . . .II-4


Consolidated Statements of Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-5


Combined Statements of Budgetary Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-6


Notes to Consolidated Principal Financial Statements . . . . . . . . . . . . . . . . . . . . . . .II-7


Section III - Required Supplementary Information (Unaudited) 

Combining Statements of Budgetary Resources . . . . . . . . . . . . . . . . . . . . . . . . . . .III-2


Supplemental Consolidating Statements of Net Cost by Expense Type & Program III-4


Deferred Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .III-6


Intragovernmental Transactions – Intra-governmental Assets . . . . . . . . . . . . . . . . .III-7


Intragovernmental Transactions – Intra-governmental Liabilities . . . . . . . . . . . . . .III-8


Intragovernmental Transactions – Intra-governmental Revenues and Expenses . . .III-9


Section IV - Required Supplementary Stewardship Information (Unaudited) 

Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .IV-1


Section V - Reports on the Audit of FDA’s FY 2002 Financial Statements 

Office of Inspector General’s Transmittal Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . .V-2


Independent Auditors’ Report on Consolidated Financial Statements . . . . . . . . . . . .V-5


Independent Auditors’ Report on Internal Control over Financial Reporting . . . . . .V-7


Independent Auditors’ Report on Compliance with Laws and Regulations . . . . . .V-10


Agency’s Response to Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . .V-12


Appendices 

Description of FDA User Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Appendix 1


FDA Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Appendix 2


FDA’s FY 2002 Annual Financial Report


December 16, 2002 

Deputy Commissioner’s Message 

I present to you the Food and Drug Administration’s (FDA) Annual Financial 

Report for fiscal year (FY) 2002. I am pleased to report that FDA has earned 

its fifth consecutive “clean” opinion on its audited financial statements. By 

comparing the fiscal information from these statements with the summary performance information reported under the Government Performance and Results 

Act, FDA is able to demonstrate how this investment yields valuable results. 

After the events of September 11, 2001, protecting our homeland has become 

more important than ever before. As the nation’s foremost consumer safety 

organization, FDA strives to assure a safe food supply through critical science-based prevention strategies; 

ensures medical product safety and their use by millions of Americans; brings safe and effective new technologies to a world-wide market; and monitors emerging hazards through surveillance systems and monitors about 

eight million import shipments that enter the United States. Additional FY 2002 resources allowed FDA to 

facilitate the availability of new bioterrorism tools accelerating the availability of medical products necessary for 

public health preparedness and to strengthen its surveillance, investigational, and laboratory support for detection and management of product contamination for foods, medical products, and blood. 

The President’s Management Agenda (PMA) lays out the framework for an effective Federal government that is 

citizen centered and results-oriented. During FY 2002, FDA made progress in accomplishing the PMA and the 

Department of Health and Human Services (DHHS) Secretarial goal of becoming “one HHS.” The PMA 

includes five government-wide initiatives: Strategic Management of Human Capital, Competitive Sourcing, 

Improved Financial Performance, Expanded Electronic Government, and Budget and Performance Integration 

The Secretary is promoting changes to consolidate, streamline, and standardize administrative programs 

throughout DHHS. In line with his plan, in FY 2002, FDA took the first steps toward consolidating its administrative functions. A few FDA PMA activities include the first phase of de-layering the organization; the development of plans to implement a new financial system in conjunction with the DHHS initiative; the study of the 

creation of a “shared service” organization; and continued preparation for the consolidation of the agency at the 

White Oak Federal Center. 

The Reports Consolidation Act of 2000 requires that I, as the Agency Head, give an assertion on the information 

in this report. So, as acting Agency Head, I assert that the financial information in this report is complete and 

reliable, based on data in FDA’s financial information systems, and is reported in conformance with Generally 

Accepted Accounting Principles. Further, it has been deemed to “fairly represent” the financial condition and 

results of operation of the Agency by the Department’s Office of Inspector General. For program performance 

information, the FY 2003 Performance Plans and Reports of HHS components will include descriptions of the 

means HHS programs use to verify and validate performance data and related data issues, including the completeness and reliability of the data. Where required, the programs have included discussions of actions planned 

and completed to improve the completeness and reliability of data. 

I welcome your interest in FDA and its programs. In these challenging and uncertain times, taxpayers can be 

assured that FDA stands ready to protect the health and well being of all Americans. 

Lester M. Crawford, D.V.M., Ph.D. 

i 

FDA’s FY 2002 Annual Financial Report


December 16, 2002 

Message from the Chief Financial Officer 

I am pleased to present you with the Food and Drug Administration’s Annual 

Financial Report for fiscal year (FY) 2002. The goal of this report is to update 

you on our stewardship of resources and how we are achieving the Agency’s 

mission. 

This is the fifth consecutive year FDA has received an unqualified opinion on our financial statements. It is also 

the fifth consecutive year that our auditors did not identify and report material weaknesses in FDA’s internal 

controls. The FY 2002 financial statements have been prepared in accordance with all new accounting standards 

that were effective for FY 2002 by the Office of Management and Budget and the Federal Accounting Standards 

Advisory Board. We will continue to work diligently to implement all new accounting standards in a timely 

manner. 

FDA is making progress in implementing the President’s Management Agenda (PMA) and the Department of 

Health and Human Services’ Secretarial goal of becoming “one HHS.” The PMA lays out a framework for an 

effective Federal government accomplished through five Executive Branch-wide initiatives addressing human 

capital, financial management, electronic government, competitive sourcing, and budget and performance 

integration. The “one HHS” initiative is the Secretary’s goal to consolidate, streamline, and standardize 

administrative programs throughout HHS. 

In FY 2002, our progress included the completion of the first phase of de-layering the organization; the development of plans to implement a new financial system in conjunction with the DHHS initiative; and the study of the 

creation of a “shared service” organization. This is an opportune time for FDA as we continue the process of 

consolidating many decentralized headquarters operations into one location at the White Oak Federal Center. 

In response to the terrorist attack of September 11, 2001, and with additional FY 2002 resources provided by 

Congress, FDA quickly hired a substantial number of field staff that will increase our ability to ensure the safety 

of the national food supply and other regulated products. Other investments were made to strengthen our 

surveillance, investigational, and laboratory support capabilities for detection and management of product 

contamination of foods, medical products, and blood. 

Working in partnership with FDA’s program managers, my staff and I support the Commissioner’s priorities by 

providing oversight and cost effective, strategic management of the Agency’s limited resources. As CFO, I 

remain fully committed to the stewardship responsibilities needed to continue to maintain the highest level of 

accountability for the management of the Agency’s financial resources. 

We appreciate your interest in this report and hope that you find it useful and informative. If you wish to 

discuss this report, please contact Peter Kelchner, Chief, Division of Accounting’s CFO Liaison Branch at 

Pkelchne@oc.fda.gov or 301-827-4792. 

Jeffrey M. Weber 

iii 

FDA’s FY 2002 Annual Financial Report


Preface 

As an operating division of the Department of Health and Human Services (DHHS), the 

Food and Drug Administration (FDA) is required to produce an annual financial report 

covering the previous fiscal year. 

The FDA’s Annual Financial Report contains five sections (management discussion and 

analysis, principal consolidated financial statements and notes, required supplementary 

information, required supplementary stewardship information, and the Inspector General 

audit reports) and two appendices. 

Section I – “Management Discussion and Analysis” (MD&A) is designed to provide a 

high level overview of the Agency’s mission and how it accomplishes that mission. FDA 

has organized its MD&A into eight chapters containing the following: 

• Agency Overview Chapter - Reviews the major events and cross-cutting issues in 

the Fiscal Year 2002. Provides an overview of the mission, strategic direction, 

organizational structure, governing laws, and resources. Discusses the Agency’s 

compliance to systems, laws and controls including Integrity Act assurances, 

performance data reliability, and use of net costs. Presents the challenges and 

future trends facing FDA. 

• Six Program Chapters -	 Provides mission description, major accomplishments, 

and key performance goals and results. The six programs are: Foods, Human 

Drugs, Biologics, Animal Drugs and Feeds, Devices and Radiological Health, and 

National Center for Toxicological Research. 

• Financial Performance Chapter 	– Highlights progress made under the President’s 

Management Agenda and Secretarial Management Goal. Reports on key 

administrative accomplishments and financial performance goals. Analyzes FDA’s 

financial statements and discusses the Agency’s financial condition. 

Section II – “Consolidated Principal Financial Statements” provides the principal financial statements and explanatory notes. 

Section III – “Required Supplementary Information” contains unaudited financial statements that provide a level of detail regarding the status of budgetary resources, net costs 

by program and by type, deferred maintenance, and intragovernmental transactions in three 

categories (assets, liabilities, and revenues and expenses). 

Section IV – “Required Supplementary Stewardship Information” reports on research and 

development expenses covered under stewardship reporting. 

Section V – “Reports on the Audit of FDA’s FY 2002 Financial Statements” contains the 

Office of Inspector General’s Transmittal Letter; three auditors’ reports on consolidated 

financial statements, internal controls over financial reporting, and compliance with laws 

and regulations; and the FDA response to the auditors’ report. 

Appendices – Provides explanatory information on FDA’s user fee programs and defines 

a list of FDA acronyms used in the report. 

v 
PREFACE


Acknowledgements 

We would like to recognize the following people among the many, for their contribution 

to the FY 2002 FDA Annual Financial Report: 

Patricia Arnwine, Dave Beranek, Butch Bosin, Robin Brooks, John Ford, Walt Goetz, Jay 

Graff, Michelle Hawley, Donna Page, Jerry Paull, Deborah Price, Rixie Scott, Roxanne 

Schweitzer, Chet Trybus, and Keith Valentine. 

A special acknowledgement goes to Angela Freeman and Linda App, Office of Finance, 

Assistant Secretary for Budget, Technology, and Finance; Cathy Cox of the DHHS Office 

of Inspector General; and to Cathy Supernaw, Elizabeth Hacquard, Jack Reagan, and 

Mark Schwartz of KPMG, independent auditors, for all of their efforts. 

The report could not have been produced without the help of the many of staff from FDA’s 

Office of Financial Management. 

Report Availability and Contact Information: 

The FDA Annual Financial Report for FY 2002 is available on the Office of Financial 

Management Web Page at: www.fda.gov/oc/oms/ofm/accounting/ofmaccounting.htm. 

For questions regarding the Annual Financial Report, please contact: 

Peter Kelchner, 


Chief, CFO Liaison Branch 


Division of Accounting (HFA-120)


5600 Fishers Lane


Rockville, MD 20857


301-827-4792


Pkelchne@oc.fda.gov


vi 
FDA’s FY 2002 Annual Financial Report


Management Discussion & Analysis


Program 

Reseach 

Agency Overview


Foods Program


Human Drugs Program


Biologics Program


Animal Drugs and Feeds Program


Devices and Radiological Health


National Center for Toxicological


Financial Performance


FDA

’s FY 2002 Annual Financial Report


Management Discussion & Analysis


Mission 

regulated products in a timely manner; 

protected from electronic product radiation; 

arrangements; and 

of regulated products. 

Agency Overview 

The FDA Modernization Act of 1997 (PL 105-115) affirmed FDA's 

public health protection role and defined the Agency's mission: 

• Promote the public health by promptly and efficiently reviewing 

clinical research and taking appropriate action on the marketing of 

• Protect the public health by ensuring that foods are safe, wholesome, sanitary, and properly labeled; human and veterinary drugs 

are safe and effective; there is reasonable assurance of the safety 

and effectiveness of devices intended for human use; cosmetics are 

safe and properly labeled, and; public health and safety are 

• Participate through appropriate processes with representatives of 

other countries to reduce the burden of regulation, harmonize 

regulatory requirements, and achieve appropriate reciprocal 

• Carry out the above in consultation with experts in science, 

medicine, and public health, and in cooperation with consumers, 

users, manufacturers, importers, packers, distributors, and retailers 

I-1

MANAGEMENT DISCUSSION & ANALYSIS


Background 

The U. S. Food and Drug Administration is a scientific, regulatory, and public health 

agency that oversees items accounting for over 20 cents of every dollar spent by consumers. Its jurisdiction encompasses most food products (except meat and poultry), 

human and animal drugs, therapeutic agents of biological origin, medical devices, radiation-emitting products for consumer, medical, and occupational use, cosmetics, and animal feed.1 

The Agency grew from a single chemist in the U.S. Department of Agriculture in 1862 to 

a staff of over 10,000 employees and a budget of $1.551 billion2 in FY 2002 comprising 

of chemists, pharmacologists, physicians, microbiologists, veterinarians, pharmacists, 

statisticians, lawyers, and many others. About a third of the Agency's employees are in 

176 field offices and laboratories, including five regional offices and 19 district offices. 

Agency scientists evaluate applications for new human drugs and biologics, complex 

medical devices, food and color additives, infant formulas, and animal drugs. FDA also 

monitors the manufacture, import, transport, storage, and sale of about $1 trillion worth 

of products at an annual cost to taxpayers of about $4 for each person. Agency investigators and inspectors visit more than 16,000 facilities a year. 

FDA has a mandate to protect the public health by ensuring the availability of safe and 

effective drugs, vaccines, blood products, medical devices, and animal health products, 

and by ensuring a safe food supply. Whether responding to contaminated products or natural disasters (such as, floods, hurricanes, or tornadoes), the public has trusted FDA to 

guard them from sickness or injury arising from the use of regulated products. 

In recent years, FDA sought to increase its readiness in responding to a new threat – the 

deliberate use of biological, chemical, or radiological agents on the American public. 

FDA funded several activities to strengthen its capacity to respond. Some of the activities included hiring additional front-line staff; developing procedures and protocols to fast 

track the use of investigational new drug applications in treating exposure to these harmful agents; coordinating with other Federal agencies in the review of their emergency 

response plans; working with the Centers for Disease Control and Prevention (CDC) to 

identify medical products that could be added to the National Pharmaceutical Stockpile 

Program; and developing other methods and strategies to respond to this threat. 

The terrorist attacks of September 11, 2001, and the subsequent incidents of anthrax contamination elevated the threat into a mission critical responsibility. The events of the past 

year have given FDA an awareness that the products it regulates--foods, drugs, biologics, 

animal feeds, and medical devices--could be used intentionally to cause widespread harm. 

To meet this challenge, the Congress provided more resources to FDA in the FY 2002 

Emergency Supplemental Appropriation (see section entitled, “Year in Review”). This 

appropriation provided the resources to better equip FDA to prepare for, and respond to, 

1 Source: John P. Swann, Ph.D., FDA History Office [adapted from George Kurian, ed., A Historical Guide to the U.S. 

Government (New York: Oxford University Press, 1998)] 

2 The amount includes the salaries and expenses account ($1.368 billion) and user fees ($183.487 million). This amount 

does not include the budget authority of $151 million supplemental related to Counter Terrorism activities. 

I-2

FDA’s FY 2002 Annual Financial Report


a terrorist attack. With the additional 832 staff including 655 field investigators, FDA has 

strengthened its security infrastructure to enhance the safety of food entering this country. 

Besides the supplemental appropriation, new legislation, the Public Health Security and 

Bioterrorism Preparedness and Response Act of 2002 (Bioterrorism Law), was passed to 

protect the safety and security of the drug and food supply, enhance controls on dangerous biological agents and toxins, and strengthen the national preparedness for bioterrorism and other public health emergencies. 

In summary, FDA is more prepared than it was a year ago to address the broad range of 

its responsibilities. FDA is a part of the cadre of emergency preparedness agencies working collaboratively. These coordinated emergency response activities span key areas (for 

example, blood and vaccine supplies, diagnostic tests, human and veterinary drugs, and 

food security). Protecting and promoting the public health of the American public 

remains the highest priority for FDA in the 21st Century. 

The Year In Review – Major Events 

FDA selected several areas to highlight some of its accomplishments. These are 

discussed below. 

FDA’s Response to Bioterrorism and Emergency Preparedness 

The September 11th attacks brought a heightened sense of awareness to the FDA of its 

mission and responsibilities to the American public, as it was thrusted into the front lines 

of defenses against terrorism. Some of these actions are captured below. 

FDA performed many actions on the day of the attack and during the period of the incidents of the anthrax contamination that addressed public health issues arising from the 

attack that included: 

• Issued a statement that authorized several measures to help emergency collections, 

transportation, and release of blood for transfusion; 

• Provided regulatory guidance to the CDC for acquiring a new smallpox vaccine 

through a government contract; 

• Eased potential medication shortage for the victims that were presumed to come in 

contact with anthrax powder by clarifying that the antibiotics doxycycline and 

penicillin G procaine are effective for the treatment of all forms of anthrax infections; 

• Inspected renovated facilities for producing the anthrax vaccine; and 

• Worked closely with the pharmaceutical industry, the National Institutes of Health 

(NIH), the CDC, and other agencies to improve the availability of medications and 

medical devices in a terrorist attack, such as testing dosing levels for smallpox vaccine. 

I-3

MANAGEMENT DISCUSSION & ANALYSIS


Concurrently, FDA accelerated its response preparation in assessing its needs. 

Additionally, the Agency developed a “counter terrorism” strategic plan with four strategies. These strategies and highlights of activities include: 

Strategy One -- Protect regulated products: Deter, detect, investigate, and interdict 

terrorist threats before they become a reality. 

• Hired and began training 832 new investigators, analysts, and other support personnel 

which will improve the Agency’s capacity to respond to terrorist threats and attacks, 

and augment domestic food safety and security; 

• Conducted threat assessments of risks of different products and agents that could be 

used for a terrorist attack involving intentional contamination during various stages of 

food production and distribution; and 

• Published guidance for domestic food producers and importers on preventive measures 

to increase their preparedness and enhance the security of their products (67 FR 1224; 

January 2, 2002). 

Strategy Two -- Develop medical counter measures to lower the impact of attacks on the 

population. 

• Published a rule on May 31, 2002, which allows approval of new drug and biological 

products for the treatment of chemical, biological, radiological, or nuclear substances 

based on animal efficacy studies when adequate and well-controlled studies in humans 

cannot be ethically conducted and field studies are not feasible; 

• Engaged, before the events of September 11, 2001, in developing new regulatory 

models to support preparedness for the possibility of an emergency attack – for 

example, anthrax; and 

• Took the initiative to clarify that antibiotics, doxycycline and penicillin G procaine, are 

effective and approved for use in treating all forms of anthrax infections. 

Strategy Three -- Sharpen the Agency’s emergency preparedness and response capability so that FDA is poised to protect the Nation and itself in the event of an attack. 

• Develop the Agency’s laboratory accreditation program to ensure that laboratory 

results are universally accepted, and develop uniform scientific practices by accrediting 

the Field’s eight general purpose and five specialty labs to the international standard 

for regulatory sample analysis; and 

• Expand federal/state/local involvement in FDA’s Electronic Laboratory Exchange 

Network (eLEXNET), a part of the CDC’s Public Health Information Network, by 

having 79 laboratories around the country participate in a common, shared microbial 

agent electronic data system, while assuring coordination with other members of the 

Public Health Information Network. 

I-4

FDA’s FY 2002 Annual Financial Report


Strategy Four -- Ensure that radiation devices used to diagnose or treat terrorist-related 

incidents are safe and effective. 

• Collaborate with the NIH in developing a guidance document on the use of potassium 

iodide to reduce the risk of thyroid cancer in radiation emergencies. 

Ensuring Safe Food Supply 

Special attention was given to the safety of the food supply because of its potential susceptibility to deliberate contamination. Several actions have taken place: 

• Two industry security guidances that outline measures that firms can take to reduce the 

potential risk of a terrorist attack on food under their control were developed. One for 

domestic food producers, processors, transporters, and retailers, and the other one for 

importers, brokers, and others involved in importing to this country; and 

• The hiring of 832 employees, of which 635 were assigned to food safety activities in 

FDA’s field force. The majority of these employees will be assigned to monitor 

imports. This will permit FDA to conduct nearly 24,000 import inspections a year, 

nearly double the present amount. Other employees hired will perform risk 

assessments and develop rapid methods for detecting pathogens in various types of 

products. 

FDA also monitored other ongoing initiatives including the threat of bovine spongiform 

encephalopathy3 (BSE) and the growing antimicrobial resistance challenge. 

The goal of the BSE program is to prevent the introduction and spread of BSE into the 

U.S. herd and human food chain. There is strong scientific evidence (epidemiological and 

laboratory) that the agent that causes BSE in cattle is the agent that causes the variant 

Creutzfeldt-Jakob Disease (vCJD) in people. If BSE emerged in the U.S., it could pose a 

serious health risk to humans and be financially devastating to the U.S. beef industry. 

FDA developed a three prong approach in its efforts to realize 100 percent compliance 

with the FDA's ruminant feed (BSE) regulations, Code of Federal Regulations, Title 21, 

Part 589.2000 – education, strong and visible inspection presence, and enforcement 

action. FY 2002 activities included: 

• Revising the BSE Response Plan that is designed to prepare and guide FDA personnel, 

DHHS and other Federal agencies for emergencies involving BSE; 

• Holding a public hearing to solicit information and views on whether and how to 

strengthen a regulation designed to help prevent the occurrence, through animal feed, 

of BSE in U.S. cattle herds; 

• Issuing a revised BSE inspection checklist for use by all Federal and State inspectors; 

• Developing a new database module that will record the results of all inspections 

conducted under BSE regulation; and 

3 BSE, or “Mad Cow Disease,” is a deadly chronic degenerative disorder affecting the central nervous system. BSE and 

Chronic Wasting Disease (CWD) both belong to a group of progressive degenerative neurological diseases that are 

always fatal, known as transmissible spongiform encephalopathies (TSEs). There are several TSE diseases that affect 

humans and the best known is Creutzfeldt-Jakob Disease. 

I-5

MANAGEMENT DISCUSSION & ANALYSIS


• Continuing inspections to maintain a 100 percent compliance with regulations. 	The 

latest update showed that 1 percent of nearly 10,000 firms was found out of compliance. Where firms are out of compliance, enforcement actions are being pursued. 

Antibiotic resistance is a growing problem that has recently been identified as a major 

public health threat and a priority by FDA. The problem involves the increasing resistance 

of disease-causing microbes to drug therapies. Tuberculosis, gonorrhea, malaria, and 

childhood ear infections are just a few of the diseases that have become hard to treat with 

antibiotic drugs. The use of antimicrobial drugs in food-producing animals may lead to the 

emergence of bacterial pathogens (disease-causing organisms) that may be harmful to 

humans and that are resistant to drugs used to treat human illness. 

Besides working with the agriculture and medical communities in FY 2002, FDA produced or participated in the following activities: 

• Held a public hearing on the FDA proposed action to withdraw poultry antimicrobial 

approval for enrofloxacin, a veterinary drug for treating chickens and turkeys for 

certain bacterial infections; 

• Published a revised draft guidance for assessing the microbiological safety of 

antimicrobial drug residues in food; and 

• Published a new draft guidance4 for evaluating the safety of antimicrobial new animal 

drugs that focuses on the microbiological effects on bacteria of human health concern. 

FDA is also participating with the CDC and U.S. Department of Agriculture (USDA) in 

the National Antimicrobial Resistance Monitoring System (NARMS) that detects emerging antibiotic resistance among food borne pathogens and the possible associated health 

hazards through systematic collection, analysis, and interpretation of antimicrobial 

susceptibility surveillance data. NARMS is adding to FDA’s knowledge base of drug susceptibility and is helping ensure that continued effectiveness of human and veterinary 

drugs. 

Strengthening Medical Products Oversight 

Another major effort is improving FDA’s oversight of approved medical products; such 

as, human drugs, veterinary drugs, vaccines, medical devices, or food additives. During 

FY 2002, this has been expressed through three major areas: strengthening human subject 

protections, reducing medical errors, and improving pharmaceutical manufacturing practices. Some of the accomplishments include: 

• Creating a new office of Good Clinical Practice in the Office of the Commissioner 

whose mission is to improve the conduct and oversight of clinical research and to 

ensure protecting participants in FDA-regulated clinical research; 

• Establishing a new advisory subcommittee on drug safety and risk management to the 

Advisory Committee for Pharmaceutical Science whose purpose is to provide expert 

advice on complex drug-specific issues and methods of risk assessment, management, 

and communication; 

4 For an explanation on the draft guidance, see the Animal Drugs and Feeds Program’s section on 

“other accomplishments.” 

I-6

FDA’s FY 2002 Annual Financial Report


• Meeting its statutory requirements by inspecting 50 percent of registered blood banks, 

source plasma operations, and biologics manufacturing establishments to reduce the 

risk of product contamination; 

• Holding a public meeting to discuss the application of bar coding of human 

pharmaceutical products, biological products, and medical devices because bar coding 

can help ensure that the right patient gets the right drug, and the right dose of it, at the 

right time; and 

• Launching a new initiative to enhance pharmaceutical good manufacturing practices 

by focusing on risk management strategies, product quality standards, and manufacturing technologies. 

Mission and Strategic Direction 

The FDA mission5 of protecting the public health was strengthened with the passage of 

the Public Health Security and Bioterrorism Preparedness and Response Act of 2002. 

This Act improves FDA’s ability to prepare for and respond to bioterrorism and other public health emergencies.6 The Act gives broad authority to FDA to protect the national food 

supply and drug supply. It also reauthorizes the Prescription Drug User Fee Act. FDA is 

implementing the law and will be issuing regulations, guidance, and changing its operations to adapt to the law. 

To successfully accomplish its mission, FDA leadership identified four strategic goals 

based on the importance of “prevention” as the Agency’s primary line of attack on the 

Nation’s health and safety concern. Prevention, to FDA, means that we use all means 

available to reduce health or safety risks facing the American people by correctly assessing the risks and managing them. 

These four strategic goals provide direction for the annual performance goals and are 

grouped in seven major areas in the FY 2002 Final Revised Performance Plan.7 These 

areas are: Administrative Management (later changed to Agency-wide); Foods; Human 

Drugs; Biologics; Animal Drugs and Feeds; Medical Devices and Radiological Health; 

and National Center for Toxicological Research.8 

5 See page I-1 for listing of FDA’s statutory mission. 

6 For more information pertaining to FDA’s implementation of this Act, see FDA’s Bioterrorism Web Page at: 

http://www.fda.gov/oc/bioterrorism/bioact.html 

7 Source: The FY 2002 Revised Final Performance Report is available on FDA’s web-site at: 

www.fda.gov/ope/fy02plan/default.htm. FDA’s Performance Report for FY 2002 will be available on FDA’s web site by 

Spring 2003. 

8 For the annual financial report, the select performance goals from the seven areas are found in the six program chapters 

(Foods, Human Drugs, Biologics, Animal Drugs and Feeds, Medical Devices and Radiological Health, and National 

Toxicological Research Center) and the Financial Performance chapter (addressing administrative management). 

I-7

MANAGEMENT DISCUSSION & ANALYSIS


FDA’s strategic goals fit into the larger strategic framework envisioned by DHHS. During 

FY 2002, the DHHS strategic plan was revised for the next five year period. There are 

eight goals covering DHHS; four of which include FDA participation.9 A summary of 

DHHS and FDA strategic goals and their desired outcomes are listed in Table 1. 

Table 1 

DHHS 

STRATEGIC 

GOALS* 

FDA 

STRATEGIC 

GOALS 

DESIRED OUTCOMES 

Reduce the Major 

Threats to the Health 

and Well-Being of 

Americans 

Counter the Terrorist 

Threat 

Risks to U.S. citizens posed by potential or 

real terrorist attacks are lowered. 

Enhance the capacity 

and productivity of the 

Nation’s Health 

Science Research 

Enterprise 

Bring New 

Technologies to a 

World-Wide Market 

Because of the Agency’s timely science-based 

decisions, millions of Americans can get the 

medicines and medical devices they need and 

be assured of safe and effective products. 

Improve the Quality of 

Health Care Services 

Assure Medical 

Product Safety 

Significant reduction in the annual 100,000 

deaths, injuries, and illnesses is achieved 

because a safety net has been established 

which monitors medical products at all stages 

in the life cycle – from production through 

consumption. 

Achieve Excellence in 

Management Practices 

Maintain a Strong and 

Effective FDA 

State-of-the-art scientists and health 

professionals make critical risk management 

decisions. 

Streamlined Agency optimally organized to 

support mission-critical activities. 

Cost-effective performance of operations. 

Citizen-centered agency accountable for 

results. 

* Source: DHHS strategic Plan for Fiscal Year 2003 through 2008 (Draft), July 29, 2002. 

9 See the FY 2002 DHHS Performance and Accountability Report, which will be issued in February 2003, for examples 

of FDA performance goals achieving the intent of the DHHS Strategic Goals. 

I-8

FDA’s FY 2002 Annual Financial Report


Organizational Structure 

FDA is organized into eight major components consisting of the Office of the Commissioner, the Office of Regulatory Affairs (ORA) (which is responsible for the FDA field 

force), and the following six Centers as displayed in Figure 1 below: 

• Center for Food Safety and Applied Nutrition (CFSAN); 

• Center for Drug Evaluation and Research (CDER); 

• Center for Biologics Evaluation and Research (CBER); 

• Center for Veterinary Medicine (CVM); 

• Center for Devices and Radiological Health (CDRH); and 

• National Center for Toxicological Research (NCTR). 

The Office of the Commissioner 

This component consists of eight subordinate offices that provide legal guidance, develop 

plans and policies, direct public and consumer affairs programs, promote the Agency’s 

international relationships among foreign governments, and deliver administrative services. 

The Office of Human Resources and Management Services, Office of Management and 

Systems (OMS), Office of the Commissioner (OC) reorganized its operations to prepare 

for administrative consolidation in line with the Secretary’s vision of “one-HHS.” 

divisions were reduced to three addressing personnel operations, human resources policy 

and programs, and management programs (dockets management, ethics, and management 

analysis). 

Figure 1 

Office of the 

Chief Counsel 

Office of the Equal 

Opportunity 

Office of the 

Administrative Law Judge 

Office of the Senior Associate 

Commissioner 

Office of 

International and 

Constituent Relations 

Office of Policy, 

Planning and 

Legislation 

Office of 

Management 

and Systems 

Office of 

Science Coordination and 

Communication 

Office of the Commissioner 

Commissioner of Food and Drugs 

Center for 

Biologics 

Evaluation and 

Research 

Center for 

Food Safety 

and Applied 

Nutrition 

Center for 

Drug 

Evaluation and 

Research 

Center for 

Veterinary 

Medicine 

Center for 

Devices and 

Radiological 

Health 

National 

Center for 

Toxicological 

Research 

Office of 

Regulatory 

Affairs 

Its five 

I-9

MANAGEMENT DISCUSSION & ANALYSIS


The Office of Facilities, Acquisition, and Central Services, OMS, OC reported that it had 

created the division of security operations, policy, and planning to better coordinate and 

prepare FDA’s physical and personnel security requirements. 

The Centers 

Five of the six centers are product centers that are equipped to perform premarket review, 

conduct postmarket assurance, take enforcement actions, and provide scientific and 

administrative support. The sixth center, NCTR, performs regulatory research for the 

other product centers. Except for NCTR, which is headquartered in Jefferson, Arkansas, 

the Office of the Commissioner, the Centers, and the ORA are headquartered in the 

Washington, DC metropolitan area. 

The Centers provide oversight of the Programs that are described in six individual chapters in the annual financial report. Five of the six programs receive substantial support 

from ORA’s field organization. 

The Office of Regulatory Affairs 

This component is composed of a headquarters unit and a nationwide field force. The 

ORA has 3,492 full-time equivalents. The mission of the ORA is to: 

• Achieve effective and efficient compliance of regulated products through high quality, 

science-based work that results in maximizing consumer protection; 

• Conduct investigational and laboratory functions of all of FDA’s major product areas: 

Foods and Cosmetics, Human Drugs, Biologics and Blood, Animal Drugs and Feeds, 

and Medical Devices and Radiological Health, both before and after marketing; 

• Respond rapidly to various types of emergencies, and redirect field efforts during the 

year among FDA’s different programs to respond to unforeseen emergencies; 

• Monitor clinical research and conduct in-plant pre-approval inspections to ensure that 

manufactured products are safe and effective; 

• Determine whether import entries comply with FDA regulations and take enforcement 

actions; and 

• Perform outreach to consumer groups, health professionals, States, and industry to 

encourage compliance and safe use of FDA-regulated products. 

The Field supports Agency premarket activities by conducting preapproval inspections 

and laboratory method validations when requested by program managers responsible for 

premarket application decisions. Inspections, either foreign or domestic establishments, 

include bioresearch monitoring inspections of clinical research. Other premarket inspections are conducted in manufacturing facilities to determine if the factory is able to manufacture the product to the specifications stated in the application. Laboratory method 

validations are conducted to confirm that the methods described in the premarket application work as described. 

I-10

FDA’s FY 2002 Annual Financial Report


Field investigators and laboratory analysts conduct foreign inspections for premarket 

approval and postmarket compliance purposes. Postmarket foreign inspections in the 

human drug, biologic, animal drug and feeds, and medical device and radiological health 

programs are conducted to assess Good Manufacturing Practices. This is consistent with 

the biennial inspection requirement that Congress requires of domestic manufacturers in 

these programs. 

Besides conducting regular surveillance over regulated products, the field workforce also 

responds to emergencies by immediately mobilizing to investigate reports of product 

problems including tampering incidents, food borne illness, those caused by natural disasters, and those which may be the result of terrorist activities. 

To complement the regular field force, the Office of Criminal Investigations (OCI) investigates instances of criminal activity in the regulated industries. Agents are given intensive training at the Federal Law Enforcement Training Center in Glenco, Georgia and are 

assigned to offices throughout the country. 

Field facilities include Regional Offices, District Offices, laboratories, OCI field offices, 

and resident posts. The five Regional Offices are staff offices that coordinate FDA activities and coordinate with state authorities. The 19 District Offices serve as offices for 

investigators and compliance action staff, and are the main control points for day-to-day 

operations in their assigned areas. Thirteen laboratories provide for FDA’s basic field 

product testing capability. Fourteen OCI offices are located across the country to include 

resident offices and domiciles. There are 138 resident posts distributed widely across the 

country. These are smaller offices that serve mainly as a base for investigators so that 

FDA can have investigative staff widely dispersed to respond to emergencies whenever 

they occur, as quickly as possible to lower a potential harm. FDA maintains offices and 

staff in 49 of the States, and in the District of Columbia and Puerto Rico. See Figure 2 

below for a map of ORA’s field locations. 

Figure 2 

OFFICE OF REGULATORY AFFAIRS 

I-11

MANAGEMENT DISCUSSION & ANALYSIS


Governing Laws and Regulations10 

The basic governing laws for FDA are the Federal Food, Drug and Cosmetic Act (FD&C) 

Act, as amended (21 U.S. Code 321 - 394), the Fair Packaging and Labeling Act (15 USC 

1451 to 1461), and the Public Health Service Act, as amended (42 U.S.C. 262 to 263, 

263b, and 264): [For a compilation of laws and related statutes enforced by FDA, see 

web page: www.fda.gov\opacom\laws\lawstoc.htm.] 

• FD&C Act, as amended, applies to foods, drugs, cosmetics, animal drugs and feeds, 

medical devices for humans or animals, and electronic products that emit radiation 

(such as, X-ray devices, lasers, microwave ovens, and televisions). 

• The Fair Packaging and Labeling Act affects the contents and placement of 

information required on the package. 

• The Public Health Service Act, as amended, applies to biological products for human 

use, mammography, and control of communicable diseases. 

Resources 

The FDA resource level for FY 2002 was $ 1.752 billion.11 This number includes: appropriations for salaries and expenses (S&E), building and facilities (B&F), user fees; offsetting collections (reimbursables); carry-over balances from earlier years; and adjustments. For a complete analysis of FDA’s resources in FY 2002, please read the Financial 

Analysis section in the Financial Performance Chapter on Page I-75. 

Systems, Controls, and Legal Compliance 

The Federal Accounting Standards Advisory Board requires the Management Discussion 

and Analysis to address the systems, controls, and legal compliance12 that support preparing financial statements and financial documentation. This is achieved through the annual reporting of Federal Managers’ Financial Integrity Act (FMFIA) Section II (management controls) and Section IV (financial management systems). 

FDA has employed a “bottom-up” approach to allow management throughout FDA to 

become involved in the FMFIA review and reporting process. This approach uses management control information from a variety of sources to promote greater accountability 

and self-identification and resolution of organizational weaknesses. This has resulted in 

controls that benefit rather than encumber FDA management. The Agency is in a better 

position to identify and aggressively correct weaknesses, and implement proper safeguards to prevent waste, fraud, and mismanagement of Agency resources. 

10 21 CFR Part 1 - 1299 interprets these and other laws and provides explanation on Agency's requirements. 

11 Source: The amount is from the FY 2002 Combined Statements of Budgetary Resources. Please note this total 

includes accounts that are not available either permanently or temporarily pursuant to PL 107-188. 

12 These responsibilities are defined in numerous laws and administrative requirements, including the Federal Financial 

Management Improvement Act [FFMIA], Federal Managers’ Financial Integrity Act [FMFIA], OMB Circulars A-123 

and A-127, and OMB Bulletin 01-02. 

I-12

FDA’s FY 2002 Annual Financial Report


The only material weakness that FDA continues to report is an item that has been reported every year since 1989. It relates to how few imported food inspections we conduct 

each year. FDA is not ready to declare this weakness resolved until the results are 

achieved by the recently authorized staff for imported foods inspections have been hired 

and fully trained. 

Management Controls Review 

During FY 2002, FDA assessed its management controls using a variety of means and 

each major FDA component submitted an assurance statement signed by their component 

head. No new material weaknesses were identified during the FY 2002 FMFIA reporting 

cycle. 

Financial Management Systems Review 

FMFIA Section IV requires a “conformance statement” whether the Agency’s financial 

management systems conform to Executive Branch requirements. FDA reported that its 

financial systems do not conform to these requirements because the earlier year’s Chief 

Financial Officer’s (CFO) Act audit findings show several instances of non-compliance to 

the FFMIA. The findings focused on three financial applications: Accounts receivable, 

cost management, and property. Additionally, FDA is working with DHHS and DHHS 

components to develop the Department’s Unified Financial Management System. This is 

long term project and FDA is preparing its financial management systems and operations 

to be integrated with the Department’s system.13 

The Office of Financial Management developed a corrective action plan outlining the 

actions needed to remove the finding of non-compliance to FFMIA. 

Performance Data Reliability and Net Program Costs 

The Office of Management and Budget (OMB) requested that agencies explain the procedures management has designed and followed to provide reasonable assurance that 

reported performance information is relevant and reliable. 

Each of the six programs has identified their information systems, data bases, and other 

management procedures used to track and report on performance information. Each program’s data verification and validation section discusses how the program is providing 

reasonable assurance that the performance data in their systems are relevant and reliable. 

For further information, please see the FY 2002 Performance Report. 

For the FY 2002 Annual Financial Report, we will continue to use net program costs displayed in a three year period. This information comes from the Statement of Net Cost 

found in the section on financial statements. Net program costs are defined as the expenses for a program, including allocating indirect expenses (such as, administrative, field 

operations, rent, and other overhead), less exchange revenue. 

Under the Government Management Reform Act of 1994, Executive Branch agencies are 

13 More explanation of the UFMS and FDA’s preparation is found in the Financial Performance Chapter. 

I-13

MANAGEMENT DISCUSSION & ANALYSIS


required to determine the full cost of their operations. The Government Performance and 

Results Act (GPRA) directs Executive Branch agencies to define their mission and set 

strategic and annual performance goals. The aligning of full cost of the program with performance objectives and results gives a clearer picture on the true cost of program performance. FDA is continuing its practice to display net program costs in the program’s 

chapter. 

The Statement of Net Cost has been prepared in conformity with accounting principles 

generally accepted in the United States of America (GAAP) and the form and content for 

entity financial statements specified by the OMB. The GAAP for Federal entities are the 

standards prescribed by the Federal Accounting Standards Advisory Board, which is the 

official accounting standards setting body for the Federal government. The financial 

statements are different from the financial reports prepared pursuant to OMB directives 

used to monitor and control the use of budgetary resources. 

FDA records transactions on the accrual accounting basis and budgetary basis. Under the 

accrual method, revenues are recognized when earned and expenses are recognized when 

a liability is incurred, without regard to receipt or payment of cash. Budgetary accounting principles are designed to recognize the obligation of funds according to legal requirements, which, in many cases, is before the occurrence of an accrual-based transaction. 

Challenges and Future Trends 

The Food and Drug Administration faces many key challenges. The following are viewed 

as being among the most significant issues, for their importance to FDA’s mission or to 

the Nation’s well-being, for their complexity, for their cost, or for the urgency of their 

need for management improvement. 

Food Safety – Bioterrorism 

FDA has a limited capacity to monitor or control foods imported, inspect domestic manufacturers, and detect food borne pathogens before they cause human illness. When these 

limitations are combined with the possibility of deliberate attempts to contaminate the 

food supply at a point along the food production, processing, and distribution chain, the 

risks are greatly amplified. FDA managers and scientists must develop plans to coordinate a response network with various governments to identify and contain outbreaks associated with deliberate attempts to contaminate the food supply. 

Biological, Chemical, and Radiological Terrorism 

FDA must review and approve of products used in the diagnosis, treatment, and prevention of human exposure to biological, chemical, and radioactive agents. The anthrax incidents demonstrate the need for the Nation to be better prepared in responding to similar 

future events. The new fast track authority in the Bioterrorism Law will help FDA to 

review designated priority medical counter-measures. FDA must create the plans and protocols to respond to potential bioterrorist threats. 

I-14

FDA’s FY 2002 Annual Financial Report


Foreign Imports of FDA-Regulated Products 

Inspections and import surveillance are the primary means of assuring the safety of marketed products. Consumers rely on the FDA to prevent dangerous and unreliable products 

from entering commerce. Public safety and confidence could be jeopardized by a failure 

to increase surveillance activities. Products may enter the U.S. through one of about 300 

U.S. Customs ports found throughout the country. The growth of international trade has 

lead to a tripling of imports during the past ten years. Although the FDA continues to 

undertake activities to improve the safety of imported products, there is often no substitute for physically looking at these products. FDA is monitoring regulated products in an 

environment that has become significantly more complex over the past several years. 

Medical Product Safety 

FDA has assumed a significant watchdog role for postmarket surveillance. When FDA 

approves drugs and other medical products, such as devices, the Agency takes every precaution, making sure these products are safe when they are marketed. That is not the end 

of the story. Product safety develops over the many years that make up a product’s lifetime in the marketplace. It is important for FDA to continually monitor these products and 

track trends associated with them. 

Prevent Outbreak of Bovine Spongiform Encephalopathy (BSE) 

FDA must assure full compliance with the BSE regulation through inspection and compliance actions. FDA must also consider the risk of areas not covered by the USDA’s ban. 

This includes ruminant protein-containing cosmetic products that are packaged and ready 

for sale; bovine-derived materials intended for human consumption (as either finished 

dietary supplements or for use as ingredients in dietary supplements, vaccines, blood and 

blood products, and human drugs); and human food other than meat, such as gelatins. 

The Safety of Genetically Engineered Foods 

FDA will continue to be tasked with evaluating the safety of foods developed using the 

tools of modern biotechnology--also called bioengineering. The Agency must continue to 

study the several variables in determining the safety of bioengineered foods, develop policies, inform and educate the public, and provide industry with the proper guidance. 

FDA’s decisions can dramatically affect the economics of the food and agriculture community. 

Office of Inspector General’s Top Management Challenges14 

The Office of Inspector General (OIG) identified eight management challenges affecting 

the management and performance of the DHHS. The Reports Consolidation Act of 2000 

requires the Inspector General to report in the annual Performance and Accountability 

Report the department’s top management challenges. The law also requires the OIG to 

assess the Department’s progress in addressing the challenges. 

14 A discussion on the President’s Management Agenda is found in the Financial Performance Chapter. 

I-15

MANAGEMENT DISCUSSION & ANALYSIS


Three of the FY 2002 DHHS management challenges affect FDA: bioterrorism preparedness, protection of critical infrastructure, and grants management. Grants management is a new challenge identified in FY 2002. The others are repeat findings. FDA has 

made progress with bioterrorism preparedness and protection of critical infrastructure. 

During the past year, FDA has developed the means to better prepare for attacks from biological, chemical, and radiological incidents. The Agency has worked closely with DHHS 

components and other agencies to bolster the response to terrorist attacks. Through its 

supplemental funding, FDA has hired more investigators, inspectors, and scientists nationwide to protect the safety of the foods and other regulated products. 

FDA has been strengthening its protection of critical infrastructure in response to a 

Presidential Decision Directive 63 and to the Government Information Security Reform 

Act. Through the annual audit process, OIG has identified areas for FDA to improve its 

information systems controls. FDA is correcting these findings so that the Agency will 

have a reliable and secure information technology environment. 

I-16

FDA

’s FY 2002 Annual Financial Report


Management Discussion & Analysis


Mission 

program is to: 

safety and effectiveness; 

decisions; 

• Identify food-related health hazards; 

and 

Foods Program 

The Foods Program is responsible for the safety of the nation’s food 

supply, and the safety and proper labeling of cosmetics. The aim of the 

• Ensure that the food supply, quality of foods, food ingredients, and 

dietary supplements are safe, nutritious, wholesome, and honestly 

labeled and that cosmetics are safe and properly labeled; 

• Set standards and develop regulations for the food industry; 

• Take timely and appropriate action on new food ingredients and 

dietary supplements before they go on the market to ensure their 

• Research ways to provide the necessary basis for regulatory 

• Take corrective action to reduce human exposure to food related 

hazards and the possibility of food-related illnesses and injuries 

• Educate and train consumers and industry on food safety. 

I-17

MANAGEMENT DISCUSSION & ANALYSIS


Background 

The Foods Program is administered by the CFSAN and supported by ORA.15 

The FDA oversees a vast food industry that includes over 60,000 United States (U.S.) 

food processors and warehouses and comprises a significant segment of the nation’s economy. Products regulated by FDA account for about two-thirds of consumer spending on 

food, with an annual retail value of about $430 billion. Every year, U.S. food processors 

spend $1.4 billion on research and development and introduce 10,000 to 15,000 new products. In addition, increasing amounts of foods are being imported each year from other 

countries, including third world countries, which tend to have less sophisticated food processing and regulatory systems. 

Cost16 

The Foods Program has experienced a 10.5 percent increase in net costs in FY 2002. This 

increase is attributed to the infusion of food safety “bioterrorism” funds from the FY 2002 

supplemental appropriation. The net cost includes the expenses for a program, including 

the allocation of overhead expenses (such as, the Office of the Commissioner’s costs for 

administrative and policy direction, ORA’s field operations’ costs, rent, and other overhead), less exchange revenue. 

Program Goals and Accomplishments 

Highlights of Product Approvals 

New Non-Nutritive Sugar Substitute 

Neotame, a general purpose sweetener, was approved by CFSAN. This sweetener may be 

used in a wide variety of food products, other than meat and poultry. Depending on its 

food applications, neotame is approximately 7,000 to 13,000 times sweeter than sugar. It 

is a free-flowing, water soluble, white crystalline powder that is heat stable and can be 

used as a tabletop sweetener as well as in cooking applications. Examples of uses for 

which neotame has been approved include baked goods, non-alcoholic beverages (including soft drinks), chewing gum, confections and frostings, frozen desserts, gelatins and 

puddings, jams and jellies, processed fruits and fruit juices, toppings and syrups. 

Fiscal Year Net Program Cost (000s) 

2002 $431,053 

2001 $390,085 

2000 $364,914 

15 For a fuller discussion on the support provided by ORA to the Programs, see pages I-10 through I-12. 

16 Source: Statements of Net Costs for FYs 2000, 2001, and 2002. The source for the remaining programs’ cost tables is 

the Statements of Net Costs for the three fiscal years. 

I-18

FDA’s FY 2002 Annual Financial Report


Highlights of Product Safety Actions 

Contaminated Honey Imports from China 

The U.S. Customs Service and the FDA discovered bulk imports of Chinese honey that 

were contaminated with low levels of chloramphenicol, a potentially harmful antibiotic 

and unapproved food additive. The contaminated honey was detected during an investigation into a widespread scheme to evade payment of U.S. anti-dumping duties on bulk 

imports of Chinese honey. The investigation has resulted in the detention of more than 50 

containers of bulk Chinese honey at U.S. ports. In an effort to evade U.S. anti-dumping 

duties, this honey had allegedly been illegally transshipped through third-party countries 

on its way from China to America. 

Konjac Min-Cup Gel Candies That Pose Choking Risk – Two FDA Warnings 

FDA issued two warnings and announced an import alert concerning mini-cup gel candies 

that contain the ingredient "konjac" (also known as conjac, konnyaku, yam flour, or glucomannan). FDA decided a second warning was warranted (the first was issued on 

August 17, 2001) after consultation with experts on choking from the Consumer Product 

Safety Commission (CPSC). CPSC staff confirmed that these candies pose a serious 

choking risk, particularly to infants, children and the elderly. In addition, the agency has 

issued an import alert to address the importation of these candies from other countries. 

These multi-fruit-flavored candies are typically packaged as individual, mouth-sized 

servings, and often feature an embedded piece of preserved fruit. Unlike gelatin products commonly found in the U.S., these candies do not readily dissolve when placed in 

the mouth. For more specific information, see the Import Alert #33-15 at 

http://www.fda.gov/ora/fiars/ora_import_ia3315.html. 

Nationwide Health Risk Alert About Spokane Produce Brand Romaine Lettuce 

FDA warned consumers not to consume Spokane Produce brand romaine lettuce because 

this product has been associated with an outbreak of E. coli O157:H7 in a cheerleading 

camp in Washington State in mid July 2002. FDA urged consumers to dispose of this 

product. E. coli O157:H7 causes a diarrheal illness often with bloody stools. Although 

most healthy adults can recover completely within a week, some people can develop a 

form of kidney failure called Hemolytic Uremic Syndrome (HUS). HUS is most likely to 

occur in young children and the elderly. The condition can lead to serious kidney damage 

and even death. 

Kava: FDA Consumer Advisory And Letter To Health Professionals 

FDA advised consumers of the potential risk of severe liver injury associated with the use 

of kava-containing dietary supplements. Kava (Piper methysticum) is a plant indigenous 

to the islands in the South Pacific where it is commonly used to prepare a traditional beverage. Supplements containing the herbal ingredient kava are promoted for relaxation 

(e.g., to relieve stress, anxiety, and tension), sleeplessness, menopausal symptoms and 

other uses. Liver-related risks associated with the use of kava have prompted regulatory 

agencies in other countries to take actions to protect consumers. FDA has not made a 

determination about the ability of kava dietary supplements to provide such benefits. 

I-19

MANAGEMENT DISCUSSION & ANALYSIS


Other Accomplishments 

Hiring of New Inspectors for the Foods Program 

As result of the emergency supplemental appropriation, six hundred new field employees 

were authorized for the Foods Program and over 400 of them will be either stationed at 

border locations or working specifically on imports. These additional resources will 

enable FDA to conduct nearly 24,000 import inspections a year, nearly double the present 

amount. 

CFSAN Adverse Events Reporting System (CAERS) 

As a result of receiving funding in FY 2002, CFSAN developed a new, comprehensive 

system for tracking and analyzing adverse event reports involving foods, cosmetics, and 

dietary supplements. The new CAERS will replace the patchwork of adverse event systems that are maintained by individual CFSAN Offices. FDA will use the CAERS system as a monitoring tool to identify potential public health issues that may be associated 

with the use of a marketed product. Information gathered in CAERS will also be used to 

formulate and disseminate CFSAN’s post-marketing policies and procedures. 

Food Contact Substances 

In April, CFSAN made available two final technical guidance documents to assist industry in preparing notifications for new uses of food contact substances. The toxicology 

guidance document recommendations represents the first such document FDA has developed for such substances. A final rule was published in May in the Federal Register codifying regulations implementing the food contact notification program. 

Listeria and Shellfish Research 

FDA worked with industry to conduct research on the prevalence and levels of Listeria 

monocytogenes in ready-to-eat foods. FDA and industry collected and sampled over 

30,000 samples. The results will be used to update the draft Listeria assessment of risks 

to public health. 

FDA conducted ten comprehensive domestic and international shellfish laboratory evaluations to ensure adequate monitoring of shellfish in interstate commerce for microbiological contaminants and marine biotoxins. 

Improving Safety of Milk 

FDA participated in the National Conference of Interstate Milk Shippers Hazard Analysis 

Critical Control Points (HACCP) Evaluation team. They evaluated a pilot process for the 

Grade A milk industry to monitor and control milk safety nationwide as an alternative to 

the Pasteurized Milk Ordinance. 

Model Food Code 

The 2001 FDA Model Code was published, representing FDA's best advice for a uniform 

system of regulation to ensure that food at the one million U.S. restaurants and supermarI-20 
FDA’s FY 2002 Annual Financial Report


kets is safe and properly protected. The FDA Food Code is offered for adoption by local, 

State, and Federal governmental jurisdictions for administration by the various departments, agencies, bureaus, divisions, and other units within each jurisdiction that have been 

delegated compliance responsibilities for food service, retail food stores, or food vending 

operations. 

Electronic Inspection System (EIS) 

FDA upgraded the EIS for regulatory agencies in their FDA Food Code implementation 

and regulatory program management. The EIS is an inspection and food safety database 

management tool to aid federal, state, and local regulatory agencies. The Minnesota 

Department of Agriculture has implemented EIS as their inspection system and personnel 

were provided a one-week training course in system setup and customization. 

Voluntary National Food Regulatory Program Standards 

FDA issued the Voluntary National Retail Food Regulatory Program Standards, a benchmark document detailing the operational and administrative criteria necessary for all retail 

food regulatory programs to monitor and improve retail food safety. Sixty state or local 

jurisdictions were assisted in implementation of the standards. 

Performance Plan Goals 

Food Safety: Premarket Review of Food Ingredients 

The first strategic goal of the Foods Program was to provide consumers quicker access to 

new food ingredients, bioengineered foods, and dietary supplements, while assuring their 

safety and effectiveness. 

The Food Program's key challenge in the premarket area is to expedite review of new food 

products without jeopardizing public safety. The performance goal below reflects the 

agency’s commitment to completing work on the “backlog” of overdue food and color 

additive petitions. 

Performance Goal17 

Complete the safety evaluation of fifty percent of the number of food and color additive 

petitions that were under review for more than 360 days at the beginning of the Fiscal 

Year. 

Results 

The Foods Program met this goal. It had completed the safety evaluation of nine of seventeen food and color additive petitions that were under review for more than 360 days on 

October 1, 2001. 

17 Because FY 2002 data is not currently available, we are using FY 2001 performance goal and results. 

I-21

MANAGEMENT DISCUSSION & ANALYSIS


The food and color additives review program has concentrated on reaching timely decisions on newly submitted petitions, as well as effectively eliminating the backlog of overdue petitions. A few years ago, there was an inventory of more than 150 pending food and 

color additive petitions, most of which had been under review for more than a year. 

Significant progress has been made, so that on October 1, 2001, fewer than 20 petitions 

had been under review for more than a year. 

One factor that contributed to this progress was the implementation of the food contact 

notification program that was established by the FDA Modernization Act. Following 

establishment of this program, a number of petitions in the overdue inventory were converted to notifications; these tended to be the most straightforward of the pending petitions. Many of the remaining petitions were those that have raised particularly difficult 

scientific or policy issues. The backlog of overdue petitions should be completed by next 

year. 

Food Safety: Postmarket Surveillance 

The second strategic goal was to reduce the health risks associated with food and cosmetic 

products by preventing human exposure to hazards, monitoring product quality, and correcting problems that are identified. 

Compliance monitoring is a critical component of food safety assurance during and after 

production and through the commercial distribution stage. FDA has the statutory authority to inspect establishments, examine or analyze samples, and conduct investigations to 

determine whether product safety and quality standards are met at each stage of commercial food production and distribution. The Agency accomplishes its safety assurance for 

domestic foods and cosmetics through compliance programs that guide surveillance and 

enforcement activities. 

The greatest challenge the Foods Program faces is how to cope with the growth of the regulated industry and the growth and changes in health risks. FDA has increased the number of domestic establishment inspections to improve the coverage for the entire food supply. These inspections are performed by the ORA’s Field force or by State governments 

under contract with FDA. Other partnership arrangements are used to leverage inspectional resources. The ORA provides laboratory analysis of food samples and initiates regulatory action on adultered or misbranded products. The Field force also responds to 

emergencies by immediately mobilizing to investigate reports of product problems including tampering incidents, those due to natural disasters, and those which may be the result 

of terrorist activities. 

High-risk domestic food establishments include those involved in the manufacture of low 

acid canned food products, infant formula products, heat and serve products, ready to eat 

products, and other products that do not require heating to a temperature sufficient to kill 

bacteria prior to consumption. 

Performance Goal18 

Inspect ninety percent of high-risk domestic food establishments once every year. 

18 Because FY 2002 data is not currently available, we are using FY 2001 performance goal and results. 

I-22

FDA’s FY 2002 Annual Financial Report


Result 

The Foods Program met this goal. ORA reported that its Field force had inspected nearly 80 percent of domestic firms producing foods at "high risk" of microbiological contamination (i.e. approximately 5300 of 6800 "high risk" establishments) in FY 2001. 

Overall, FDA and the states (under FDA auspices) conducted approximately 14,000 

domestic food inspections.19 

High-risk establishments are those establishments that produce foods with the greatest 

risk for microbial contamination and those foods requiring specific components for a safe 

and nutritious product. Examples include establishments that produce infant formula, 

ready-to-eat food, heat and serve, seafood products or low acid canned and acidified 

foods. See Table 2 below for further explanation. 

Table 2 

Type of Food Explanation Examples 

Ready-to-Eat 

Food 

Products that will undergo no or minimal 

processing (such as, heating, freezing, 

washing, that would eliminate a pathogenic 

organism on the food). 

Fresh fruits and 

vegetables, bakery goods, 

cheeses, and cooked pasta 

dishes. 

Heat and Serve 

Food 

Products which normally receive a heat 

treatment (such as, microwave) prior to 

final consumption by the consumer. 

products are hazardous if the recommended 

heat treatment is insufficient to eliminate 

pathogenic organisms which may be in the 

product. 

Frozen foods. 

Seafood 

Products 

Particular types of seafood susceptible to 

cigueterra or scrombotoxics. Also, 

uncooked molluscan shellfish is high risk. 

Seafood not considered high risk would be 

raw fish, not of the scromboid species, 

which require cooking before consumption, 

such as trout, catfish and shrimp. 

Mahi mahi, pompano, tuna, 

salmon, swordfish. 

Low Acid 

Canned or 

Acidified Foods 

Products not properly processed may 

present a potential hazard to health in the 

form of botulism. 

canned food include not only the traditional 

tin and aluminum cans, but glass jars and 

hermetically sealed pouches. 

Acidified foods are low acid food products 

to which an acid, such as vinegar, is added 

for preservation. 

Products which normally 

receive a heat 

Such 

Examples of low acid 

19 Please note that domestic travel was curtailed from September 11, 2001 to October 2001, reducing the number of 

inspections. 

I-23 

FDA

’s FY 2002 Annual Financial Report


Management Discussion & Analysis


Mission 

of the program is to: 

prevention, diagnosis, and treatment of disease; 

prevent illness and disease; 

mental applications; 

defects associated with drug products; 

public health; 

quality standards and labeling requirements; and 

compliance with good manufacturing practices. 

Human Drugs Program 

The Human Drugs program promotes the public health by assuring that 

safe and effective drugs are available to the American people. The aim 

• Ensure the safety and effectiveness of all drug products used for the 

• Ensure the prompt approval of safe and effective new drugs so that 

patients can enjoy the benefits provided by therapies to treat and 

• Review premarket applications for new and generic drugs in a 

timely and quality manner, as well as new and generic drug supple­

• Evaluate reports of adverse events, medication errors, and product 

• Enhance DHHS’ ability to react to terrorist attacks and assure 

• Use postmarket surveillance reporting and the collection and 

analysis of drug product samples in evaluating compliance with 

• Conduct inspections to determine if fraudulent drugs are marketed 

in commercial channels, and evaluate foreign and domestic 

I-25

MANAGEMENT DISCUSSION & ANALYSIS


Background 

The Human Drugs Program (Program) is administered by CDER and supported by ORA. 

The Program promotes and protects the health of Americans by assuring that all prescription and over-the-counter drugs are safe and effective. It evaluates all new drugs before 

they are sold, and serves as a consumer watchdog for the more than 10,000 drugs on the 

market to be sure they continue to meet the highest standards. The Program routinely 

monitors TV, radio, and print drug ads to ensure they are truthful and balanced. It also 

plays a critical role in providing health professionals and consumers information to use 

drugs appropriately and safely. Recent drug approvals represent important advances for 

children, women, elderly persons, and patients with heart disease and cancer, the leading 

cause of death in the United States. The Program priorities include: 

Assuring that safe and effective new and generic drugs are available to the American 

public 

• The Program’s multidisciplinary scientific staff conducts thorough reviews of all new 

and generic drugs; 

• FDA has reduced the average review time for new drugs covered under the 

Prescription Drug User Fee Act (PDUFA) from more than 2.5 years to less than one 

year; 

• Patients with life-threatening illnesses gain access to treatments sooner; 

• FDA requires many drug manufacturers to provide information on how children can 

take their drugs safely and effectively; and 

• As part of the Nation's bio-terrorism efforts, FDA is encouraging the development and 

expediting the review of medications for the prevention or treatment of injuries that 

could be caused by terrorists using biological, chemical, or nuclear agents. 

Improving drug safety 

• After approval, the Program identifies drug safety concerns through voluntary reports 

submitted to the FDA's Med Watch program and CDER’s adverse event reporting 

system, which together receives more than 250,000 reports each year; 

• The Program’s scientists analyze adverse event reports and take actions that best 

protect the public's health, ranging from providing more information to patients to 

withdrawing drugs from the marketplace; 

• The Program instituted a comprehensive program to communicate with consumers and 

improve patient safety. For example, 6 million consumers received FDA's brochure on 

proper medication use; and 

• The Program works with industry to reduce errors related to confusing packaging 

and/or drug names; and has proposed a regulation to make prescription drug labeling 

easier for health-care providers to use. 

I-26 
FDA’s FY 2002 Annual Financial Report 

Cost 

Fiscal Year Net Program Cost (000s) 

2002 $280,402 

2001 $255,316 

2000 $251,243 

The Human Drugs Program experienced a 9.8 percent increase in net costs in FY 2002. 

This increase may be attributed to the following: funding the application review goals of 

the PDUFA; enhancing the generic drug program to provide a steady supply of more 

affordable drugs; and for increasing enhancements of the drug safety program. The net 

cost includes the expenses for a program, including the allocation of overhead expenses 

(such as, the Office of the Commissioner’s costs for administrative and policy direction, 

ORA’s field operations’ costs, rent, and other overhead), less exchange revenue. 

Program Goals and Accomplishments 

Highlights of Product Approvals 

Eloxatin for Colorectal Cancer 

Eloxatin (oxaliplatin) injection for use in combination with infusional 5-fluorouracil (5-

FU) and leucovorin was approved for the treatment of patients with colorectal cancer 

whose disease has recurred or become worse following initial therapy with a combination 

of irinotecan with bolus 5-FU and leucovorin. The combination including Eloxatin was 

shown to shrink tumors in some patients and delay resumed tumor growth. CDER 

reviewed the marketing application for Eloxatin in seven weeks, the fastest review to date 

for a cancer drug. Cancers of the colon and rectum (colorectal) are the fourth most commonly diagnosed cancers and rank second among cancer deaths in the United States. 

About 150,000 new cases of these cancers occur each year, and they cause approximately 56,000 deaths. 

New Anti-Clotting Drug 

ARIXTRATM (fondaparinux sodium) injection was approved for reducing the risk of 

blood clots after orthopedic surgery for hip fracture, hip replacement, and knee replacement. ARIXTRATM is the first synthetic anticoagulant indicated for use in these types of 

surgeries. The formation of clots in the deep veins of the legs is common after these surgeries and can lead to serious and potentially fatal consequences, such as when the clots 

break off and travel to the lungs. 

Viread for HIV-1 Infection 

Viread (tenofovir disoproxil fumarate) is a new antiviral drug indicated for treatment of 

HIV-1 infection in combination with other antiretroviral medicines. Tenofovir disoproxil 

fumarate is the first nucleotide analog approved for HIV-1 treatment. Nucleotides are 

I-27

MANAGEMENT DISCUSSION & ANALYSIS


similar to nucleoside analogs, and block HIV replication in the same manner. The introduction of potent antiviral drugs and the combined use of these drugs have markedly 

reduced replication of HIV in many patients and have improved survival rates. Yet 

because HIV mutates rapidly, resistance to one or more of these potent drugs may develop over time, necessitating the development of new drugs to treat these resistant virus 

strains. 

Other Accomplishments 

Reauthorization of PDUFA 

The Congress reauthorized PDUFA for another five year period. FDA worked with its 

stakeholders to strengthen the program and improve the financial model on which fees are 

based. Major changes include increased revenues that should cover FDA’s anticipated 

PDUFA fee expenditures every year; a more stable revenue model that is focused on total 

fee revenue levels that increase each year and allowed volatility in total application, product, and establishment fee revenues; a totally new workload adjustment provision that 

takes into consideration all aspects of review workload, including investigational new 

drug and manufacturing supplement submissions that do not generate fee revenue; and a 

change in the critical trigger that sets a minimum level of spending from appropriations 

for the drug review process, allowing a tolerance of five percent. 

New OTC Drug Facts Label Promoting the Safe Use of OTC Medicines 

May 16, 2002, marked the date that most OTC drug manufacturers must display FDA's 

new easier-to-read drug facts label on their products. The OTC regulation FDA finalized 

in March 1999 requires a standardized format for the labeling of the drugs Americans use 

most often - OTC drugs. Many manufacturers voluntarily adapted the new OTC label 

even before the May 16th implementation date. In recent surveys, randomly selected categories of OTC drugs at a retail chain showed that nearly 75 percent of labels examined 

already displayed the drug facts label. Although in many cases the new label began 

appearing on the shelves within the last two years, most of the more than 100,000 OTC 

products marketed will now be required to display the new labeling. 

Changes to the Risk Management Program to Prevent Birth Defects Caused by Accutane 

FDA advised consumers and health care providers about significant changes to the 

Accutane risk management program for pregnancy prevention. The new program is 

called S.M.A.R.T. (System to Manage Accutane Related Teratogenicity). S.M.A.R.T. was 

developed in consultation with FDA by Accutane's manufacturer, Roche Laboratories. 

The program is designed to enhance the safe and appropriate use of Accutane by strengthening the existing Accutane Pregnancy Prevention Program, a comprehensive patient education program. 

Accutane is approved to treat the most serious form of acne. This form of acne is painful, 

permanently disfiguring, and does not respond to other acne treatments. Accutane is very 

effective, but its use carries significant potential risks, including birth defects and even 

fetal death. In recent years, as more women have been receiving prescriptions for 

Accutane, the risk that pregnant women may be inappropriately using the drug has 

increased. 

I-28

FDA’s FY 2002 Annual Financial Report


Establishment of a Drug Safety and Risk Management Advisory Committee 

Drug safety, risk management, risk communications, medication errors, and patient safety are all issues which have gained prominence over the past few years. In part, this is 

due to publication of the Institute of Medicine report, "To Err is Human," as well as a 

greater awareness that medications are not safe in an absolute sense. The safety of medications depends on the manner in which the healthcare community uses them. These 

issues play a significant role in CDER's overall evaluation of the risk benefit of drugs, and 

are common topics of discussion at Agency advisory committee meetings. 

In general, however, these advisory committee meetings tend to be comprised of disease 

and medical subspecialty experts, rather than experts in risk related issues. CDER was 

able to supplement some meetings with risk management experts in an ad hoc manner. In 

addition, the Center designed and established a drug safety and risk management advisory committee. This committee includes experts in the areas of medication errors, risk 

communication, risk perception, risk management, clinical trial methodology, evidence 

based medicine, biometrics, and pharmacoepidemiology. 

Performance Plan Goals20 

Information is provided on two premarket goals: one pertaining to NDAs and the other to 

ANDAs. For the NDA goal, FY 2000 results are shown. For the ANDA goal, FY 2001 

results are shown. 

Premarket Review: New Drugs 

A major objective of the Program is to reduce the time required for FDA’s review process 

of all drugs. Emphasis is given to the review of new drugs intended to treat serious or lifethreatening diseases (such as, AIDS, AIDS-related diseases, cancer, and heart disease); 

and those products that demonstrate the potential to address unmet medical needs. 

Applications for drugs similar to those already marketed are designated standard, while 

priority applications represent drugs offering significant advances over existing treatments. The reauthorization of PDUFA assures that commitments by FDA and the drug 

industry will continue to meet or exceed its demanding performance goals. It is also 

essential to retain FDA’s skilled employees, who play a significant role in the outstanding 

effectiveness of the drug review process. 

Performance Goal 

Review and act on 90 percent of standard original NDA submissions within 12 months of 

receipt (50 percent within 10 months); and 90 percent of priority original NDA submissions within 10 months. 

Results 

CDER met its FY 2000 performance goal (see Table 3 on next page). 

20 CDER is reporting on FY 2000 and FY 2001 performance goals since this is the most recent final performance data 

available for certain measurements. Final performance data for FY 2002 will not be available until 

January 2004. 

I-29

MANAGEMENT DISCUSSION & ANALYSIS


Table 3 

Fiscal Year 2000 Cohort (as of 12/31/01) 

Number of Number of Percent of 

Submission Submissions Reviews Reviews 

Type Filed Goal (months) “On Time” “On Time” 

NDAs - Priority 29 90% in 6 mo. 28 97% 

NDAs - Standard 92 90% in 12 mo. 89 97% 

50% in 10 mo. 73 79% 

The chart below (Figure 3) illustrates that median approval time in months for priority 

applications has decreased from 15 months in 1994 to 6 months in 2001, and median 

approval time for standard applications has decreased from 22.1 months to 14 months. 

Approval time represents the total review time at the Agency plus industry response time 

to the Agency’s requests for additional information. 

Figure 3 

Premarket Review: Generic Drugs 

Generic Drugs are known for their cost-effectiveness. According to the Congressional 

Budget Office, they save consumers an estimated $8 billion to $10 billion a year compared 

with the price of brand-name products. FDA continues to support an active 

generic drugs program with a focus on expanding the availability of high-quality generic 

drug products to the public. The basic requirements for approval of generic and brandname drugs are the same as new drug approvals, although the generic drug manufacturer 

does not need to repeat the safety and efficacy studies conducted by the developer of the 

original product. The generic version must have the same dosage form, safety, strength, 

route of administration, and conditions of use as the trade-name product. 

Performance Goal 

Review and act upon 50 percent of fileable original generic drug applications within six 

months after submission date. 

I-30

FDA’s FY 2002 Annual Financial Report


Results 

FDA met its goal for FY 2001 acting on 84 percent of original applications within six 

months after the submission date. This is an increase of more than 27 percent over 

FY 2000. The FY 2001 18.4-month median approval time compares to 18.9-months in 

FY 2000 and 17.3-months in FY 1999 (see Figure 4 below). 

Figure 4 

The Office of Generic Drugs utilized an increase of $2.5 million in FY 2002 to improve 

the efficiency of the generic drug review process thereby decreasing the average approval 

time. The increase was also used to conduct research that will allow CDER to address 

specific scientific questions regarding bioequivalence and chemistry of generic products. 

This research is directed at evaluating ways to enable approval of generic drugs in areas 

that currently lack generic alternatives, such as inhalational or topical drug products. 

Postmarket Assurance 

CDER uses a number of postmarketing risk assessment approaches to ensure the continued safe use of drug products. Still, approximately 1.3 million patients each year are 

injured from medical therapy with up to two-thirds of these events due to medical management errors. Costs from these medical errors range from $37 to $50 billion annually. 

The Institute of Medicine estimates that as many as 100,000 Americans die annually as a 

result of preventable medical errors and the proliferation of new products may increase 

this number. CDER maintains a system of postmarketing surveillance and risk assessment 

programs to identify adverse events such as adverse reactions, drug-drug interactions, and 

poisonings. 

FDA puts substantial effort into reviewing adverse event and medication error reports to 

identify serious or potentially serious outcomes that might be avoided. The Adverse Event 

Reporting System (AERS) is a powerful, state-of-the-art tool for detecting signals: this 

I-31 
MANAGEMENT DISCUSSION & ANALYSIS


system combines the voluntary adverse drug reaction reports from health care professionals, consumers, and manufacturers. When a signal of potential adverse reaction is detected, safety evaluators consult with product reviewers, medical officers, and epidemiologists to review available data and consider further options. AERS offers paper and electronic submission options, international compatibility, and pharmacovigilance screening. 

As CDER discovers new information about a drug's safety profile, FDA may decide to 

disseminate risk information, such as "Dear Health Care Practitioner" letters, and may 

initiate regulatory action. 

Performance Goal 

The FY 2002 performance goal was used. Expedite processing and evaluation of adverse 

drug events through implementation of AERS which allows for electronic periodic data 

entry and acquisition of fully coded information from drug companies. 

Results 

AERS version 4.0, the Windows/Oracle upgrade, was implemented in FY 2002. 

Approximately 20 percent of expedited individual safety reports were submitted electronically in FY 2002. CDER implemented an Electronic Submission Product Test Pilot for 

AERS in October 2000. This pilot provided a mechanism for companies to test and send 

electronic submissions of expedited reports via physical media or gateway directly into 

AERS. The pilot moved to a production phase in FY 2002 where over 17,000 individual 

case safety reports were submitted electronically (see Figure 5 below). 

Figure 5 

Electronic submissions provide CDER, FDA, and the public with several tangible benefits. Specifically, automating the receipt and processing of safety reports will allow 

CDER to be more responsive to public health issues, reduce resources associated with 

data management, and apply better data and better science to the drug regulatory process. 

Electronic submissions also result in substantial cost savings. It is estimated that the cost 

of receiving a report is cut from $18 to $5 per report for those submitted electronically. 

I-32

FDA

’s FY 2002 Annual Financial Report


Management Discussion & Analysis


Mission 

effective. The aim of the program is to: 

diseases in humans; 

biological products; 

biotechnology manufacturers; 

develop improved testing methods; and 

surveillance. 

Biologics Program 

The Biologics Program is responsible for ensuring that biological products, including whole blood and blood products, vaccines, and therapeutic products including cells, gene therapies, and tissues, are safe and 

• Ensure the safety, efficacy, potency, and purity of biological 

products including vaccines, therapeutics, and related drugs and 

devices intended for use in the treatment, prevention, or cure of 

• Ensure the safety of the nation’s supply of blood and blood products; 

• Evaluate the safety and effectiveness of biological products before 

marketing, and monitor the pre-clinical and clinical testing of new 

• License biological products and manufacturing establishments, 

including plasmapheresis centers, blood banks, vaccine, and 

• Conduct regulatory research to establish product standards and 

• Assure the safety of marketed biological products through 

monitoring adverse experiences, lot release testing and postmarket 

I-33

MANAGEMENT DISCUSSION & ANALYSIS


Background 

The Biologics Program (Program) is administered by CBER and supported by ORA. 

Biologics are medical products derived from living sources. They include vaccines, blood 

and blood derivatives, allergenic patch tests and extracts, tests to detect HIV and hepatitis, gene therapy products, cells and tissues for transplantation, and new treatments for 

cancers, arthritis, and other serious diseases. The products that the Program regulates are 

on the leading edge of technology. Rapid scientific advances in biochemistry, molecular 

biology, cell biology, immunology, genetics, and information technology are transforming 

drug discovery and development, paving the way for unprecedented progress in developing new medicines to conquer disease. 

The Program is also responsible for ensuring the safety of the nation’s blood supply by 

reducing the risk of infectious disease transmission and other hazards, while maintaining 

an adequate supply of whole blood and blood products. 

Costs 

The Biologics Program has experienced a 16.5 percent increase in net program costs. This 

increase is attributed to funding for counter-bioterrorism activities, for premarket activities, and for inspections. The net cost includes the expenses for the program, including the 

allocation of overhead expenses (such as, the Office of the Commissioner’s costs for 

administrative and policy direction, ORA’s field operations’ costs, rent, and other overhead), less exchange revenue. 

Program Goals and Accomplishments 

Highlights of Product Approvals 

CBER approved biological products used to diagnose and treat a wide variety of medical 

conditions. 

First Biological Treatment for Sepsis 

The first biological treatment for sepsis, a life-threatening illness caused by severe infection, is a genetically engineered version of a human protein, Activated Protein C. This 

protein interferes with some of the body's harmful responses to severe infection, including the formation of blood clots that can lead to organ failure and death. 

Fiscal Year Net Program Cost (000s) 

2002 $187,416 

2001 $160,889 

2000 $132,860 

I-34

FDA’s FY 2002 Annual Financial Report


Treatment for Gastrointestinal Stromal Cancer 

This cancer drug is for the treatment of gastrointestinal stromal tumor (GIST), which is an 

uncommon tumor, affecting about 5,000 people in the United States. It is a tumor that 

occurs in the stomach or intestinal tract and metastasizes in the abdomen or the pelvis. In 

GIST, the cancer drug blocks a different abnormal enzyme found on the tumor cells. As 

these abnormal enzymes are largely confined to cancer cells, there is little damage to normal cells while cancer cells are killed. 

First Nucleic Acid Test (NAT) System 

The NAT system is used to screen whole blood donors for infections with Human 

Immunodeficiency Virus (HIV) and Hepatitis C Virus (HCV). This test system can simultaneously detect HIV and HCV in blood using a semi-automated system and is expected 

to further ensure the safety of whole blood and blood components, including fresh plasma, red cells, and platelets, by permitting earlier detection of HIV and HCV infections in 

donors. 

Other Accomplishment Information 

One Hundred Years of Biologics Regulation 

On July 1, 2002, the Biologics Program commemorated 100 years of biologics regulation, 

the Biologics Control Act of 1902. This milestone was marked by a series of events, 

including a scientific symposium (presentations are displayed at www.fda.gov/cber/inside 

/centennial.htm.) and an exhibit at the Smithsonian National Museum of American History. 

The symposium honored the past contribution of CBER scientists and regulators, underscored the role of biologics in modern medicine, and provided a glimpse into the exciting 

future of biologic innovations and CBER’s role in shepherding these products to market. 

Among the many significant scientific and regulatory contributions made by CBER staff is: 

• pioneering research on vaccines, including development and licensing of the first 

Rubella (German measles) vaccine and the first licensed bacterial conjugate vaccine 

for Haemophilus influenzae; 

• groundbreaking research on Hepatitis B, viral transmission and viral inactivation, 

leading to new regulatory requirements to protect recipients of blood and blood 

plasma, and licensing of diagnostic tests for Hepatitis B; 

• licensing of the first HIV test kit to protect the blood supply and new-generation tests 

for HIV, including nucleic-acid based tests; 

• using of state-of-the-art DNA microarray technology to study genes (genomics), 

research that could lead to a better understanding of infectious diseases, to a better 

standardization of biologics and to new improved medicines and vaccines; 

• collaborating with NIH on proteomics research, the study of all proteins in living cells, 

which potentially could revolutionize cancer detection and care; and 

• licensing of many new biotechnology-derived products for severe and life-threatening 

illnesses. 

I-35

MANAGEMENT DISCUSSION & ANALYSIS


The CBER exhibit at the National Museum of American History contains a video and 

book that trace the Center’s history and highlight its contributions to advancements in 

public health. 

Gene Therapy Patient Tracking System 

CBER developed a comprehensive Gene Therapy Patient Tracking System (GTPTS) to 

help ensure the proper oversight for gene therapy products. The GTPTS is a system for 

the collection and analysis of information pertinent to the safety of recipients of gene therapy. Far more than an adverse event database, it represents a comprehensive, integrated 

collection of procedures, policies, programs, databases, and report structures pertinent to 

the conduct of studies, the collection of short-term and long-term outcomes information 

from recipients, the transmission of information to FDA, the storage of information in 

electronic databases in an accessible and analyzable format, and the analysis and use of 

the information to make informed regulatory decisions and to increase the understanding 

of researchers, subjects, and the public. 

Critical to this system is an evaluation of the specific needs of gene therapy oversight with 

regard to what information should be collected; how best to collect that information; and 

how to best store, analyze, report, and use the data. One component of the GTPTS 

involves information technology and the need for adequate informative databases. No current database satisfies the needs of the GTPTS. FDA and NIH are developing a database 

application, the Genetic Modification Clinical Research Information System (GeMCRIS), 

to assist in the evaluation and analysis of human gene therapy clinical information. 

GeMCRIS will be one of the databases used for the GTPTS. 

Growth of Biotechnology-Produced Products 

The below chart (Figure 6) shows trend of INDs/IDEs for a four year period. INDs/IDEs 

are submitted by sponsors, before beginning clinical trials, to determine their safety and 

efficacy, and to request FDA authorization to administer an investigational drug or biological product to humans. 

Figure 6 

I-36

FDA’s FY 2002 Annual Financial Report


Biotechnology-produced products have increased dramatically in recent years. The number of biotechnology INDs received by CBER rose from five in FY 1980, to 334 in 

FY 2002. During FY 2002, FDA received 16,484 investigational amendments for INDs. 

Much of this growth has been in somatic cell, gene therapy, and xenotransplantation products for which there were nine INDs in FY 1989, increasing to 113 INDs in FY 2002. 

Adjunct procedures used in gene therapy, such as stem cell isolation, are also rapidly 

increasing, and leading to a secondary rise in device and biological submissions on this 

area. 

Performance Plan Goals21 

Premarket Review 

The first strategic goal of the Biologics Program was to ensure the expeditious availability of safe and effective human drugs, including biologics, for the prevention, diagnosis, 

and treatment of disease. 

CBER is responsible for reviewing and approving biologics covered by PDUFA22 that 

are vaccines and therapeutics. CBER also has responsibility for reviewing and approving biologic products not covered by PDUFA. The non-PDUFA biological products are 

blood and blood products, human tissue for transplantation, allergenic products, and 

devices associated with their manufacture. 

PDUFA established performance goals for the evaluation of applications for marketing 

drug and certain biological products. Review performance monitoring is being done in 

cohorts. For example, the FY 2001 cohort includes applications received from October 1, 

2000, through September 30, 2001.23 

Performance Goal 

The FY 2001 cohort review performance goals covered under PDUFA for priority original New Drug Applications (NDA), Product License Application (PLA), and Biologics 

License Application (BLA) are: 

• Review and act on 90 percent of priority original PDUFA NDA/PLA/BLA submissions 

within six months of receipt; and 

• Review and act on 90 percent of priority PDUFA efficacy supplements within six 

months of receipt. 

21 	The Biologics Program reports on two premarket performance goals that have a time delay in reporting performance 

results due to the design of the performance measure. DHHS requires FDA to report final data results only and no 

partial data are allowed. Because of the time delay and DHHS policy, we are using FY 2001 performance data since 

the FY 2002 results are not available until 6 months after the cohort year. 

22 	Please note that the PDUFA program excludes various process activities that normally are associated with the regulation of biological products. These include: enforcement policy development; post-approval compliance and 

surveillance activities, including review of adverse drug reports and annual reports; advertising review activities once 

marketing of the product has begun; and inspections unrelated to the review of covered applications and research. 

23 Accomplishment of the cohort-year performance goals is not immediately measurable at the close of the fiscal year. 

The outcome can be measured either 6 or 10 months after the last submission received in FY 2002, depending upon 

the category of submission (for 10-month standard applications – July 2003, and for priority original applications – 

April 2003). The FY 2001 performance data is used. 

I-37

MANAGEMENT DISCUSSION & ANALYSIS


Results 

For the two performance goals, CBER exceeded its performance goal. Table 4 shows 

CBER's performance for the two performance goals. The data provided are as of 

September 30, 2002. 

Table 4


Biologics Program FY 2001 PDUFA Cohort as of 9/30/02


Application 

Type 

Number 

Submitted 

Number 

Filed 

RTF, UN 

or WF 

First Action 

w/in Goal (%) 

Submissions 

Overdue (%) 

New Product 

Priority 

3 3 0 100% 0% 

Efficacy 

Supplement 

Priority 

2 2 0 100% 0% 

RTF = Refuse to File; UN = Unacceptable for filing (User Fee not paid); WF = Withdrawn 

before filing; 

Post-Market Quality Assurance 

The second strategic goal of the Biologics Program is to reduce the risk of biologics products on the market through assuring product quality and correcting problems associated 

with their production and use. 

FDA is required by law to conduct biennial inspections of all licensed establishments to 

determine compliance with Current Good Manufacturing Practice regulations and to 

ensure compliance with applicable product and establishment standards and license commitments. FDA also conducts biomedical research inspections to review pivotal clinical 

trial data and inspections of new tissue-cellular based products. 

Performance Goal 

For FY 2001, meet the biennial inspection statutory requirement by inspecting 50 percent 

of registered blood banks, source plasma operations, and biologics manufacturing establishments.24 

24 	The FY 2001 performance measure is used for this goal because final performance results for FY 2002 are not 

available. 

I-38

FDA’s FY 2002 Annual Financial Report


Results 

CBER reported that it had exceeded its performance measure. Fifty-seven percent of its 

inventory (blood banks, source plasma operations, and biologics manufacturing establishments) was inspected. 

This goal includes inspections done by FDA directly or through state contracts or partnership agreements. The law requires FDA to conduct inspections of manufacturing facilities covered under the statute once every two years. There are 2,790 establishments in 

the Biologics Program inventory. 

I-39


FDA

’s FY 2002 Annual Financial Report


Management Discussion & Analysis


Mission 

The aim of the program is to: 

of these products. 

Program 

Animal Drugs and Feeds 

The Animal Drugs and Feeds Program is responsible for ensuring that 

animal drugs and medicated feeds are safe and effective for intended 

uses and that food from treated animals is safe for human consumption. 

• Foster public and animal health by approving safe and effective 

products for animals and by enforcing applicable provisions of the 

Federal Food, Drug, and Cosmetic Act, and other authorities; 

• Process premarket applications as quickly as possible to increase 

the availability and diversity of safe and effective veterinary 

products that relieve animal pain and suffering; and 

• Monitor marketed products for all animal drugs and feeds to 

minimize harm to humans or animals that might arise from the use 

I-41

MANAGEMENT DISCUSSION & ANALYSIS


Background 

The Animal Drugs and Feeds Program (Program) is administered by the CVM and supported by ORA. 

The average American consumes nearly 200 pounds of meat and fish, 30 pounds of eggs, 

and 600 pounds of dairy products each year. Although 80 percent of the Program’s work 

is devoted to human health protection through the safety of animals used to produce 

human food, the Program is also responsible for food additive and animal drug review for 

companion and other non-food animals. CVM’s top priorities are animal drug review, 

antibiotic resistance, prevention of BSE or “mad cow disease,” and the safety of food 

derived from genetically modified animals. 

Cost 

The Animal Drugs and Feeds Program experienced a 35.7 percent increase in net costs in 

FY 2002. This increase is attributed to funding for: food safety, BSE, imports and inspections, antibiotic drug review, and pay raises. The net cost includes the expenses for the 

program, including the allocation of overhead expenses (such as, the Office of the 

Commissioner’s costs for administrative and policy direction, ORA’s field operations’ 

costs, rent, and other overhead), less exchange revenue. 

Program Goals and Accomplishments 

Highlights of Product Approvals 

New Dosage Form Drug Approved for Horses 

FDA approved, Torpex, the first metered-dose inhaler product for respiratory disease in 

horses. The active ingredient, albuterol, is a new chemical entity never before approved 

for veterinary use, and is administered to horses intranasally by a metered-dose inhaler for 

the immediate relief of bronchospasm and bronchoconstriction associated with reversible 

airway obstruction (also known as chronic obstructive pulmonary disease in horses). 

Aerosol albuterol provides relief to affected horses within minutes allowing the horse to 

breath easier. 

New Pain Medications 

Deracoxib is an original approval of a new chemical entity, a nonsteroidal anti-inflammatory drug, for the control of postoperative pain and inflammation associated with orthopedic surgery in dogs. 

Fiscal Year Net Program Cost (000s) 

2002 $112,736 

2001 $ 83,106 

2000 $ 63,591 

I-42

FDA’s FY 2002 Annual Financial Report


Carpofen received a supplemental approval which adds the indication for the control of 

postoperative pain associated with soft tissue and orthopedic surgery in dogs. 

Highlights of Product Safety Actions 

Nationwide Recall of Product Containing Mercury 

CVM received notices of adverse drug events from Alabama and Louisiana concerning 

the death of horses following application of a mercuric chloride blistering agent to their 

legs. The use of mercury blistering agents to treat lameness in horses is outdated, unsafe 

for animals and humans, and outside the scope of modern veterinary medicine. The product, administered topically on horses for the treatment of lameness, shin bucks, bows, 

chips, splints, and other horse leg ailments, was distributed nationwide to veterinarians, 

dealers, and consumers. On May 30, 2002, the company agreed to a nationwide voluntary Class I Recall25 of the product and agreed to stop manufacturing the product. All 

products remaining on the market are subject to this recall. 

Animal Feed Supplements Contaminated with Dioxin Recalled 

On March 22, 2002, FDA announced the voluntary recall of several animal feed products 

that contained high levels of dioxin.26 The products, chelated minerals and mineral premixes, are added to feed to provide cattle, pigs, and other livestock with needed micronutrients. The action was taken as a response to a joint investigation conducted by FDA and 

the Minnesota Departments of Agriculture and Health, and the Minnesota Pollution 

Control Agency. 

Recalling these chelated minerals and mineral premixes is an important part of the overall effort to reduce dioxin levels in the food chain and environment. Dioxin compounds 

are commonly found, at very low levels, in food, particularly in foods containing meat or 

animal fat. FDA continues to survey for dioxin in the Agency's Market Basket survey and 

through a directed survey of animal products. 

Other Accomplishments 

Improved BSE Inspection Database 

Preventing BSE remains a top priority for the FDA. The Agency conducted annual targeted inspections of 100 percent of all known renderers and feed mills handling prohibited feed material. During FY 2002, FDA designed, developed, and implemented a new 

BSE inspection tracking module in the Field Accomplishment Compliance Tracking 

System (FACTS) database, allowing FDA to record inspection results and track compliance more effectively. 

25 A Class I Recall is a situation in which there is a reasonable probability that the use of, or exposure to, a violative 

product will cause serious adverse health consequences or death. 

26 Dioxin is a broad family of chemical compounds that accumulate in the fat of humans and animals and can produce a 

broad range of adverse effects. The effects include, but are not limited to, enhanced tumorigenicity, enzyme induction, immune suppression and a wasting syndrome. 

I-43

MANAGEMENT DISCUSSION & ANALYSIS


Legacy data from the first round of BSE inspections was integrated with the new database 

to ensure that all known firms were included in the FACTS inventory. Several online 

error checking features to prevent entering incorrect or illogical responses to the BSE 

Checklist database information were incorporated into the new module. BSE inspection 

information is available through search-generated reports under the FACTS menu, for use 

by FDA personnel. The information from each BSE inspection is now: 

• Entered directly in the FACTS database by ORA personnel; 

• Entered under specific BSE FACTS inspection codes (requiring the entry of a BSE 

checklist for successful inspection completion); and 

• Contained in one central database which is directly available to all FDA personnel. 

These improvements give greater and immediate control, and ensure high quality, meaningful, and timely recording of detailed inspection findings and compliance status with the 

Ruminant Feed Ban Rule. 

Draft Guidance Document on Antimicrobial Resistance in New Animal Drugs 

CVM published a Federal Register notice in September 2002, announcing the availability of a draft guidance document entitled, “Guidance for Industry: Evaluating the Safety 

of Antimicrobial New Animal Drugs with Regard to Their Microbiological Effects on 

Bacteria of Human Health Concern.” This document describes an approach for drug 

sponsors to implement concepts from the framework document27 for assessing the antimicrobial resistance concerns as part of the overall preapproval safety evaluation of new animal drugs. 

The draft guidance document represents the Agency’s current thinking on a recommended approach for assessing the safety of antimicrobial new animal drugs with regard to their 

microbiological effects on bacteria of human health concern. An alternative approach 

may be used as long as it satisfies the requirements of applicable statutes and regulations. 

The guidance outlines a possible process for evaluating new animal antimicrobial drugs 

before approval and a strategy for re-evaluating the safety of antimicrobial drug products 

currently approved for use in food-producing animals. 

Performance Plan Goals28 

Premarket Review 

The first CVM strategic goal is to increase the availability and diversity of safe and effective animal drugs and feeds. To help achieve this goal, a staff college has been developed 

as a means of continuously building the scientific-based knowledge and capability of the 

27 FDA published a framework document in January 1999 that outlined possible strategies for managing the potential 

risks associated with the use of antimicrobial drugs in food producing animals. 

28 The final results for the FY 2002 performance goals are not available for reporting in the annual financial report. 

FY 2001 performance goals and results will be used. 

I-44

FDA’s FY 2002 Annual Financial Report


CVM staff. The CVM Staff College will allow the review staff to increase and maintain 

a level of scientific knowledge that is critical in order for CVM to address developing animal science and veterinary medicine issues, such as antimicrobial resistance and biotechnology. 

Performance Goal 

Begin to design and implement a staff college. 

Results 

CVM reported it had met its goal for FY 2001. CVM started Phase I of the Staff College. 

The following actions were performed: 

• Awarded a contract to perform needs assessment and begin building the staff college 

infrastructure needed for a competency based learning management system to enhance 

the science-base; 

• Awarded a facility and equipment contract and began construction of a new training 

center; and 

• Reviewed 130 candidates applying for staff college directorship. 

Postmarket Review 

The second strategic goal of the Animal Drugs and Feeds Program Performance Plan is to 

reduce the risks associated with marketed animal products. Once animal drugs and feeds 

are marketed, FDA continues to manage public health risks through post-market activities 

(such as, inspections, monitoring, and research) to identify potential human and animal 

health hazards. 

CVM participates in the NARMS.29 One of the NARMS program goals has been to provide information on antibiotic resistance to veterinarians, physicians, and public health 

authorities so that timely action can be taken to protect the public health and allow them 

to make informed decisions on treatment options for their patients. For example, a multidrug resistant variant of Salmonella Newport has emerged in humans and animals and was 

detected in the NARMS data. The participating NARMS agencies have alerted the human 

and veterinary medical communities to this emergence so that they may be aware and take 

proper actions in treating infections with this organism. 

Performance Goal 

Maintain isolate testing rate for Salmonella in the National Antimicrobial Resistance 

Monitoring System at 12,000.30 

29 NARMS is briefly described in the Agency Chapter on Page I-6.


30 An isolate is defined in the bacteriology context as to grow a pure culture of a specific bacterium.


I-45

MANAGEMENT DISCUSSION & ANALYSIS


Results 

The goal was not met in FY 2001. During the year, 8,899 isolates were collected (6,795 

animal, 1,671 human, and 433 retail meat isolates). Although NARMS testing was 

expanded in FY 2001 by adding retail meats sampling, fewer veterinary isolates were 

available for study. Salmonella sampling was not a part of the FY 2001 USDA’s Animal 

and Plant Health Inspection Service’s National Animal Health Monitoring System program; thus, isolates were not received from that program for NARMS antimicrobial susceptibility testing in FY 2001. 

NARMS is a cooperative agreement with other agencies and unfortunately the FY 2001 

performance was out of FDA’s control. The goal shows dependence on factors beyond 

FDA’s control such as the number of humans contracting a food borne disease and the 

sampling issue mentioned above. 

The goal has been revised for FY 2002 to show how CVM will use NARMS data to communicate with the public on antibiotic resistance. Although the performance goal was not 

met, NARMS is still a fully functional program and the public health has already and will 

continue to benefit from this program. 

I-46

FDA

’s FY 2002 Annual Financial Report


Management Discussion & Analysis


Mission 

devices; 

from concept to obsolescence; 

stakeholders; 

Health Program 

Devices and Radiological 

The Devices and Radiological Health Program is responsible for ensuring the safety and effectiveness of medical devices and eliminating 

unnecessary human exposure to man-made radiation from medical, occupational, and consumer products. The aim of the program is to: 

• Meet all statutory responsibilities for review of new medical 

• Assure medical product safety by monitoring the use of all medical 

devices, and the function and use of radiological health; 

• Manage emerging hazards to prevent widespread health and safety 

threat and ensure safe and effective new technologies; 

• Apply the Total Product Life Cycle model across the range of 

Devices and Radiological Health activities, by covering products 

• Connect to the global public health community, and partner with 

• Use science in the regulatory process to the maximum extent; 

• Attract and retain a diverse and high quality workforce; and 

• Measure and set targets to program’s impact on public health. 

I-47

MANAGEMENT DISCUSSION & ANALYSIS


Background 

The Devices and Radiological Health Program is administered by CDRH and supported 

by ORA. 

CDRH promotes and protects the health of the public by ensuring the safety and effectiveness of medical devices and the safety of radiological products. There are thousands 

of types of medical devices, from heart pacemakers to contact lenses. Radiation-emitting 

products regulated by CDRH include microwave ovens, video display terminals, medical 

ultrasound equipment, and x-ray machines. 

CDRH faces an increasing challenge to regulate a changing and rapidly growing device 

industry. The number of domestic and international device firms has increased from 9,061 

in FY 1997 to approximately 14,250 in FY 2002. 

The medical device industry of the 21st century is developing increasing numbers of more 

complex devices based on emerging technologies (such as, computer-related technology, 

molecular medicine, home-care and self-care devices, minimally invasive technology, 

device-drug combination products, and pioneering organ replacement and patient assist 

devices). All add to the increasing review workload and projected increases in device 

review times. FDA uses risk management to maximize the impact of limited resources by 

concentrating on high-risk, high-impact products and work areas that benefit consumers 

and health care workers the most. 

CDRH also regulates 10,000 mammography facilities under the Mammography Quality 

Standards Act (MQSA) and over 4,000 radiological health firms under Radiation Control 

and Health Safety Act. 

Medical devices, including those which are radiation-emitting products, are regulated by 

FDA under the FD&C Act. The certification of mammography facilities is regulated 

under the Public Health Service Act. 

Costs 

Fiscal Year Net Program Cost (000s) 

2002 $240,885 

2001 $223,320 

2000 $203,773 

The Device and Radiological Health Program experienced 7.9 percent increase in net 

costs in FY 2002. This increase is attributed to premarket review activities and inspections. The net cost includes the expenses for a program, including the allocation of overhead expenses (such as the Office of the Commissioner’s costs for administrative and policy direction, ORA’s field operations’ costs, rent, and other overhead), less exchange revenue. 

I-48

FDA’s FY 2002 Annual Financial Report


Program Goals and Accomplishments 

Highlights of Product Approvals 

During FY 2002, CDRH’s Office of Device Evaluation approved and cleared thousands 

of devices used to diagnose and treat a wide variety of medical conditions. A new 

Premarket Approval Application (PMA) website describing recently approved devices 

with patient information is now available at http://www.fda.gov/cdrh/mda/index.html. 

Highlighted below are several examples of medical devices approved during the past year 

that will have a major impact on patient care. 

Prosthetic Endograft 

This blood vessel graft, called an endovascular graft, is used to repair an abdominal 

aneurysm. The device consists of a woven polyester graft attached to the wall of the aorta 

with tiny metal hooks. Once in place, the device can prevent further growth and possible 

rupture of the aneurysm. 

Self-Expanding Peripheral Stent 

This device is a flexible coil-shaped metallic device that is used in the formal and poplitereal arteries in the leg to hold open areas that were blocked by atherosclerotic disease. 

Blocked arteries can cause leg pain by preventing adequate blood flow from reaching the 

lower leg and foot. 

Arterial Closure System 

The QuickSeal Arterial Closure System stops bleeding in the formal artery after cardiac 

catheterization. The device helps the body to produce a blood clot to seal the hole in the 

femoral artery. Without this device, the doctor would have to apply pressure manually to 

the puncture site to stop bleeding. The device may reduce the time a patient spends in the 

hospital. 

Glucowatch for Children with Diabetes 

The new glucose test product is a wristwatch device that provides children and adolescents with diabetes more information to manage their disease. The device is used with 

finger-prick blood tests to monitor glucose. The adult version of “GlucoWatch” was approved last year. This device extracts fluid through the skin by sending out tiny electric 

currents. Glucose levels are measured using this fluid every twenty minutes for twelve 

hours even during sleep. The device sounds an alarm if the patient’s glucose reaches dangerous levels. 

Pocket-Sized ECG Machine 

This device is a miniature version of a standard ECG machine, which is used by doctors 

to monitor the heart’s health by recording its electrical signals. It performs the same functions as a standard size ECG machine. The device consists of a pocket-sized ECG and 

twelve leads that are placed on the patient’s body to record the ECG information. The 

recorded data can be viewed on the device or transmitted using special software by mobile 

phone or other wireless networks to a computer for viewing by other medical personnel. 

I-49 
MANAGEMENT DISCUSSION & ANALYSIS


Other Accomplishments 

FDA increased its surveillance of medical devices by requiring a manufacturer of certain 

critical medical devices to conduct post-market surveillance on those products. When 

needed, firms will be required to gather data on the product's performance for up to three 

years to identify and evaluate, as early as possible, rare but potentially dangerous events 

that could endanger public health. 

The new rule, published in the Federal Register, will affect up to thirty medical devices a 

year. These include devices where failure would be likely to have severe adverse health 

consequences; devices implanted into the body for more than one year; and devices that 

sustain or support life and are used outside a medical facility. 

"Many problems or risks associated with a medical device cannot be predicted before the 

device enters commerce, even with clinical studies," said Dr. Lester Crawford, FDA 

Deputy Commissioner. "Post-market surveillance will allow FDA and manufacturers to 

identify less common, but potentially serious, problems that were not evident during product development or to address problems that were not seen as serious enough to warrant 

keeping the product from reaching the market.” It will provide a way to evaluate these 

problems early and identify ways to reduce the risk to patients (such as, physician training, device labeling, or design modification). 

Manufacturers will be notified by FDA whenever the Agency determines that post-market 

surveillance is necessary for a given device. This may occur during the review of a firm's 

marketing application, as the device goes to market, or after the device has been marketed for a period of time. Companies will be required to submit a post-market surveillance 

plan within thirty days of receiving an order. 

When Congress first instituted post-market surveillance of certain medical devices with 

the enactment of the Safe Medical Devices Act in 1990, it was modified by the FDA 

Modernization Act of 1997, giving the FDA more discretion in imposing post-market surveillance and establishing a time limit. 

Performance Plan Goals31 

Premarket Review 

The first strategic goal of the Devices and Radiological Health Program is to provide 

quicker access to important, life-saving, and health-enhancing medical devices, while 

assuring their safety and effectiveness. 

CDRH uses a wide variety of regulatory mechanisms to ensure the safety and effectiveness of medical devices. A major activity associated with this goal is the premarket review 

of device applications. Table 5 (on the next page) displays the type of applications that 

CDRH reviews. 

31 The premarket goals of the Devices and Radiological Health program have a time delay in reporting performance 

results due to the design of the performance measure. DHHS requires FDA to report final results only. Because of the 

time delay and DHHS policy, we are using FY 2001 performance data since the FY 2002 results are not available. 

I-50

FDA’s FY 2002 Annual Financial Report


Premarket approval applications involve new products that represent the highest potential 

risk and benefit to consumers. FDA has redirected its available resources to reviewing 

these high-impact products where direct intervention helps consumers and health care 

professionals most. To accomplish its premarket responsibility, FDA is charged with 

review of submissions within statutory timeframes. FDA strives to support a stable and 

predictable review process and meet new FDA Modernization Act requirements for 

reduced review times for PMAs and increased interaction with sponsors. 

CDRH is reporting on two premarket performance goals: premarket approval applications (PMAs) and premarket notifications (510ks). 

Table 5 

Type of Food Type of Food 

Premarket Approval 

Application (PMA) and PMA 

supplement 

CDRH ensures the data submitted by the manufacturer shows 

the device is safe and effective. Also included are Humanitarian 

Device Exemption (HDE) applications, which are similar to 

PMAs, but are exempt from PMA effectiveness requirements.* 

Product Development 

Protocol (PDP) 

An alternative to PMAs in which the manufacturer makes a 

mutual and binding agreement with CDRH in advance. The 

protocol spells out the criteria that will be used in determining 

safety and effectiveness, and the pass-fail parameters for each 

area. PDPs are the easiest to construct for products whose safety and effectiveness is well enough understood so that pass-fail 

criteria can be readily established in advance. 

Premarket Notification 

[510(k)] 

CDRH ensures the data submitted demonstrate that the device is 

substantially equivalent to an eligible product already on the 

market. 

Investigational Device 

Exemption (IDE) application 

CDRH ensures proposed investigational studies will be well 

controlled and will safeguard the rights and safety of human 

subjects. 

* An approved HDE authorizes marketing of a Humanitarian Use Device (HUD), which is defined by the FD&C Act, as 

a device that is “intended to benefit patients in the treatment and diagnosis of diseases or conditions that affect or is 

manifested in fewer than 4,000 individuals in the United States per year.” 

Performance Goal 

The FY 200132 performance goal was to review and complete 90 percent of PMA first 

actions within 180 days. 

Results 

CDRH achieved its goal by completing 97 percent of the first actions on 70 PMAs 

received in FY 2001. In FY 2000, FDA performance was 96 percent of 67 PMA first 

32 Please note that since FY 2002 performance data is not available, FY 2001 data will be used. 

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MANAGEMENT DISCUSSION & ANALYSIS


actions. FDA improved its performance considerably from FY 1999 when the on-time 

percentage was 74 percent of 43 PMA first actions. Figure 7 (below) presents CDRH’s 

improving performance over the past five years. 

Figure 7 

Also, there were no backlogs for new product submissions and turnaround times for processing these submissions improved for all. PMA average total review time from filing 

to approval was 140 days for FY 2001. 

Performance Goal 

The FY 200133 performance goal was to review and complete 95 percent of 510(k) (Premarket Notification) first actions within 90 days. 

Results 

CDRH achieved its FY 2001 performance goal with a 100 percent rate of completion 

within this timeframe. This performance has resulted from CDRH changing the way premarket notifications are reviewed. CDRH is exempting more low-risk products from the 

510(k) requirement, using more consensus standards in its reviews, and using more third 

party reviews. As a result, devices are available more quickly to patients and resource 

savings area available for high-impact devices. Figure 8 (on next page) shows FDA’s 

improved timeliness in completing 510(k) first actions. 

33 Please note that since FY 2002 performance data is not available, FY 2001 data will be used. 

I-52

FDA’s FY 2002 Annual Financial Report


Figure 8 

Mammography 

The second strategic goal of the Devices and Radiological Health Program is to reduce the 

risk of medical devices and radiation-emitting products on the market by assuring product quality and correcting problems associated with their production and use. CDRH has 

chosen to report on its mammography performance goal which is under this strategic goal. 

The MQSA of 1992 

Breast Cancer is the most commonly diagnosed cancer and the second leading cause of 

cancer deaths among American women. Experts estimate that one in eight American 

women will contract breast cancer during their lifetime. MQSA was signed into law on 

October 27, 1992, to address the public health need for safe and reliable mammography, 

and was amended by the Mammography Quality Standards Reauthorization Act 

(MQSRA) of 1998. 

The MQSA Program certifies mammography facilities and performs annual inspections to 

ensure that they remain in compliance with established quality standards. Through the 

authorities delegated to FDA to implement MQSA, FDA ensures that women have access 

to safe and effective mammography services. The Act requires all mammography facilities to be certified by the Secretary of DHHS as meeting quality standards in equipment, 

personnel, quality assurance, record keeping, and reporting. It is unlawful for a facility 

to perform mammography without a certificate. 

MQSRA extends MQSA authorization through FY 2002 and makes substantive changes, 

such as: 

• Requiring all mammography facilities to send reports written in lay person’s terms to 

all patients receiving mammography services; 

I-53

MANAGEMENT DISCUSSION & ANALYSIS


• Clarifying the responsibility of the mammography facility to retain mammogram 

records so women have the ability to obtain the original record of their mammogram; 

• Mandating direct written notification to all patients of their exam results in lay 

person’s terms; and 

• Permitting FDA to conduct a limited demonstration project to determine the feasibility 

of inspecting mammography centers of excellence on a less than annual basis. 

MQSA requires all of the approximate 10,000 mammography facilities in the U.S. to be 

inspected annually to ensure that they remain in compliance with quality standards. FDA 

estimates that a third of such facilities will need re-certification annually. 

Performance Goal 

The FY 2001 performance goal is that 97 percent of mammography facilities achieve 

compliance with inspection standards, with less than three percent with Level 1 (serious) 

findings. This goal helps ensure that mammography facilities remain in compliance with 

established quality standards and improve the quality of mammography in the U.S. 

Result 

CDRH achieved this goal. It marked the third consecutive year of achieving the 97 percent goal for certified mammography facilities complying with inspection standards. 

During FY 2001, FDA inspected 9,262 domestic mammography facilities compared to 

9,443 in FY 2000. 

I-54

FDA

’s FY 2002 Annual Financial Report


Management Discussion & Analysis


Mission 

product; and 

National Center for Toxicological Research 

The National Center for Toxicological Research (NCTR) Program conducts FDA mission-critical, peer-reviewed research to develop a more 

scientifically sound basis for regulatory decisions and reduce risks 

associated with FDA-regulated products. The aim of the program is to: 

• Conduct peer-reviewed scientific research that provides the basis 

for FDA to make sound, science-based regulatory decisions, and to 

promote the health of the American people through the Agency’s 

core activities of pre-market review and post-market surveillance; 

• Conduct fundamental and applied research aimed at understanding 

critical biological events, to determine how people are adversely 

affected by exposure to products regulated by FDA; 

• Develop methods to measure human exposure to products that have 

been adulterated or to assess effectiveness and/or the safety of a 

• Provide the scientific findings used by the FDA product centers for 

pre-market application review and produce safety assurance to the 

scientific community for the betterment of public health. 

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MANAGEMENT DISCUSSION & ANALYSIS


Background 

NCTR’s research program involves basic and applied research specifically designed to 

define biological mechanisms of action underlying the toxicity of products regulated by 

the FDA. This research is aimed at understanding critical biological events in the expression of toxicity and at developing methods to improve assessment of human exposure, 

susceptibility, and risk. 

NCTR conducts research through the dedicated efforts of staff in eight divisions. The 

NCTR research divisions are committed to the study of biochemical and molecular markers of cancer, nutritional modulation of risk and toxicity, developmental toxicity, neurotoxicity, quantitative risk assessment, transgenics, applied and environmental microbiology, and solid-state toxicity. Each division works closely with the others in a seamless 

effort to support the FDA's mission to bring safe and efficacious products to the market 

rapidly and to reduce the risk of adverse health effects from products on the market. 

Costs 

NCTR’s net costs increased by 6.2 percent in FY 2002. The net cost includes the expenses for the program, including the allocation of overhead expenses (such as, the Office of 

the Commissioner’s costs for administrative and policy direction and other overhead), less 

exchange revenue. 

Program Goals and Accomplishments 

Other Accomplishments 

Internet Journal to Foster Regulatory Research 

NCTR continued its publication of the Internet journal entitled, Regulatory Research 

Perspectives: Impact on Public Health. This journal provides FDA scientists with a 

means of communicating specific information to colleagues in the Agency and the scientific and public health community. Contributions are solicited from every FDA Center 

and the Office of the Commissioner. FY 2002 articles include: “Developing Methods of 

Genetic Analysis to Improve Cancer Risk Assessment,” November 2001 and 

“Development of Quantitative Structure-Activity Relationships (QSARS) and Their Use 

for Priority Setting in the Testing Strategy of Endocrine Disruptors,” May 2002. Articles 

published in the journal may be found at www.fda.gov/nctr/science/journals/Default.htm. 

Fiscal Year Net Program Cost (000s) 

2002 $45,681 

2001 $43,033 

2000 $43,347 

I-56

FDA’s FY 2002 Annual Financial Report


Explaining FDA’s Research Efforts 

In the September-October 2002 issue, FDA Consumer Magazine, Dr. Daniel A. Casciano, 

Director, NCTR, explained the difference between the types of research conducted by the 

NIH and the research conducted by NCTR and FDA’s other Centers. He stated that NIH 

supports basic research, that is, new knowledge that may or may not have a direct impact 

on protecting public health. 

Research performed by NCTR and FDA’s other Centers is “translational” – meaning basic 

information derived from an NIH-sponsored study is further modified to apply to a specific question that is relevant to the FDA’s mandate to protect the public health. 

An example of this is the basic research developed to create a mutant mouse or rat. FDA 

scientists use this technology and apply it to specific rodent strains to help assess the safety of a human or animal drug, or to understand the mechanism of action of a food additive or medical device. Sometimes the conversion of basic research information to 

applied research information that would be useful to the FDA takes several years. 

Other “translational” research efforts ongoing at the NCTR include: 

• development and modification of research standards by which those involved in 

toxicological research can identify cancer-causing agents in model animal systems; 

• assessment of potential toxic reaction of sunlight and cosmetics or some dietary 

supplements on the skin of model animal systems; 

• development of tools that will help identify populations at risk to products regulated 

by the FDA using technologies that were derived from the sequencing of the human 

genome (a process funded by the NIH); and 

• evaluation of specific anti-viral strategies developed through NIH funding to prohibit 

the transmission of the HIV virus to offspring of infected females. 

It is extremely important that the FDA maintain its ability to make quality decisions based 

on sound science. This is more important because of the quickened pace of discovery by 

FDA-regulated industries. To avoid becoming a bottleneck to moving these newly developed products to the consumer, a strong internal scientific presence is essential in the 

FDA. 

Performance Plan Goals 

Risk Assessment for Regulated Products 

NCTR Strategic Goal 1 is to develop new strategies and methods to test and predict toxicity and detect and assess risk for FDA regulated products (new and those already on the 

market). 

One of the Agency’s and NCTR’s highest priorities is to increase the ability of FDA 

reviewers to evaluate and predict rapidly and accurately the adverse effects of FDA-regulated products. This capability is critical to the Agency’s ability to carry out its mission 

to analyze the safety and efficacy of products during the premarket application and postmarket review process. The human response to a toxic agent is a complex process. To 

adequately predict the adverse effects of human exposure to a toxic agent, a group of tests 

I-57 
MANAGEMENT DISCUSSION & ANALYSIS


must be developed, validated, and applied. NCTR uses a multidisciplinary approach to 

predict human toxicity and to evaluate the risk associated with regulated products, using 

appropriate animal and non-animal models. 

Performance Goal 

Introduce the knowledge of new genetic systems and computer-assisted toxicology (toxicoinformatics) into the application review process. The performance measure for FY 

2002 is to conduct one biologically based mechanistic study combined with predictive 

modeling to improve extrapolation of animal data to the human condition. 

Scientists are developing and using new technologies and tests to better understand chemical toxicity and strengthen the extrapolation from animal models to humans. Because of 

America’s quest for good health, increasing evidence of adverse drug/chemical reactions 

in humans, point to a need to identify and protect susceptible subpopulations of people at 

higher risk from exposure to drugs, contaminated foods, or other regulated products. 

The NCTR methods used in the identification and quantitative measurement of carcinogenic and mutagenic risk are essential to the FDA regulatory process. The systems developed and characterized in this performance goal can simulate human exposure, and 

increase the ability to detect weak carcinogens. 

Results 

NCTR scientists conducted a series of investigations to examine the genotoxic consequences of AIDS drugs in neonatal mice. Initial experiments showed that zidovudine, but 

not lamivudine, is mutagenic, and that lamivudine does not alter the responses induced by 

zidovudine. During the year, these studies were expanded to include other AIDS drugs 

(stavudine, didanosine, zalcitabine, and nevirapine). 

Performance Goal 

Develop, with other organizations, gene chip and gene array technology.

34 The performance measure for FY 2002 is to support at least two multi-disciplined DNA and RNAbased microarray technologies. 

NCTR programs, through partnerships and collaborative projects with other federal agencies and academia, use human data they have collected to better understand the mechanisms of carcinogenesis and to provide new knowledge on the identification of subpopulations, particularly as they relate to individual susceptibility. 

The importance of risk chip technology is that it allows researchers to screen large numbers of people simultaneously for different types of biomarkers. This will allow the identification of individuals at risk for adverse drug reactions and will help FDA review of 

individual susceptibility using profiles of agents with known toxicities and allow selection 

of a diverse group for clinical trials. For instance, the technology will allow scientists to 

identify people at high risk for various toxicities, including liver toxicity. 

34 Microchip arrays are small quantities of genetic material bound to computer chips that are used to do a large number 

of chemical reactions very quickly. 

I-58

FDA’s FY 2002 Annual Financial Report


Results 

NCTR scientists collaborated with Environmental Protection Agency (EPA) scientists and 

successfully used microarray gene expression analysis to identify several genes changed 

in rodents given dichloroacetic acid, a known rodent carcinogen, in their drinking water. 

They identified specific genes that are involved in cell growth, tissue remodeling, apoptosis (normal cell death), cancer progression, and foreign chemical metabolism. This 

study shows the potential utility of the new DNA microarray technology in evaluating the 

mechanisms by which chemicals exert their toxicity. 

Working with scientists at the University of Arkansas for Medical Sciences, NCTR scientists have established a fully automated microarray printing process to screen known 

rodent and human genes. This technology has great promise in understanding mechanisms and prediction of toxicity. 

The FDA, the pharmaceutical industry, and others are embracing this technology to understand the underlying changes in the genetic components in response to a human drug causing damage to the body. This technology allows the assessment of health risk compared 

with benefit to be more rationally determined. Once mechanisms are determined in animal model systems, extrapolation to humans can be tested. 

Mechanisms of Toxicity 

NCTR’s Strategic Goal 3 is to conduct basic research to understand mechanisms of toxicity, assess new product technology, and provide methods for use in FDA standards development and product risk surveillance. 

Most regulatory research begins as a precise exploration of a specific agent, a concept, or 

the use of a method. Once techniques are developed, these novel approaches can be 

applied to answer compelling questions about human risk. 

The identification of carcinogens has depended classically on two approaches, epidemiological studies and lifetime animal exposure studies, each of which has its own strengths 

and weaknesses. Developing new techniques to assess carcinogenic risk provides the 

basis for alternative methods of assessing carcinogenic potential that can augment, or perhaps even replace, the need for expensive animal testing and human clinical trials. 

Performance Goal 

Use new technologies (bioinformatics35 , proteomics36, and metabonomics37 ) for diagnosis of toxicity. The performance measure is to publish at least one scientific paper 

describing one technology for use in reviewing regulated compounds. 

Staying abreast of new technologies in science is important for the Agency to protect pub35 Bioinformatics is the application of computational information and technology to a research study; an essential 

component of research activities utilizing structural and functional genomics approaches. 

36 Proteomics is the qualitative and quantitative comparison of all the proteins in the body under different conditions to 

further unravel biological processes; a study of the proteins expressed by an organism. 

37 Metabonomics is the comprehensive, high-throughput study of the metabolism of the cell; the complete complement 

of all the small molecule metabolites used or produced by a cell, tissue or organism. 

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MANAGEMENT DISCUSSION & ANALYSIS


lic health. These new technologies have great promise on the mechanistic understanding 

of toxicity responses in the human. These will create core competencies in FDA that can 

form a foundation for future high technology science. 

Results 

The May 2002 issue, Regulatory Research Perspectives: Impact on Public Health, an 

Internet journal, featured a collaborative project between NCTR and EPA. Many potential estrogenic endocrine disrupting chemicals (EDCs) are associated with products regulated by the FDA (such as, food packaging, pharmaceuticals, and phytoestrogens). EPA 

has a legislative mandate to develop a screening and testing program for estrogenic EDCs 

in drinking water. 

NCTR scientists have developed a quantitative structure-activity relationship (QSAR) 

approach that can be used to screen thousands of chemicals and determine the likelihood 

that they would be estrogenic. A series of QSAR models were developed and validated 

against experimental data. This QSAR approach was then applied to three environmental 

data sets identified by EPA and to a list of chemicals of concern identified by FDA’s 

CFSAN and CDER. This QSAR screen provided a list of priority chemicals for further 

experimental evaluation and regulatory decision making. 

I-60

FDA

’s FY 2002 Annual Financial Report


Management Discussion & Analysis


and the DHHS management initiatives; 

• Highlights select administrative accomplishments; 

• Reports on financial goals and results; and 

Financial Performance 

• Describes FDA’s progress with the President’s Management Agenda 

• Analyses FDA’s financial statements and financial condition. 

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MANAGEMENT DISCUSSION & ANALYSIS


38 For purpose of this report, the Executive Branch of the Federal Government will be referred to as the Federal 

Government. The President’s Management Agenda covers only agencies and departments in the Executive Branch. 

39 One of the Secretary’s management goals is to centralize policy and support functions – known as the “One-DHHS” 

concept. An application of this policy is to create a centralized financial management system. 

President’s Management Agenda 

The goal of the President’s Management Agenda (PMA) is to improve the management 

and performance of the Executive Branch.38 The reform is far-reaching – transforming 

the Federal Government into a citizen-centered, results-orientated, and market-based 

organization that provides high quality service to its citizens. 

goals are identified focusing on changes to the government’s infrastructure and management operations. s departments is responsible for implementing the Agenda. As part of the DHHS, FDA is implementing the President’s 

Management Agenda and Secretary’s management improvement goals.39 Table 6 below 

identifies the PMA’s objectives. 

Table 6 

Goal Objectives 

Management of Human 

Capital 

Treat human capital as a resource that should be planned and managed 

Reduce layers in government 

Identify core competencies to do mission work 

Consolidate administrative functions 

Use flexible tools to recruit, retrain, and reward employees 

Competitive Sourcing 

Compete the performance of tasks identified as commercial-in-nature 

Compare government performance with private sector performance 

Select best value to the government 

Improved Financial 

Performance 

Create financial information systems that produce accurate and timely 

information to support operating, budget, and policy decisions 

Measure 

Expanded Electronic 

Government 

Create easy-to-find single points of access to government services for citizens 

Automate internal processes to reduce costs internally in the federal government 

Reduce the reporting burden on businesses 

Share information more quickly between Federal, State, local, and tribal 

governments 

Automate internal processes to reduce costs internally in the federal government 

Budget and Performance 

Integration 

Integrate performance review with budget decisions 

Improve program performance by developing outcome measures, monitoring 

performance and linking associated cost 

Use full cost of resources 

Align budget accounts with outputs 

Five government-wide 

Each of the Executive Branch’

the real cost and performance of programs using the budget process 

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FDA’s FY 2002 Annual Financial Report


A performance summary of the five government-wide goals follows: 

Strategic Management of Human Capital 

The PMA calls for two major activities: delayering of the Federal bureaucracy and workforce planning. These initiatives are intended to improve quality service to the American 

public by reducing management layers between the public and the Agency decision-makers and by identifying the critical skills needed to support the Agency’s mission. Under 

this global initiative, the DHHS and FDA are performing various consolidation initiatives. 

Organizational delayering addresses the Agenda’s requirement to ensure that no more than 

four organizational levels exist between the citizen and the Agency decision-maker. Three 

organizational reviews were conducted for NCTR, CVM, and OC. 

FDA has been engaged in strategic workforce planning. The investments of the previous 

years enabled FDA to expeditiously recruit and staff more than 800 employees hired from 

the FY 2002 Counter-Terrorism funding. FDA used an enhanced recruitment strategy to 

achieve such remarkable results without an increase in human resources (HR) staff. These 

results include: 

• Implemented an automated application system “Quick Hire;” 

• Instituted a Recruitment Referral Program; 

• Placed a listing of FDA vacancies on FDA’s Internet site; 

• Partnered with colleges and universities with suitable degree programs; and 

• Increased the use of special hiring authorities for student interns. 

Improving the retention of employees was another effort. The quality of worklife program 

and other HR flexibilities helped to attract prospective employees and to retain employees whom are already onboard. FDA established an Elder Care Program and a Student 

Loan Repayment Program as other incentives to retain staff. 

DHHS decided to consolidate its HR at the department level as part of the “One-HHS” 

vision. FDA had decentralized its HR in recent years and delegated it to its center components. By year’s end, FDA consolidated its seven separate HR components into one 

unit. 

Because FDA will be consolidating its various headquarters components at the White Oak 

Campus, it decided to redesign its method of delivering administrative services. 

Headquarters components are spread over 40 different buildings in the metropolitan 

Washington, D.C. area. Each component has created a support unit to manage administrative services. To plan for an orderly transition, FDA contracted with a management 

consultant to study the organizational structure for providing administrative services and 

to recommend the most efficient realignment of Agency resources that would provide high 

quality administrative services from a centralized source without jeopardizing the primary 

Agency’s mission. Final recommendations using the Shared Services concept for consolidating administrative services were presented to the Agency on September 12, 2002. A 

design phase is set to begin in FY 2003. 

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MANAGEMENT DISCUSSION & ANALYSIS


Competitive Sourcing 

FDA conducted an analysis and prepared an Agency competition plan which was sent to 

the Department. Four outsourcing studies were conducted covering Graphic Design 

Services, Medical and Scientific Library Services, Television Studio Services and Web 

Design and Development Services. FDA conducted A-76 training for executives and 

employees. The Agency also participated in the Program Support Center’s source selection for a DHHS-wide contract. FDA negotiated a Memorandum of Understanding with 

the National Treasury Employees Union (NTEU) concerning A-76 studies. 

Improved Financial Performance 

FDA is participating in the DHHS effort of designing the Unified Financial Management 

System (UFMS). In June 2002, a Global Design Team was formed that included detailed 

employees from various DHHS organizations. This team is working to develop a common 

budget and accounting classification structure, and systems architecture for DHHS and its 

components. 

Implementing UFMS in FDA will be known as the Financial Enterprise Solution (FES). 

FDA’s Office of Financial Management (OFM) is leading an agency-wide team with representatives from the offices and centers. The team will perform change management 

activities as well as business and technology analyses. These activities will determine and 

carry forward FDA’s business requirements. 

To prepare for the new financial system and to improve its financial management practices, FDA started three projects to standardize and centralize current financial operations: 

• Agency Location Code Unification Project40 – centralization of FDA’s fifteen 

Agency location codes into one at Headquarters; 

• Travel Manager – FDA’s web-based travel authorizations and voucher payment 

system; and 

• Automated Accounts Payable System – FDA’s web-based commercial vendor 

invoice and payment system. 

Preparation activities will continue in FY 2003 with data clean-up and developing requirements for a reporting architecture. The results will be streamlined financial processing 

and improved customer service. 

FDA is preparing for the accelerated financial reporting requirements in FY 2003 and FY 

2004 by upgrading the methods used to create and review financial statements, performing quarterly reconciliations on property and other accounts, and training FDA staff on 

these procedures. 

FDA is enhancing its program accountability through the use of performance contracts 

that tie an individual senior executive performance to the achievement of specific performance plan objectives. This enhancement is contributing to creating a culture of 

accountability starting from the FDA Commissioner to the lowest program official. 

40 For a status report on progress made during FY 2002 regarding these projects (Agency Location Code Unification 

Project, Travel Manager Project, and Automated Accounts Payable System Projects), please see pages I-66 and I-67. 

I-64

FDA’s FY 2002 Annual Financial Report


Accountability is also advanced by following through on commitments made in audit 

reports’ corrective action plans. OFM reported that an outstanding audit finding was 

resolved when the electronic interface between the Agency’s financial management system and Property Management Information System was completed. This improvement 

will permit the timely reconciling of property and financial information and will contribute to the Agency meeting its accelerated financial reporting requirements. 

Finally, OFM developed a cost allocation method used for predicting the FTE workload 

for various work activities. This is a first step in the process of integrating financial and 

performance management information for day-to-day operations. Specifically, the OFM 

cost method will enable the Agency’s budget offices to build more accurate models for 

projecting the number of FTEs needed to perform work activities. This methodology will 

help program officials become aware of the cost implications for their work products and 

will contribute to improve financial reporting in the Agency’s budget and performance 

documents. 

Expanded Electronic Government 

FDA is providing leadership and support to the DHHS E-Rulemaking Team, chaired by 

the Department. E-Rulemaking is one of the 24 E-Government Initiatives on the President’s Management Agenda that is on a fast-track for adoption government-wide in FY 

2003. FDA provided demonstrations of its AIMS docket management system to the 

OMB, the DHHS Office of the Secretary, the Immigration and Naturalization Service, and 

the Center for Medicare and Medicaid Services 

In 1998, OMS implemented its first online electronic submissions form that provided an 

easy way for the public to submit general comments on specific issues, specific comments 

on proposed rules, guidances, and notices of meetings. In 2001, FDA received over 

385,000 public comments; ninety-seven percent were from individual citizens. 

Electronic rulemaking at FDA reduces the processing time needed to receive and review 

comments. It increases comments received and the percentage of comments provided 

electronically has increased dramatically over the past five years. Figure 9 below displays 

the comments received in a four year period. 

Figure 9 

I-65

MANAGEMENT DISCUSSION & ANALYSIS


Budget and Performance Integration 

FDA continues to integrate performance with budget decisions to help fulfill our mission, 

using several strategies. Both support FDA’s public health mission and result in Agency 

decisions that provide improved public health. 

The first strategy is to more effectively integrate the performance plan and budget, building organizational cultures that focus on outcomes and results. Integration increases the 

transparency between the performance plan and budget to allow for better understanding 

of the outputs produced by FDA’s resource investment. This is accomplished through estimating costs and incremental improvements in performance goals; reducing the number 

of performance goals to a manageable level; improving the linkage between the performance plan and budget by using strategic planning teams to develop multi-year plans for top 

Agency priorities, including resource needs and performance levels; identifying high 

quality outcome measures; and incorporating performance measures and accountability 

into the management of the Agency. Over the past several years, the major strategic planning efforts have covered such diverse FDA mission areas as: Food Safety-Bioterrorism, 

Bovine Spongiform Encephalopathy, Imports and Inspections, Blood Safety, Patient 

Safety/Medical Errors, and Information Technology. 

The second strategy is to improve the accountability of FDA managers for achieving performance and management goals by linking them to individual performance contracts. 

The contract requires the highest to lowest senior level manager to commit to a level of 

performance as articulated in specific performance goals. For example, one senior manager’s goal was “to achieve the adoption of the Food Code in twenty-eight states.” 

The third strategy is to implement a new financial system to allow FDA to measure the 

various costs of its programs and performance outcomes. Along with the other DHHS 

operating divisions, FDA has been planning to implement a new financial system to better track the specific costs of particular programs. The Agency will continue to look at new 

ways of developing performance outcomes and results, linking cost data to performance 

outcomes and results, and using those data in management decision making. 

Additionally, the administrative consolidation study currently underway at FDA is also 

examining the links between budget and planning to suggest, if appropriate, other means 

to further integrate the function. 

Program Goals and Accomplishments41 

Financial Management Accomplishments 

Appropriation Increases 

FDA realized a record appropriation for FY 2002. Congress for the first time in many 

years not only provided full funding of the 4.6 percent pay raise, but funding over and 

above the increases requested by the President for the Salaries and Expense account. 

FDA’s program level is $1.6 billion, which includes full funding for the Buildings and 

41 The Department’s Accounting Manual, Chapter 5-20, “DHHS Annual Financial Report, Section 5-20-20, sub-section 

“C”, requires the Management Discussion and Analysis to include major program and financial management goals, 

objectives, and results. It also requires discussion of the financial statements and financial condition. 

I-66

FDA’s FY 2002 Annual Financial Report


Facilities account, Prescription Drug User Fees, Mammography Quality Standards Act 

User Fees, and the Export Certification and Certification fund. 

The Salaries and Expenses Appropriation totals $1.345 billion, comprising $1.2 billion for 

Salaries and Expenses, and $161.7 million for PDUFA.42 This amount does not include 

the supplemental appropriation for bioterrorism. See Figure 10 below for ten year trend 

of funding. 

Figure 10 

FY 2002 Supplemental Appropriations for Counter-Terrorism 

The Congress identified a variety of programs needing increased resources to prevent possible terrorist threats through FDA-regulated products, and to develop products for the 

prevention or treatment of illness that could result from biological or chemical agents or 

radiological exposure following the events of September 11, 2001. It increased resources 

that had been requested, and in January 2002, a Supplemental Appropriation of $151.1 

million was received by FDA. This increase has funded the hiring of over 800 new FDA 

staff and has also funded major improvements in lab equipment and information technology systems, especially for Field programs. Moreover, almost all of the increases included in the Supplemental were carried forward into the FY 2003 budget request, that at this 

time has been approved by the full appropriation committees of both chambers of 

Congress. 

42 Please note that the salaries and expenses appropriation does not include building and facilities, Mammography 

Quality Service Act user fees, or Export Certification User Fees. 

I-67

MANAGEMENT DISCUSSION & ANALYSIS


Figure 11 below shows a ten year trend of human resources. 

Figure 11 

Agency Location Code Unification Project43 

OFM began the Agency Location Code44 (ALC) Unification Project as a key step in 

improving financial management processes. Goals of the ALC Unification Project are: 

consolidate 15 ALCs into one at Headquarters and consolidate FDA’s accounting points 

from twenty-five to seven. To successfully accomplish this task, the ALC Unification 

Team performed the following: 

• Reduced the number of open documents by 1,275 ($2.5 million); 

• Reduced significantly the number of disbursement differences in the Field; 

• Documented all the financial management operations and systems for all Field offices 

to identify possible gaps; 

• Developed new standard operating procedures to be used by the entire Agency; 

• Cleaned the Field’s common accounting number (CAN) structure by purging all 

duplicate and invalid CANs; 

• Improved communication by coordinating all ALC Unification efforts with ORA, 

OFM and NCTR; and 

• Created the foundation for FDA’s UFMS Implementation. 

This effort began with unifying accounting operations that involved conducting symposiums with representatives from ORA regions, NCTR, ORA Headquarter, and OFM to 

discuss responsibilities and new standard operating procedures to prepare for UFMS. 

Beginning in FY 2003, all FDA receipts and disbursements will be processed through 

FDA Headquarters. 

43 For an explanation of the Unified Financial Management System Implementation Plan for FDA, see Page I-62. 

44 An ALC designates federal agencies (or components within the agency) authorized by the U.S. Treasury to make 

federal disbursements and receive payments. 

I-68

FDA’s FY 2002 Annual Financial Report


Travel Manager 

OFM began Phase III of the Travel Manager project as part of the Financial Enterprise 

Solution Preparation Phase. This involves upgrading to version 8.0 and extending implementation to OC, CVM, CFSAN, NCTR, and ORA’s Southeast Region. More than half 

the Agency uses OFM’s Travel Manager. Travel Audit has developed and implemented 

post audit review requirements. Several audits were conducted this year with positive 

results. By using the audit feature of Travel Manager, vouchers are being processed faster 

and more accurately. 

Automated Accounts Payable System 

OFM implemented a web-based Automated Accounts Payable System (AAPS) throughout each ORA region and NCTR as part of the financial system standardization. AAPS, 

an Oracle-based system, pays invoices for commercial vendor goods and services. The 

system contains easy-to-use menu options, prompts, and editing functions that allow users 

to enter invoices directly into the system. Once invoices are verified, payment is scheduled and an electronic transmission is submitted to Treasury for electronic funds transfer 

or vendor check issuance. 

Human Resources Management Accomplishments 

Delegations of Authority 

OHRMS completed Phase 2 of the reengineering of the Delegations of Authority by publishing FDA’s delegations in Staff Manual Guides. These will be placed on the Internet 

website for all to see and replace the 2003 edition of the Code of Federal Regulations as 

the official source of this information for FDA. The web site will be easier to use and 

change, and less costly to the Agency. 

Employee and Labor Relations Program 

OHRMS provided advice and assistance to management officials concerning the Agency’s 

A-76 initiative. This included working with the union to assure their participation in the 

activity. OHRMS negotiated a Memorandum of Understanding with NTEU about the A76 studies. 

It successfully administered representation election resulting in consolidation of all NTEU 

bargaining units in FDA. 

Recruitment and Retention Programs 

OHRMS established three group retention allowances for CDER “at risk” occupations 

(Mathematical Statisticians, Pharmacokeneticists, and Pharmacological-Toxicological 

Reviewers). It developed a Pay Flexibility Handbook for Managers and Recruiters. 

OHRMS also negotiated implementation of FDA Student Loan Repayment Program and 

the FDA Reasonable Accommodation Policy. 

OHRMS provided advice, assistance, and quality control for hiring 30 aliens (non-citizens) mainly as part of FDA’s counter-terrorism effort. It also established and implemented the FDA Recruitment Referral Award program. 

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MANAGEMENT DISCUSSION & ANALYSIS


Staffing Automation 

OHRMS completed the first full year of using the Automated Candidate Evaluation 

System (ACES). Major benefits of ACES are the acceptance of online job applications by 

way of the Internet; improved applicant pool through exposure to the Internet; automated 

applicant ratings and rankings through applicant responses; automatic acknowledgement 

(by email) to all applicants; and through email, a fast and easy method for communicating with all applicants. 

Besides expanding its library of rating questions from 20 to 65 occupations, ACES was an 

instrumental tool in helping FDA to meet its critical staffing needs because of the terrorist attacks of September 11, 2001. For ORA’s Consumer Safety Officer hiring initiative, 

over 3,000 applications were handled for vacancies announced in 155 locations nationwide. The delegated examining unit issued hundreds of selection lists in a matter of 

weeks. It has been estimated that it would have taken six months to handle this workload 

under the manual process. About 500 applicants were selected for Consumer Safety 

Officers under this hiring initiative. The remaining 300 positions will be made available 

for a variety of other occupations in ORA. 

Facilities and Administrative Management Accomplishments 

Facilities Plan 

OFACS implemented a facilities plan that is designed to foster better communications 

among OFACS units, OMS, ORA, and the Centers. The primary aim of the facilities plan 

is to improve the quality and timeliness of the services provided to OFACS customers. 

One of the specific steps is to conduct on-going coordination meetings among OFACS’ 

divisions to discuss all projects OFACS is performing for Centers and ORA, and to coordinate the delivery of timely services to their clients. 

Personnel Security 

OFACS purchased Livescan Fingerprint systems for Headquarters and NCTR, which will 

allow more timely response on this part of the background investigation. Figure 12 below 

shows the rise in background investigations requested in the past three years. 

Figure 12 

I-70

FDA’s FY 2002 Annual Financial Report


Employee Health at FDA Facilities 

OFACS conducted environmental sampling at various locations for possible anthrax contamination. All results were negative. It coordinated responses to employee questions and 

answers on anthrax and posted them to the Environmental, Safety, and Health Intranet 

Page. OFACS continues to open suspicious mail at the screening facility. 

Mail Management 

OFACS established a new mailroom for screening mail and awarded a multi-year contract 

for mailroom screening services. This off-site mailroom services FDA’s Headquarters 

components and the occupants of the Parklawn Building. 

Information Resources Management Accomplishments 

Enterprise Administrative Support Environment (EASE) 

The Office of Information Resources Management (OIRM) implemented the web version 

of EASE for Agencywide use; thereby, drastically reducing the burden on Centers 

Technical Staffs for EASE software release installations. It also completed migration of 

the Administrative Resources Information Exchange (ARIES) historical data from 1985 

to 2000 into the EASE’s Reporting and Analysis Module (RAM) data warehouse. 

Freedom of Information (FOI) Administration 

OIRM implemented FOI Document Repository Application as a pilot for all major 

Agency components. FOI Act requests and responses are being distributed electronically 

by the FOI Document Repository. OIRM solicited feedback from components to streamline and improve application and process. It received, reviewed, logged, referred, and 

monitored processing of 17,895 FOI Act requests. 

IT Investment Management 

OIRM developed an IT Capital Investment Management Process that will make certain IT 

projects and resources are managed according to the requirements of the Clinger-Cohen 

Act. The process expanded the Chief Information Officer’s requisition review process to 

make sure that all investments are linked to the Agency's IT Investment Portfolio and have 

FDA's standard project documentation (Investment Summary or OMB Exhibit 300, 

“Capital Asset Plan and Business Case”). 

OIRM awarded a GSA contract to implement Agencywide project management for IT 

investments. This project addresses goals and objectives put forth by the Information 

Technology Management Work Group in FY 2001. 

OIRM assisted the Agency’s Information Technology Investment Review Board with a 

series of reviews and deliberations that focused on the allocation of FY 2002 Strategic 

System ($4.5 Million) and Operations & Maintenance ($7 Million) Reserves from the 

FDA Central Account. 

I-71

MANAGEMENT DISCUSSION & ANALYSIS


Internet/Intranet Services and Support 

OIRM supports the Agency’s FDA public website that provides critical health information 

to the public. This site offers information of interest to health professionals, patients, consumers, industry, state and local officials, and many others. The Internet web infrastructure provides rich functionality, responds to changing needs and provides high performance scalability and reliability. 2002, OMS supported a substantial increase in content on the FDA Internet website and traffic to this infrastructure, while continuing to 

remain within the budget. Also, increased storage capacity was added to the infrastructure. Internet. 

Figure 13 

Financial Performance Goals and Results 

Financial Statements Audit 

OFM prepared annual financial statements as set forth by the requirements of OMB 

Bulletin 01-09, “Form and Content of Agency Financial Statements,” and Federal 

Accounting Standards Advisory Board standards. The independent accounting firm contracted by the DHHS Office of Inspector General performs the financial statement audit. 

The firm issued the audit opinion and reports of findings and recommendations and compliance with laws and regulations. 

the financial statements audit. These are summarized in Table 7 for the past six years. 

Table 7 

Measures 

FY 

1997 

FY 

1998 

FY 

1999 

FY 

2000 

FY 

2001 

FY 

2002 

Timely audit opinion No Yes Yes Yes Yes Yes 

Clean (or unqualified) audit opinion No Yes Yes Yes Yes Yes 

No. of material weaknesses 3 0 0 0 0 0 

No. of reportable conditions 5 3 3 1 1 1 

No. of instances of non-compliance 

with Federal Financial Management 

Improvement Act (FFMIA) 

1 1 1 1 1 1 

In FY 

Figure 13 shows the number of pages requested for each month on the FDA 

Several performance measures address the results of 

I-72

FDA’s FY 2002 Annual Financial Report


For the six reporting periods (FY 1997 through 2002), FDA earned five unqualified45 or 

“clean” opinions from the independent audit firm that has audited its financial statements. 

The independent auditors also reported on FDA’s internal controls and compliance with 

laws and regulations that impact on the reliability of the financial statements. In the last 

five periods, FDA received no material weaknesses,46 and has received reportable conditions in each of the five periods. This was on FDA’s information systems controls. In 

the FY 2002 audit report, FDA received one reportable condition, which is a repeat finding addressing FDA’s information systems controls. 

The finding of non-compliance with the FFMIA remains. The final resolution of the noncompliance with FFMIA will be the implementation of the new financial management 

system. FDA is making progress in addressing the prior information systems findings. 

The electronic integration of the Agency’s property management and general ledger system was completed. This achievement will permit the general ledger system to capture 

capitalized property information that will be used to prepare FDA’s financial statements. 

FDA is improving its planning and monitoring of hardware used to support its current 

financial management applications. FDA is designing a new accounts receivable application that is expected to be operational by the end of calendar year 2002. 

Timely Payments, Reimbursements, and Collections 

Measures were developed to track the timely payments of bills (to avoid late fees and 

interest penalties), to reduce paperwork and make the reconciliation process easier, and to 

improve collection procedures for monies that are owed to DHHS. 

Compliance with Prompt Payment Act 

FDA’s FY 2002 target was 96 percent of commercial vendor payments made on time. 

FDA reported that it had exceeded its goal and achieved a timely payment rate of 97.04 

percent. 

Timeliness of Travel Payment 

The Travel and Transportation Reform Act of 1998 and related Federal Travel Regulations 

require agencies to reimburse employees within 30 calendar days after submission of a 

proper travel claim to the Agency’s designated approving office or pay a late payment fee. 

The performance targets set by DHHS are for timely temporary duty travel voucher and 

travel card payments to promote compliance with the law and to identify a problem area. 

The FY 2002 target of timely payment of approved travel vouchers in 30 calendar days of 

submission to first-level reviewing officials is 97 percent. During FY 2002, 99 percent of 

approved travel vouchers were paid in 30 calendar days, which exceeded the goal. 

45 An unqualified opinion is a statement by the auditor that an entity’s financial statements present fairly in all material 

respects the financial position, results of operation, and other financial aspects of an organization in conformity with 

accounting principles generally accepted in the United States of America (GAAP) applicable to the entity. 

46 As defined in OMB Bulletin 01-02, “Audit Requirements for Federal Financial Statements,” material weaknesses in 

internal control are reportable conditions in which the design or operation of the internal control does not reduce to a 

relatively low level the risk that errors, fraud or noncompliance in amounts that would be material in relation to the 

Principal Statements being audited, or material to a performance measure or aggregation of related performance 

measures, may occur and not be detected within a timely period by employees in the normal course of performing 

their assigned functions. 

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MANAGEMENT DISCUSSION & ANALYSIS


Improve collection of debt owed to FDA 

The collection of debts owed to FDA is also an important aspect of sound financial management and business practice. FDA will continue to focus on increasing collections as 

part of its compliance with the Debt Collection Improvement Act of 1996. 

The FY 2002 target was to increase collections by ten percent over the prior year. FDA 

exceeded this target in FY 2002. Collections47 doubled from the amount in FY 2001 from 

$153.7 million to $291.1 million. 

In addition, FDA’s delinquent debt was also reduced by half in FY 2002. The amount of 

debt in FY 2001 was $1.63 million. The FY 2002 amount was $.967 million. 

Contracting Program 

OFACS administers contracts, small purchases, the Bankcard (credit card) program, and 

grants. In FY 2002, the total of the contracting program was $159.8 million in contracts, 

$178.7 million in simplified acquisitions, and $35.5 million in Bankcard transactions, 

$72.7 million in interagency agreements, and $30.3 million in grants. See Figure 14 

below for a graphic representation. 

Figure 14 

Performance-Based Contracting 

OFACS reported that it had exceeded the OMB goal of 20 percent of contract dollars 

being issued in performance-based contracts. FDA’s achievement was 24.6 percent. 

OFACS had encouraged and worked with project officers to convert contracts to performance based, especially the state contract program. Figure 15 on next page shows the 

ten year trend of contract actions. The number of contract actions declined in FY 2002 

due to the fact that FDA is awarding more work through the GSA and Government-Wide 

Acquisition Contracts, also known as “simplified acquisitions”. 

47 The size of the increase was affected by a change in the re-authorized Prescription Drug User Fee Act of 2002. This 

change allowed FDA to accelerate the FY 2003 billing and collection of advanced fees from the drug industry during 

FY 2002. The PDUFA fees collected in advance of FY 2003 cannot be used until the new fiscal year (October 1) and 

passage of an FDA appropriation. 

I-74

FDA’s FY 2002 Annual Financial Report


Figure 15 

Simplified Acquisition Actions 

The term, "Simplified Acquisitions" applies to purchases under $100,000. There are a 

variety of regulations that apply to Simplified Acquisitions depending on the dollar value 

and the source of procurement. The two basic types of Simplified Acquisitions are open 

market and GSA Schedule purchases. The open market procedures and thresholds are 

described below. Purchases from the GSA Schedule under $2,500 may be purchased 

without further competition; however, purchases over $2,500 must be competed among 

GSA Schedule vendors. In FY 2002, FDA experienced an increase in using this purchase 

type. See Figure 16 to display ten years of simplified acquisitions actions. 

Figure 16 

I-75

MANAGEMENT DISCUSSION & ANALYSIS


Bankcard Program 

FDA has participated in the purchase card program since 1989. All FDA components are 

using the purchase cards. Cardholders are authorized for transactions of no more than 

$2,500 for each single purchase (with some exceptions), and are subject to monthly cumulative limits. Cardholders may obtain goods and services ordered over the phone, on the 

Internet, by mail order, or in person, using a special Government-wide VISA card known 

as the IMPAC card. FDA's use of IMPAC has grown dramatically since FY 1993, when 

844 purchase card transactions occurred. 

In FY 2002, FDA completed 86,972 purchase card transactions. The bankcard trend is 

shown graphically in Figure 17 below. 

OFACS developed a web-based training for cardholders, approving officials and central 

control points. By using this program as opposed to the small purchase or blanket purchase agreement mechanisms, the Agency realized an administrative savings of $5.1 million this fiscal year. 

Figure 17 

Financial Analysis 

This section provides discussion on the principal financial statements highlighting important changes from the prior year conditions. For FY 2002, the research and development 

stewardship information is addressed. Financial statement reporting is required to be displayed in several formats as specified by the Federal Accounting Standards Advisory 

Board and OMB Bulletin 01-09, “Form and Content of Agency Financial Statements.” 

I-76

FDA’s FY 2002 Annual Financial Report 

Agency’s Financial Condition 

The Consolidated Balance Sheets shows an increase in the net position (assets less liabilities). When compared with the past five fiscal years (FYs 1998 through 2002), the net 

position as shown in Figure 18, shows an increase due to two large increases: 

Balances with Treasury as a result of 

ized PDUFA III and the accounts receivable for the large amount of civil monetary penalties charged against private companies. 

Figure 18 

Costs 

Gross FY 2002 expenses were $1.487 billion, which includes projects funded by user fees. 

Deducting $189 million in earned revenues, FY 2002 net costs were $1.298 billion. This 

compares with gross expenses of $1.333 billion and net costs of $1.156 billion for FY 

2001. 48 and Figure 2049 ( both on next page) illustrate FDA’s expenses by type 

and program. These are the budget programs reported under GPRA, which represent 

FDA’s major responsibility segments. Amounts reported on the Consolidated Statements 

of Net Cost include allocation of expenses incurred by FDA’s Office of Commissioner and 

ORA, both of which provide crosscutting services to the responsibility segments. 

Balance Sheet Reports the operating assets, liabilities, and net position. 

"snap-shot" of FDA's financial condition as of the fiscal year-end. 

48 Source: Type and Program, 2002. 

rounding differences may show a ferent total than the supplemental statement. 

49 Source: Appropriation, 2002. 

Fund 

deferred revenue collected under the newly authorFigure 19

Presents a 

Supplemental Statement of Net Cost by Expense FY Please note that some 

dif

Supplemental Statement of Net Cost by Program Costs by FY 

Net Cost 

Breaks down total expenses by the six major programs of FDA’s budget, 

net of exchange revenues and after allocation of indirect expenses such as 

administrative, field operations, rent, and other overhead. 

I-77

MANAGEMENT DISCUSSION & ANALYSIS


Figure 19 

• Personal Services & Benefits rose by 10 percent from $789 million in FY 2001 to 

$867 million in FY 2002, caused by increases from the Congress on funding the food 

safety, imports and inspection activities, human subject protection, adverse reporting 

systems, and counter-bioterrorism activities. 

• Contractual Services increased by 15.4 percent from $237 million in FY 2001 to 

$274 million in FY 2002, because of increases from the Congress on funding the 

orphan product grants and food safety. 

• Rent, Communications, and Utilities increased by 9.3 percent from $119 million in 

FY 2001 to $130 million in FY 2002, because of increases from the Congress to hire 

832 FTEs, improve the security of the Agency’s facilities, and develop a 

state-of-the-art crisis management center. 

• Non-capitalized equipment (formerly called expendable equipment) increased by 

45.1 percent from $38 million in FY 2001 to $55 million in FY 2002. This increase is 

caused by the funding increases approved by the Congress. 

Figure 20 

I-78

FDA’s FY 2002 Annual Financial Report


• The Foods Program’s net costs increased by 10.5 percent caused by funding of the 

food safety activities, BSE-related activities, imports and inspectional activities, 

increases for dietary supplements, and the relocation of CFSAN to its new building in 

College Park, Maryland. 

• The Human Drugs Program’s net costs grew by 9.8 percent due to increases in user 

fees authorized by PDUFA II, and increases directed at imports and inspectional 

ctivities, patient safety and adverse events system, and human subject protection. 

• The Biologics program’s FY 2002 net costs increased by 16.5 percent due to funding 

increases for counter-bioterrorism initiative, patient safety, BSE-related activities, and 

human subject protections. 

• The Animal Drugs and Feeds Program’s FY 2002 net costs increased by 35.7 percent 

from FY 2001 because of funding increases for the BSE-related activities, antimicrobial resistance, and imports and inspections. 

• The Devices and Radiological Health Program’s net costs increased by 7.9 percent 

from FY 2001 due to a funding increase for the MeDSuN adverse event reporting 

system, patient safety, human subject protection, and import and inspectional activities. 

• The National Center for Toxicological Research Program’s net costs increased by 

6.2 percent in FY 2002 due to funding increases for food safety activities. 

Changes in Net Position 

Changes in 

Net Position50 

Provides information on the changes in financial position from year to year and 

the causes of the changes. 

Unlike FY 2001, which experienced a decline in the net position, the Consolidated 

Statements of Changes in Net Position show an increase in FY 2002 due in part to the 

Bioterrorism supplemental appropriation. Figure 21 (below) shows the four year trend of 

ending balances. 

Figure 21 

50 The Consolidated Statements of Changes in Net Position reports the change in net position during the reporting period. 

Net position is affected by changes to its two components: Cumulative Results of Operations and Unexpended 

Appropriations. The statement format is designed to display both components of net position separately to enable the 

user to better understand the nature of changes to net position as a whole. Both components of net position are also 

reflected as line items on the Balance Sheet. Budgetary appropriations received in this statement tie directly to the 

Combined Statements of Budgetary Resources. The Other Financing Sources section of this statement will tie directly 

to the Consolidated Statements of Financing. The Net Cost of Operations line ties directly to the Consolidated 

Statements of Net Cost. 

I-79

MANAGEMENT DISCUSSION & ANALYSIS


Financing 

Financing 

Discloses the resources used to finance operations and relationship of total 

resources to the net cost of operations. This statement is designed to explain the 

relationship of budgetary obligations to costs recorded in the financial statements. 

The Consolidated Statements of Financing is designed to report the difference in accrual 

based measures used in the Consolidated Statements of Net Cost and obligation-based 

measures used in the Combined Statements of Budgetary Resources. To understand these 

differences, information is needed to reconcile financial (proprietary) net cost of operations with obligations of budgetary authority. 

Some obligations or non-budgetary resources do not result in expenses on the 

Consolidated Statements of Net Cost for the period in which the obligation was made or 

the non-budgetary resource recognized. FDA’s obligations that do not result in expenses, 

consist of three items: change in budgetary resources obligated but goods or services not 

yet provided, resources that finance the acquisition of assets or liquidation of liabilities, 

and resources that fund expenses recognized in earlier periods. 

FDA’s budgetary resources obligated but not yet provided was $115.5 million in FY 2002. 

This amount represents obligations recorded during FY 2002 for which expenses will not 

be incurred until a subsequent period. The acquisition of assets or liquidation of liabilities totals $70 million. These items are subtracted in the reconciliation because they are 

included in obligations, as adjusted and non-budgetary financing sources, but not in the 

net cost of operations. Resources that fund expenses recognized in earlier periods, totaling $4.6 million, represent unfunded expenses recognized in prior periods but paid with 

FY 2002 obligations. 

Costs that do not require current year resources are costs that do not require financing by 

either budgetary or non-budgetary resources. FDA’s primary cost in this category is 

depreciation and amortization totaling $17.3 million. Depreciation and amortization 

should be added in the reconciliation because it is part of the net cost of operations but not 

included in current year obligations, as adjusted, and non-budgetary resources. 

The costs of the federal government are not always funded in the period the costs are 

incurred. Costs of this nature are incurred in the current reporting period, but are normally 

funded through appropriations in subsequent years. Costs which are funded in future 

periods total $11.9 million, as of September 30, 2002, and represent an increase in financing sources yet to be provided. The primary items in this category are unfunded annual 

leave expense and exchange revenue receivable from the public. Both categories experienced increases of $8.1 million and $4.0 million, respectively. The increase in costs funded in future periods is in the reconciliation because it is part of the net cost of operations 

but not in obligations as adjusted, and non-budgetary resources. 

I-80

FDA’s FY 2002 Annual Financial Report 

Budgetary Resources and Outlays 

Budgetary 

Resources51 

Provides information on total budgetary resources available, the status of those 

resources, and outlays. 

accounting rules are being followed. 

Helps to assess budget execution and whether budgetary 

As presented in the Combined Statements of Budgetary Resources, FDA’s budget authority for FY 2002 was $1.388 billion, not including spending authority of $342 million from 

user fee and reimbursable collections. Total budget authority, as of September 30, 2002, 

including offsetting collections, carry-over balances from earlier years and adjustments, 

was $1.752 billion. Of this amount, $1.658 billion had been obligated during FY 2002. 

Figure 22 below shows the total of budgetary resources52 by major type -- salaries and 

expenses; user fees; buildings and facilities; and other small accounts, such as certification fund and royalties. 

Figure 22 

Total outlays were about $1.13 billion during FY 2002, which represents a 4.8 percent 

increase over FY 2001 total outlays of $1.07 million. 

Figure 2353 on next page shows FDA's outlay trend over the past five fiscal years. For 

FY 2002, FDA received budgetary increases to cover the import inspections, premarket 

review activities, inspections, counter-bioterrorism, dietary supplements, improving 

generic drugs’ review, and improvements to FDA’s post-approval surveillance to identify 

adverse events associated with products on the market. 

51 	One must be careful to recognize the differences between expenses recorded on an accrual basis of accounting as 

compared to obligations reported on the Combined Statements of Budgetary Resources. 

52 Source: Combining Statement of Budgetary Resources for the Year Ended September 30, 2002. 

53 Source: Combined Statement of Budgetary Resources, FY 2002 

I-81

-- 

MANAGEMENT DISCUSSION & ANALYSIS


Figure 23 

Supplementary Stewardship Information 

Stewardship 

Investments – 

Research and 

Development54 

Provides information on research and development costs for a five year 

period and a description of major research and development programs that 

maintain or increase the national economic productive capacity or yield other 

future benefits. 

Stewardship investments are substantial investments made by the Federal Government for 

the benefit of the nation. When these type of investments are made, Federal Accounting 

Standards require that they be treated as expenses in determining the net cost of operations. 

FDA reports on two programs meeting the criteria of stewardship research and development investments55 Orphan Products Development Program and Research Grants 

Program. 

Orphan Products Development Program fosters the development of orphan products 

which may be a drug, biological product, medical device, or medical food that is intended to treat rare disease or condition. 

The Research Grants Program covers a broad array of programs – food safety, human 

drugs, biologics, veterinary medicine, and medical devices. Each of the product centers, 

NCTR, ORA, and OC uses the research grants program to focus research on a specific 

topic. The biggest increase in the past four years has been in the food safety area. More 

recently, research funding is being targeted at the Agency’s bioterrorism preparedness 

posture. 

54 See the Required Supplementary Stewardship on Research and Development, page IV-2 through IV-4 for a complete 

explanation of stewardship financial reporting. 

55 See page IV-2 for a definition and description of research and development investments. 

I-82

FDA’s FY 2002 Annual Financial Report


Figure 24 displays the four year trend of research and development expenses by the two 

major programs. 

Figure 24 

Limitations to the Financial Statements 

For the preparation of the FDA’s annual financial report, the OMB has asked that 

the following statements be included to remind readers of the basis for financial 

statements prepared for Federal Government activities. 

The statements should not be interpreted as limitations in the usefulness of financial statements in evaluating Federal operations, but only as a reminder that they 

cover the activities of a component of a sovereign entity and may differ from 

results reported in budgetary documents or in style from annual reports prepared 

by private sector entities. 

• The financial statements have been prepared to report the financial position and 

results of operations of FDA, pursuant to the requirements of 31 U.S.C. 3515(b). 

• While the statements have been prepared from the books and records of FDA in 

accordance with GAAP and the formats prescribed by OMB, the statements are 

in addition to the financial reports used to monitor and control budgetary 

resources, which are prepared from the same books and records. 

• The statements should be read with the realization that they are for a component 

of the U.S. Government, a sovereign entity. 

ties cannot be liquidated without legislation that provides the resources to do so. 

• The Required Supplementary Information and Required Supplementary 

Stewardship Information sections are unique to federal financial reporting. These 

sections are required under OMB Bulletin 01-09 and are unaudited. 

One implication of this is that liabiliI-83


FDA’s FY 2002 Annual Financial Report


Consolidated Principal
Financial Statements


Consolidated Balance Sheets 

Consolidated Statements of Changes 

in Net Position 

Combined Statements of Budgetary 

Resources 

Notes to Consolidated Principal 

Financial Statements 

Consolidated Statements of Net Costs 

Consolidated Statements of Financing 

II-1

CONSOLIDATED FINANCIAL STATEMENTS


U.S. Department of Health and Human Services 

Food and Drug Administration 

CONSOLIDATED BALANCE SHEETS 

As of September 30, 2002 and 2001 

(In Thousands) 

2002 2001 

ASSETS 

Intragovernmental: 

Fund Balances with Treasury (Note 2) 


Accounts Receivable (Note 3) 


Other Assets (Note 6) 


Total Intragovernmental Assets 

With the Public: 

Accounts Receivable, Net (Note 3) 


Cash (Note 4) 


General Property, Plant & Equipment, Net (Note 5) 


Other Assets (Note 6) 


Total Assets With the Public 

TOTAL ASSETS 

LIABILITIES 

Intragovernmental: 

Accounts Payable 


Accrued Payroll and Benefits (Note 9) 


Resources Payable to Treasury 


Other Liabilities (Note 11 & 13)


Total Intragovernmental Liabilities 

With the Public: 

Accounts Payable 


Accrued Payroll and Benefits (Note 9) 


Federal Employee and Veterans' Benefits (Note 8) 


Environmental and Disposal Costs (Note 7) 


Accrued Grant Liability, Net (Note 10) 


Other Liabilities (Note 11 & 13) 


Total Liabilities With the Public 

TOTAL LIABILITIES 

Commitments and Contingencies (Note 12) 

NET POSITION 

Unexpended Appropriations 

Cumulative Results of Operations 

TOTAL NET POSITION 

TOTAL LIABILITIES AND NET POSITION 

$710,703 $465,572 

11,330 104,410 

13 14,060 

722,046 584,042 

379,134 39,177 

155 155 

260,982 208,004 

292 252 

640,563 247,588 

$1,362,609 $831,630 

$ 13,249 $ 10,107 

11,819 10,249 

373,027 122,378 

1,229 4,130 

399,324 146,864 

80,208 56,115 

109,658 95,669 

21,100 23,011 

4,218 4,987 

97 3,215 

128,488 1,285 

343,769 184,282 

743,093 331,146 

414,490 329,498 

205,026 170,986 

619,516 500,484 

$1,362,609 $831,630 

The accompanying notes are an integral part of these statements. 

II-2

FDA’s FY 2002 Annual Financial Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

CONSOLIDATED STATEMENTS OF NET COST 

For the Years Ended September 30, 2002 and 2001 

(In Thousands) 

2002


Intragovernmental With the Public 

Less: Less: 

Exchange Exchange Net Program 

Program/Activity Gross Costs Revenue Gross Costs Revenue Costs 

Foods $ 121,589 

Human Drugs 89,745 

Biologics 47,490 

Animal Drugs and Feeds 35,073 

Devices & Radiological Health 63,587 

National Center for 

Toxicological Research 8,134 

Total $ 365,618 

$ 1,733 $ 319,274 $ 8,077 $ 431,053 

827 327,787 136,303 280,402 

6,170 158,030 11,934 187,416 

308 78,500 529 112,736 

2,149 188,649 9,202 240,885 

12,072 49,619 - 45,681 

$ 23,259 $ 1,121,859 $ 166,045 $1,298,173 

2001 

Foods $ 105,900 

Human Drugs 73,822 

Biologics 42,001 

Animal Drugs and Feeds 25,291 

Devices & Radiological Health 62,225 

National Center for 

Toxicological Research 7,800 

Tobacco 159 

Total $ 317,198 

$ 1,414 $ 290,216 $ 4,617 $ 390,085 

2,936 304,504 120,074 255,316 

2,216 136,563 15,459 160,889 

223 58,122 84 83,106 

2,525 176,466 223,320 

12,846 

14,821 50,063 9 43,033 

- 138 - 297 

$ 24,135 $ 1,016,072 $ 153,089 $1,156,046


The accompanying notes are an integral part of these statements. 

II-3

CONSOLIDATED FINANCIAL STATEMENTS


U.S. Department of Health and Human Services 

Food and Drug Administration 

CONSOLIDATED STATEMENTS OF CHANGES IN NET POSITION


For the Years Ended September 30, 2002 and 2001


(In Thousands)


2002 2001 

Cumulative 

Results 

of Operations 

Unexpended 

Appropriations 

Cumulative 

Results 

of Operations 

Unexpended 

Appropriations 

Beginning Balances 

Budgetary Financing Sources: 

Appropriations received 

Appropriations transferred-in-out (+/-) 

Other Adjustments (rescissions, etc) (+/-) 

Appropriations Used 

Other Financing Sources: 

Transfers-in/out without reimbursement (+/-) 

Imputed financing from costs absorbed by others 

$170,986 $329,498 $182,098 $329,795 

- 1,386,051 - 1,124.799 

- - - 1,000 

- (32,096) - (40,626) 

1,268,963 (1,268,963) 1,085,470 (1,085,470) 

226 - (213) -

63,024 - 59,677 -

Total Financing Sources 1,332,213 84,992 1,144,934 (297) 

Net Cost of Operations (1,298,173) (1,156,046) 

Ending Balances $205,026 $414,490 $170,986 $329,498 

The accompanying notes are an integral part of these statements. 

II-4 
FDA’s FY 2002 Annual Financial Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

CONSOLIDATED STATEMENTS OF FINANCING 

For the Years Ended September 30, 2002 and 2001 

(In Thousands) 2002 2001 

RESOURCES USED TO FINANCE ACTIVITIES: 

Budgetary Resources Obligated: 

Obligations Incurred


Less: Spending authority from offsetting collections and recoveries


Obligations net of offsetting collections and recoveries


Less: Offsetting receipts


Net Obligations


Non-budgetary Resources: 

Transfers in/out without reimbursement 


Imputed financing from costs absorbed by others 


Net non-budgetary resources used to finance activities 


Total resources used to finance activities 


RESOURCES USED TO FINANCE ITEMS NOT PART OF THE NET COST OF OPERATIONS: 

Change in budgetary resources obligated for goods, services, and 

benefits ordered but not yet provided 

Budgetary offsetting collections and receipts that do not affect 

cost of operations:


Recoveries of prior-year authority 


Decrease or (increase) in unfilled customer orders 


Resources that fund expenses recognized in prior periods 


Resources that finance the acquisition of assets or liquidation of liabilities 


Total resources used to fund items not part of the net cost of operations 

Total resources used to finance the net cost of operations 

COMPONENTS OF THE NET COST OF OPERATIONS THAT DO NOT REQUIRE 

OR GENERATE RESOURCES DURING THE REPORTING PERIOD: 

Components not requiring or generating resources: 

Depreciation and amortization 

Losses or (gains) on disposition of assets 

Other 

Total components not requiring or generating resources 

Components requiring or generating resources in future periods: 

Decrease or (increase) in exchange revenue receivable from public 

Annual Leave expense from increase in annual leave liability 

Other 

Subtotal 

Total components of net cost of operations that do not require or 

generate resources during the reporting period 

Net cost of operations 

$1,657,502 

(436,041) 

1,221,461 

(1,794) 

1,219,667 

226 

63,024 

63,250 

1,282,917 

(115,544) 

39,679 

139,092 

(4,646) 

(70,415) 

(11,834) 

1,271,083 

17,317 

28 

(2,166) 

15,179 

3,984 

8,102 

(175) 

11,911 

27,090 

$1,298,173 

$1,379,935 

(275,719) 

1,104,216 

(25) 

1,104,191 

(213) 

59,677 

59,464 

1,163,655 

(37,259) 

37,475 

3,177 

(3,635) 

(35,433) 

(35,675) 

1,127,980 

15,411 

705 

-

16,116 

1,827 

5,295 

4,828 

11,950 

28,066 

$1,156,046 

The accompanying notes are an integral part of these statements. 

II-5

CONSOLIDATED FINANCIAL STATEMENTS


U.S. Department of Health and Human Services 

Food and Drug Administration 

COMBINED STATEMENTS OF BUDGETARY RESOURCES


For the Years Ended September 30, 2002 and 2001


(In Thousands)
 2002 2001 

BUDGETARY RESOURCES: 

Budget authority : 

Appropriations Received 

Net Transers (+/-) 

Unobligated balance: 

Beginning of Period 

Spending authority from offsetting collections: 

Earned 

Collected 

Receivable from Federal sources 

Change in unfilled customer orders 

Advance Received 

Without advance from Federal sources 

Subtotal 

Recoveries of prior year obligations 

Temporarily not available pursuant to Public Law 

Permanently not available 

Total Budgetary Resources 

STATUS OF BUDGETARY RESOURCES: 

Obligations incurred : 

Direct 

Reimbursable 

Subtotal 

Unobligated balance: 

Apportioned 

Unobligated balance not available 

Total Status of Budgetary Resources 

RELATIONSHIP OF OBLIGATIONS TO OUTLAYS: 

Obligated balance, net, beginning of period 

Obligated balance, net, end of period: 

Accounts receivable 

Unfilled customer orders from Federal sources 

Undelivered Orders 

Accounts payable 

Outlays: 

Disbursements 

Collections 

Subtotal 

Less: Offsetting receipts 

Net Outlays 

$1,387,845 $1,124,823 

- 1,000 

85,716 104,735 

200,281 186,913 

3,110 545 

127,291 9 

11,800 2,652 

342,482 190,119 

93,559 85,600 

(127,224) -

(29,930) (40,626) 

$1,752,448 $1,465,651 

$1,635,738 $1,354,992 

21,764 24,943 

1,657,502 1,379,935 

75,180 69,870 

19,766 15,846 

$1,752,448 $1,465,651 

$394,029 $365,057 

(9,430) (6,321) 

(21,719) (9,918) 

369,330 296,595 

150,506 113,673 

1,454,375 1,262,166 

(327,572) (186,922) 

1,126,803 1,075,244 

(1,794) (25) 

$1,125,009 $1,075,219 

The accompanying notes are an integral part of these statements. 

II-6

FDA

’s FY 2002 Annual Financial Report


Notes to Consolidated Principal
Financial Statements


U.S. DEPARTMENT OF HEALTH & HUMAN SERVICES 

FOOD & DRUG ADMINISTRATION 

NOTES TO FISCAL YEAR 2002 

CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS 

Note 1 - Summary of Significant Accounting Policies 

Note 2 - Fund Balances with Treasury 

Note 3 - Accounts Receivable, Net 

Note 4 - Cash 

Note 5 - General Property, Plant, and 

Equipment, Net 

Note 6 - Other Assets 

Note 7 - Environmental and Disposal Costs 

Note 8 - Federal Employee and Veterans’ Benefits 

Note 9 - Accrued Payroll and Benefits 

Note 10 - Accrued Grant Liability, Net 

Note 11 - Other Liabilities 

Note 12 - Commitments and Contingencies 

Note 13 - Leases 

Note 14 - Combined Statements of 

Budgetary Resources 

Note 15 - Custodial Activity 

II-7

NOTES TO FINANCIAL STATEMENTS


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


Note 1 – Summary of Significant Accounting Policies 

A. Reporting Entity 

The Food and Drug Administration (FDA) is a separate operating division (OPDIV) and 

reporting entity of the Department of Health and Human Services (DHHS), and is a scientific regulatory agency. FDA's primary objective is to protect and promote the health 

and well-being of consumers in the United States. FDA's resources are organized into six 

"programs" as follows: Food and Cosmetics, Human Drugs, Medical Devices & 

Radiological Health, Biologics, Animal Drugs & Feeds, and Toxicological Research. The 

Tobacco program was terminated in FY 2000 after the U.S. Supreme Court declared that 

the FDA lacked authority to issue and enforce its tobacco regulations. Only incidental 

program expenses were incurred in FY 2001. In addition to its programs, FDA has separate budgets for buildings and facilities construction and administrative activities. 

The agency currently maintains two general funds, a deposit fund, revolving fund, trust 

fund, and several special purpose funds. All appropriations have been consolidated for the 

purposes of displaying the accompanying principal financial statements. Supplementary 

information schedules following these notes present budgetary resources and costs by 

appropriation. Appropriations reported as part of FDA's financial statements are as follows: 

Treasury Fund Symbol Appropriation Description 

75_0600 Salaries and Expenses 

75X0600 User Fees Account/Contingency Fund 

75X0601 Building Delegation 

75X0603 Buildings and Facilities 

75X4309 Revolving Fund for Certification and Other 

Services 

75X5148 Cooperative Research and Development 

Agreements 

75_/_0600 Patents and Royalties/White Oak Moving 

Costs 

75X8147 Gift Fund 

75F3875.6 and 75F3885.6 Budget Clearing 

753099, 752499, 752449, 751099, 751499 Miscellaneous Receipts 

II-8

FDA’s FY 2002 Annual Financial Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


B. Basis of Presentation 

The financial statements have been prepared from the accounting records of FDA in conformity with accounting principles generally accepted in the United States of America 

(GAAP) and the form and content for entity financial statements specified by the Office 

of Management and Budget (OMB) in OMB Bulletin 01-09, Form and Content of Agency 

Financial Statements. GAAP for Federal entities are the standards prescribed by the 

Federal Accounting Standards Advisory Board (FASAB), which is the official accounting 

standards setting body for the Federal Government. The consolidated statements are different from the financial reports, also prepared by FDA, pursuant to OMB directives, used 

to monitor and control the use of budgetary resources. FDA has no material intra-entity 

transactions that need to be eliminated from the financial statements. 

Due to new financial statement format requirements in OMB Bulletin 01-09, a comparative Balance Sheet and Statement of Net Cost are presented, but only single year format 

is required for the Statements of Changes in Net Position, Budgetary Resources, and 

Financing. Comparative financial statements for all required financial statements are 

required for FY 2003 and beyond. 

C. Basis of Accounting 

FDA records transactions on the accrual accounting basis and budgetary basis. Under the 

accrual method, revenues are recognized when earned and expenses are recognized when 

a liability is incurred, without regard to receipt or payment of cash. Budgetary accounting principles, on the other hand, are designed to recognize the obligation of funds according to legal requirements, which, in many cases, is prior to the occurrence of an accrualbased transaction. Budgetary accounting provides a means to track the status of budgetary authority to help avoid over expending or over obligation of appropriations. Budget 

authority is the authority to acquire goods and services and to make payments in accordance with applicable laws and regulations. The recognition of budgetary accounting 

transactions is essential for compliance with legal constraints and controls over the use of 

Federal funds. 

D. Budgets and Budgetary Accounting 

Each of FDA's funds and appropriations is financed by a combination of sources. These 

sources include direct appropriations from Congress, Congressional authorization to obligate collections, funding received from other Federal agencies, and receipts received 

through reimbursable agreements. Recognition and measurement of budgetary resources, 

for purposes of preparing the Combined Statements of Budgetary Resources, is based on 

budgetary concepts and definitions provided by OMB Circular A-11 and by Circular A34, Instructions on Budget Execution. 

FDA has Cooperative Research and Development Agreements (CRADA), where it has 

cooperative agreements with academia and private sector companies. The purpose of 

II-9

NOTES TO FINANCIAL STATEMENTS


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


CRADA is to strengthen research efforts and enhance the necessary resources required to 

achieve scientific objectives while simultaneously transferring new technology to the private sector for development and eventual use by the public. The CRADA appropriation 

is a no-year type account, and funding is submitted to FDA by the partner for services, 

facilities, equipment, or other resources to support the research or development efforts 

outlined in the CRADA. In FY 2002, FDA received approximately $1,800 ($1,900 for FY 

2001) related to these agreements. 

E. Assets 

Entity assets are those assets which the reporting entity holds and has the authority to use 

in its operations. Non-entity assets are assets the entity holds, but does not have authority to use. FDA has one non-entity asset for accounts receivable related to civil monetary 

penalties (CMPs) to report. Therefore, assets reported on the financial statements are entity assets that FDA is able to use in its operations, except for accounts receivable related 

to CMPs as further described in Note 3 and 15. 

Intragovernmental assets are those that arise from transactions with other Federal entities. 

Assets With the Public are those that arise from transactions with state or local government agencies, or the general public. 

F. Fund Balances with Treasury 

Fund balances with Treasury are the aggregate amount of appropriated funds available to 

incur expenditures and pay liabilities. FDA does not maintain cash in commercial bank 

accounts. Although cash receipts are deposited with commercial banks which have been 

designated by the Secretary of the Department of the Treasury (Treasury) as official 

depositories to hold U.S. Government funds, the funds are electronically transferred to 

Treasury at the end of each day. Treasury processes receipts and disbursements, either 

directly or through the DHHS Payment Management System (PMS). 

Fund balances with Treasury cash balances are reconciled monthly with balances reported by Treasury and adjusted at year-end to the reconciled Treasury balances. Any discrepancies that may occur are primarily due to timing differences on transactions involving the DHHS PMS and DHHS Central Payroll systems. 

G. Accounts Receivable, Net 

Accounts receivable consist of amounts owed to FDA by other Federal entities and the 

public. Intragovernmental accounts receivable are primarily related to amounts due from 

the Department of Justice (DOJ) for payments to DOJ by organizations for civil monetary 

penalties and amounts billed under interagency agreements. Receivables arising from 

CMPs are recorded when the penalties are assessed by DOJ and FDA. 

II-10

FDA’s FY 2002 Annual Financial Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


Public accounts receivable primarily represent amounts due from organizations for CMPs 

not yet remitted to DOJ, all user fees billed in accordance with the Prescription Drug User 

Fee Act and Mammography Quality Standards Act, and user fees related to FDA’s 

issuance of export certificates. Amounts due for public receivables are stated net of an 

allowance for uncollectible accounts. The allowance is based on past collection experience and an analysis of outstanding balances. No allowance is established for intragovernmental receivables, as they are considered fully collectible. 

H. Advances 

It is FDA’s policy to advance funds to grant recipients so that recipients may incur 

expenses related to the approved grant. Advances are only made within the amount of the 

recorded grant obligation and are intended to cover immediate cash needs. Advances are 

reported net of accrued grantee expenditures, and an “Accrued Grant Liability, Net” is 

reported when accrued expenditures exceed advances as of September 30. Other 

advances with the public are related to travel and emergency salary payments made to 

FDA employees and are reported in Note 6, "Other Assets." All advances are considered 

current assets. 

I. General Property, Plant and Equipment, Net (PP&E) 

PP&E is capitalized at cost if the initial acquisition cost is $25 or more and if the asset 

has an estimated useful life of two years or more. On October 1, 2000, Statement of 

Federal Financial Accounting Standards No. 10, Accounting for Internal Use Software, 

became effective. FDA implemented the DHHS-wide policy which requires internal use 

software be capitalized using a threshold of $1,000, and an estimated useful life of not 

less than two and no more than five years. Capitalized costs include all direct and indirect costs. Enhancements to existing internal use software are capitalized when the life 

cycle costs of the development stage are $1,000 or more, and they result in significant 

additional capabilities. 

PP&E with an acquisition cost of less than the capitalization threshold is expensed when 

purchased. The cost of PP&E acquired under a capital lease is the amount recognized as 

a liability for the capital lease at its inception. PP&E acquired through donation is recorded at its estimated fair value. The cost of PP&E transferred from other Federal entities is 

the net book value from the transferring entity. 

PP&E is depreciated on a straight-line basis over the estimated useful life of the asset. 

Land and land rights, including permanent improvements, are not depreciated. Normal 

maintenance and repair costs are expensed as incurred. 

Amounts disbursed for major construction and software projects that are ongoing at yearend are classified as construction and software in-progress. Such expenditures are subsequently reclassified as depreciable PP&E upon project completion and acceptance. 

II-11

NOTES TO FINANCIAL STATEMENTS


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


The General Services Administration (GSA), which charges rent based on commercial 

rental rates for similar properties, provides the majority of space and property that FDA 

occupies. Therefore, the cost of GSA owned properties is not recorded in FDA’s financial 

statements. 

J. Liabilities 

A liability for Federal accounting purposes is a probable and measurable future outflow or 

other sacrifice of resources as a result of past transactions or events. Since FDA is a component of the U.S. Government, a sovereign entity, its liabilities cannot be liquidated without legislation that provides resources to do so. Payments of all liabilities other than contracts can be abrogated by the sovereign entity. Intragovernmental liabilities arise from 

transactions with other Federal entities. 

Liabilities Covered by Budgetary Resources are those liabilities funded by available budgetary resources, including: (1) new budget authority, (2) spending authority from offsetting collections, (3) recoveries of unexpired budget authority, (4) unobligated balances of 

budgetary resources at the beginning of the fiscal year, and (5) permanent, indefinite 

appropriation or borrowing authority. The majority of liabilities covered by budgetary 

resources include amounts payable to vendors who have provided goods or services to 

FDA or for accrued payroll. 

Liabilities Not Covered by Budgetary Resources are incurred when funding has not yet 

been made available through Congressional budget authority. FDA recognizes such liabilities for employees' annual leave earned but not taken, amounts billed to FDA by the 

Department of Labor for Federal Employee's Compensation Act payments, capital leases, 

contingent legal liabilities, and environmental cleanup activities scheduled to begin 

beyond the current fiscal year being reported. 

K. Accounts Payable 

Accounts payable consists of amounts owed for goods and services received, progress in 

contract performance by others, and other miscellaneous payables. 

L. Resources Payable to Treasury 

FDA records amounts equal to the asset accounts receivable for civil monetary penalties 

as non-entity liabilities payable to the Department of Treasury’s miscellaneous receipt 

account. 

M. Accrued Grant Liability, Net 

DHHS Program Support Center (PSC) performs the daily grant accounting functions for 

FDA and reports the necessary information on a monthly basis to FDA for grant advances 

II-12

FDA’s FY 2002 Annual Financial Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


and expenditures. Separate algorithms are used by DHHS to calculate accruals for 

"block" and "non-block" grant programs and related contracts. The algorithms, which 

have been approved by OMB and the General Accounting Office, compute average daily 

spending rates for each grant in order to estimate the portion of the unspent grant amount 

to be accrued at year-end. Only non-block grants apply to FDA. 

For non-block grants, grantees draw funds commensurate with their immediate cash needs 

which are recorded as advances. Grantees submit quarterly reports summarizing expenditures paid. The process adopted by DHHS to estimate a year-end grant accrual relies on 

historical spending patterns to predict unreported grantee expenditures. The method separates the accrual into two components. The first component represents the amount of 

expenditures expected to be reported by grantees for the fourth quarter ending September 

30 excluding the expenses incurred but not reported (IBNR) which is discussed below. It 

is calculated with a data regression model that uses historical grantee advance and expenditure data. 

To estimate the second component, IBNR expenses, DHHS gathered information on 

spending patterns of grantees to identify unreported expenses at fiscal year-end and determined that grantees typically had year-end IBNR expenses equal to approximately two 

weeks of annual expenditures. Together, the estimated amount of expenditures expected 

to be reported by grantees for the fourth quarter ending September 30 and the estimated 

IBNR expenses represent the total amount reported as the accrued grant liability. 

N. Deferred Revenue 

The passage of PDUFA III allowed FDA to accelerate the FY 2003 billing and collection 

of advanced fees from the drug industry during FY 2002. The PDUFA fees collected in 

advance of FY 2003 cannot be used until the new fiscal year (October 1, 2002), and therefore are considered unavailable until such time. 

Statutory provisions require that services provided by FDA's Color Additive Certification 

Program be performed only upon advance payment of fees by those requesting certification services. Related deposits on-hand are reported on the Balance Sheet as "other liabilities" and are recognized as revenue upon completion of testing of a manufacturer's 

sample. 

O. Accrued Payroll, Unfunded Leave, and Accrued Benefits 

These liabilities represent salaries, wages, leave, and benefits earned by employees, but 

not disbursed as of September 30. Annual leave is accrued as earned and reduced as used. 

The balances of accrued annual and credit leave are analyzed and adjusted quarterly to 

reflect current pay rates. Sick leave and other types of nonvested leave are expensed as 

taken but not accrued when earned. 

II-13

NOTES TO FINANCIAL STATEMENTS


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


P. Federal Employee and Veterans’ Benefits 

The liability for Federal Employee and Veterans' Benefits consists of the actuarial portions 

of future benefits earned by Federal employees and Veterans, but not yet due and payable. 

These costs include pensions, other retirement benefits, and other post-employment benefits. These benefit programs are administered by the Office of Personnel Management 

(OPM) and not by FDA, except as discussed below. Therefore, FDA does not recognize 

the liability for pensions, other retirement benefits, and other post-employment benefits. 

FDA does, however, recognize the imputed cost and imputed financing related to these 

benefits in the Consolidated Statement of Net Cost and the Consolidated Statement of 

Changes in Net Position, respectively. 

FDA employs members of the Commissioned Corps, who have their own retirement plan. 

Congress annually funds this plan with amounts as may be required through the enactment 

of the Departments of Labor, Health and Human Services, and Education, and Related 

Agencies Appropriations Acts. 

Although FDA contributes toward the provision of pension benefits for eligible employees and makes the necessary payroll withholding, it does not account for the assets of the 

retirement plans. FDA also does not have actuarial data with respect to accumulated plan 

benefits or the unfunded liability relative to its eligible employees. These amounts are 

reported by the respective plan administrators and are not allocated to the individual 

employers. OPM also accounts for all health and life insurance programs for retired eligible employees. 

Pensions: Pensions provide benefits upon retirement and may also provide benefits for 

death, disability, or other termination of employment before retirement. Pension plans 

may also include benefits to survivors and dependents, and they may contain early retirement or other special features. Most FDA employees participate in the Civil Service 

Retirement System (CSRS) or the Federal Employee Retirement System (FERS). Under 

CSRS, FDA makes matching contributions equal to 8.51 percent of basic pay. For FERS 

employees, FDA contributes the employer's matching share for Social Security and contributes an amount equal to one percent of employee pay to a savings plan and matches 

up to an additional four percent of pay. Most employees hired after December 31, 1983, 

are covered by FERS. OPM reports on CSRS and FERS assets, accumulated plan benefits, and unfunded liabilities, if any, applicable to Federal employees. 

Other Retirement Benefits (ORB): Retirement benefits other than pensions are all forms 

of benefits to retirees or their beneficiaries provided outside the pension plan. Examples 

include health and life insurance. Retirement health care benefits are the primary ORB 

expense. 

Other Post-employment Benefits (OPEB): Post-employment benefits other than pensions 

include all types of benefits provided to former or inactive, but not retired, employees, 

their beneficiaries, and covered dependents. Inactive employees are those who are not 

II-14

FDA’s FY 2002 Annual Financial Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


currently rendering services to their employers and who have not been terminated, but 

who are not eligible for an immediate annuity, including those temporarily laid off or disabled. OPEB includes salary continuation, severance benefits, counseling and training, 

continuation of health care or other benefits, and unemployment and workers’ compensation benefits paid by the employer entity. 

Q. Obligations Related to Canceled Appropriations 

Payments may be required of up to one percent of current year appropriations for valid 

obligations incurred against prior year appropriations that have been canceled. The total 

potential payments related to canceled appropriations is estimated to be approximately 

$275 and $270 as of September 30, 2002 and 2001, respectively. 

R. Revenues and Other Financing Sources 

Funding for FDA is classified as revenue or other financing sources. Revenue is an inflow 

of resources that the Government demands, earns, or receives by donation. Revenue 

comes from two sources: exchange transactions and nonexchange transactions. Other 

financing sources include appropriations used, imputed financing sources, and transfers of 

assets between FDA and other Federal entities. 

Exchange and Non-Exchange Revenue: Exchange revenues are those that derive from 

transactions in which both FDA and another party receive value, including revenue from 

(1) firms submitting applications to FDA for review of new human drugs and biologics, 

(2) owners or lessees of facilities which conduct breast cancer screening or diagnosis 

through mammography activities, (3) firms requesting certification that drugs or medical 

devices which they are exporting meet certain requirements, and (4) manufacturers of 

color additives. These revenues are presented in FDA's Consolidated Statements of Net 

Cost and serve to reduce the reported cost of operations borne by the taxpayer. Nonexchange revenue derives from the Government’s sovereign right to demand payment. 

Non-exchange revenue is recognized when a reporting entity establishes a specifically 

identifiable, legally enforceable claim to cash or other asset such as interest receivable on 

delinquent debts. It is recognized to the extent that the collection is probable and the 

amount is reasonably estimable. 

Appropriations Used: Congressional appropriations are the primary funding source for 

FDA's programs. For financial statement purposes, appropriations used are recognized as 

a financing source as expenses are incurred. Under accrual accounting, operating expenses are recognized in the current period while expenditures for capital assets are not recognized as expenses until they are consumed. Financing sources for these expenditures, 

which are derived from both current and prior year appropriations and operations, are recognized on this same basis. 

II-15

NOTES TO FINANCIAL STATEMENTS


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


Imputed Financing Sources: These sources are an "other financing source" that reflect 

costs incurred by one Federal entity and paid by another Federal entity. These are also 

known as inter-entity costs. OMB is limiting the inter-entity costs to be recognized by 

Federal agencies to the following: (1) employee’s pension benefits, (2) the health, life 

insurance, and other benefits for retired employees, (3) other post-employment benefits 

for retired, terminated, and inactive employees, which include severance payments, training, counseling, continued health care, and unemployment and worker’s compensation 

under the Federal Employees’ Compensation Act, and (4) losses in litigation proceedings 

to account for Treasury Judgment Fund transactions. FDA includes applicable imputed 

costs in the Consolidated Statements of Net Cost, and an imputed financing source is recognized in the Consolidated Statements of Changes in Net Position. 

Transfers-In/Out: Intragovernmental transfers of budget authority (i.e. appropriated 

funds) or of assets without reimbursement are recorded at the book value of the transferring entity. 

S. Contingencies 

A contingency is an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to FDA. The uncertainty will ultimately be resolved 

when one or more future events occur or fail to occur. A contingent liability is recognized 

when a past transaction or event has occurred, a future outflow or other sacrifice of 

resources is more likely than not, and the related future outflow or sacrifice of resources 

is measurable. 

T. Use of Estimates in Preparing Financial Statements 

The preparation of financial statements in accordance with GAAP requires management 

to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. 

Actual results may differ from those estimates. 

U. Reclassifications 

Certain FY 2001 balances reported previously have been reclassified to conform to FY 

2002 financial statement presentation. 

V. Tax Status 

FDA, as a Federal agency, is not subject to Federal, state, or local income taxes, and 

accordingly, no provision for income taxes is necessary. 

II-16

FDA’s FY 2002 Annual Financial Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


Note 2 – Fund Balances with Treasury 

FDA’s undisbursed account balances are listed below by fund type: 

Appropriated General Funds


Other Funds


Revolving Funds


Total Fund Balances with Treasury 

2002 

$460,793 

244,851 

5,059 

$710,703 

$432,230 

28,649 

4,693 

$465,572 

2001 

Status of Fund Balances with Treasury 

(1) Unobligated Balance 

(a) Available 

(b) Unavailable 

(2) Obligated Balanced not yet Disbursed 

Total 

2002 2001 

$ 75,180 

146,836 

488,687 

$710,703 

$ 69,870 

1,673 

394,029 

$465,572 

No restrictions on Fund Balances with Treasury exist at September 30, 2002 and 2001. 

II-17

NOTES TO FINANCIAL STATEMENTS


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


Note 3 - Accounts Receivable, Net 

Accounts Receivable, Net consist of the following: 

2002 

Gross Net 

Intragovernmental 

Civil Monetary Penalties 

Interagency Agreements 

Total Intragovernmental 

With the Public 

Civil Monetary Penalties 

Prescription Drug User Fee Act 

Travel Refunds & Miscellaneous


Export Reform & Enhancement Act


Other


Total With the Public


Total 

Mammography Quality Standards Act 

$ 20 

11,310 

11,330 

373,007 

2,863 

1,151 

2,295 

605 

13 

379,934 

$391,264 

$ -

-

-

-

557 

145 

63 

35 

-

800 

$ 800 

$ 20 

11,310 

11,330 

373,007 

2,306 

1,006 

2,232 

570 

13 

379,134 

$390,464 

Receivable Allowance Receivable 

II-18

FDA’s FY 2002 Annual Financial Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


2001 

Gross Net 

Intragovernmental 

Civil Monetary Penalties 

Interagency Agreements 

Total Intragovernmental 

$ 

7,410 

104,410 

25,378 

6,872 

2,765 

5,046 

544 

29 

40,634 

$145,044 

$ -

-

-

-

1,087 

223 

125 

22 

-

1,457 

$ 

$ 

7,410 

104,410 

25,378 

5,785 

2,542 

4,921 

522 

29 

39,177 

$143,587 

Receivable Allowance Receivable 

97,000 

1,457 

97,000 

With the Public 

Civil Monetary Penalties


Prescription Drug User Fee Act


Mammography Quality Standards Act


Travel Refunds & Miscellaneous


Export Reform & Enhancement Act


Other


Total With the Public 

Total 

Civil Monetary Penalties 

The FDA is authorized by the Food, Drug, and Cosmetic Act to assess and collect civil 

monetary penalties for violations in areas such as illegally manufactured, marketed, and 

distributed animal feeds and drug products. CMP cases initiated by FDA General Counsel 

are submitted to the Department of Justice (DOJ) for final adjudication. CMPs assessed 

by DOJ are collected and subsequently forwarded to FDA, net of a 3% fee. 

CMP collections are considered FDA’s only non-entity asset because they are immediately forwarded to the Department of Treasury and cannot be used for FDA operations. FDA 

penalties collected in FY 2002 total $373,746 ($61,619 for FY 2001) net of DOJ fees of 

approximately $11,212 ($1,906 for FY 2001). Receivables arising from CMPs are recorded when the penalties are assessed by FDA/DOJ. FDA has recorded intragovernmental 

accounts receivable totaling $20 ($97,000 for FY 2001) based on settlement agreements 

or court decisions against private entities who submitted payment to DOJ however FDA 

has not yet received the payment from DOJ as of September 30. A corresponding nonentity custodial liability payable to the Department of Treasury is recorded for the same 

amount. 

II-19

NOTES TO FINANCIAL STATEMENTS


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


Note 4 - Cash 

All cash on hand consists of petty cash funds and is considered an entity asset. The petty 

cash funds are used for miscellaneous reimbursements for local travel, undercover criminal investigations, and other miscellaneous expenses. The total balance of petty cash 

funds as of September 30, 2002 and 2001, is $155. 

Note 5 - General Property, Plant, and Equipment, Net 

Balances for the major categories of FDA Property, Plant, and Equipment, Net are listed 

below: 

2002 

Service Life Acquisition Accumulation Net Book 

Classes of Fixed Assets 

Personal Property: 

Laboratory & Office Equipment 

ADP and Telecom Equipment 

Internal Use Software 

Capital Lease - Security System 

Total Personal Property 

Real Property: 

Capital Lease - Structure 

Land 

Total Real Property 

In Progress: 

Construction 

Software 

Total In Progress 

Total 

Buildings, Facilities, & Structures 

$ 

28,420 

1,457 

1,380 

118,548 

227,282 

806 

8,957 

237,045 

49,083 

12,564 

61,647 

$ 417,240 

$ 

14,250 

729 

201 

61,788 

94,363 

107 

-

94,470 

-

-

-

$ 156,258 

$ 

14,170 

728 

1,179 

56,760 

132,919 

699 

8,957 

142,575 

49,083 

12,564 

61,647 

$ 260,982 

Value Depreciation Value 

10 

8 

4 

20 

5-50 

30 

N/A 

N/A 

N/A 

(Years) 

87,291 46,608 40,683 

II-20

FDA’s FY 2002 Annual Financial Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


2001 

Service Life Acquisition Accumulation Net Book 

Classes of Fixed Assets (Years) 

Personal Property: 

Laboratory & Office Equipment 

ADP and Telecom Equipment 

Internal Use Software 

Capital Lease - Security System 

Total Personal Property 

Real Property: 

Buildings, Facilities, & Structures 

Capital Lease - Structure 

Land 

Total Real Property 

In Progress: 

Construction 

Software 

Total In Progress 

Total 

10 

8 

4 

20 

5-50 

30 

N/A 

N/A 

N/A 

$ 

24,672 

1,457 

1,380 

99,787 

214,742 

806 

8,957 

224,505 

20,505 

5,485 

25,990 

$ 350,282 

$ 

12,506 

364 

132 

55,079 

87,118 

81 

-

87,199 

-

-

-

$ 142,278 

$ 

12,166 

1,093 

1,248 

44,708 

127,624 

725 

8,957 

137,306 

20,505 

5,485 

25,990 

$ 208,004 

Value Depreciation Value 

72,278 42,077 30,201 

II-21

NOTES TO FINANCIAL STATEMENTS


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


Note 6 - Other Assets 

Other Assets is comprised of the following: 

Disputed Cash 

Advance - GSA Rent 

Travel and Employee 

Advances 

Prepaid Subscriptions 

Total Other Assets 

2002 2001 

Intra- With the Intra- With the 

governmental Public governmental Public 

$ -

-

13 

$ 13 

$ -

292 

-

$ 292 

$ 

-

41 

$ 14,060 

$ -

252 

-

$ 252 

14,019 

In FY 2001, the majority of other assets consisted of funds held pending dispute resolution with GSA. The dispute concerned GSA rent charged to FDA that exceeded the cap 

imposed by Congress for annual GSA rent charges. GSA reimbursed the $14,019 to FDA 

in September 2002. 

Note 7 - Environmental and Disposal Costs 

Environmental and Disposal Costs are the costs of removing, containing, or disposing of 

material or property that consists of hazardous waste at (1) permanent or temporary sites 

selected for closure or shutdown, (2) active sites undergoing renovations, and (3) active 

sites not scheduled for closure or renovation. FDA's cleanup costs are primarily related 

to the closure and subsequent decommissioning of laboratory facilities related to its field 

and headquarters consolidation efforts. In many instances, FDA has performed laboratory operations using various chemical, biological, and/or radiological materials in these 

facilities for over 30 years. As a result of such use, the decommissioning of each building or facility is planned so the Federal government will take all actions required of it 

under the terms of the related lease and by all applicable federal, state, and local environmental laws. 

FDA’s estimated liability for government-related future cleanup of hazardous waste does 

not consider the effect of future new technology, laws, or regulations. The method of 

assigning cost is based on estimated costs of similar remediation projects. The following 

II-22

FDA’s FY 2002 Annual Financial Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


table presents FDA’s estimated cleanup cost liability as of September 30, 2002 and 2001: 

2002 2001 

Liabilities Covered By Budgetary Resources $1,262 $1,533 

Liabilities Not Covered By Budgetary Resources 2,956 3,454 

Total Environmental and Disposal Costs $4,218 $4,987 

Note 8 - Federal Employee and Veterans’ Benefits 

The Federal Employees Compensation Act (FECA) provides income and medical cost 

protection to covered Federal civilian employees injured on the job; employees who 

have incurred a work-related occupational disease; and beneficiaries of employees whose 

death is attributable to a job-related injury or occupational disease. The FECA program 

is administered by the U.S. Department of Labor, which initially pays valid claims and 

unpaid billings and is subsequently reimbursed from the Federal agencies employing the 

claimants. 

The actuarial liability for future workers’ compensation benefits is determined using a 

method that utilizes historical benefit payment patterns related to a specific incurred period to predict the ultimate payment related to that period. Consistent with the past practice, these projected annual benefit payments have been discounted to present value using 

OMB's economic assumptions for 10-year Treasury notes and bonds. The present value 

of these estimates was calculated using a discount rate of 5.20 percent in the first year and 

thereafter for FY 2002 (5.21 percent in the first year and thereafter for FY 2001). 

To provide more specifically for the effects of inflation on the liability for future workers' 

compensation benefits, wage inflation factors (cost of living adjustments or COLAs) and 

medical inflation factors (consumer price index medical) are applied to the calculation of 

projected future benefits. These factors are also used to adjust the methodology's historical payments to current year dollars. The methodology also includes a discounting formula to recognize the timing of compensation payments per year instead of one lump sum 

per year. 

This liability at September 30, 2002 and 2001, amounted to $21,100 and $23,011, respectively, and is considered a liability not covered by budgetary resources. 

II-23

NOTES TO FINANCIAL STATEMENTS


Note 9 - Accrued Payroll and Benefits 

Accrued Payroll and Benefits consist of the following: 

U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS 

As of September 30, 2002 and 2001 

(In Thousands) 

2001 

Intragovernmental With the Public 

Accrued Payroll 

Accrued Leave 

Payroll Withholding 

Accrued Workers' 

Compensation 

Total 

$ -

-

6,804 

-

$ 6,804 

$ -

-

-

3,445 

$ 3,445 

Liabilities 

Covered by 

Budgetary 

Resources 

Liabilities 

Not Covered 

by Budgetary 

Resources 

$ -

-

6,804 

3,445 

$ 10,249 

Total 

$ 

118 

-

-

$ 39,114 

$ -

56,555 

-

-

$ 56,555 

$ 

56,673 

-

-

$ 

Liabilities 

Covered by 

Budgetary 

Resources 

Liabilities 

Not Covered 

by Budgetary 

Resources Total 

2002 

Intragovernmental With the Public 

Accrued Payroll 

Accrued Leave 

Payroll Withholding 

Accrued Workers' 

Compensation 

Total 

$ -

-

8,449 

-

$ 8,449 

$ -

-

-

3,370 

$ 3,370 

Liabilities 

Covered by 

Budgetary 

Resources 

Liabilities 

Not Covered 

by Budgetary 

Resources 

$ -

-

8,449 

3,370 

$ 11,819 

Total 

$ 

137 

-

-

$ 47,339 

$ -

62,319 

-

-

$ 62,319 

$ 

62,456 

-

-

$ 

Liabilities 

Covered by 

Budgetary 

Resources 

Liabilities 

Not Covered 

by Budgetary 

Resources Total 

38,996 38,996 

95,669 

47,202 47,202 

109,658 

II-24

FDA’s FY 2002 Annual Financial Report


Note 10 – Accrued Grant Liability, Net 

2002 2001 

Grant Advances Outstanding 

(before year-end grant accrual) $ $ 

Less: Accrual for 

Amounts Due to Grantees 8,645 

Accrued Grant Liability, Net $ 

Note 11 - Other Liabilities 

U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS 

As of September 30, 2002 and 2001 

(In Thousands) 

2002 

Intragovernmental With the Public 

Capital Lease 

Contingent Liability 

Deferred Revenue 

Other 

Total 

$ -

-

282 

$ 282 

$ 947 

-

-

$ 947 

Liabilities 

Covered by 

Budgetary 

Resources 

Liabilities 

Not Covered 

by Budgetary 

Resources 

$ 947 

-

282 

$ 1,229 

Total 

$ -

-

127,709 

20 

$ 

$ 599 

160 

-

-

$ 759 

$ 599 

160 

127,709 

20 

$ 

Liabilities 

Covered by 

Budgetary 

Resources 

Liabilities 

Not Covered 

by Budgetary 

Resources Total 

2001 

Intragovernmental With the Public 

Capital Lease 

Contingent Liability 

Deferred Revenue 

Other 

Total 

$ -

-

3,163 

$ 3,163 

$ 967 

-

-

$ 967 

Liabilities 

Covered by 

Budgetary 

Resources 

Liabilities 

Not Covered 

by Budgetary 

Resources 

$ 967 

-

3,163 

$ 4,130 

Total 

$ -

-

417 

37 

$ 454 

$ 670 

161 

-

-

$ 831 

$ 670 

161 

417 

37 

$ 

Liabilities 

Covered by 

Budgetary 

Resources 

Liabilities 

Not Covered 

by Budgetary 

Resources Total 

8,548 5,674 

Estimated 

8,889 

97 $ 3,215 

127,729 128,488 

1,285 

II-25

NOTES TO FINANCIAL STATEMENTS


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


All other liabilities are considered current except for the capital lease liability. The portion of the total capital lease liability of $1,546 ($1,637 for FY 2001) considered current 

is $86 ($91 for FY 2001), and the remaining balance, $1,460 ($1,546 for FY 2001), is considered non-current. See Note 13 for more information on capital leases. 

Note 12 - Commitments and Contingencies 

Commitments 

FDA is committed for goods and services that have been ordered, but have not yet been 

delivered. As of September 30, 2002 and 2001, FDA’s undelivered orders were $350,397 

and $286,164, respectively. The entire balance has been funded with budgetary resources 

received in FY 2002 and prior years. 

A summary of long-term commitments for construction and software development projects over $5,000 per project is as follows: 

Fiscal Year 

2003 

2004 

2005 

Total 

Contingencies 

Amount 

$20,770 

18,782 

2,186 

$41,738 

FDA is party in various administrative proceedings, legal actions, and claims brought 

against it. In the opinion of FDA management, legal counsel, and DHHS legal counsel, 

the ultimate resolution of these proceedings, actions, and claims will not materially affect 

the financial position or net costs of FDA. These cases are administered and resolved by 

the U.S. Department of Justice and any amounts necessary for resolution are obtained 

from a special Judgment Fund maintained by the U.S. Department of the Treasury under 

title 31 United States Code, section 1304. Unfavorable judgments do not result in claims 

against FDA directly. Losses paid by the Judgment Fund on behalf of FDA do not require 

reimbursement. As of September 30, 2002, FDA has accrued $160 ($161 for FY 2001) for 

a legal contingent liability to be paid by the Treasury Judgment Fund. In this case, a judgment of as high as $20,000 could be awarded against FDA, but the final amount of this 

liability will be decided in future litigation. 

II-26

FDA’s FY 2002 Annual Financial Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


Note 13. Leases 

Future lease payments are as follows: 

Capital 

Fiscal Year Leases Leases 

2003 $ 223 $111,707 

2004 222 

2005 222 

2006 222 

2007 222 

2008 and Thereafter 1,648 2,965 ** 

Total Future Lease Payments 2,759 $663,629 

Less: (1,213) 

Operating 

121,065 

130,855 

142,292 

154,745 

Imputed Interest 

Total Capital Lease Liability $1,546 

(Note 11) 

** Future Lease payments are expected; however, dollar figures for GSA cannot be 

reasonably estimated. 

As of September 30, 2002 and 2001, FDA had one personal property capital lease for a 

security system used at its Jamaica, NY field office. The lease has 17 years remaining of 

its 20-year life. Real property capital leases consist of two leases for a cooling tower at 

FDA’s Arkansas Regional Laboratory. Both leases have a life of 10 years. The total capital lease liability is considered unfunded as of September 30, 2002 and 2001. 

Operating leases for real property cover GSA and non-GSA leased assets. Operating leases comprise the majority of FDA’s fiscal year 2002 and 2001 real property rental expense 

and have terms of more than two years. GSA charges FDA rates that approximate commercial rates for comparable space. FDA may elect to terminate these leases with 120 

days notice to GSA at any time. FDA has the authority to lease its own space for laboratories, testing materials, etc. because, in many cases, GSA does not own property that will 

satisfy the needs of FDA’s scientific and research activities. For FY 2002, FDA had five 

(five for FY 2001) non-GSA operating leases consisting mostly of laboratories and office 

space. 

Operating leases for personal property are for the rental of GSA vehicles at FDA’s headquarters and at its field offices. As of September 30, 2002 and 2001, FDA maintained 

approximately 975 vehicles leased from GSA. GSA charges FDA rates that are less than 

commercial rates for comparable vehicles. FDA may elect to terminate these leases within 120 days notice to GSA, at any time. 

II-27

NOTES TO FINANCIAL STATEMENTS


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


Note 14 - Combined Statements of Budgetary Resources 

The Statement of Budgetary Resources was prepared on a “combined” basis and does 

not contain intra-FDA eliminations, which may result in a distortion of reported total 

budgetary resources compared to actual budgetary resources received by FDA as a 

whole. 

Salaries and Expenses (S&E), FDA’s largest appropriation, is a one year appropriation. 

FDA has a number of “no-year” or “permanent indefinite” funds. These funds are the 

Revolving Fund for Certification, Building and Facilities; and Cooperative Research and 

Development Agreements. Permanent indefinite funds are available until they are no 

longer deemed necessary in supporting the agency’s mission. FDA also has a multi-year 

appropriation to record collections and disbursements for patents and royalties. 

FDA received 79.2% or $1,387,845 (76.8%, or $1,125,823 for FY 2001), of its total FY 

2002 budgetary resources of $1,752,448 ($1,465,651 for FY 2001) through appropriations. FDA’s S&E account was appropriated $1,179,670 ($1,091,524 for FY 2001), 

which accounts for 85% (97% for FY 2001) of the total appropriations received. 

Permanent indefinite appropriations are available for FDA to accomplish its mission 

until expended or Congress enacts legislation to rescind or cancel remaining budget 

authority. 

Other sources of funding included reimbursable programs and unobligated carryovers 

from prior years. Reimbursable programs, which provide funds from other Federal or 

private entities in exchange for goods or services, account for about 19.5% of total FY 

2002 (13% for FY 2001) budgetary resources. Unobligated carryovers represent 

amounts of spending authority that have not been committed or earmarked for expenditure. Carryovers represent about 4.9% of FY 2002 (7.1% for FY 2001) budgetary 

resources. 

FDA has both Category A (apportioned over a time period) and Category B (apportioned 

by activity/project) obligations. Category A obligations totaled $1,496,157 ($1,359,101 

for FY 2001). Category B obligations totaled $161,345 ($20,834 for FY2001). 

FDA has a Contingency Fund that was established in FY 1983 whereby funds are to be 

used for unusual direct costs of product emergencies (i.e., Tylenol incident, Breast 

Implant Hotline, etc.). The fund was justified for costs of overtime, travel, and the cost 

of buying samples and other supplies for national public health emergencies and for 

II-28

FDA’s FY 2002 Annual Financial Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands)


contracts with the states as needed. Two rules were set for the use of this fund: (1) only 

for emergency costs exceeding $100 over the normal budget and (2) any use has to be 

specifically apportioned and approved by OMB. During FY 2002, FDA had funds of 

$1,160 temporarily not available for national public health emergencies. 

FDA received $168,100 in funding in FY 2002 ($17,000 of which was rescinded), to 

remain available until expended, to support counter terrorism projects that recognize the 

important role FDA plays in protecting the public health. The attacks of September 11, 

2001 and subsequent national events resulted in an accelerated and intensified need for 

attention to activities related to counter terrorism. FDA’s focus is in three key areas: 

food safety, safe and effective medical products, and physical security. The amount 

obligated for counter terrorism projects in FY 2002 was $131,000. 

The Prescription Drug User Fee Act of 1992 (PDUFA) was re-authorized by the 

Prescription Drug User Fee Amendments of 2002 (Title 5 of the Public Health Security 

and Bioterrorism Preparedness and Response Act of 2002, PL 107-188). This change 

allowed FDA to accelerate the FY 2003 billing and collection of advanced fees from the 

drug industry during FY 2002. The PDUFA fees collected in advance of FY 2003 cannot be used until the new fiscal year (October 1, 2002) and passage of an FDA appropriation, and therefore, are considered unavailable until FY 2003. 

The President’s Budget is not expected to be published until February 3, 2003, therefore, 

FDA cannot, at this time, ascertain any differences between the actual figures from it to 

the Statement of Budgetary Resources. Once the President’s Budget is published, the 

comparison will be made in the subsequent fiscal year. The President’s Budget will be 

made available on the Office of Management and Budget (OMB) website. 

Note 15 – Custodial Activity 

Custodial activity primarily involves collections for civil monetary penalties assessed by 

the Department of Justice on behalf of FDA. Penalties are assessed for violations in 

areas such as illegally manufactured, marketed, and distributed animal feeds and drug 

products. Total CMP collections in FY 2002 were $373,746 ($61,619 for FY 2001). 

CMP collections are immediately forwarded to the Department of Treasury when collected and cannot be used for FDA operations. Also see Note 3. 

II-29


FDA’s FY 2002 Annual Financial Report


Required Supplementary
Information (Unaudited)


Combining Statements of 

Budgetary Resources 

Program 

Deferred Maintenance 

Intra Governmental Transactions 

- Intra-Governmental Assets 

and Expenses 

Supplemental Consolidating Statements 

of Net Costs by Expense Type and 

- Intra-Governmental Liabilities 

- Intra-Governmental Revenues 

III-1

REQUIRED SUPPLEMENTARY INFORMATION
 U.S. Department of Health and Human Services Food and Drug Administration Combining Statement of Budgetary Resources 

For the 

Year Ended September 30, 2002 

(In Thousands) 

(Unaudited) 

Budgetary Resources: 

Budget authority : 

Appropriations Received Net Transfers 

Unobligated balance: 

Beginning of Period Net Transfers, actual 

Spending authority from offsetting collections: 

Earned 

Collected Receivable from Federal sources 

Change in unfilled customer orders 

Advance Received 

Without advance from Federal sources 

Subtotal 

Recoveries of prior year obligations 

Temporarily not available pursuant to Public Law 

Permanently not available 

Total Budgetary Resources 

Status of Budgetary Resources: 

Obligations incurred : 

Direct Reimbursable Subtotal 

Unobligated balance: 

Apportioned 

Unobligated balance not available 

Total Status of Budgetary Resources 

Relationship of Obligations to Outlays: Obligated balance, net, beginning of period 

Obligated balance, net, end of period: 

Accounts receivable Unfilled customer orders from Federal sources Undelivered Orders Accounts payable 

Outlays: 

Disbursements Collections Subtotal 

Less: Offsetting receipts 

Net Outlays 

168,100 

(126,395) 

39,379 

(35,416) 

163,581 

-

127,223 

14,600 

305,404 

-

(127,224) 

(17,000) 

206,848 161,345 

-

161,345 

44,343 

1,160 

206,848 

794 

-

(14,601) 

61,991 21,438 78,710 

(290,804) (212,094) 

-

User Fees 

Account 

75X0600 

(212,094) 

1,754 

-

1,345 

-

1 

---

1 

37 

--

3,137 1,071 

-

1,071 2,066 

-

3,137 

840 

--

561 

20 

1,292 

(1) 

1,291 

(1,754) 

(463) 

CRADAs 

75X5148 

34,281 

-

27,865 

-

44 

---

44 

5,037 

--

67,227 43,867 

-

43,867 23,360 

-

67,227 26,255 

--

17,964 

5,062 

42,061 

(44) 

42,017 

-

42,017 

Building & 

Facilities 

75X0603 

--

3,852 

-

4,988 

-

68 

-

5,056 

233 

--

9,141 5,237 

-

5,237 1,537 

2,367 

9,141 

841 

--

747 408 

4,690 

(5,056) 

(366) 

-

(366) 

Certification 

Fund 

75X4309 

-

1,184 

----------

1,184 1,184 

-

1,184 

--

1,184 

-----

1,184 

-

1,184 

-

1,184 

GSA Bldg. 

Delegation 

75X0601 

1,179,670 

125,211 

12,965 35,416 31,160 

3,110 

-

(2,800) 

31,470 88,252 

-

(12,930) 

1,460,054 1,421,963 

21,764 

1,443,727 

88 

16,239 

1,460,054 

365,299 

(9,430) (7,118) 

287,685 123,346 

1,325,981 

(31,160) 

1,294,821 

-

Salaries & 

Expenses 

1,294,821 

75_0600 

40 

-----------

40 40 

-

40 

--

40 

-----

40 

-

40 

(40) 

-

Gift Fund 

75x8247 

4,000 

-----------

4,000 

862 

-

862 

3,138 

-

4,000 

---

382 

232 248 

-

248 

-

248 

White Oak 

752.30600 

--

310 

-

507 

---

507 

---

817 169 

-

169 648 

-

817 

-----

169 

(507) (338) 

-

(338) 

Royalties 

75_/_0600 

1,387,845 

-

85,716 

-

200,281 

3,110 

127,291 

11,800 

342,482 

93,559 

(127,224) 

(29,930) 

1,752,448 1,635,738 

21,764 

1,657,502 

75,180 19,766 

1,752,448 

394,029 

(9,430) 

(21,719) 

369,330 150,506 

1,454,375 

(327,572) 

1,126,803 

(1,794) 

1,125,009 

Total 

III-2

FDA’s FY 2002 Annual Financial Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

Combining Statement of Budgetary Resources 

For the 

Year Ended September 30, 2001 

(In Thousands) 

(Unaudited) 

Budgetary Resources: 

Budget authority: 

Appropriations Received Net Transfers 

Unobligated balance: 

Beginning of Period Net Transfers, actual 

Spending authority from offsetting collections: 

Earned 

Collected Receivable from Federal sources 

Change in unfilled customer orders 

Advance Received 

Without advance from Federal sources 

Subtotal 

Recoveries of prior year obligations Permanently not available 

Total Budgetary Resources 

Status of Budgetary Resources: 

Obligations incurred : 

Direct Reimbursable Subtotal 

Unobligated balance: 

Apportioned 

Unobligated balance not available 

Total Status of Budgetary Resources 

Relationship of Obligations to Outlays: 

Obligated balance, net, beginning of period 

Obligated balance, net, end of period: 

Accounts receivable Unfilled customer orders from Federal sources Undelivered Orders Accounts payable 

Outlays: 

Disbursements Collections Subtotal 

Less: Offsetting receipts 

Net Outlays 

-

(103,345) 

62,769 

(57,368) 

153,120 

---

153,120 

--

55,176 15,798 

-

15,798 38,219 

1,159 

55,176 

---

791 

3 

15,004 

(153,120) (138,116) 

-

User Fees 

Account 

75X0600 

(138,116) 

1,924 

-

626 

-

5 

---

5 

24 

-

2,579 1,234 

-

1,234 1,345 

-

2,579 

433 

--

821 

19 

803 

(4) 

799 

-

799 

CRADAs 

75X5148 

31,350 

1,000 

26,684 

-

84 

---

84 

2,023 

(69) 

61,072 33,207 

-

33,207 27,865 

-

61,072 10,283 

--

24,371 

1,883 

15,213 

(84) 

15,129 

-

15,129 

Building & 

Facilities 

75X0603 

--

3,327 

-

4,521 

-

9 

-

4,530 

203 

-

8,060 4,207 

-

4,207 2,062 1,791 8,060 

739 

--

557 284 

3,901 

(4,529) 

(628) 

-

(628) 

Certification 

Fund 

75X4309 

-

5,036 

---------

5,036 5,036 

-

5,036 

--

5,036 

---

0 0 

5,036 

-

5,036 

-

5,036 

GSA Bldg. 

Delegation 

75X0601 

1,091,524 

98,309 11,141 57,368 28,640 

545 

-

2,652 

31,837 83,350 

(40,557) 

1,332,972 1,295,064 

24,943 

1,320,007 

69 

12,896 

1,332,972 

353,602 

(6,321) (9,918) 

270,055 111,484 

1,221,763 

(28,642) 

1,193,121 

-

Salaries & 

Expenses 

1,193,121 

75_0600 

25 

----------

25 25 

-

25 

--

25 

-----

25 

-

25 

(25) 

0 

Gift Fund 

75x8247 

---------------------------

0 

White Oak 

752.30600 

--

188 

-

543 

---

543 

--

731 421 

-

421 310 

-

731 

-----

421 

(543) (122) 

-

(122) 

Royalties 

75_/_0600 

1,124,823 

1,000 

104,735 

-

186,913 

545 

9 

2,652 

190,119 

85,600 

(40,626) 

1,465,651 1,354,992 

24,943 

1,379,935 

69,870 15,846 

1,465,651 

365,057 

(6,321) (9,918) 

296,595 113,673 

1,262,166 

(186,922) 

1,075,244 

(25) 

1,075,219 

Total 

III-3

REQUIRED SUPPLEMENTARY INFORMATION
 Expense Type Personnel Services and Benefits Travel & 

Transportation 

Rent, Communication, and Utilities Printing & Reproduction Contractual Services Supplies and Materials Non-Capitalized Equipment Grants, Subsidies, Contributions 

Insurance Claims & Indemnities Depreciation Bad Debts and Write-offs Interest Expense Imputed Retirement Costs Loss on Disposition of Property Applied Overhead Other Gross Costs Less: Earned Revenues 

Net Cost 

$ 

12,721 49,174 

842 

69,962 

6,680 

19,919 11,231 

(31) 

5,586 

(137) 

81 

19,143 

22 

(941) 

(1,697) 

440,863 

(9,810) 

$ 

Foods 

$ 

7,741 

29,385 

511 

69,722 

4,844 

12,654 

5,552 

(6) 

2,635 

(134) 

43 

18,232 

(1) 

(941) (202) 

417,532 

(137,130) 

$ 

Human 

Drugs 

$ 

2,496 

14,690 

145 

21,844 

2,201 4,945 2,596 

22 

780 

(27) 

13 

4,216 

2 

(62) (31) 

113,573 

(837) 

Animal Drugs 

$ 

and Feeds 

$ 

4,573 

22,391 

346 

47,236 

2,695 7,176 2,283 

71 

2,925 

(40) 

22 

11,993 

(16) 

(148) (315) 

252,236 

(11,351) 

$ 

Devices and 

Radiological 

Health 

$ 

3,214 

12,487 

294 

43,766 

7,885 8,913 1,707 

146 

1,362 

(61) 

19 

7,845 

4 

(125) (437) 

205,520 

(18,104) 

$ 

Biologics 

$ 

778 

2,217 

39 

21,027 

3,093 1,802 

498 

(43) 

4,029 

(21) 

53 

1,595 

17 

(39) 

18 

57,753 

(12,072) 

$ 

National Center 

for Toxicological 

Research 

$ 

31,523 

130,344 

2,177 

273,557 

27,398 55,409 23,867 

159 

17,317 

(420) 

231 

63,024 

28 

(2,256) (2,664) 

1,487,477 

(189,304) 

$ 

TOTALS 

U.S. Department of Health and Human Services 

Food and Drug Administration 

SUPPLEMENTAL STATEMENT OF NET COST 

BY EXPENSE TYPE AND PROGRAM 

For the Fiscal 

Year Ended September 30, 2002 

(In Thousands) 

(Unaudited) 

248,308 431,053 

267,497 

280,402 

59,743 

112,736 

151,044 240,885 

118,501 187,416 

22,690 45,681 

867,783 

1,298,173 

III-4

FDA’s FY 2002 Annual Financial Report


Expense Type Personnel Services and Benefits 

Travel & 

Transportation 

Rent, Communication, and Utilities Printing & Reproduction Contractual Services Supplies and Materials Non-Capitalized Equipment Grants, Subsidies, Contributions 

Insurance Claims & Indemnities Depreciation Bad Debts and Write-offs 

Interest Expense Imputed Retirement Costs Loss on Disposition of Property Applied Overhead Other Gross Costs Less: Earned Revenues 

Net Cost 

$ 

11,441 42,473 

1,389 

61,083 

6,409 

10,201 

9,588 

118 

5,132 

106 

21 

19,468 

217 

(510) (119) 

396,116 

(6,031) 

$ 

Foods 

$ 

6,692 

28,879 

608 

60,607 

4,565 

12,396 

4,034 

137 

2,295 

115 

18 

12,468 

173 

(667) 

(95) 

378,326 

(123,010) 

$ 

Human 

Drugs 

$ 

1,880 

10,312 

149 

15,783 

1,655 2,693 1,816 

14 

536 

24 

5 

3,545 

35 

(27) (14) 

83,413 

(307) 

$ 

Animal Drugs 

and Feeds 

$ 

4,234 

22,853 

491 

39,810 

2,363 5,467 2,040 

90 

2,540 

91 

9 

13,935 

268 

(82) 

(178) 

238,691 

(15,371) 

223,320 

Devices and 

Radiological 

Health 

$ 

2,938 

11,378 

349 

37,855 

7,132 5,550 

849 

98 

1,303 

54 10 

8,741 

10 

(64) (20) 

178,564 

(17,675) 

$ 

Biologics 

$ 

698 

3,355 

62 

21,644 

3,132 1,872 

289 

28 

3,605 

18 

147 

1,517 

2 

(24) 

-

57,863 

(14,830) 

$ 

National Center 

for Toxicological 

Research 

$ 

27,883 

119,259 

3,050 

237,022 

25,256 38,179 18,617 

485 

15,411 

408 210 

59,677 

705 

(1,374) 

(426) 

1,333,270 

(177,224) 

$ 

TOTALS 

$ 

-

9 2 

240 

--

1 

----

3 

---

297 

-

$ 

Tobacco 

U.S. Department of Health and Human Services 

Food and Drug Administration 

SUPPLEMENTAL STATEMENT OF NET COST 

BY EXPENSE TYPE AND PROGRAM 

For the Fiscal 

Year Ended September 30, 2001 

(In Thousands) 

(Unaudited) 

229,099 390,085 

246,101 255,316 

45,007 83,106 

144,760 102,381 

160,889 

21,518 43,033 

788,908 

1,156,046 

42 

297 

III-5

REQUIRED SUPPLEMENTARY INFORMATION 

U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2002 and 2001


(In Thousands) Unaudited


Deferred Maintenance 

Deferred maintenance is maintenance that was not performed when it should have been, 

that was scheduled and not performed, or that was delayed for a future period. 

Maintenance is the act of keeping property, plant, and equipment in acceptable operating 

condition, including preventive maintenance, normal repairs, replacement of parts and 

structural components, and other activities needed to preserve the asset so that it continues to provide acceptable services and achieves its expected life. Maintenance excludes 

activities aimed at expanding the capacity of an asset or otherwise upgrading it to serve 

needs different from, or significantly greater than, those originally intended. Maintenance 

expense is recognized as incurred. 

FDA used the Condition Assessment Survey method (CAS) to identity and quantify 

deferred maintenance for all classes of property. CAS requires a periodic inspection of 

real property to determine its current condition and to estimate the costs likely to be 

incurred by the correction of any deficiencies. 

FDA operates laboratory facilities and buildings throughout the United States, in which 

the Agency performs various aspects of its regulatory mission. This includes scientific 

testing, sampling, methods development, and research in connection with the evaluation 

or investigation of regulated products. The following tables present FDA’s real property 

for which deferred maintenance exists as of September 30, 2002 and 2001: 

FY 2002 

FY 2001 

Category Asset Condition Cost to Return to 

Acceptable Condition Critical Amount Non-Critical 

Amount 

Buildings Fair to Poor $25,837 $3,322 $22,515 

Laboratories Fair to Poor $6,130 $1,638 $4,492 

Utility Systems Poor $5,296 - $5,296 

Total $37,263 $4,960 $32,303 

Buildings Poor $29,356 $4,525 $24,831 

Laboratories Fair $9,486 $3,090 $6,336 

Utility Systems Poor $7,056 $1,940 $5,116 

Total $45,838 $9,555 $36,283 

III-6

FDA’s FY 2002 Annual Financial Report


Department of Agriculture 

Department of Commerce 

Department of Interior 

Department of Defense 

Department of Energy 

Department of Health and Human Services 

Department of Justice 

Department of Transportation 

Department of the Treasury 

Department of Veterans Affairs 

General Services Administration 

National Aeronautics & Space Administration 

Social Security Administration 

State Department 

Environmental Protection Agency 

All Other Federal Agencies 

TOTAL 

12 

13 

14 

17, 21, 57, 97 

89 

75 

15 

69 

20 

36 

47 

80 

28 

19 

68 

$710,703 

$710,703 

$ 

77 

63 

2,268 

129 

5,125 

2,109 

300 

49 

76 

47 

67 

1 

304 

14 

5 

$ 1,330 

$ 

$ 

$ 

90 

63 

2,268 

129 

5,125 

2,109 

300 

710,752 

76 

47 

67 

1 

304 

14 

5 

$722,046 

Agency 

2002 

Intragovernmental Assets 

TFM Dept 

Code 

Fund Balance 

w/ Treasury 

Accounts 

Receivable Other Total 

Department of Agriculture 

Department of Commerce 

Department of Defense 

Department of Energy 

Department of Health and Human Services 

Department of Justice 

Department of Transportation 

Department of the Treasury 

Department of Veterans Affairs 

General Services Administration 

National Aeronautics & Space Administration 

All Other Federal Agencies 

TOTAL 

12 

13 

17, 21, 57, 97 

89 

75 

15 

69 

20 

36 

47 

80 

$465,572 

$465,572 

$ 

10 

1,662 

180 

1,155 

99,820 

92 

253 

28 

47 

14 

333 

$104,410 

$ 

14,019 

$14,060 

$ 

51 

1,662 

180 

1,155 

99,820 

92 

465,825 

28 

14,066 

14 

333 

$584,042 

2001 

REQUIRED SUPPLEMENTARY INFORMATION 

INTRAGOVERNMENTAL TRANSACTIONS 

As of September 30, 2002 and 2001 

(In Thousands) 

(Unaudited) 

U.S. Department of Health and Human Services 

Food and Drug Administration 

696 

1

13 

13 

696 

816 

41 

816 

III-7

REQUIRED SUPPLEMENTARY INFORMATION


2002 

2001 

Department of Agriculture 

Department of Defense 

Department of Justice 

Department of Energy 

Department of Health and Human Services 

Department of Interior 

Department of Labor 

Department of the Treasury 

Federal Emergency Management Agency 

General Services Administration 

Nuclear Regulatory Commission 

Office of Personnel Management 

All Other Federal Agencies 

TOTAL 

12 

17, 21, 57, 97 

15 

89 

75 

14 

16 

20 

58 

47 

31 

24 

$ 

126 

49 

580 

7,316 

2 

4,419 

26 

697 

$13,249 

$ 

126 

49 

580 

7,316 

2 

3,370 

375,170 

47 

5,366 

235 

6,332 

697 

$399,324 

$373,027 

47 

947 

235 

$374,256 

Agency 

Intragovernmental Liabilities 

TFM Dept 

Code 

Accounts 

Payable 

$ 

2,143 

6,306 

$11,819 

Accured 

Payroll and 

Benefits Other Total 

Department of Agriculture 

Department of Energy 

Department of Health and Human Services 

Department of Labor 

Department of the Treasury 

General Services Administration 

Office of Personnel Management 

All Other Federal Agencies 

TOTAL 

12 

89 

75 

16 

20 

47 

24 

$ 

37 

2,818 

2 

6,417 

30 

743 

$10,107 

$ 

37 

5,763 

3,445 

124,075 

7,384 

5,139 

961 

$146,864 

$ 

122,378 

967 

218 

$126,508 

$ 

1,695 

5,109 

$10,249 

REQUIRED SUPPLEMENTARY INFORMATION 

INTRAGOVERNMENTAL TRANSACTIONS 

As of September 30, 2002 and 2001 

(In Thousands) 

(Unaudited) 

U.S. Department of Health and Human Services 

Food and Drug Administration 

34 34 

3,370 

60 60 

2,945 

3,445 

III-8

FDA’s FY 2002 Annual Financial Report


Department of Agriculture 

Department of Commerce 

Department of Defense 

Department of Energy 

Department of Health and Human Services 

Department of the Interior 

Department of Justice 

Department of Labor 

Department of State 

Department of Transportation 

Department of the Treasury 

Department of Veterans Affairs 

Environmental Protection Agency 

Federal Emergency Management Agency 

General Services Administration 

National Aeronautics & Space Administration 

Nuclear Regulatory Commission 

Office of Personnel Management 

Social Security Administration 

All Other Federal Agencies 

TOTAL 

12 

13 

17, 21, 57, 97 

89 

75 

14 

15 

16 

19 

69 

20 

36 

68 

58 

47 

80 

31 

24 

28 

$ 

1,088 

29 

18,844 

130 

697 

679 

319 

375 

137 

837 

7 

82 

7 

3 

$23,259 

$15,952 

47,072 

$63,024 

$226 

$226 

$ 

73 

3,378 

5,152 

78,027 

430 

62 

1,677 

759 

195 

926 

145 

47 

126,590 

166 

145,205 

1,095 

$365,618 

Agency 

Intragovernmental Revenues and Expenses 

TFM Dept 

Code Revenues 

Imputed 

Financing 

Net 

Transfers Expenses 

REQUIRED SUPPLEMENTARY INFORMATION 

INTRAGOVERNMENTAL TRANSACTIONS 

For the Year Ended September 30, 2002 

(In Thousands) 

(Unaudited) 

U.S. Department of Health and Human Services 

Food and Drug Administration 

25 1,691 

III-9

REQUIRED SUPPLEMENTARY INFORMATION


Department of Agriculture 

Department of Commerce 

Department of Defense 

Department of Energy 

Department of Health and Human Services 

Department of the Interior 

Department of Justice 

Department of Labor 

Department of State 

Department of Transportation 

Department of the Treasury 

Department of Veterans Affairs 

Environmental Protection Agency 

General Services Administration 

National Aeronautics & Space Administration 

Nuclear Regulatory Commission 

Office of Personnel Management 

All Other Federal Agencies 

TOTAL 

12 

13 

17, 21, 57, 97 

89 

75 

14 

15 

16 

19 

69 

20 

36 

68 

47 

80 

31 

24 

$ 

172 

18,708 

58 

2,260 

23 

344 

253 

134 

576 

3 

54 

6 

$24,135 

$17,137 

58 

42,482 

$59,677 

$(263) 

$(263) 

$ 

193 

491 

4,900 

63,114 

34 

48 

3,236 

88 

15 

402 

918 

54 

109,202 

30 

53 

129,177 

3,142 

$317,198 

Agency 

Intragovernmental Revenues and Expenses 

TFM Dept 

Code Revenues 

Imputed 

Financing 

Net 

Transfers Expenses 

REQUIRED SUPPLEMENTARY INFORMATION 

INTRAGOVERNMENTAL TRANSACTIONS 

For the Year Ended September 30, 2001 

(In Thousands) 

(Unaudited) 

U.S. Department of Health and Human Services 

Food and Drug Administration 

1,544 

2,101 

III-10

FDA

’s FY 2002 Annual Financial Report


Required Supplementary Stewardship
Information (Unaudited)


Research and Development 

IV-1

REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION


U.S. Department of Health and Human Services 

Food and Drug Administration 

REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION


As of September 30, 2002 and 2001


Unaudited


The stewardship objective of Federal financial reporting requires reporting on the Federal 

Government’s accountability over certain resources entrusted to it and certain responsibilities assumed by it that cannot be measured in traditional financial reports. Stewardship 

investments are substantial investments made by the Federal Government for the benefit 

of the nation. When incurred, they are treated as expenses in determining the net cost of 

operations. However, these items merit special treatment so that readers of Federal financial reports know the extent of investments that are made for long-term benefit. Federally 

financed research and development is a stewardship investment that should be measured 

in terms of expenses. 

Research and development includes those expenses for basic research, applied research, 

and development that are intended to increase or maintain the national economic productive capacity or yield other benefits. FDA has two programs that meet the requirements of 

research and development investments: Orphan Products Development (OPD) Program 

and FDA Research Grants Program. While FDA’s center components conduct scientific 

studies, FDA does not consider this type of research as “research and development” 

because it is used to support FDA’s regulatory policy and decision-making processes. 

Orphan Products Development Program 

The OPD Program was established by the Orphan Drug Act (PL 97-414, as amended) with 

the purpose of identifying orphan products and facilitating their development. An orphan 

product is a drug, biological product, medical device, or medical food that is intended to 

treat a rare disease or condition (i.e., one with a prevalence of fewer than 200,000 people 

in the United States). 

The Office of Orphan Products Development (OOPD) operates the OPD Program by 

administering an orphan product designation process, providing research study design 

assistance to sponsors of orphan products, encouraging sponsors to conduct open protocols (allowing patients to be added to ongoing studies), and managing a clinical research 

grants program. The OPD Program has been very successful with more than 200 drugs 

and biological products for rare diseases have been brought to market since 1983. 

The Orphan Drug Act provides for granting special status to a product/indication combination upon a request of a sponsor, and if the product/indication combination meets certain criteria. This status is referred to as orphan designation. Orphan designation qualifies the sponsor to receive certain benefits (i.e., tax credit and marketing exclusively 

incentives) from the Government in exchange for developing the orphan product. 

OOPD also administers a clinical research grants program whose goal is to provide clinical development of products for use in rare diseases or conditions where no current therapy exists or where current therapy would be improved. OOPD provides grants to conduct clinical studies intended to provide data acceptable to FDA that will either result in 

IV-2

FDA’s FY 2002 Annual Financial Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION


As of September 30, 2002 and 2001


Unaudited


or substantially contribute to the approval of these products under the Federal Food, Drug, 

and Cosmetics Act. 

New and continuing OPD studies strive to provide information on human safety and effectiveness of products for diseases and conditions such as dystonia, sickle cell disease, acute 

leukemia, cystic fibrosis, adrenoleukodystrophy, and tyrosinemia. The majority of 

research expenses are for salaries, wages, and non-payroll patient care costs. 

Research Grants Program 

The FDA Research Grants Program is a grants program listed as No. 93-103 under the 

Catalog of Federal Domestic Assistance, whose purpose is assist public and non-public 

institutions and for-profit organizations to establish, expand, and improve research, 

demonstration, education, and information dissemination activities concerned with a wide 

variety of FDA areas. 

Research areas include: acquired immunodeficiency syndrome, biologics, blood and 

blood products, therapeutics, vaccines, allergenic projects, drug hazards, human and veterinary drugs, clinical trials on drugs and devices for orphan products development, nutrition, sanitation, microbiological hazards, medical devices and diagnostic products, radiation emitting devices and material, food safety, and food additives. Participating with the 

research grants are colleges, universities, profit-making organizations, nonprofit institutions, hospitals, and State and Local governments. 

Examples of funded projects include: Radiation Effects and Exposure Criteria; Analytical 

Methodology for Animal Drug Tissue in Milk; Post Marketing Surveillance of Adverse 

Drug Reactions; International Program on Chemical Safety; Tobramycin for Inhalation in 

Patients with Cystic Fibrosis; Interferon Gamma Treatment of Osteoporosis; and Small 

Business Innovation Research: Phase 1 - Detection of Campylobacteria in Foods, Phase 

II - Point of Care Lead Instrument and Sensor. 

Expenses 

The following table presents the total expenses incurred in the FY’s 1998-2002 (including 

expenses related to the OPD Program’s administration, Office of the Commissioner overhead, and grants awarded in previous fiscal years) for each of FDA’s research and development activities: 

IV-3

--

--

--

--

--

--

--

--

--

--

REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION 

U.S. Department of Health and Human Services 

Food and Drug Administration 

REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION


As of September 30, 2002 and 2001


Unaudited


PROGRAM 

Orphan Product Development 

Pilot Clinical Pharmacology 

Orphan Product 

Research Grants 

Research Grants Program 

(excluding Orphan Product grants) 

Toxicological Research 

Total 

TYPE 

Development 

Development 

Applied 

Research 

Applied 

Research 

Applied 

Research 

02 

$5,961 

22,994 

$28,955 

01 

$2,770 

2,273 

20,813 

$25,856 

00 

$3,070 

17,794 

4,752 

$25,616 

99 

$2,097 

9,605 

6,990 

$18,692 

98 

$11,687 

285 

8,159 

33,233 

$53,364 

Fiscal Year 

Research and Development Expenses 

NOTE:


Pilot Clinical Pharmacology Program is excluded from FY 1999 through FY 2002 since it is used to “train”


pharmacologists and does not meet the definition of research and development.


Toxicological Research is excluded from FY 1999 through FY 2002 because it is considered peer-review sci­


entific research that supports FDA’s current and future regulatory needs. This does not meet the definition of


research and development.


Orphan Product Research Grant expenses are combined with Orphan Product Development for FY 2002


because it has been determined that it does not meet the definition of research.


IV-4

FDA’s FY 2002 Annual Financial Report


Reports on the Audit of FDA

’s


FY 2002 Financial Statements


Office of 

Report on 

Report on Internal Control over 

Financial Reporting 

Report on Compliance with Laws 

and Regulations 

Inspector General Transmittal Letter 

Consolidated Financial Statements 

Agency’s Response to Auditors’ Reports 

V-1

REPORTS ON THE AUDIT OF FY 2002 FINANCIAL STATEMENTS


V-2

FDA’s FY 2002 Annual Financial Report


V-3

REPORTS ON THE AUDIT OF FY 2002 FINANCIAL STATEMENTS


V-4

FDA’s FY 2002 Annual Financial Report


V-5

REPORTS ON THE AUDIT OF FY 2002 FINANCIAL STATEMENTS


V-6

FDA’s FY 2002 Annual Financial Report


V-7

REPORTS ON THE AUDIT OF FY 2002 FINANCIAL STATEMENTS


V-8

FDA’s FY 2002 Annual Financial Report


V-9

REPORTS ON THE AUDIT OF FY 2002 FINANCIAL STATEMENTS


V-10

FDA’s FY 2002 Annual Financial Report


V-11

REPORTS ON THE AUDIT OF FY 2002 FINANCIAL STATEMENTS


V-12

FDA’s FY 2002 Annual Financial Report


Description of FDA User Fees 

FDA Acronyms 

Appendices

APPENDICES 

Appendix 1


Description of FDA User Fees 

User Fee Description 

Prescription 

Drug 

The Prescription Drug User Fee Act (PDUFA) was passed by Congress in 

1992. It provides resources to CDER and CBER to hire additional 

reviewers and in return, FDA promised to meet various performance goals 

for reviewing human drugs. The program was a success and, in 2002, 

Congress re-authorized PDUFA for another five-year period. The user fees 

are paid by the drug industry. Salary and expenses, including additional 

rental expenses and certain types of information technology investments, are 

funded by PDUFA. The amount of PDUFA collections expended in FY 2002 

was $161.8 million. 

Mammography 

Mammography user fees fund annual inspections of mammography facilities 

and the certification of those facilities. This program was established under 

the Mammography Quality Standards Act (MQSA) of 1992 (re-authorized 

by the Mammography Quality Standards Reauthorization Act of 1998). 

CDRH administers the program. In FY 2002, the amount of MQSA 

collections expended was $13.9 million. 

Export 

Certification 

The newest user fee program was established by the Export Reform and 

Enhancement Act (EREA) of 1996, which authorized the collection of fees 

from organizations for which FDA issues a certification relating to human 

drugs, animal drugs, medical devices, and biologic products, subject to the 

FD&C Act. The certificates support U.S. commerce by expediting the 

export of goods to foreign countries. Each of the product centers 

administers its own program. In FY 2002, the amount of user fees expended 

was $1.7 million. Export certificates issued for food products are subject to 

FD&C Act, but are not covered by EREA. 

Certification and 

Other Services 

The FD&C Act requires the certification of color additives and 21 CFR 80, 

Color Additive Certification, prescribes the fees for service. This function, 

which is administered by CFSAN, involves the assessment of the quality 

and safety of color additives used in foods, drugs, and cosmetics. Salaries 

and expenses of employees of the program are funded directly by FDA's 

Revolving Fund for Certification and Other Services. The fund's activities 

are financed entirely by fees paid by the affected commercial organizations. 

In FY 2002, the amount of fees expended was $4.7 million. 

1

FDA’s FY 2002 Annual Financial Report 

Appendix 2 

FDA Acronyms 

AIDS Acquired Immune Deficiency Syndrome


ANADA Abbreviated New Animal Drug Application


ANDA Abbreviated New Drug Application


BLA Biologic License Application


CBER Center for Biologic Evaluation and Research


CDC Centers for Disease Control and Prevention


CDER Center for Drug Evaluation and Research


CDRH Center for Devices and Radiological Health


CFO Chief Financial Officer


CFR Code of Federal Regulations


CFSAN Center for Food Safety and Applied Nutrition


CVM Center for Veterinary Medicine


DHHS Department of Health and Human Services


EFT Electronic Funds Transfer


ELA Establishment License Application


FDA Food and Drug Administration


FFMIA Federal Financial Management Improvement Act


FMFIA Financial Managers’ Financial Integrity Act


FDAMA Food and Drug Administration Modernization Act 


FSI Food Safety Initiative


FTE Full-Time Equivalency


FY Fiscal Year


GAO General Accounting Office


GLAS General Ledger Accounting System


GMRA Government Management Reform Act


GPRA Government Performance and Results Act


GSA General Services Administration


HACCP Hazard Analysis and Critical Control Point


HDE Humanitarian Device Exemption


HIV Human Immunodeficiency Virus


INAD Investigational New Animal Drug


IDE Investigational Device Exemption


IND Investigational New Drug


IMPAC International Merchant Purchase Authorization Card


JINAD Generic Investigational New Animal Drug


MQSA Mammography Quality Standards Act


NADA New Animal Drug Application


NCTR National Center for Toxicological Research


NDA New Drug Application


1

APPENDICES


Appendix 2 (continued) 

FDA Acronyms 

NIH National Institutes of Health


NME New Molecular Entity


NPR National Performance Review


OFACS Office of Facilities, Acquisitions and Central Services


OFM Office of Financial Management


OIG Office of Inspector General


OIRM Office of Information Resources Management


OMB Office of Management and Budget


OMS Office of Management and Systems


OPDIV Operating Division


PDP Product Development Protocol


PDUFA Prescription Drug User Fee Act


PHS Public Health Service


PLA Product License Application


PMA Premarket Approval Application


PMIS Property Management Information System


PMS Payment Management System


SFFAS Statement of Federal Financial Accounting Standards


SGL Standard General Ledger


USC United States Code


USDA United States Department of Agriculture


Y2K Year 2000


510 (k) Premarket Notification


2

Key FDA Financial Management Officials 

Jeffrey M. Weber 

Associate Commissioner for Management and Systems and 

Chief Financial Officer 

Helen S. Horn 

Director, Office of Financial Management and 

Deputy Chief Financial Officer 

William R. Harris 

Director, Division of Accounting (Acting) 

Peter M. Kelchner 

Chief, CFO Liaison Branch 
Food and Drug Administration (HFA-120), 5600 Fishers Lane, Rockville, Maryland 20857 

For more information about the Food and Drug Administration, 

visit our Web site at www.fda.gov 

Division of Accounting, CFO Liaison Branch 

This document was designed and produced by FDA’s Office of Financial Management,