U.S. Department of Health and Human Services 

Food and Drug Administration


Chief Financial Officer’s Annual Report


Fiscal Year 2001


T A B LE O F C O N TE N T S


Message from the Acting Principal Deputy Commissioner . . . . . . . . . . . . . . . . . . . . . . . . . i


Message from the Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii


SECTION I


Management Discussion and Analysis


Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-3


Agency Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-4


Foods Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-19


Human Drugs Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-27


Medical Devices and Radiological Health Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-41


Biologics Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-51


Animal Drugs and Feeds Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-59


Toxicological Research Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-69


Financial Management and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-75


SECTION II


Consolidated Principal Financial Statements


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


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


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


Combined 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)


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


Supplemental Consolidated Statements of Net Cost – Program Costs by A p p r o p r i a t i o n . . . . . . .III-4


Supplemental Consolidated Statements of Net Cost by Expense Type and Program . . . . . . . . .III-6


Deferred Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .III-8


Intragovernmental Transactions – Intra-governmental Assets . . . . . . . . . . . . . . . . . . . . . . . . . .III-9


Intragovernmental Transactions – Intra-governmental Liabilities . . . . . . . . . . . . . . . . . . . . . . .III-10


Intragovernmental Transactions – Intra-governmental Revenues and Expenses . . . . . . . . . . . .III-11


SECTION IV


Required Supplementary Stewardship Information (Unaudited)


Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .IV-2


SECTION V


Reports on the Audit of FDA’s FY 2001 Financial Statements


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


Independent Auditors’ Report on Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . .V-4


Independent Auditors’ Report on Internal Control over Financial Reporting . . . . . . . . . . . . . .V-6


Independent Auditors’ Report on Compliance with Laws and Regulations . . . . . . . . . . . . . . . .V-9


Agency’s Response to Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .V-11


Appendices


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


Financial Management Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Appendix 2


FDA Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Appendix 3

Food & Drug Administration FY 2001 CFO’s Annual Report


ACTING PRINCIPAL DEPUTY 

COMMISSIONER’S STATEMENT 

December 21, 2001 

I present to you FDA’s Chief Financial Officer ’s Annual Report for Fiscal 

Year 2001. I am pleased to report that the Agency has earned its fourth 

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, taxpayers will realize that FDA is a good investment that yields 

valuable results. 

Fiscal Year 2001 brought change to FDA. The DHHS Secretary, Tommy 

Thompson, announced a series of long-term initiatives to make the 

Department more efficient and effective. These initiatives support the President’s Management Agenda 

announced during the middle of the year. The results should be an improved administrative infrastructure supporting a more responsive citizen-focused workforce.


FDA had another banner year of approving new and “breakthrough” products that will greatly benefit the


American public. Gleevec, a treatment for certain types of leukemia, was approved in three months. Some


other breakthrough products include a blood glucose monitor (Gluco Watch Biographer), which diabetes patients


wear like a watch. Also approved was a novel device, “Camera Pill,” which photographs the small intestine. 


A new type of mammography device was approved—digital mammography that can display high-resolution


images on film or on a computer.


The most significant event for all of us occurred on September 11, 2001. Nothing could have prepared the


Nation or FDA for the terrible events that happened that day and afterward. We commend the members of the


Department who provided assistance to the rescuers, the victims, and their families at the World Trade Center


and the Pentagon. 


FDA has been taking part in the President’s Initiative on Countering Bioterrorism. This initiative seeks to


strengthen the infrastructure needed to address incidents of bioterrorism. This includes creating strategies for


ensuring the safety of the Nation’s food supply, developing new regulatory models for responding to attacks and


creating a means for collaboration among Federal health agencies. By the end of the fiscal year, FDA was in the


process of strengthening its crisis management and emergency preparedness capabilities. 


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


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


reliable, based on data contained in FDA’s financial information systems, reported in conformance with


Generally Accepted Accounting Principles, and considered by the Department’s Office of the Inspector General


to “fairly represent” the financial condition and results of operation of the Agency.


Regarding program performance, the FY 2002 Performance Plans and Reports of HHS components will describe


the means HHS programs use to verify and validate performance data and any related data issues. Where


required, these reports discuss any actions planned or 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. 


Bernard A. Schwetz, D.V.M., Ph.D. 

i 
Food & Drug Administration FY 2001 CFO’s Annual Report


MESSAGE FROM THE 

CHIEF FINANCIAL OFFICER 

December 21, 2001 

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

Financial Officer’s Annual Report for Fiscal Year (FY) 2001. The goal of 

this report is to inform you on our stewardship of resources and how we are 

achieving the Agency’s mission. 

This is the fourth consecutive year FDA has received an unqualified opinion 

on our financial statements. Moreover, this is also the fourth consecutive year 

that our auditors did not identify and report material weaknesses in FDA’s 

internal controls. I look forward to the challenge of perpetuating and 

improving on the level of excellence exhibited by FDA in all aspects of 

financial management and reporting. 

FDA is in the midst of change. The President announced his “Management Agenda” which is meant to transform 

the Executive Branch to become a more responsive and citizen-focused organization. To complement the 

agenda, the Department of Health and Human Services (DHHS) has embarked on several long term initiatives 

to more efficiently and effectively operate the department. 

One of these initiatives, the Unified Financial Management System, is consistent with the concept of “one 

DHHS.” The Department plans to develop two unified accounting systems at the DHHS level, rather than invest 

in the five existing operating division level accounting operations. FDA is making structural changes to its 

existing system to prepare for the implementation of the unified system beginning in FY 2003. 

Working in partnership with FDA’s program managers, I support the Acting Principal Deputy 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. 

As a science based regulatory agency, FDA’s mission affects the health and well-being of all Americans. The 

scope of the Agency’s jurisdiction spans a regulated industry producing over $1 trillion worth of products. 

While the mission is daunting in peacetime, it takes a greater significance since the events of September 11. 

The war on terrorism has moved the Agency to a higher state of preparedness. FDA is strengthening its infrastructure and capabilities to prepare and respond to future terrorist attacks. We remain committed to protect the 

health of the American public through the products we regulated while striving to fulfill our expanded mission. 

The FY 2001 financial statements have been prepared in accordance with all new accounting standards that were 

effective for FY 2001 by the Office of Management and Budget and the Federal Accounting Standards Advisory 

Board as evidenced by the unqualified audit opinion we received. We will continue working diligently in the 

future implementing all new accounting standards in a timely manner. 

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 Chief Financial Officers 

Liaison Branch at Pkelchne@oc.fda.gov or 301-827-4792. 

Jeffrey M. Weber 

iii 
Food & Drug Administration FY 2001 CFO’s Annual Report


Management 

Discussion and 

Analysis 
Food & Drug Administration FY 2001 CFO’s Annual Report


Introduction 

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 Chief Financial Officer’s Annual Report contains 

the management discussion and analysis, financial statements and notes, required supplementary information, and the Inspector General audit reports. 

The 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&Ainto eight chapters containing the following: 

• Agency Overview - Presents mission, strategies, organizational structure, governing 

laws, and resources. It highlights major events in FY 2001 and presents major 

challenges facing FDA in the future. 

• Six FDA Programs - Provides mission description, significant accomplishments, and 

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

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

Toxicological Research. 

• Financial Management and Analysis – Provides overview of FDA’s Chief Financial 

Officer’s organization; key performance measures and results; description of FDA’s 

systems, controls and legal compliance; discussion and analysis of the principal 

financial statements and the state of FDA’s financial condition. 

The Chief Financial Officer’s Annual Report for FY 2001 is available on the Office of 

Financial Management Web Page at: 

www.fda.gov/oc/oms/ofm/accounting/ofmaccounting.htm. A “PDF” and a non-PDF version are provided. 

For questions regarding the Chief Financial Officer’s Annual Report for FY 2001, please 

contact: 

Peter Kelchner


Chief, CFO Liaison Branch


Division of Accounting (HFA-120)


5600 Fishers Lane


Rockville, MD 20857


Pkelchne@oc.fda.gov


I-3

MANAGEMENT DISCUSSION AND ANALYSIS


Agency Overview 

The FDA is a scientific regulatory agency whose mission affects the health and well-being 

of all Americans. FDA was established in 1927 and is responsible for overseeing a regulated industry that produces over $1 trillion of products: 

• National food supply (except meat and poultry) 

• Over-the-counter and prescription medications 

• Blood products 

• Vaccines 

• Tissues for transplantation 

• Medical equipment and implantable devices 

• Devices that emit radiation 

• Animal drugs and feeds 

• Cosmetics 

FDA-regulated products account for over 20 cents of every consumer dollar spent in the 

United States each year. 

Since the events of September 11, 2001, a new role has emerged, Counter Terrorism. This 

will be more fully developed during FY 2002. FDA has a legislative 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. A combination of public health and law enforcement responsibilities requires agency 

involvement in a number of aspects of the preparedness for and response to a terrorist act. 

FDA's responsibilities encompass both the civilian and military sectors of the population, 

thus broadening the scope of the agency's antiterrorism activities. 

The terrorist attacks of September 11 have resulted in an accelerated need for attention to 

activities related to counter terrorism. Efforts at the FDA have focused on (1) protection 

of regulated products (foods and animal feed, radiologic devices, blood supply, drugs, 

vaccines) from contamination, tampering or deleterious uses, and (2) availability of medical products (drugs, vaccines, and devices) necessary to public health preparedness for 

the intentional use of biological, chemical, or nuclear agents. 

FDA’s activities include the development of strategies to build upon existing capacities of 

surveillance, investigation, and laboratory support for detection and management of cases 

of possible contamination, including interdiction of such products; provision of regulatory guidance to other government agencies responsible for stockpiling or developing medical products in the event of a public health emergency; and communication with manufacturers to address the issues of availability of preventive and therapeutic products that 

may be needed in the event of the release of a biological, chemical, or radiologic agent. 

I-4

Food & Drug Administration FY 2001 CFO’s Annual Report


The Year In Review – Significant Events 

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

below. 

FDA’s Response to Counter Terrorism 

As the Nation’s primary overseer of medical products, services, and the national food supply, FDA is a key player in the Federal government’s preparedness and response to a biological, chemical or nuclear attack. In FY 2001, FDA made noteworthy contributions to 

this effort, including: 

Terrorist Attack on September 11, 2001 

FDA issued two policy statements on the urgent collection, shipment and use of whole 

blood and blood components intended for transfusion to address the blood supply needs 

in response to the disaster situation in New York City and at the Pentagon. The first statement issued on September 11 provided flexibility to emergency personnel in the collection of blood and blood components. A revised statement was issued on September 14 to 

strengthen the quality assurance and system integrity for blood previously collected. 

FDA’s Human Drugs Program approved one "emergency" investigational new drug and 

expedited approvals of two manufacturing supplements to respond to needs resulting from 

the September 11 terror attacks. The drug products involved were topical antibiotics used 

to treat burns. 

Individual FDA employees who are members of the Public Health Service's 

Commissioned Corps Readiness Force (CCRF) responded to the September 11 terrorist 

attacks. The CCRF provided: 

• Primary and emergency medical care and mental health care to rescue workers in New 

York City; 

• Specialized pharmacy support for the National Pharmaceutical Stockpile, commonly 

called “push packs”; 

• Data entry and forensic dentistry to help confirm identities of the dead in New York; 

• Replacement medical care and pharmacy care at the National Naval Medical Center in 

Bethesda, Maryland; and 

• Stand-by primary and emergency care for the Pentagon attack. 

I-5

MANAGEMENT DISCUSSION AND ANALYSIS


Terrorist Threats of Anthrax and Other Biological or Chemical Agents 

The President's initiative on Countering Bioterrorism is comprised of a number of essential elements for which FDA played an integral role. One such element is the expeditious 

review and approval of products to diagnose, treat or prevent outbreaks from exposure to 

the pathogens that have been identified as bioterrorist agents. 

Although the medical community’s interest in these types of products increased dramatically after September 11, staff worked with organizations and vaccine manufacturers in 

FY 2001 to guide their products through the regulatory process, including the manufacturing process, pre-clinical testing, clinical trials, and the licensing and approval process. 

Bovine Spongiform Encephalitis (BSE) Preventative Measures 

BSE, commonly called “Mad Cow Disease” belongs to a group of progressive degenerative neurological diseases known as transmissible spongiform encephalopathies (TSE). 

TSE diseases are always fatal. There are six TSE diseases that affect humans. The exact 

origin of the disease is still unknown, but overwhelming evidence points to meat and bone 

meal containing tissues affected from infected animals as the means by which the disease 

is spread. If BSE was to enter the U.S., it could pose a serious health risk to humans, and 

be financially devastating to the United States beef industry. 

The United Kingdom’s 180,000 cases of BSE make up the vast majority of cases so far, 

and the United States did not see any cases of the disease in FY 2001. This is in large part 

due to the efforts of FDA. Many FDA regulated products contain bovine products, including food, animal feed, drugs, vaccines, tissues, dietary supplements, cosmetics, and medical devices. FDAand its state counterparts continued inspections of renderers, feed mills, 

ruminant feeders, dairy farms, protein blenders, feed haulers, and distributors in FY 2001 

to ensure that BSE did not become a part of the food supply or medical products. 

Human Subject Protection in Clinical Trials 

FDA’s efforts in the area of bioresearch monitoring of clinical trials have received greater 

scrutiny over the past two years as a result of several high profile cases. In FY 2000, FDA 

shut down clinical trials at the University of Pennsylvania after a gene therapy patient 

died. In FY 2001, FDA investigations brought attention to the death of a healthy research 

subject that died in an asthma study at Johns Hopkins University. FDA was instrumental 

in the DHHS decision to temporarily halt all clinical trials at Johns Hopkins in July 2001. 

During FY 2001, FDA improved the protection measures for patients in clinical trials by 

increasing inspections, publishing a regulation to bolster child protections in clinical trials, and issuing a guidance on conflict of interest for clinical investigators. 

I-6

Food & Drug Administration FY 2001 CFO’s Annual Report


Antimicrobial Resistance 

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. This antibiotic resistance, also 

known as antimicrobial resistance or drug resistance, is due largely to the increasing use 

of antibiotics in humans and/or animal feeds. In addition to working with the agriculture 

and medical communities in FY 2001, FDA produced or participated in the following 

activities: 

• Published the “FDA Task Force Report on Antimicrobial Resistance” in December 

2000; 

• Published a risk assessment on the “Human Health Impact of Fluoroquinolone 

Resistant Campylobacter Associated with the Consumption of Chicken”; and 

• Held a public meeting on January 22-24, 2001 – “Use of Antimicrobial Drugs in Food 

Animals and the Establishment of Regulatory Thresholds on Antimicrobial 

Resistance.” 

Major Developments in Drug, Biologics, Device and Radiological Products 

FDA is involved in the full life cycle of human and animal drugs, medical devices, and 

biological and radiological products. The Agency expends significant resources on product reviews and approvals, but also must monitor the marketplace for those products that 

increase the risk of injury or death to patients. Significant events in FY 2001 in the premarket and postmarket review include: 

• Approval of Gleevec, a drug for treatment of certain types of leukemia, in less than 

three months; 

• Withdrawal of Baycol, a cholesterol lowering drug from the marketplace after FDA 

reports of adverse events; 

• Approval of “The GlucoWatch Biographer,” a glucose monitoring device that diabetes 

patients wear like a wrist watch; 

• Removal of phenylpropanolamine from all drug products and requests that all drug 

companies discontinue marketing products containing phenylpropanolamine. This 

drug was widely used as a nasal decongestant (in over-the-counter and prescription 

drug products) and for weight control (in over-the-counter drug products); and 

I-7

MANAGEMENT DISCUSSION AND ANALYSIS


Developments in the Areas of Food Safety and Dietary Supplements 

In FY 2001, the FDA continued to be actively involved in the protection of the food supply. The Agency prompted numerous warnings and recalls associated with potentially 

hazardous foods and dietary supplements. Additionally, FDA was involved in the following types of activities: 

• Issued a health alert suggesting that pregnant women and women of childbearing age 

avoid four species of fish--swordfish, king mackerel, shark and tilefish--because of 

potential methylmercury contamination; 

• Distributed a senior citizen food safety video and 25 publications as a package to 800 

offices of the Administration on Aging; 10,000 senior day care centers; FDA field 

public affairs specialists; and all county and state Extension service offices; 

• Approved five food additive petitions intended to decrease the incidence of foodborne 

illnesses through their antimicrobial actions against human pathogens that may be 

present in food; 

• Collected 236 samples of foods made from corn products or corn meal and tested 

them for the presence of StarLink corn, a bioengineered ingredient. Six products 

were found to contain StarLink corn. All products remaining on the market with 

positive findings were recalled; and 

• Published regulations on egg safety and juice safety. 

Mission and Strategic Direction 

Ninety-five years ago, the first Federal Food and Drug Act was passed in 1906, and FDA’s 

predecessor organization, the Bureau of Chemistry in the Department of Agriculture, 

administered the Act -- protecting the public health by ensuring the safety of food and 

drug products. 

The FDA mission of protecting the public health was expanded with the passage of the 

FDA Modernization Act (FDAMA) of 1997 to include health promotion and collaborative 

function. The Act emphasized the prompt review of clinical research and related regulated products, engaging FDA various stakeholders, and harmonizing regulatory requirements among global regulators. The extent of FDA’s regulatory responsibilities is seen 

in Figure 1 on following page. 

I-8

Food & Drug Administration FY 2001 CFO’s Annual Report


Figure 1 

Extent of FDA’s Regulatory Jurisdiction 

• FDA’s responsibilities are far reaching: ’s job to see that the food we eat 

is safe and wholesome, that the cosmetics we use will not harm us, and that 

medicines, medical devices, and radiation-emitting consumer products such as 

microwave ovens are safe and effective. 

• FDA monitors over 20 percent of the Nation’s consumer expenditures: Authorized 

by Congress to enforce the Federal Food, Drug, and Cosmetic Act and several 

other public health laws, the Agency monitors the manufacture, import, transport, 

storage, and sale of $1 trillion worth of goods annually, at a cost to the Public of a 

penny per day per person. 

• FDA judges the safety of an expanding scientific revolution: 

entities invest an estimated $50 billion in biomedical research and technology each 

year on products that the Agency regulates – and FDA is the gateway to ensuring 

that the fruits of that cutting-edge research and technology are safe when they 

reach the market. 

• FDA helps assure the safety of the products it regulates by overseeing their 

manufacturing and processing. is a 9,000 person agency, but is responsible 

for monitoring over 100,000 U.S. firms that manufacture or process products. 

• FDA also watches the safety of imported products: tracks over 7 million 

import shipments that enter this country each year, and prevent violative products 

from reaching the U.S. consumer. 

It is FDA

Public and private 

FDA 

FDA 

To achieve the expanded mission, in FY 2000, Agency leadership established two strategic goals: (1) bringing new products to the market place and (2) reducing the risk of marketed products. These strategic goals were characterized as premarket and postmarket. 

Since FDA’s Results Act Plan1 is organized by its budget-line programs: Foods, Human 

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

and Toxicological Research,2 five of the six programs with the exception of Toxicological 

Research, created their own premarket and postmarket strategic goals with corresponding 

annual performance goals. 

1The Statement of Net Cost found on Page II-2 is also organized by budget line programs. 

2The Tobacco Program is still shown on the Statement of Net Cost because appropriated funding is still being expended. 

The Tobacco Program was terminated by the FDA after the U.S. Supreme Court declared in March 21, 2000 that FDA 

lacked the authority to issue and enforce tobacco regulations. For purposes of the FY 2001 CFO’s Annual Report, FDA 

Centers which are responsible for the six programs submitted their key performance goals for inclusion into the CFO 

report. A complete description of the results may be obtained in the FY 2001 Performance Report. 

I-9

MANAGEMENT DISCUSSION AND ANALYSIS


In FY 2001, FDA leadership modified their strategic thinking by adopting a new paradigm. This model focused on the life cycle of regulated products and the public health 

outcomes that result from FDA work. This new approach allowed FDA programs to reach 

the fullest extent of the reforms envisioned by FDAMA. Under FDAMA, Congress envisioned a transparent regulatory process and a new collaborative role for FDA and the regulated industry. 

FDA leadership identified outcomes (which are elaborated in the FY 2001 Revised 

Performance Plan3) that would improve the health and safety of the American public. 

Some of the benefits include: 

• A safe food supply; 

• Rapid and safe access to the latest medical technologies; 

• Safe blood and tissue-based products; 

• An industry that manufactures and markets products under “world class” standards; 

• Reduced deaths and injuries resulting from errors in the prescribing and use of 

medical products; and 

• Protection of individual volunteers from harm during clinical research studies. 

These outcomes provide a safety net for the American public that span the life cycle of 

FDA’s regulated products from initial research through ultimate consumption. 

To ensure successful public health outcomes, FDA leadership continued to encourage 

FDA programs to engage their stakeholders in formulating ways to accomplish the 

Agency’s mission. FDA programs have been involved in various collaborations and initiatives. Some of these, as described in the FY 2001 Performance Report, are provided 

below: 

• Collaborative Institutes – FDA and University of Maryland established the Joint 

Institute for Food Safety and Nutrition; 

• Risk Management Communication and Education – FDA partnered with the National 

Association of Chain Drugstores and 80 national organizations to distribute millions 

of copies of the brochure, “My Medicines,” to women to educate themselves and their 

families about using medicines wisely; 

• Targeted Collaboration on Critical Health Issues -- FDA along with the National 

Institutes of Health, Centers for Disease Control and Prevention (CDC), American 

Red Cross, American Association of Blood Banks, and state agencies participate in 

setting standards and developing health education; 

3Source: The FY 2001 Revised Final Performance Plan is available on FDA’s web-site at: 

www.fda.gov/ope/fy02plan/default.htm. 

I-10 
Food & Drug Administration FY 2001 CFO’s Annual Report


• Shared Surveillance Networks – FDA partnered with CDC and the U.S. Department 

of Agriculture to develop the National Antimicrobial Resistance Monitoring System. 

This system helps to detect whether foodborne pathogens are developing resistance to 

drug treatment; 

• Cooperative International Standard Setting – FDA participated in the International 

Committee for Harmonization, International Standards Organization, Codex 

Alimentarius, and the World Health Organization to ensure that U.S. interests are 

upheld in establishing standards for products under the Agency’s regulatory purview; 

and 

• Third Party Review, Inspection, or Testing – FDA contracts with state agencies to per 

form the mammography facilities inspections. 

Organizational Structure 

F D A i s organized i nto eight maj or components consisting of the Offi ce of t he 

Commissioner, the Office of Regulatory Affairs (which is responsible for the FDA field 

force), and the following six Centers as displayed in Figure 2 below: 

• Center for Biologics Evaluation and Research (CBER); 

• Center for Drug Evaluation and Research (CDER); 

• Center for Devices and Radiological Health (CDRH); 

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

• Center for Veterinary Medicine (CVM); and 

Figure 2 

Office of the Chief 

Counsel 

Office of the 

Administrative Law Judge 

Office of the Senior 

Associate Commissioner 

Office of 

International and 

Constituent Relations 

Office of Equal 

Opportunity 

Office of 

Policy, Planning and 

Legislation 

Office of 

Management and 

Systems 

Center for 

Drug 

Evaluation 

and Research 

Center for 

Food Safety 

and Applied 

Nutrition 

Center for 

Biologics 

Evaluation and 

Research 

Office of 

Regulatory 

Affairs 

Center for 

Devices and 

Radiological 

Health 

Center 

for 

Veterinary 

Medicine 

Office of the Commissioner 

Commissioner of Food and Drugs 

Office of Science 

Coordination and 

Communication 

National 

Center for 

Toxicological 

Research 

I-11

MANAGEMENT DISCUSSION AND ANALYSIS


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. 

During FY 2001, the Office of the Commissioner created the Office of Human Research 

Trials within the Office of Science Coordination and Communication to strengthen the 

oversight of the human subject protection. This office serves as the FDA focal point for 

overall management of FDA activities related to human subject protection and Good 

Clinical Practice priorities, resources, and leveraging activities. 

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 in support 

of the product centers. With the exception of NCTR, located in Jefferson, Arkansas, the 

Office of the Commissioner, the Centers, and the Office of Regulatory Affairs (ORA) are 

headquartered within the Washington, DC metropolitan area. 

The Centers administered the Programs that are described in six individual chapters contained in this CFO’s Annual Report. Five of the six programs receive substantial support 

from the ORA’s field organization. 

The Office of Regulatory Affairs 

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

has approximately 3,150 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, 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; 

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Food & Drug Administration FY 2001 CFO’s Annual Report


• Determine whether import entries comply with FDA regulations; and 

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

encourage compliance and safe use of FDA-regulated products. 

ORA, through its field force provides a support role to the foods, human drugs, devices, 

biologics, animal drugs and feeds programs. In particular, the field supports the programs’ premarket activities by conducting pre-approval inspections and laboratory 

method validations when requested by program managers responsible for premarket 

application decisions. These inspections, which can be either foreign or domestic establishments, include bioresearch monitoring inspections of clinical research that is part of 

premarket applications. Other premarket inspections are conducted in manufacturing 

facilities to determine if the facility is able to manufacture the product to the specifications 

stated in the application. Inspections are generally performed by consumer safety officers 

who may be accompanied by a laboratory analyst if review of manufacturing information 

in the application suggests that additional laboratory expertise is appropriate to assess the 

facility. Laboratory method validations are conducted to confirm that the methods 

described in the premarket application work as described in FDA laboratories. 

Field investigators and laboratory analysts also conduct foreign inspections for both premarket approval and postmarket compliance purposes. Center managers select most 

establishments for inspection. Postmarket foreign inspections in drugs, biologic, animal 

drugs, and device 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. While Congress mandated that domestic manufacturers 

be inspected every two years, foreign manufacturers are not included in this requirement. 

Beginning in FY 1999, the Foods Program, which has historically supported fewer than 

100 foreign inspections, began to expand foreign inspections. About 250 foods foreign 

inspections were planned for FY 2001. 

In addition to conducting regular surveillance over regulated products, the field workforce 

also serves a critical function when the Agency must respond to emergencies by immediately mobilizing to investigate reports of product problems including tampering incidents 

and those due to natural disasters such as hurricanes, floods, and earthquakes. The field 

workforce is also involved in informing businesses and consumers about FDA-related 

topics, and in working with state and local agencies to develop programs that make the 

best use of Federal, State, and local resources in protecting the public health. 

Field facilities include Regional Offices, District Offices, laboratories, the Office of 

Criminal Investigations (OCI) field offices, and resident posts. The five Regional Offices 

are staff offices which coordinate FDA activities and also coordinate with state authorities. The 19 District Offices serve as offices for investigators and compliance action staff, 

and are the main control point for day-to-day operations in their assigned areas. The 13 

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MANAGEMENT DISCUSSION AND ANALYSIS


laboratories provide FDA’s basic field product testing capability. A number of these laboratories serve as specialized facilities for certain types of testing and new regulatory 

methods development. 

FDA also maintains over 137 resident posts distributed widely across the country. These 

are smaller offices which serve primarily as a base for investigators. FDA can have investigative staff widely dispersed to respond to emergencies whenever they occur, as quickly as possible to minimize any potential harm. Together, FDA maintains offices and staff 

in 49 states, and in the District of Columbia and Puerto Rico. See Figure 3 for a map of 

ORA’s field locations. 

Figure 3 

OFFICE OF REGULATORY AFFAIRS 

175 OFFICES IN FY 2001 

NORTHEAST 

SOUTHWEST 

CENTRAL PACIFIC 

SOUTHEAST 

Governing Laws and Regulations 4 

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 LabelingAct (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 

(e.g., X-rays devices, lasers, microwave ovens, and televisions). 

4 21 CFR Part 1 - 1299 interpret these and other laws and provides explanation on Agency's requirements. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


• 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 total FDA resource level for FY 2001 was $1.466 billion.5 This number includes: 

appropriations for salaries and expenses (S&E), building and facilities (B&F), user fees; 

offsetting collections (reimbursables); carry-over balances from prior years; and adjustments. For a complete analysis of FDA’s resources in FY 2001, please read the Financial 

Analysis section in the Financial Management and Analysis Chapter on Page I-86. 

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. 

Biological, Chemical, and Nuclear 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 in October and November of 2001 

demonstrated the need for the Nation to be better prepared in responding to similar events 

in the future. FDA managers and scientists must develop plans to expedite product 

reviews of this nature. Also, FDA’s field staff is challenged by the task of defending the 

food supply against possible attacks. 

The Safety of the Food Supply – FDA regulates 80 percent of all food consumed in the 

United States. FDA is responsible for ensuring the safety of the food supply, including 

imported foods and foods produced in the U.S. by minimizing contamination of food by 

pathogens, unlawful animal drug and pesticide residues and environmental contaminants. 

The task of ensuring safety has become more difficult because the nature of food and 

foodborne illness has changed significantly. In addition, the amount of food imported into 

the country has grown in exponentially in the last ten years. For example, foods are more 

technologically complex; the number of foodborne pathogens has increased five-fold in 

the last 50 years; consumers are eating more seafood, fresh produce, imported produce 

and other foods, and “convenience” ready-to-eat foods; and our vulnerable populations, 

including senior citizens, have increased. 

5 Source: The amount is from the FY 2001 Combined Statement of Budgetary Resources. 

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MANAGEMENT DISCUSSION AND ANALYSIS


Prevent Outbreak of Bovine Spongiform Encephalopathy (BSE) -- FDAmust assure 

full compliance with the BSE regulation through inspection and compliance actions. In 

addition, FDA must also consider areas not covered by the U.S. Department of 

Agriculture’s ban such as: 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; 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 multiple 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 will have a dramatic effect on the economics of the food and agriculture community. 

New Product Reviews -- Rigorous and punctual review of new product applications and 

post-market inspections, are the back-bone of FDA’s system of public health protections. 

But FDA has been unable to completely fulfill its mandated responsibilities and public 

expectations in these two areas. 

Human Subject Protections in Clinical Trials -- A large gap exists between FDA’s current clinical research monitoring capability and the level of monitoring that is necessary 

to assure that volunteers in these studies are being protected. 

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 into commerce. Public 

safety and confidence could be jeopardized by a failure to increase surveillance activities. 

Products may enter the U.S. through one of approximately 300 U.S. Customs ports located throughout the country. The growth of international trade has lead to a tripling of 

imports during past ten years. While the FDA continues to undertake activities to improve 

the safety of imported products, there is often no substitute for physically examining these 

products. FDA is monitoring regulated products in an environment that has become significantly more complex over the past several years. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


The President’s Management Plan -- In FY 2001, FDA developed its response to the 

President’s Management Plan. Executing this plan is a long range, multi-year effort. This 

plan is aligned with the goals of making government more citizen-centered and results oriented. To reach these goals, FDA intends to: streamline the organization by consolidating common functions; respond more rapidly and comprehensively to citizens’ needs; 

make greater use of the Internet; increase outsourced activities; and improve accountability for results. The Agency’s actions will result in various degrees of challenge as these 

types of changes often produce resistance to change. In the end, FDA expects to increase 

efficiencies in delivering services to the American Public. 

In addition to the response, FDA is also participating with other operating divisions of 

DHHS in the development of the Unified Financial Management System. When implemented, it will provide cost-based financial information to program and financial managers and facilitate the myriad of financial reporting requirements. 

The Office of Inspector General’s Top Management Challenges in DHHS -- At the 

end of FY 2001, the Office of Inspector General (OIG) identified two management challenges affecting FDA: bioterrorism and protection of critical infrastructure. OIG has 

assessed the security controls at laboratories of the FDA and other operating divisions. 

OIG also plans to work with FDA to improve security of the Nation’s food supply. FDA 

is conducting security reviews of FDA laboratories and offices. Appropriate action will 

be taken when warranted. 

The protection of critical infrastructure is in response to a Presidential Decision Directive 

63 and to the Government Information Security Reform Act. The Federal Government is 

mandated to assess and report on the vulnerability of controls in place to protect assets 

critical to the Nation’s well being. OIG has assessed the information systems controls as 

part of its evaluation on how well DHHS has implemented the directive and statute. OIG 

found information systems general controls weaknesses in entity-wide security, access 

control, service continuity, and segregation of duties. FDA is continuing its ongoing 

efforts to ensure the Agency has a reliable and secure information technology environment. 

Discussion on 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 has a data verification and validation section by which they discussed how they 

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MANAGEMENT DISCUSSION AND ANALYSIS


provide reasonable assurance that the performance data contained in their systems are relevant and reliable. For further information, please see the FY 2001 Performance Report. 

Net Program Costs 

For the FY 2001 CFO’s Annual Report, we will continue to use net program costs displayed in a three year period. This information comes from the Statements of Net Cost 

found in the section on financial statements. 

Net program costs are defined as the total expenses for a program, including the allocation of indirect expenses (i.e., administrative, field operations, rent, and other overhead), 

less exchange revenue. 

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

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

Results Act directs Executive Branch agencies to define their mission and set strategic and 

annual performance goals. The aligning of full cost with performance objectives and 

results provides a clearer picture on the true cost of program performance. FDA wishes 

to take a first step in displaying net program costs in the context of a program’s performance. 

The Statements of Net Cost have been prepared in conformity with generally accepted 

accounting principles (GAAP) and the form and content for entity financial statements 

specified by the OMB. 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, 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. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Foods Program 

FDA Programs 
MANAGEMENT DISCUSSION AND ANALYSIS


Foods Program 

Background 

The Foods Program, administered by the Center for Food Safety and Applied Nutrition 

(CFSAN) and supported by the Office of Regulatory Affairs6 (ORA), is responsible for 

ensuring that the nation’s food supply is safe, nutritious, wholesome, and honestly labeled 

and that cosmetics are safe and properly labeled. 

The Foods Program accomplishes its mission by: 

• setting standards and developing regulations for the food industry; 

• taking timely and appropriate action on new food ingredients and dietary supplements 

before they go on the market to ensure their safety and effectiveness; 

• conducting research to provide the necessary basis for its regulatory decisions; 

• assuring the safety of foods, food ingredients, dietary supplements and cosmetics that 

are available on the market; 

• identifying food-related health hazards; and 

• taking corrective action to reduce human exposure to these hazards and the possibility 

of food-related illnesses and injuries; and expanding food safety education and 

training for consumers and industry. 

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. 

Cost 7 

Fiscal Year Net Program Cost (000s) 

2001 $390,085 

2000 $364,914 

1999 $320,432 

The Foods Program has experienced a 6.9 percent increase in net costs since FY 2000. 

6 For a fuller discussion on the support provided by ORA to the Programs, see pages I-12 – I-14. 

7 Source: Statements of Net Costs for FYs 1999, 2000 and 2001. The source for the remaining programs’ cost tables is 

the Statements of Net Costs for the three fiscal years. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


This increase is attributed to the continued implementation of the Food Safety Initiative, 

increases for dietary supplements, and the relocation of the CFSAN to College Park, 

Maryland. The net cost includes the total expenses for a program, including the allocation 

of overhead expenses (such as the Office of the Commissioner’s costs [e.g., administrative and policy direction], ORA’s field operations’ costs, rent, and other overhead), less 

exchange of revenue. 

Selected Initiatives, Goals, and Accomplishments 

Food Allergens 

As one of the program priorities for FY 2001, CFSAN worked to improve the regulatory 

guidance involving food allergens. Food allergens are substances in foods that may cause 

an allergic state or reaction. CFSAN partnered with ORA to perform various activities. 

In April 2001, ORA published a Federal Register notice announcing the availability of the 

FDA's Compliance Policy Guide (CPG) on Allergens, entitled "Statement of Policy for 

Labeling and Preventing Cross-contact of Common Food Allergens." The Allergen CPG 

is available on the Internet at: 

http://www.fda.gov/ora/compliance_ref/cpg/cpgfod/cpg555-250.htm. 

CFSAN conducted in May 2001 food allergen training for field food regulators located at 

the Seattle, Philadelphia, and Cincinnati district offices. 

The Center issued a field allergen inspection guide in August 2001 to assist field investigators in assessing conditions that can cause foods to contact allergens. A copy of this 

document is available at: 

http://www.fda.gov/ora/inspect_ref/igs/Allergy_Inspection_Guide.htm. 

Finally, CFSAN held a public meeting in August 2001. The meeting entitled, “Food 

Safety and Food Labeling: Presence and Labeling of Allergens,” was held to discuss the 

labeling of foods containing allergens and the inadvertent addition of allergens to foods 

due to processing practices. 

Egg Safety 

On December 5, 2000, FDA published a final rule in the Federal Register (65 FR 76092) 

entitled, “Food Labeling, Safe Handling Statements, Labeling of Shell Eggs; 

Refrigeration of Shell Eggs Held for Retail Distribution.” The final rule requires shell 

eggs to carry safe handling statements and refrigeration requirements for retail establishments such as grocery stores, nursing homes, and restaurants. 

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MANAGEMENT DISCUSSION AND ANALYSIS


In July 2001, CFSAN issued a small entity compliance guide for industry entitled, "Food 

Labeling: Safe Handling Statements, Labeling of Shell Eggs; Refrigeration of Shell Eggs 

Held for Retail Distribution.” This guidance document restated in plain language the legal 

requirements set forth in the current regulations for the safe handling statement on labels 

of shell eggs and the refrigeration of shell eggs held at retail establishments. 

Juice Hazard Analysis and Critical Control Point (HACCP) 

FDA has taken substantial steps in the last two years toward improving the safety of fresh 

and processed fruit and vegetable juices by requiring domestic and foreign processors of 

packaged juices to equip their plants for prevention of microbiological, chemical, and 

physical contamination of their products. Specifically, the final rule entitled, “Hazard 

Analysis and Critical Control Point (HACCP); Procedures for the Safe and Sanitary 

Processing and Importing of Juice” requires juice processors must use HACCP principles 

to increase protection of consumers from illness-causing microbes and other hazards in 

juices. HACCP systems are already federally required for seafood, meat, and poultry 

processors. 

It is estimated that each year, the rule will help prevent at least 6,000 juice-related foodborne illnesses, which have been on the rise in recent years. A 1996 E. coli 0157:H7 outbreak associated with apple juice products sickened 70 people, including a child who died 

as a result. A Salmonella Enteritidis outbreak in 2000 caused by unpasteurized orange 

juice sickened 88 persons, and a Salmonella Muenchen outbreak in 1999 caused by unpasteurized orange juice caused 423 illnesses and one death. 

Foods Developed Through Biotechnology 

During FY 2001, FDA issued a proposal rule (66 FR 4706; January 18, 2001) and a draft 

guidance document (66 FR 4839; January 18, 2001) concerning food developed through 

biotechnology. 

The proposed rule would require food developers to notify FDA at least 120 days in 

advance of their intent to market a food or animal feed developed through biotechnology 

and to provide information to demonstrate that the product is as safe as its conventional 

counterpart. FDA is also proposing to increase the transparency of the Agency’s review 

process for such foods. Currently, developers of food and feed developed through 

biotechnology participate in a voluntary consultation program with FDA. To date, all 

such food and feed marketed in the U.S. have gone through the consultation program 

before they have entered the market. Although this voluntary consultation process has 

worked well since its inception in 1994, a series of FDA-sponsored public meetings and 

subsequent written public comments indicated considerable public support for a mandatory pre-market consultation for bioengineered foods and feeds. This proposed rule can 

be accessed at: www.accessdata.fda.gov/scripts/oc/ohrms/index.cfm. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


FDA also issued a draft guidance document, which if finalized, would provide direction 

to manufacturers who wish to label their food products as being made with or without 

ingredients developed through biotechnology. This guidance will aid manufacturers in 

ensuring that their labeling is truthful and not misleading. The FDA views the terms, 

“derived through biotechnology” and “bioengineered”, as acceptable. Examples of terms 

that are not acceptable are “GM free”, “GMO”, and “modified.” 

Performance Plan Goals 

The Foods Program’s premarket performance goal is based on a cohort concept. A receipt 

cohort is defined as the group of applications received by the Agency during a particular 

fiscal year. For the FY 2000 receipt cohort, performance can be fully measured only 360 

days after receipt of the last petition received during the fiscal year. Because of this time 

delay, we are reporting performance on the FY 2000 receipt cohort because the FY 2001 

results are not yet available. 

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 states how FDA 

would provide the U.S. public with quicker access to new food ingredients and dietary 

supplements and make timely decisions on new food and color additive petitions. 

Performance Goal 

Complete the first action on 40 percent of food and color additive petitions within 

360 days of receipt. 

Results 

CFSAN reported it had met its goal for FY 2000. It had a rate of 91 percent for completing first action on those food and color additive petitions received during the period. A 

first action is defined as receipt of a request to withdraw a petition, or a review of all parts 

of a petition, followed by issuance of a “not approvable” letter or publication of a response 

in the Federal Register, if appropriate. 

In further describing its performance, CFSAN divided its food additive petitions into two 

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MANAGEMENT DISCUSSION AND ANALYSIS


classes: expedited and non-expedited. The Center has announced that it will expedite the 

review of petitions for food additives whose aim is to reduce the levels of food-borne 

pathogens. For the FY 2000 receipt cohorts, CFSAN achieved its goal for those petitions 

qualifying for expedited review and those that did not: 

• Ten food additive petitions that qualified for expedited review were filed. CFSAN 

completed the safety evaluation in less than 360 days of filing for nine of the 10 

petitions. 

• Twenty-two food and color additive petitions that did not qualify for expedited review 

were filed. The safety evaluation was completed, or the petition was withdrawn, in 

less than 360 days of filing for 20 of the 22 petitions. 

One of the factors affecting performance on review of food and color additive petitions 

was the implementation of the food contact substance notification program that was established by the FDA Modernization Act. The intent of the notification program is to provide an alternative to the traditional petition review process. Several of the petitions 

included in the receipt cohort of FY 2000 were withdrawn and converted to notifications, 

accounting in part for the performance far in excess of the goal for that year. In future 

years, it is envisioned that many of the simpler food additive petitions that could have 

been completed within 360 days will be filed under the notification program, thus decreasing the workload. With the remaining petitions likely being complex and taking more 

time in review, performance on the goal may decline initially. Once the notification 

review process becomes well established, CFSAN expects performance on this goal to 

increase substantially toward full performance. 

During FY 2000, 109 notifications for food contact substances were received, including 

petitions for food contact substances that were converted to notifications. CFSAN completed review of all of the notifications within the statutory time frame of 120 days. 

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 

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Food & Drug Administration FY 2001 CFO’s Annual Report


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. 

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

acid canned food (LACF) 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 Goal 8 

Increase the percentage of high-risk domestic food establishments inspected once every 

year. The goal for FY 2000 is 90 – 100 percent once every one to two years. 

Result 

CFSAN reported that the performance measure was achieved in FY 2000. It had realized 

a rate of 91 percent of high-risk domestic food establishments inspected. 

The existing Field Data Systems currently do not differentiate between low-, medium-, 

and high-risk domestic food establishments. The Agency has defined high-risk establishments as those producing foods with the greatest risk for microbial contamination and 

those foods requiring specific components for a safe and nutritious product. Foods following under this definition were infant formula, medical foods, scrombotoxic seafood, 

molluscan shellfish, low acid canned and acidified foods, ready to eat foods such as 

processed fresh fruits and vegetables, bakery goods (with filling), soft and soft ripened 

cheeses, cooked pasta dishes, prepared salads and heat and serve products. Based on this 

definition, the Agency estimates that there are approximately 7,000 such establishments 

in its establishment inventory. 

8 Because FY 2001 data is not currently available, we are using FY 2000 data. 

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MANAGEMENT DISCUSSION AND ANALYSIS


Consumer Advisory, March 2001 from Center for Food Safety and Applied Nutrition, FDA 

AN IMPORTANT MESSAGE FOR 

PREGNANT WOMEN AND WOMEN OF CHILDBEARING AGE 

WHO MAY BECOME PREGNANT 

ABOUT THE RISKS OF MERCURY IN FISH 

Seafood can be an important part of a balanced diet for pregnant women. It is a good 

source of high quality protein and other nutrients and is low in fat. 

However, some fish contain high levels of a form of mercury called methylmercury 

that can harm an unborn child’s developing nervous system if eaten regularly. By 

being informed about methylmercury and knowing the kinds of fish that are safe to 

eat, you can prevent any harm to your unborn child and still enjoy the health benefits 

of eating seafood. 

HOW DOES MERCURY GETS INTO FISH? 

Mercury occurs naturally in the environment and it can also be released into the air 

through industrial pollution. Mercury falls from the air and can get into surface 

water, accumulating in streams and oceans. Bacteria in the water cause chemical 

changes that transform mercury into methylmercury that can be toxic. Fish absorb 

methylmercury from water as they feed on aquatic organisms. 

HOW CAN I AVOID LEVELS OF MERCURY THAT COULD HARM MY 

UNBORN CHILD? 

Nearly all fish contain trace amounts of methylmercury, which are not harmful to 

humans. However, long-lived, larger fish that feed on other fish accumulate the 

highest levels of methylmercury and pose the greatest risk to people who eat them 

regularly. You can protect your unborn child by not eating these large fish that can 

contain high levels of methylmercury: 

Shark 

Swordfish 

King mackerel 

Tilefish 

While it is true that the primary danger from methylmercury in fish is to the developing nervous system of the unborn child, it is prudent for nursing mothers and young 

children not to eat these fish as well. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Human Drugs 

FDA Programs 
MANAGEMENT DISCUSSION AND ANALYSIS


Human Drugs Program 

Background 

The Human Drugs Program, administered by the Center for Drug Evaluation and 

Research (CDER) and supported by ORA, is responsible for ensuring that all drug products used for the prevention, diagnosis, and treatment of human disease are safe and effective, and that information on proper use is available to all users. To achieve this mandate, 

premarket review, postmarket surveillance, education, research, and other strategies are 

employed and periodically assessed. The program’s specific responsibilities include: 

• regulating the testing of investigational new drugs (INDs); 

• evaluating new drug applications (NDAs) and abbreviated new drug applications 

(ANDAs) for generic drugs; 

• monitoring the quality of products manufactured in, or imported into, the U.S.; 

• collecting and evaluating information on adverse effects experienced with marketed 

products; 

• regulating the advertising and promotion of prescription drugs; 

• establishing and monitoring standards for use, labeling, and composition of both 

prescription and over-the-counter drugs; 

• disseminating timely and accurate product information to the medical community and 

the public; 

• identifying drugs that have potential for abuse and making recommendations to the 

U.S. Department of Justice’s Drug Enforcement Administration for drug classification 

and control; 

• encouraging the development of new drugs; and 

• enhancing DHHS’ readiness against any terrorist act to assure public health safety. 

Cost 

Fiscal Year Net Program Cost (000s) 

2001 $255,316 

2000 $251,243 

1999 $223,855 

The Human Drugs Program experienced a 1.6 percent increase in net costs in FY 2001. 

This increase may be attributed to funding for premarket review, for CDER’s Office of 

Generic Drugs to reduce generic drug application review and improve approval times, for 

improvements to the Agency’s current system of post-market surveillance to identify 

adverse events, and for enforcement of Internet drug sales. The net cost includes the total 

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Food & Drug Administration FY 2001 CFO’s Annual Report


expenses for a program, including the allocation of overhead expenses (such as the Office 

of the Commissioner’s costs [e.g., administrative and policy direction], ORA’s field operations’ costs, rent, and other overhead), less exchange of revenue. 

Selected Initiatives, Goals, and Accomplishments 

Patient Safety Initiative 

With the 1999 release of the Institute of Medicine (IOM) report on medical errors, much 

attention has been focused on what FDA can do to assess the magnitude of the contribution of pharmaceuticals, manage the risk from drugs, and minimize the potential for these 

products to result in patient injury. During FY 2001, CDER conducted various activities 

to support its patient safety initiative. Some of these examples include: 

• CDER has participated in the Patient Safety Task Force that was established within 

the DHHS to integrate medical error data collection efforts, coordinate research and 

analysis efforts, and to develop strategies to implement patient safety programs. 

• CDER proposed a new prescription drug labeling rule that will help reduce medical 

errors. The proposed new labeling is expected to reduce practitioners' time spent 

looking for information, decrease the number of preventable medical errors, and 

improve treatment effectiveness. The information will be easier to find, read, and use, 

and it should also enhance the safe and effective use of prescription drugs and reduce 

medical errors caused by inadequate communication. 

• CDER, along with FDA’s Office of Facilities, Acquisitions and Central Services, 

awarded three new three-year contracts that will permit access to drug utilization data 

from pediatric inpatient, general inpatient, and general longitudinal databases. These 

research resources are part of CDER’s initiative to expand postmarketing drug 

surveillance. The ability of the Center to respond expeditiously to the increasing 

number of postmarketing issues is of paramount importance to the Agency and overall 

public safety. Access to these types of databases will increase the capabilities for 

pharmacoepidemiology surveillance and regulatory impact studies. The addition of 

these databases will also supplement and enhance the passive reporting systems 

currently in place. 

• CDER developed a new subcommittee to the Advisory Committee for Pharmaceutical 

Science, the Drug Safety and Risk Management Subcommittee. It is intended to 

focus on issues involving drug safety, risk management, risk communication, 

medication errors, and patient safety. These issues play a significant role in CDER’s 

overall evaluation of the risk/benefit of drugs, and are common topics of discussion at 

advisory committee meetings. This subcommittee will have the benefit of having its 

members work together as a group, learning the regulatory process and perspective, 

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MANAGEMENT DISCUSSION AND ANALYSIS


and applying what has been learned at one meeting to the next. 

• CDER also co-sponsored the nation's first certificate program with Temple 

University’s School of Pharmacy and the Institute for Safe Medication Practices on 

medication safety as part of Temple's Doctor of Pharmacy program. The Temple 

Pharmacy 12-credit educational track will include coursework in pharmacoepidemiology, risk management, medication error prevention, safe medical product 

design, and adverse drug reaction recognition, surveillance, and prevention. 

• CDER created a Medication Errors Homepage on its Internet site 

(http://www.fda.gov/cder/drug/MedErrors/default.htm). It includes information on 

drug products associated with medication errors, medication error reports and articles, 

Federal regulations and guidances, how to report a medication error, and other 

resources. The Office of Postmarketing Drug Risk Assessment developed an 

agreement with Medical Economics to publish quarterly information on medication 

errors in their Drug Topics journal. 

Pediatric Initiatives - Pediatric Exclusivity and the Pediatric Rule 

Significant progress was made in pediatrics as a result of CDER’s two major pediatric 

activities: FDAMA Section 111 and the final Pediatric Rule. 

Section 111 authorizes FDAto grant six months of marketing exclusivity if a sponsor conducts and submits pediatric studies responsive to a Written Request. Under the exclusivity provision, 43 Written Requests were issued in FY 2001 and 19 Pediatric Exclusivity 

Determinations (see Figure 4 below) were made. Over 47,000 children have participated 

in clinical trials as of October 2001 as a result of the studies FDA requested under the 

exclusivity provision. 

Figure 4 

I-30

Food & Drug Administration FY 2001 CFO’s Annual Report 

Figure 5 

In FY 2001, nine drugs were approved and labeled for pediatric use (see Figure 5 above) 

based on studies conducted in response to Written Requests. 

The Center contracted out the development of an inpatient pediatric database that will be 

used to accumulate information on the use of drugs in children in the inpatient care setting, e.g., children’s hospitals, community hospitals, and chronic care facilities. The information is critical to the Agency as it determines the potential health benefit for drugs to 

be issued Written Requests or to comply with the Pediatric Rule. 

Other activities that support the Pediatric Initiative include preparing a report to Congress, 

issuing a rule, and working with the National Institute for Mental Health: 

• CDER prepared the mandated Report to Congress on Pediatric Exclusivity and 

forwarded it to Congress in January 2001. The Center updated the annual list of 

approved drugs for which pediatric information may produce health benefits in the 

pediatric population. It also maintained and updated a pediatric interactive web page 

at http://www.fda.gov/cder/pediatric that provides routine updates on pediatric 

statistics. 

• CDER issued an interim rule on April 24, 2001, to provide additional safeguards for 

children enrolled in clinical trials. The Children's Health Act of 2000 mandates this 

action by adopting the principles described in Subpart D - Additional protections for 

Children Involved as Subjects in Research (45 CFR 46.401 - 46.409). 

• The CDER Pediatric Team also participated in a working group that prepared the 

Report of the Surgeon General's Conference on Children's Mental Health: A National 

Action Agenda, which was released on January 3, 2001. FDA and the National 

Institute for Mental Health co-sponsored a research workshop on October 2-3, 2000. 

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MANAGEMENT DISCUSSION AND ANALYSIS


The workshop, entitled “Psychopharmacology for Young Children: Clinical Needs and 

Research Opportunities,” served as a forum to discuss the need for investigating 

psychotropic agents in young children, examine current obstacles to research, and 

identify possible solutions. 

Counterterrorism Initiative 

The Center is continually working to enhance DHHS’ readiness against any terrorist act 

to assure public health safety. 

CDER developed a draft guidance regarding the safe and effective use of potassium iodide 

as an adjunct to other public health protective measures in the event that radioactive iodine 

is accidentally released into the environment. This guidance updates FDA’s 1982 recommendations for the use of potassium iodide (KI) to reduce the risk of thyroid cancer in 

radiation emergencies involving the release of radioactive iodine. These recommendations 

address KI dosage and the projected radiation exposure at which the drug should be used. 

This guidance neither prognosticates on the probability of an accident occurring nor on 

the type or severity of an accident if one were to occur. 

CDER prepared for a bioterrorist attack involving biological concerns such as smallpox, 

anthrax, and plague. The Center collaborated with NIH to develop antiviral agents for the 

treatment of smallpox. CDER also worked with various government agencies to define 

appropriate animal models for developing drugs to treat smallpox. 

Two approved cream prescription burn treatments received expedited review and approval 

of their chemistry supplements in response to medical needs resulting from the September 

11, 2001, attacks. In addition, CDER had an active IND for their use on large burns. The 

Center facilitated submission of a protocol for the cream to be used on an emergency basis 

at the judgement of physicians. This allows more rapid utilization of the product and 

enrollment of patients. 

The National Pharmaceutical Stockpile group of the CDC submitted a “streamlined IND” 

to FDA after much consultation and guidance from CDER. This IND will permit investigational use of gentamicin, an antibiotic with an established history, if a mass casualty 

situation occurs during the ensuing development stages. Also, in coordination with the 

CDC at Ft. Collins, Colorado, CDER obtained and reviewed all available data on patients 

with pneumonic plague in the U.S. from 1957 through 1999. The Center worked with the 

CDC and the U.S. Army to determine what additional data, such as animal data or other 

clinical data, are necessary to support the labeling of gentamicin for plague. 

The Center also continues to enhance its drug registration and listing databases to have 

current information on the location of manufacturing facilities of important life saving 

drugs. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


E-Government Initiative 

CDER has received NDA case report forms and case report tabulations in electronic format in place of paper since November 1997. In February 1999, the Center began receiving archival copies of entire NDAs in electronic format in place of paper. The number of 

NDA electronic submissions has steadily increased. Approximately 75 percent of original NDAs received in CDER now include sections that conform to the electronic submission guidance. Over a third are completely electronic. CDER averaged approximately 

100 electronic submissions per month, including full NDAs, supplemental NDAs, and 

amendments. Since the program began, the Center has seen over a 50 percent reduction 

in the average number of paper volumes for NDAs. The Electronic Document Room was 

expanded to manage receipt and handling of full electronic NDAs. 

CDER also accepted postmarketing expedited safety reports in electronic format in place 

of paper and a number of sponsors successfully sent reports electronically that were 

directly transferred to a database. The Center began preparing regulations to require all 

adverse event reports from industry to be submitted electronically. 

CDER published the draft guidance “Providing Regulatory Submissions in Electronic 

Format - Prescription Drug Advertising Material and Promotional Labeling” for providing advertising and promotional material in electronic format and had a pilot program to 

receive these submissions electronically. The Center also had a pilot program for receiving ANDAs in electronic format. In continued support of the generic drugs electronic submissions initiative, the Center enhanced its information technology infrastructure to support the electronic review process, promoted electronic submissions directly to industry 

and trade groups, and held training sessions for industry. 

Performance Plan Goals9 

Premarket Review: New Drugs 

The first strategic goal of the Human Drugs Program is to reduce human suffering and 

enhance public health by facilitating access to important, lifesaving drugs, and assuring 

availability of safe and effective drugs. CDER achieved this goal through continued 

efforts to meet mandated review times for NDAs and ANDAs. This was accomplished 

through continued communication and collaboration with industry, academia, professional societies, and health care organizations. 

The timely performance of high-quality drug reviews in recent years reflects the importance of CDER managerial reforms and additional resources provided to the Center under 

the Prescription Drug User Fee Act (PDUFA). The law, first enacted in 1992, was 

renewed for an additional five years in the 1997 FDA Modernization Act. Under the law, 

9 The Human Drugs Program reports on a premarket performance goal that has a time delay in reporting performance 

results due to the design of the performance measure. DHHS requires its operating divisions (e.g., FDA) to report only 

final data results and no partial data are allowed. Because of the time delay and DHHS policy, we are using FY 2000 

performance data since the FY2001 results are not available. 

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MANAGEMENT DISCUSSION AND ANALYSIS


the drug industry pays user fees for NDAs, efficacy supplements, and some other activities. User fees helped CDER hire additional scientists to perform reviews. 

PDUFA has resulted in increasing numbers of applications being filed, higher quality 

applications, and quicker approvals for products with the requisite data. CDER’s goals 

become more challenging each year. Nonetheless, application filings and quality remain 

high by historic standards and approval times continue to drop. Additionally, American 

patients are receiving the benefits of important new drugs before they are available to citizens of other countries. 

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. 

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 six months. 

Results 

CDER met its FY 2000 performance goal (see Table 1 below). 

Table 1


Fiscal Year 2000 Cohort (as of 9/30/01)


Number of Number of Percent of 

Submissions Reviews Reviews 

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

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

NDAs - Standard 92 90% in 12 mo. 88 96% 

50% in 10 mo. 73 79% 

Several important new drugs were also approved by CDER in FY 2001 (see Table 2 on 

next page). 

I-34

Food & Drug Administration FY 2001 CFO’s Annual Report 

Table 2


Significant NDAs Approved in FY 2001


Drug Purpose 

Combination of Xeloda Treatment of metastatic breast cancer that has 

(capectitabine) and Taxotere progressed after treatment with anthracycline cancer 

(docetaxel) therapy (such as Adriamycin and doxorubicin) 

Natrecor® (nesiritide) Treatment of acute congestive heart failure (CHF). 

Injection 

Gleevec (imstinib mesylate, Treatment of chronic myeloid leukemia – a rare 

also known as STI-571) life-threatening form of cancer 

Cancidas (caspofungin New anti-fungal medication for patients who are 

acetate) Intravenous Infusion	 unresponsive to or cannot tolerate standard therapies 

for the invasive form of aspergillosis 

Femara (letrozole)	 First-line treatment for postmenopausal women with 

hormone receptor positive or hormone receptor 

unknown, advanced or metastatic breast cancer 

The median total approval time for new drugs acted on in FY 2000 was 11.6 months, 

lower than the 11.9 months in FY 1999 (see Figure 6 below). Approval time represents 

the total review time at the Agency plus industry response time to the Agency’s requests 

for additional information. 

Figure 6 

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MANAGEMENT DISCUSSION AND ANALYSIS


Premarket Review: Generic Drugs 

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. A generic drug product is one that is comparable to the reference listed drug product in dosage form, 

strength, route of administration, quality, performance characteristics, and intended use. 

Generic drug applications are termed “abbreviated” in that they generally do not require 

preclinical (animal) and clinical (human) data to establish safety and effectiveness. 

These parameters were established upon the approval of the innovator drug product. 

Performance Goal 

Review and act upon 45 percent of fileable original generic drug applications within six 

months after submission date. 

Results 

FDA met its goal for FY 2000 acting on 55.6 percent of original applications within six 

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

FY 1999. 

Of these, several represent the first time a generic was approved for a product. 

Examples of important first time approvals are listed in Table 3 below. 

Table 3


Notable First Time Generic Approvals


Drug Purpose 

Buspirone Management of anxiety disorders or short-term relief of sympHydrochloride toms of anxiety (generic for Buspar by Bristol Myers Squibb) 

Famotidine	 Prevention and treatment of heartburn (generic for 

Pepcid AC by Merck) 

Fluoxetine Treatment of depression (generic for Prozac by Lilly) 

Butorphanol Tartrate Management of pain (generic for Stadol NS by Mead Johnson) 

Levocarnitine	 Treatment of primary systemic carnitine deficiency (generic for 

Carnitor by Sigma Tau) 

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Food & Drug Administration FY 2001 CFO’s Annual Report


The FY 2000 18.9-month median approval time compares to 17.3-months in FY 1999 and 

18.7-months in FY 1998 (see Figure 7 below). 

Figure 7 

CDER used a $1.2 million dollar increase in FY 2001 to fully annualize the positions 

added in FY 2000 and to hire several additional FTE. Several of these staffers are already 

on-board, fully trained, and demonstrating high levels of productivity. With this additional increase, all chemistry reviewer vacancies are currently filled. This in itself will 

hopefully improve performance, as chemistry reviews were a source of delay. 

The Office of Generic Drugs (OGD) continues to refine the review process to increase 

efficiency with the $1.2 million increase and increases in past years. It is also evaluating 

ways to increase resources devoted to information technology. As the backlog of applications is addressed, it is hoped OGD can close the gap between actions so that the first 

action is taken within the statutory time frame. There are certain factors outside the control of OGD that may prevent complete adherence to the 180-day time frame. These factors include the need to adhere to the review queue structure, timeliness of inspections of 

the manufacturing plants, and legal issues raised late in the review process. In addition to 

these factors, CDER continues to examine every aspect of the review process to try to 

identify problem areas that need to be addressed. OGD also plans to revise the current 

system for amendment designation, major versus minor, to improve total review times. 

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MANAGEMENT DISCUSSION AND ANALYSIS


Postmarket Assurance 

The second strategic goal of the Human Drugs Program in FY 2001 was to prevent unnecessary injury and death to the American public caused by adverse drug reactions, injuries, 

medication errors, and product problems. 

CDER evaluates the ongoing safety profiles of drugs available to American consumers 

using a variety of tools and disciplines. The Center maintains a system of postmarketing 

surveillance and risk assessment programs to identify adverse events such as adverse reactions, drug-drug interactions, and poisonings. 

As CDER discovers new information about a drug’s safety profile, the Center makes risk 

assessments and decisions about the most appropriate way to manage any new risk or new 

perspective on a previously known risk. Risk management methods include new labeling, 

"Dear Health Care Practitioner" letters, restricted distribution programs, or product marketing termination. 

CDER uses a powerful, state-of-the-art tool for detecting signals: AERS. This system 

combines the voluntary adverse drug reaction reports from MedWatch and the required 

reports from manufacturers. These reports often form the basis of “signals” that there may 

be a potential for serious, unrecognized, drug-associated events. After the signal is generated, further testing of the hypothesis is undertaken using various epidemiological and 

analytic databases, studies, and other instruments and resources. AERS offers paper and 

electronic submission options, international compatibility, and pharmacovigilance screening. Information is provided on CDER’s improvement of AERS. 

Performance Goal 

Expedite processing and evaluation of adverse drug events through implementation of 

AERS that allows for electronic periodic data entry and acquisition of fully coded information from drug companies. 

Results 

AERS version 2.1, completed in February 2001, enhanced the compliance and Freedom 

of Information portions of AERS by making it more accessible to compliance staff and 

improving compliance-related search capabilities. 

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. Over 

11,000 individual case safety reports were submitted electronically under the pilot program in FY 2001 (see Figure 8 on next page). 

I-38

Food & Drug Administration FY 2001 CFO’s Annual Report


Figure 8 

AERS version 2.2 was implemented in May 2001, enhancing the ability of the system to 

accept electronic submissions. Also in May 2001, a draft guidance for industry, 

“Providing Regulatory Submissions in Electronic Format - Postmarketing Expedited 

Safety Reports” was released. 

The Electronic Submission Product Test Pilot for AERS is part of a step-level implementation program for the electronic submission of postmarketing surveillance information. 

The pilot allows CDER to identify and resolve several process issues while regulatory and 

infrastructure changes are implemented. 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. 

I-39

MANAGEMENT DISCUSSION AND ANALYSIS


FDA Press Release, December 21, 2000 

PHYSICIAN LABELING PROPOSAL 

The Food and Drug Administration today proposed a new format for prescription 

drug labeling that will help reduce medical errors, which according to the National 

Academy of Sciences may be responsible for as many as 98,000 U.S. deaths 

annually. believes that this new, user-friendly format will reduce errors in drug 

prescribing. 

“Today’s proposal is FDA’s latest initiative to improve the labeling of the products it 

regulates,” said Dr. Jane E. Henney, [former] FDA Commissioner. “This proposal is 

particularly valuable because it will make important information available in a clear, 

consistent, and readable format that is essential to proper prescribing practices.” 

Prescription drug product labeling, also known as the package insert, represents a primary means of providing critical information about drugs to practitioners. As part of 

the drug review process, FDA reviews and approves drug product labeling that is 

initially proposed by manufacturers. 

A FDA study showed that practitioners found drug product labeling to be lengthy, 

complex, and hard to use. The proposed new format would provide user-friendly 

labeling that would allow practitioners to quickly find the most important information about the product. One major change is inclusion of a new introductory 

“Highlights” section of bulleted prescribing information. This section would include 

the information that practitioners most commonly refer to and view as most important, and it would provide the location of further details elsewhere in the labeling. 

The proposed new labeling is expected to reduce practitioners’ time spent looking for 

information, decrease the number of preventable medical errors, and improve treatment effectiveness. The information will be easier to find, read, and use, and it 

should also enhance the safe and effective use of prescription drugs and reduce medical errors caused by inadequate communication. Because these labeling revisions 

represent considerable effort and are most critical for newer and less familiar drugs, 

the proposal will apply only to relatively new prescription drug products. 

FDA 

I-40

Food & Drug Administration FY 2001 CFO’s Annual Report


Medical Devices and 

Radiological Health 

FDA Programs 
MANAGEMENT DISCUSSION AND ANALYSIS


Medical Devices and Radiological Health Program 

Background 

The Medical Devices and Radiological Health Program is administered by the Center for 

Devices and Radiological Health (CDRH) with support from ORA. The program is 

responsible for ensuring the safety and effectiveness of medical devices as well as eliminating unnecessary human exposure to man-made radiation from medical, occupational, 

and consumer 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, and medical ultrasound and x-ray machines. 

Growth in the size of the medical device industry and in the complexity of new medical 

devices will continue to challenge FDA to stay up-to-date with breakthrough medical 

devices and to maintain high quality timely reviews, required interactions with industry, 

and current review guidance. Since 1982, the number of Device Manufacturers has 

increased by a factor of five (2,194 in 1982 to 11,495 in 2001). Quantum leaps in device 

miniaturization, microprocessor software control, artificial intelligence decision support, 

remote operation, and drug/biologics tissue combinations are already revolutionizing 

medical care. 

The pace of technology innovation in this country and around the world requires the 

Center’s cadre of scientists to keep up with the latest technology and scientific advances, 

in both the development of medical technology and scientific methodologies. Only by 

doing so can personnel provide high quality, timely, and science-based regulatory actions 

on the safety and effectiveness of new medical products and the causes of inferior performance including public health impact. FDA intends to emphasize the need to maintain 

high quality scientific decision making. This is especially critical for emerging technologies like computer-related technology; molecular medicine; home-care and self-care 

devices; minimally-invasive technology; combination device-drug combination products; 

and pioneering organ replacement and patient assist devices. 

FDAMA has had a major impact on the Medical Device and Radiological Health 

Program. FDAMA requires the Agency to: conduct more timely and interactive application reviews; improve the quality and timeliness of postmarket surveillance data; expand 

participation in international harmonization activities; and improve information and education for industry and health professionals. In order to implement these mandates, 

CDRH has identified and concentrated on high-risk, high-impact products and work areas 

where its direct intervention can help consumers and health care professionals the most. 

CDRH is building its device science base to maintain and update the organizational capability to make timely regulatory decisions. 

Medical devices, including those which are radiation-emitting products, are regulated by 

I-42

Food & Drug Administration FY 2001 CFO’s Annual Report


FDA under the FD&C Act. The certification of mammography facilities is regulated 

under the Public Health Service Act. 

Costs 

Fiscal Year Net Program Costs (000s) 

2001 $223,320 

2000 $203,773 

1999 $192,600 

The Medical Device and Radiological Health Program experienced an 9.6 percent 

increase in net costs in FY 2001. This increase is attributed to premarket review activities and for inspections. The net cost includes the total expenses for a program, including 

the allocation of overhead expenses (such as the Office of the Commissioner’s costs [e.g., 

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

Selected Initiatives, Goals, and Accomplishments 

During FY 2001, 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 the Center feels will have a major impact on patient care: 

Fetal Oxygen Monitor 

This device is a new type of fetal monitor that measures oxygen saturation in the baby’s 

blood as a sign of fetal health during delivery. The device is extremely useful when a single fetus is of at least 36 weeks gestation, the mother’s water has broken, and the baby is 

in the normal head down position for delivery 

Glucose Test for Adult Diabetics 

The new glucose test product is a wristwatch device that provides adult diabetics with 

more information for managing their disease. The device is intended for use along with, 

not as a replacement for, finger-prick blood tests to monitor glucose. The “GlucoWatch” 

extracts fluid through the skin by sending out tiny electric currents. Glucose levels are 

measured using this fluid every 20 minutes for 12-hours even during sleep. The device 

sounds an alarm if the patient’s glucose reaches dangerous levels, thus helping patients 

manage a potential problem. 

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MANAGEMENT DISCUSSION AND ANALYSIS


Middle Ear Surgical Implant 

A surgically implanted hearing device, this product is intended to help adults with moderate to severe nerve hearing loss. The device is an alternative to traditional hearing aids 

and offers patients another choice which may improve hearing. 

Robotic-Assisted Surgery 

This robotic device enables a surgeon to perform certain types of surgery while seated at 

a console with a computer and video monitor. This robot gives surgeons additional manipulation ability during minimal invasive laparoscopic surgery, enabling easier, more intricate motion of surgical tools. The device is an alternative to several procedures including 

open heart surgery and the treatment of gall bladder disease. 

Digital Mammography 

The approval of Digital Mammography is a x-ray system that employs a digital receptor 

to capture images of the breast. These images can then be printed to film or be displayed 

at a high-resolution computer workstation for interpretation by a qualified mammographer. This device offers an alternative to traditional screening and diagnostic mammography. 

Performance Plan Goals 10 

The first strategic goal of the Medical 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 employs 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. CDRH reviews the following types of applications.11 

• Premarket Approval Application (PMA) and PMA supplement - ensures the data 

submitted by the manufacturer demonstrates 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. 

10 The premarket goals of the Medical 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 2000 performance data since the FY 2001 results are 

not available. 

11 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.” 

I-44

Food & Drug Administration FY 2001 CFO’s Annual Report


• Product Development Protocol (PDP) – provides alternatives to PMAs in which the 

manufacturer makes a mutual and binding agreement with FDA 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)] - ensures the data submitted demonstrate that the 

device is substantially equivalent to an eligible product already on the market. 

• Investigational Device Exemption (IDE) application - ensures proposed 

investigational studies will be well controlled and will safeguard the rights and safety 

of human subjects. 

All devices are classified into three categories, depending on the level of regulation 

required to ensure safety and effectiveness, see Table 4. 

Table 4 

Subject to general controls, such as good 

Class I Devices manufacturing practices, requirements, labeling 

requirements, and registration with FDA. 

Subject to special controls, such as performance 

Class II Devices standards, special postmarket surveillance efforts, and 

patient registries. 

Class III Devices Required to undergo premarket evaluation and receive 

FDA approval prior to being marketed. 

Premarket Approval Applications 

Premarket approval applications involve new products that represent the highest potential 

risk and benefit to consumers. As such, FDA has redirected its limited 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 FDAMA 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). 

I-45

MANAGEMENT DISCUSSION AND ANALYSIS


Performance Goal 

The FY 2000 performance goal was to review and complete an on-time percentage of 85 

percent of PMA first actions within 180 days. 

Results 

CDRH achieved its goal by completing 96 percent of the first actions on 43 PMAs 

received in FY 2000. FDA improved its performance considerably from FY 1999 when 

the on-time percentage was 74 percent. The chart below (Figure 9) presents CDRH’s 

improving performance over the past four years. 

Figure 9 

In addition, there were no backlogs for new product submissions and turnaround times for 

processing these submissions improved across the board. PMA average total review time 

from filing to approval was 76 days for FY 2000 and remained the same as FY 1999. In 

FY 1996, average review time was 146 days. 

Premarket Notifications 

A premarket notification [510(k)] is for a device found by FDA to be substantially equivalent to a device already on the market for which premarket approval is not required. 

About 98 percent of the medical devices marketed in the U.S. are 510(k) devices. 

I-46

Food & Drug Administration FY 2001 CFO’s Annual Report


As a result of FDAMA, CDRH continues to implement improvements to the 510(k) 

review system to make it more efficient and less resource intensive, without compromising the public’s health. 

In FY 2000, CDRH updated the list of third parties to perform selected 510(k) reviews for 

low-to-moderate risk devices. FDA is proposing an expansion of the program that would 

allow third party review of all (460) Class II devices. A Federal Register Notice announcing the proposed expansion was issued on July 18, 2000. 

Performance Goal 

Review and complete 90 percent of 510(k) (Premarket Notification) first actions within 

90 days12. 

Results 

CDRH achieved its FY 2000 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 10 shows FDA’s improved timeliness in completing 510(k) first actions. 

Figure 10 

12 Even though CDRH dropped this goal in FY 2000, the Center continued to report on its accomplishment. The goal 

was re-instated for the FY 2001 – 2003 period because it provides a meaningful measure of performance in this area. 

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MANAGEMENT DISCUSSION AND ANALYSIS


Mammography 

The second strategic goal of the Medical Device 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 Mammography Quality Standards Act of 1992 (MQSA) 

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 A c t 

(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 the areas of 

equipment, personnel, quality assurance, record keeping, and reporting. It is unlawful for 

any facility to perform mammography without a certificate. 

MQSRA extends MQSA authorization through FY 2002 and makes substantive changes, 

such as: 

1. 	Requiring all mammography facilities to send reports written in lay person’s 

terms to all patients receiving mammography services; 

2. 	Clarifying the responsibility of the mammography facility to retain mammogram records so women have the ability to obtain the original record of their 

mammogram; 

3. 	Mandating direct written notification to all patients of their exam results in 

lay person’s terms; and 

4. 	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 one-third of such facilities will need re-certification annually. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Performance Goal 

The FY 2000 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 mammography facilities complying with inspection standards. During FY 

2001, FDA inspected 9,931 mammography facilities compared to 9,891 in FY 2000. 

From March 22, 2001 Press Release, “FDA News” 

FDA APPROVES NEW GLUCOSE TEST FOR ADULT DIABETICS 

The Food and Drug Administration today approved a wristwatch-like device that provides adult diabetics with more information for managing their disease. It is intended 

for use along with, not as a replacement for, finger-prick blood tests to monitor glucose. 

The GlucoWatch Biographer, made by Cygnus Inc., of Redwood City, Calif., extracts 

fluid through the skin by sending out tiny electric currents. Glucose levels are measured using this fluid every 20 minutes for 12 hours-even during sleep. The device 

sounds an alarm if patient’s glucose reaches dangerous levels, thus helping patients 

manage a potential problem. 

The FDA approved the GlucoWatch, which is available only by prescription, to 

detect trends and track patterns in glucose levels in adults age 18 and older. 

“Today’s action heralds the advent of new technologies that promise dramatic 

improvements in the quality of life for the millions of Americans who have diabetes,” said Secretary of Health and Human Services Tommy G. Thompson. 

“New technology for monitoring glucose levels in diabetics is moving ahead rapidly, 

and the FDA has been working with a number of companies to help bring it to market,” said Acting Principal Deputy Commissioner of Food and Drugs Bernard A. 

Schwetz, D.V.M., Ph.D. “The GlucoWatch is one of the first steps in developing new 

products that may one day completely eliminate the need for daily finger-prick tests.” 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Biologics 

FDA Programs 
MANAGEMENT DISCUSSION AND ANALYSIS


Biologics Program 

Background 

The Biologics Program, administered by the Center for Biologics Evaluation and 

Research (CBER) and supported by ORA, is responsible for ensuring the safety, efficacy, 

potency, and purity of vaccines, blood products, certain diagnostic products, and other 

biological and biotechnology-derived human products. Such products are for the treatment, prevention, or cure of diseases in humans, as well as the safety of the Nation's supply of blood and blood products. The program's activities include: 

• evaluating biological products before marketing, including monitoring pre-clinical and 

clinical testing of new biological products; 

• licensing biological products and manufacturing establishments, including plasma 

pheresis centers, blood banks, and vaccine and biotechnology manufacturers; 

• managing the Acquired Immune Deficiency Syndrome (AIDS) program and policy 

activities, including research on AIDS therapeutic products, diagnostic tests, and 

vaccines; 

• performing regulatory research to establish product standards and development of 

improved testing methods to assess the safety of biological products; 

• providing regulatory oversight for licensed biological manufacturing establishments; 

• regulating the safety and quality of domestic and imported products; and 

• reviewing and investigating post-market reporting of product adverse experiences. 

Costs 

Fiscal Year Net Program Costs (000s) 

2001 $160,889 

2000 $132,860 

1999 $146,773 

The Biologics Program has experienced a 21.1 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 total expenses for a program, including 

the allocation of overhead expenses (such as the Office of the Commissioner’s costs [e.g., 

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

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Food & Drug Administration FY 2001 CFO’s Annual Report


Selected Initiatives, Goals & Accomplishments 

Countering Bioterrorism Initiative 

The Countering Bioterrorism initiative is comprised of a number of essential elements for 

which CBER plays an integral role. One role is developing and licensing products to diagnose, treat, or prevent outbreaks from exposure to the pathogens identified as bioterrorist 

agents. These products must be reviewed and approved prior to the large-scale productions necessary to create and maintain a stockpile. Staff must guide the products through 

the regulatory process, including manufacturing, pre-clinical testing, clinical trials, and 

licensing and approval. This process is complex and early involvement by FDA staff in 

the development process is crucial to the success of the expedited review process. 

Another role is developing a cohesive and comprehensive response in conjunction with 

other Federal agencies. CBER participates in numerous meetings, briefings, and conferences representing FDA, with staff from the Department of Defense, the DHHS, the 

Department of Veterans Affairs, and the Office of Management and Budget. CBER also 

works with other DHHS agencies, including the National Institutes of Health (NIH) and 

the Centers for Disease Control and Prevention (CDC). 

CBER is also developing new regulatory models to accommodate the need for preparedness in the case of an emergency attack. For example, procedures and protocols are being 

developed to enable the use of INDs in a highly controlled, safe manner for particular 

emergency situations, such as responding to a bioterrorist attack that exposed individuals 

to the agent that causes anthrax. 

Human Subject Protection Initiative 

The Bio-Research Monitoring (BIMO) program was established in the 1970's to oversee 

the conduct of clinical trials and the operation of non-clinical laboratories and to ensure 

that the reporting of research information submitted to the FDA was not fraudulent or falsified. Under the BIMO program, FDA inspects non-clinical laboratories, clinical investigators, institutional review boards, sponsors, contract research organizations, and clinical trial monitors. The compliance goals of the program are achieved through a combination of surveillance, enforcement, and education. 

The Biologic’s BIMO program has focused on strengthening, and thereby enhancing, the 

FDA’s ability to promote the development and availability of safe and efficient clinical 

and non-clinical environments, exacting protocols, and investigational products protecting human subjects, and rendering accurate and reliable data. These efforts promote uniformity of action across FDA and provide a comprehensive, integrated BIMO program to 

oversee emerging products and technologies. 

I-53

MANAGEMENT DISCUSSION AND ANALYSIS


As part of ongoing efforts to ensure human subject protection in gene therapy trials, FDA 

and NIH are working together to establish gene therapy adverse event and patient tracking systems. 

FDA and NIH have taken both individual and cooperative actions to achieve greater 

adherence by researchers to existing requirements and guidance and to bolster the protection of study participants and the integrity of gene therapy trials. These include: 

• conducting more inspections to increase oversight of INDs in gene therapy; 

• issuing a proposed rule on the public disclosure of information regarding gene therapy 

clinical trials that would provide more information on these trials to the general public; 

• enhancing regulatory research to improve product safety; and 

• providing guidance documents to industry and other interested parties on gene therapy 

products and taking action to build upon existing guidance. 

The chart in below (Figure 11) shows the magnitude of investigational research. The 

number of INDs and IDEs received by CBER has increased since FY 1998. INDs/IDEs 

are submitted by sponsors, prior to clinical trials, to determine their safety and efficacy, 

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

Figure 11 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Biotechnology-produced products have increased dramatically in recent years. The number of INDs received by CBER rose from five in FY 1980, to 326 in FY 2001. During FY 

2001, FDA received 11,355 investigational amendments for biotechnology INDs. Much 

of this growth has been in the area of somatic cell/gene therapy and xenotransplantation 

products for which there were nine INDs in FY 1989, increasing to 118 INDs in FY2001. 

Adjunct procedures used in gene therapy, such as stem cell isolation, are also rapidly 

increasing, leading to a secondary rise in device and biological submissions related to this 

area. 

Performance Plan Goals 13 

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 PDUFA14 , which 

are primarily vaccines and therapeutics. CBER also has responsibility for reviewing and 

approving biologic products not covered by PDUFA. The non-PDUFA biological products are primarily 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 

terms of cohorts, e.g., the FY 2000 cohort includes applications received from October 1, 

1999, through September 30, 200015. 

Information is provided on two performance goals that cover PDUFA and non-PDUFA 

products. 

13 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 2000 performance data since 

the FY 2001 results are not available until 12 months after the cohort year. 

14 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. 

15 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, 10 or 12 months after the last submission received in FY 2001, depending 

upon the category of submission (for 12-month standard applications – November 2002, for ten-month standard 

applications – September 2002, and for priority original applications – April 2002). 

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MANAGEMENT DISCUSSION AND ANALYSIS


Performance Goal 

The FY 2000 cohort review performance goals covered under PDUFA for New Drug 

Applications (NDA), Product License Application (PLA), and Biologics License 

Application (BLA) are: 

• Review and act on 90 percent of standard original NDAs/PLAs/BLAs filed during 

FY 2000 within 12 months of receipt and review and act on 50 percent within 

10 months of receipt and review. 

• Review and act on 90 percent of priority original NDAs/PLAs/BLAs filed during 

FY 2000 within six months of receipt. 

Results 

CBER has met or exceeded its performance goals in FY 1994 through FY 2000. Table 5 

shows CBER’s performance on the PDUFA FY 2000 cohort. The data provided are as of 

September 30, 2001. 

The FY 2000 first-action performance goal is to review and issue a comprehensive action 

letter within the goal on at least 90 percent of the new product applications submitted and 

filed during FY 2000, and 50 percent within 10 months of receipt. This means that not 

more than 10 percent of new product applications received and filed during FY 2000 

should be overdue16 12 months after receipt (50 percent should be reviewed and acted on 

within 10 months of receipt). 

RTF = Refuse to File; UN = Unacceptable for filing (User Fee not paid); WF = Withdrawn 

before filing; 

16 Overdue is defined for standard new product as not having issued a comprehensive action letter within the specified 

timeframe (10 or 12 months) of receipt and filing of the application, and for priority original new products, it is 

defined as not having issued a comprehensive action letter within 6 months of receipt and filing of the application. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Performance Goal 

The FY 2000 cohort review performance goal for non-PDUFA products are: 

• Review and act on 85 percent of complete blood bank and source plasma PLA/BLA 

submissions filed during FY 2000 within 12 months of receipt. 

• Review and act on 90 percent of PLA/BLA major supplements within 12 months after 

submission date. 

Results 

CBER reported that its actual FY 2000 performance for blood bank and source plasma 

PLA/BLA and PLA/BLA major supplements exceeded their target. CBER achieved 

results of 100 percent in both instances. 

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 (CGMP) 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. 

Results 

CBER reported that it had exceeded its performance measure. Fifty-seven percent of its 

audience (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 certain manufacturing facilities once every two years. There are currently 2,790 establishments in the 

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MANAGEMENT DISCUSSION AND ANALYSIS


Biologics Program inventory covered under this statute. There are 2,898 additional establishments in the Biologics Program inventory not covered under this statute. 

This year’s result is the same as FY 2000. In FY 2000, FDA inspected 57 percent of the 

establishments in the Official Establishment Inventory, exceeding the goal of 50 percent. 

From March 7, 2001 Press Release, “FDA News” 

NEWLY FORMULATED DTaP (DIPHTHERIA, TETANUS, AND PER TUSSIS) 

VACCINE APPROVED WITH ONLY TRACE AMOUNTS OF THIMEROSAL 

Today, the FDA approved a newly formulated version of Tripedia, a diphtheria and 

tetanus toxoids and acellular pertussis (DTaP) vaccine without preservatives and with 

only a trace amount of thimerosal. 

“This approval is significant because now all routinely recommended pediatric vaccines will be available as either completely thimerosal free or without any significant 

amounts of thimerosal, a preservative that contains mercury,” said Dr. Bernard 

Schwetz, Acting Principal Deputy Commissioner. “Although thimerosal is a very 

effective preservative, the Public Health Service recommended that thimerosal 

should be reduced or eliminated from vaccines as soon as possible to minimize the 

exposure of infants and young children to mercury.” 

Tripedia now contains less than 0.5 micrograms of mercury per dose, a greater than 

95% reduction in the amount of thimerosal per dose compared to the original version 

of Tripedia. 

The pediatric vaccines that are recommended for routine use are: DTaP, hepatitis B, 

Haemophilus conjugate (Hib), pneumococcal conjugate, inactivated poliovirus, varicella, measles, mumps and rubella. Since 1999, pediatric formulations of hepatitis B 

vaccines that either contain no thimerosal (Recombivax HB) or trace amounts 

(EngerixB) have been approved. 

In recent years, various federal agencies have been addressing the health risks of 

mercury, which is found in the environment, in food and in household products. 

Although no harmful effects have been reported from thimerosal at doses that were 

used in vaccines, the PHS agencies, the American Academy of Pediatrics, and 

vaccine manufacturers agreed that thimerosal should be reduced or eliminated in 

vaccines to make already safe vaccines even safer. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Animal Drugs 

and Feeds 

FDA Programs 
MANAGEMENT DISCUSSION AND ANALYSIS


Animal Drugs and Feeds Program 

Background 

The mission of the Animal Drugs and Feeds Program, administered by the Center for 

Veterinary Medicine (CVM) and supported by ORA, is to protect the health and safety of 

all food producing, companion or other non-food animals; and, to assure that food from 

animals is safe for human consumption. 

The Animal Drugs and Feeds premarket program works to: 

•	 Increase the availability and diversity of safe and effective products for use in both 

food producing and non-food producing animals by the veterinary community; 

• Assure that only safe and effective animal drugs, devices, feeds and feed additives are 

approved for marketing; and, 

• Assure that foods from animals that are administered drugs, in accordance with label 

directions, are safe for human consumption. 

The Animal Drugs and Feeds postmarket program monitors marketed products and their 

manufacturers. This is accomplished through science-based review of drug experience 

reports, nationwide monitoring systems, and compliance programs implemented by FDA 

field offices. The field offices perform inspections, sample collections and analyses, and 

investigations. Regulatory actions are taken as needed and allowed by statute to control 

violative goods and firms. 

In addition, the Animal Drugs and Feeds Program’s educational initiative actively pursues 

partnerships with the major groups representing the feed and animal drug industries, state 

government regulators, and professional organizations. The education initiatives are 

designed to increase understanding and knowledge of animal drugs and feeds regulations 

among our stakeholders, which will help to improve compliance and overall program efficiency for CVM and its customers. 

Costs 

Fiscal Year Net Program Costs (000s) 

2001 $83,106 

2000 $63,591 

1999 $62,579 

The Animal Drugs and Feeds Program has experienced a 30.7 percent increase in net costs 

in FY 2001. This increase is attributed to funding for food safety initiative, for inspecI-60 
Food & Drug Administration FY 2001 CFO’s Annual Report


tions, and for premarket review activities. The net cost includes the total expenses for a 

program, including the allocation of overhead expenses (such as the Office of the 

Commissioner’s costs [e.g., administrative and policy direction], ORA’s field operations’ 

costs, rent, and other overhead), less exchange of revenue. 

Selected Initiatives, Goals, & Accomplishments 

Food and Drug Administration Modernization Act (FDAMA) Implementation 

Section 116 of FDAMA amended the Federal FD&C Act by adding section 506A describing the requirements and procedures for making and reporting post approval manufacturing changes to approved human and animal drug applications. FDAMA required CVM to 

amend the guidance on supplemental new animal drug applications to harmonize with the 

CDER and CBER requirements and procedures for making and reporting manufacturing 

changes to approved drug and license applications. In February 2001, CVM and CDER 

jointly published a guidance document for Industry entitled “BACPAC I: Intermediates 

in Drug Substance Synthesis – Bulk Actives Postapproval Changes: Chemistry, 

Manufacturing and Controls Documentation”. 

In addition, during FY 2001, Section 403 of FDAMA was implemented with the publication of a guidance document entitled “The Use of Published Literature in Support of New 

Animal Drug Approval”. Section 403 of FDAMA concerns the approval of supplemental 

applications for approved products. Among other things, Section 403 required FDA to 

issue guidance that defines supplemental applications that are eligible for priority review 

status, and specify data requirements that will avoid duplication of previously submitted 

data by recognizing the availability of data previously submitted in support of an original 

application. In FY 2001, CVM completed reviews of 1,223 NADA and 155 ANADA 

manufacturing supplements and reactivations. 

Activities Related to Prevention of Bovine Spongioform Encephalopathy (BSE) 

Since January 1998, FDA has conducted over 10,000 inspections on renderers, feed mills, 

ruminant feeders, dairy farms, protein blenders, feed haulers, and distributors to determine 

compliance with the 1997 feed rule entitled, “Animal Proteins Prohibited from use in 

Animal Feed”. Nearly, 90 percent, up from three-quarters of these establishments were 

found to be in compliance. In January 2001, FDA planned to re-inspect those firms that 

were not in full compliance with the rule. As of October 26, 200117, 719 re-inspections 

were reported, and of these, only 108 (or 86 percent) were found still to be out of compliance with the rule. Firms previously found to be not in compliance have corrected 

17 To provide accurate and consistent information, the latest update of October 26, 2002, is used. This information has 

already being reported in other public documents. 

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MANAGEMENT DISCUSSION AND ANALYSIS


violations through a variety of ways, including further training of employees about the 

rule, developing systems to prevent co-mingling, re-labeling their products properly, and 

adhering to record keeping regulations. Other firms have achieved compliance by eliminating prohibited materials from their operations. 

On April 24, 2001, the Acting Principal Deputy Commissioner approved the FDA 

Transmissible Spongiform Encephalopathies (TSE) Action Plan, which includes Bovine 

Spongiform Encephalopathy (BSE) and Chronic Wasting Disease (CWD) to protect the 

American public health by: 

• Strengthening FDA’s efforts to keep BSE out of the American cattle and keep it from 

amplifying in the herd were it ever to be found in American cows; 

• Improving FDA’s vigilance to keep potentially TSE-infected foods and other FDAregulated products from Americans; and 

• Enhancing the research needed to better understand TSEs and to develop needed 

diagnostic tools, therapies, and preventive measures for humans and animals. 

Food Safety Initiative 

CVM participates in surveillance, research, risk assessment and education and outreach 

activities under the Food Safety Initiative (FSI). 

Under s u rveillance activities, CVM has developed and coordinates the National 

Antimicrobial Resistance Monitoring System (NARMS) in collaboration with the United 

States Department of Agriculture (USDA) and Centers for Disease Control and 

Prevention (CDC). The system was initiated in response to public health issues associated with the approval of fluoroquinolone products for use in poultry. NARMS is designed 

to identify changes over time in the susceptibility of bacteria that cause foodborne diseases in humans to the antibiotics used to treat them. The system monitors antibiotics 

used in both humans and animals. The NARMS monitors antimicrobial susceptibility to 

17 antibiotics in Salmonella and E. Coli bacteria and eight antibiotics in Campylobacter 

organisms. Animal and human isolates currently monitored in NARMS are non-typhoid 

Salmonella, Campylobacter, E. coli, and Enterococci. Human isolates also include 

Salmonella typhi and Shigella. Listeria and Vibrio were added to the list of human isolates in 2001. 

In FY 2001, CVM expanded the NARMS program into sample testing of retail meats. 

Retail meats are collected and sampled for isolation of enteric organisms that may cause 

food borne illness and antimicrobial susceptibility testing of those organisms. A pilot 

study is currently being conducted in Iowa and planning and coordination is ongoing to 

conduct further monitoring of retail meats by five FoodNet sites through a NARMS interagency agreement with CDC. 

An animal feed component was added to NARMS in FY 2001. Planning was completed 

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Food & Drug Administration FY 2001 CFO’s Annual Report


between CVM, ORA and CDC on a project to monitor animal feeds for enteric organisms 

that cause food borne illness. The project includes FDA/ORA approval of the sampling 

protocol. 

Also, the NARMS Mexico project has been expanded into a three-year cooperative agreement with four sites in Mexico. The FDA pilot project with Mexico monitoring antimicrobial resistance in salmonella was completed in FY 2001. The study results indicated: 

a. 10 percent of healthy, asymptomatic children in Mexico are shedding Salmonella; 

b. Prevalence of Salmonella in retail pork is higher than in retail poultry; 

c. Resistance patterns in Salmonella isolates from humans and retail meat are very 

similar; 

d. There is a high prevalence of ciprofloxacin-resistant E. coli in both humans and retail 

meat, particularly poultry; and 

e. Both Salmonella and E. coli from meat tend to be more multi-drug resistant than 

these isolates from humans. 

Under research activities, CVM is funding cooperative agreements to study the microbiological hazards associated with the food animal production environment, which includes 

animal feeds. In addition, the expansion of NARMS required a third testing site in order 

to handle the increased number of isolates. Hence, the CVM Office of Research microbiology facility was selected to isolate, identify, and susceptibility test retail food samples. 

CVM conducted a quantitative risk assessment due to new evidence that drugs used in 

poultry can cause antibiotic resistant infections in humans, and to better estimate the risks 

posed from the use of antimicrobials in food producing animals. In November 2000, 

CVM finalized the quantitative risk assessment entitled “The human health impact of fluoroquinolone resistant Campylobacter associated with the consumption of chicken.” 

Based partly on the results of the Campylobacter risk assessment, CVM proposed to withdraw approvals of the two new animal drug applications for use of the fluoroquinolone 

antimicrobial drugs in poultry. One of the two sponsors, Abbott has voluntarily withdrawn the product. Bayer is requesting a hearing. If the approval is withdrawn, this drug 

would no longer be legally marketed for this indication. Other approval uses of fluoroquinolones in cattle, dogs, and cats are not affected by this proposal. 

In April 2001, CVM decided to conduct a quantitative risk assessment on the human 

health impact of the development of the streptogramin (quinupristin/dalfopristin) resistant 

Enterococcus faecium in humans that is associated with the use of streptogramins (virginiamycin) in food-producing animals. CVM completed a feasibility study and determined that there was sufficient data either available or forthcoming to support a quantitative risk assessment of the human health impact from the use of virginiamycin in foodproducing animals. 

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MANAGEMENT DISCUSSION AND ANALYSIS


An advance notice of public rulemaking (ANPRM) for import tolerances was published 

in the Federal Register in August 2001. The notice seeks comments on the CVM plan to 

propose a regulation for establishing drug residue (import) tolerances for imported food 

products of animal origin for drugs that are used in other countries, but that are unapproved animal drugs in the U.S. The issues and questions developed for the ANPRM 

regarding import tolerances will be the subject of a meeting of the Veterinary Medicine 

Advisory Committee scheduled for January 22, 23 and 24, 2002. 

Under educational and outreach activities, CVM focused on food safety education with 

the production of two videos, “Keeping Your Guard Up” and “Safeguarding America’s 

Health”. In addition, four brochures were printed and distributed on the prudent and judicious use of antimicrobials for dairy, beef, poultry, and swine practitioners; two brochures 

were printed and distributed on judicious use of antimicrobials for pork and poultry producers. Also, throughout the year, CVM participated in numerous consumer, industry and 

government conferences (in the United States and overseas) in order to discuss antimicrobial resistance and other food safety initiatives. 

Performance Plan Goals 

Premarket Review 

The first strategic goal the Animal Drugs and Feeds Program presented in the FDA


FY 2001 Performance Plan was to increase the availability and diversity of safe and effec­


tive animal drugs and feeds.


CVM strives to increase the availability and diversity of animal drugs and feeds by being 

involved throughout the new animal drug approval process. The Agency is committed to 

improving the review time for new animal drug application, and improves review time by 

working with industry sponsors. “Phased review” provides industry sponsors with timely feedback on product applications and may also detect application deficiencies early in 

the drug approval process. Efforts such as pre-submission conferences, electronic submissions, and guidance documents also help increase industry and FDA efficiency, thereby reducing overall developmental costs. 

During FY 2001, CVM processed 5,600 submissions for new animal drug applications 

(NADAs), abbreviated new animal drug applications (ANADAs), investigational new 

animal drug files (INADs), generic investigational new animal drug (JINADs) files, master files, and general and related correspondences. The processed submissions included 

65 NADAs and ANADAs (original and reactivations) and 1,444 for supplements (original and reactivations) to previously approved NADAs and ANADAs. In addition, 264 

phased data review submissions under INADs and JINADs to support approvals were 

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Food & Drug Administration FY 2001 CFO’s Annual Report


completed by the Center during FY 2001. 

In FY 2001, CVM published 40 documents in the Federal Register regarding significant 

NADAand ANADA approvals, and a food additive petition. Significant approvals included: two new chemical entities, seven products for use in a new animal species/class, two 

new dosage forms of a previously approved product and one product available in a new 

dosage (with flexible administration). In addition, other approvals included eight original 

generic approvals and three new product indications. 

Performance Goal 

Review and act on 75 percent of New Animal Drug applications (NADAs) and 

Abbreviated New Animal Drug Applications (ANADAs) within 180 days of receipt. 

Results 

CVM reviewed and acted on approximately 50 percent of New Animal Drug applications 

(NADAs) and Abbreviated New Animal Drug Applications (ANADAs) within 180 days 

of receipt. 

CVM found it necessary to shift focus in its performance regarding animal drug application review in FY 2001. The Office of New Animal Drug Evaluation (ONADE) needed 

to reduce the backlog of overdue documents. This required working on the oldest, already 

overdue documents. Decreasing the backlog was necessary in order to move CVM back 

on track towards meeting statutory and stakeholder requirements for new animal drug 

application review. By taking the step of closing out the most overdue documents, CVM's 

on time completion rate for NADAs and ANADAs was adversely affected this year. 

Although approximately 50 percent of NADAs and ANADAs were reviewed on time in 

FY 2001, CVM reduced its backlog of pending overdue documents by 1,334 from 2,234 to 

9 0 0 . 

Postmarket Activities 

The second strategic goal the Animal Drugs and Feeds Program identified in the FDA FY 

2001 Performance Plan was to reduce the risks associated with marketed animal products. 

Once animal drugs and feeds are marketed, FDA continues to manage public health risks 

through activities such as inspections and antimicrobial resistance monitoring. 

Surveillance of marketed products and industry is accomplished through review of drug 

experience reports, and nationwide monitoring and compliance programs. The field office 

performs inspections, sample collections and analysis, investigations and other activities. 

FDA surveillance systems identify potential human and/or animal health hazards. The 

surveillance systems provide information that assists FDA in the development of strategies to prevent, minimize, or contain problems (such as withdrawing marketed drugs to 

I-65 
MANAGEMENT DISCUSSION AND ANALYSIS


protect human and animal health). 

Performance Goal 

Maintain biennial inspection coverage by inspecting 50 percent of registered animal drug 

and feed establishments. 

Results 

The goal was not met in FY 2001. The program did accomplish 37 percent biennial 

inspection coverage of registered animal drug and feed establishments. 

The need to perform BSE inspections became a higher priority in FY 2001 because of the 

increase in reported cases of BSE in Europe. To minimize the risk of BSE introduction 

into U.S. cattle herds and to protect the health of American citizens, the program received 

contingency funding. After re-establishing priorities within the field portion of the 

Animal Drugs and Feeds Program, BSE inspections were instituted to ensure that 100 percent of renderers, protein blenders, and feed mills were inspected; and to conduct sample 

analysis to assure compliance with the BSE regulation. The BSE crisis in England and 

Europe made it apparent that 100 percent of renderers, protein handlers, and feed mills 

handling prohibited material would need to be inspected every year to continue to protect 

US cattle herds from BSE and the health of American citizens. 

Based on this change in priorities, the goal for FY 2002 has been changed to include reinspection of 100 percent of firms found to be out of compliance, 100 percent of renderers, protein handlers, and feed mills, handling prohibited material, and as many other 

firms in these businesses, as resources allow, that we currently have listed as not handling 

prohibited materials, and to conduct sample analysis as needed to assure compliance with 

the BSE regulation. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


From FDA Consumer Magazine, January-February 2001 

A New Kind of Fish Story: The Coming of Biotech Animals 

Potatoes with built-in insecticide. Rice with extra vitamin A. Decaf coffee beans fresh off the tree. 

Just when Americans have begun to digest the idea of custom-built crops, along comes another 

major advance in biotechnology that could make an even bigger splash onto the dinner plate: 

genetically engineered fish. 

Using the same type of gene transfer techniques that give plants new, more desirable traits, scientists have created a genetically engineered variety of Atlantic salmon that grows to market weight 

in about 18 months, compared to the 24 to 30 months that it normally takes for a fish to reach that 

size. For fish farmers, raising these so-called transgenic fish could be faster and cheaper because it 

takes less feed and about half the time to produce a crop they can send to market. 

Despite these benefits, genetic engineering of animals has met with some of the same resistance 

already aimed at designer crops. Critics cite ecological concerns, ethical objections and 

food-safety issues. 

But no matter how transgenics is applied, the Food and Drug Administration will play a key role 

in regulating the products resulting from this rapidly emerging genetic technology. This means that 

any drug or biologic created through transgenic techniques will need to undergo the same FDA 

scrutiny as any other treatment that a company wants to market, including clinical trials that 

demonstrate safety and effectiveness. And while it’s still too soon to tell how quickly foods 

derived from transgenic animals will move to the market, FDA has already begun to focus on how 

it will ensure that they meet the same safety standards as traditional foods. 

Making a transgenic animal is deceptively simple, especially when compared to traditional breeding approaches. With genetic engineering, scientists possess the tools to isolate and manipulate 

single genes in the laboratory. 

the fertilized eggs of animals in such a way that the new gene is turned on in the resulting adult. 

However, when it works, the result is a new individual of a variety of animals with a characteristic 

never before seen. The individual animal can then be multiplied by conventional breeding. The 

resulting animal may be enormously valuable. ­

genics remain intriguing, the animal health and food production applications seem to be generating 

most of the new excitement and considerable concern. 

The best example so far of the transgenic strategy in food animals, and its success, is the fastergrowing salmon. 

In general, CVM’s [John] Matheson, [toxicologist] says that for animal safety, the goal of regulating products of animal biotechnology is to ensure healthful surroundings, proper medical treatment, discovery of any special management measures needed, and freedom from pain and suffering. already has the legal authority to regulate most products derived from transgenic animals, whether they are used as drugs, as human food, or as animal feed. Therefore, only guidances 

or regulations that cover specific aspects of animal biotechnology may need to be added-not whole 

new statutory frameworks for regulating the products. 

Most of the gene-based modifications of animals for food production fall under CVM regulation 

as new animal drugs. The genetically modified growth hormone for the fish, for example, will be 

regulated the same way the agency regulates bovine somatotropin, the genetically engineered 

bovine growth hormone that makes cows produce more milk. Transgenics simply provides another 

means to add growth hormone to an animal. 

At this time, no transgenic animals have been approved to enter the human food supply, but a few 

individual transgenic animals have been allowed to be rendered and used in animal feed. 

In recent years, researchers have learned to insert single genes into 

But even though the medical applications of trans

FDA 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Toxicological Research 

FDA Programs 
MANAGEMENT DISCUSSION AND ANALYSIS


Toxicological Research 

Background 

The National Center for Toxicological Research (NCTR) 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. Specific aims of NCTR’s 

research are: 

• To develop new strategies, methods, and systems to predict toxicity and anticipate 

new product technology in order to support FDA’s commitment to bring this 

technology to the market rapidly. 

• To understand mechanisms of toxicity and design better risk assessment/detection 

techniques and methods for use in premarket review and product health surveillance. 

NCTR provides FDA with a high-quality, cost-effective, health science research program, 

that supplies new scientific knowledge through the application and leveraging of research 

findings from NIH, partnerships with other federal agencies, national and international 

organizations and academia to enhance the Agency’s regulatory practices. 

As a critical resource for enhancing the science base of the FDA, the NCTR Center 

Director and scientists foster scientific forums with NCTR’s stakeholders, namely the 

FDA Centers and ORA. These recurring discussions allow NCTR the opportunity to present and validate its planned/ongoing research, as it relates to the Agency’s priorities, as 

well as to solicit the anticipated research needs of the product centers and ORA. 

Costs 

Fiscal Year Net Program Costs (000s) 

2001 $43,033 

2000 $43,347 

1999 $40,420 

The Toxicological Research Program experienced a 0.7 percent decrease in net costs in 

FY 2001. This decrease is due in part to the large amount of exchange revenue received 

by the program. The net cost includes the total expenses for a program, including the allocation of overhead expenses (such as the Office of the Commissioner’s costs [e.g., administrative and policy direction] and other overhead), less exchange of revenue. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Selected Initiatives, Goals and Accomplishments 

New Internet Journal to Foster Regulatory Research 

In July 2001, NCTR launched an Internet journal entitled, Regulatory Research Perspectives: Impact on Public Health. This journal is meant to provide FDA scientists a means 

of communicating specific information to colleagues within the Agency and the scientific and public community in general. Contributions are solicited from every FDA Center 

and the Office of the Commissioner. It is hoped that these articles are written in plain language so that the topics that are of significance to FDA may reach a broad audience. The 

first article is summarized on page I-74 [see box] and may be found at 

www.fda.gov/nctr/science/journals/Default.htm. 

Performance Plan Goals 

Risk Assessment for Regulated Products 

As identified in the FDA FY 2001 Final Performance Plan, the first strategic goal of 

NCTR 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 human products. This capability is critical to the Agency’s ability to carry out its 

mission to analyze the safety and efficacy of FDA-regulated products during the premarket application 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 must be developed, validated, and applied. NCTR uses a multidisciplinary approach 

to predict human toxicity and to evaluate human risk using appropriate animal and nonanimal models. 

Performance Goal 

Introduce the knowledge of new genetic systems and computer-assisted toxicology (bioinformatics) into the application review process. The performance measure for FY 2001 is 

to provide peer reviewed articles on new genetic and transgenic systems and knowledge 

to product reviewers. 

Currently, industry has been submitting drug applications with data from transgenic systems. It is critical that NCTR scientists in collaboration with Agency reviewers understand and accurately interpret data derived from these systems in safety assessments. 

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MANAGEMENT DISCUSSION AND ANALYSIS


NCTR is developing, evaluating, and comparing in vivo and in vitro transgenic systems 

and computer-assisted technology knowledge bases for this purpose. Reviewer requests 

for data or information on transgenic systems will be the measure of applicability to the 

review process. 

Results 

NCTR geneticists have developed a new in vivo assay for the evaluation of mutant induction. This assay was modeled after the in vitro assay, the mouse lymphoma assay, already 

used internationally for hazard identification. The assay uses the thymidine kinase gene 

(tk) and the in vitro assay has been extensively evaluated for its mechanistic basis shown 

to detect most, if not all, of the mutational events important to the induction of cancer and 

other human diseases. 

FY 2001 performance results include: 

• Submission of the findings of the mouse targeted Tk+/- in vivo system for publication 

in the peer-reviewed Journal of Environmental and Molecular Mutagenesis; 

• Submission of a manuscript reflecting the results of the transgenic model for mutation 

detection using fluorescent markers for review; and 

• Publication of a manuscript in the journal Mutation Research that describes the 

evaluation of genotoxicity of phytoestrogens in the AHH-1-human lymphoblastoid 

system. 

Methods for Use in FDA Standards Development and Product Risk Surveillance 

Another of NCTR's strategic goals is to conduct research to understand mechanisms of 

toxicity, assess new product technology, and provide methods for use in FDA standards 

development and product risk surveillance. 

FDA has continuously sought to strengthen its scientific basis for food safety policies and 

regulatory decisions through the development of novel, vigorous risk assessment (models 

and techniques), and through the use of artificial intelligence and computational science 

for risk assessment. 

Performance Goal 

Develop methods and build biological dose-response models to replicate bacterial survival in the stomach. The FY 2001 performance measure is to provide a model to replicate bacterial survival in the stomach. 

NCTR is developing methods to identify markers of foodborne pathogens and to assess 

whether these microorganisms are undergoing change, thus becoming more virulent. To 

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Food & Drug Administration FY 2001 CFO’s Annual Report


address the question of human risk from food pathogens, NCTR scientists have worked to 

build biologically based dose-response models of microbial infection to assess survival, 

growth, and infectious components of microbial risks. Research within this goal capitalizes on partnerships with other FDA centers (CVM and CFSAN) and with other agencies 

such as the U. S. Department of Agriculture. 

Results 

In collaboration with CVM, NCTR microbiologists have been performing pre-validation 

studies on an in vitro system that examines the effect of low-level antibiotic residues on 

the human intestinal microflora by using a chemostat to model the human intestinal tract. 

The effect of the antibiotic residues is determined by (a) change in cell numbers of target 

intestinal microflora species, (b) changes in the metabolic activity of the fecal flora, (c) 

development of bacterial strains resistant to the test antibiotic, and (d) disruption of the 

resistance to colonization by pathogenic microorganisms (barrier effect). Using this in 

vitro system, three different concentrations of the fluoroquinolone antibiotic ciprofloxacin 

were tested. Studies clearly indicate that the in vitro culture system can be a valuable tool 

to evaluate the effects on the human intestinal microflora of low levels of antimicrobial 

agents in food. 

The spread, transfer, and prevalence of antibiotic-resistant pathogenic microbes may have 

a major public health impact and the cost of treatment could strain the public health care 

system. NCTR scientists are equipped and will continue to find scientific solutions to this 

emerging public health issue. 

Performance Goal 

Use new technologies (bioinformatics, imaging, proteomics, and metabonomics) for diagnosis of toxicity. This is a new performance goal for FY 2001. The performance measure is to develop at least three concept papers exploring new technologies for the assessment of toxicity. 

Staying abreast of new technologies in science is important for the Agency to protect public health. These new technologies have great promise on the mechanistic understanding 

of toxicity responses in the human as well as in rodent surrogate systems and will establish core competencies within FDA that can form a foundation for future high technology 

science. 

Results 

Three concept papers submitted and approved under this performance goal include: 

• Design and analysis of gene array expression data. This protocol includes developing 

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MANAGEMENT DISCUSSION AND ANALYSIS


statistical and computational procedures for the design, analysis, and interpretation of 

gene expression data from microarray experiments. 

• Development of glass-slide based oligonucleotide microarrays for rat and human 

genes. This project includes developing, printing, and establishing the methodology 

for using a “rat chip” containing approximately 4,000 genes and a “human chip” 

containing approximately 8,300 genes. 

• Two-dimensional micro-LC-proteonomics using stable-isotope affinity tags for 

differential display of toxicity-induced biomarkers. This project addresses the need to 

develop biomarkers of toxicity, disease progression/regression, and efficacy of drug 

treatment. 

Techniques developed under this goal will further utilize the emerging knowledge of the 

human genome and rapid biological analyses to improve human health, and to insure the 

safety of marketed products. 

FDA/NCTR, Regulatory Research Perspectives: 

July 2001, Volume 1, Issue 1 

Human Health Impact and Regulatory Issues Involving Antimicrobial 

Resistance in the Food Animal Production Environment 

Antibiotics are the “miracle drugs” used for treatment and prevention of disease in humans, pets, 

and in food producing livestock, poultry, and fish. 

from farms and animal carcasses are raising concerns that antibiotic use in agriculture may play a 

role in selecting for antibiotic resistance among foodborne bacteria. gence of antimicrobial 

resistance is a very controversial issue. 

Some contend that the indiscriminate use of antibiotics in agriculture creates a reservoir of resistant microorganisms in the environment that could infect humans through the food chain. 

contend that the abuse of antibiotics in human medicine may instead be largely responsible for the 

increase in antibiotic resistance. Animal drug industry representatives feel that there is not enough 

evidence to conclusively demonstrate a link between the use of antibiotics in food animals and the 

emergence of antibiotic-resistant bacteria. Thus, the research and regulatory issues on anti-microbial used in food-producing animals are of great importance to the FDA and the NCTR. 

To address issues involving antibiotic resistance, NCTR has established collaborative research 

agreements with the FDA's Center for Veterinary Medicine (CVM), the Arkansas Poultry and 

Livestock Commission, and the Department of Poultry Sciences, University of Arkansas, 

Fayetteville, Arkansas. 

chicken and turkey growers. , NCTR microbiologists: 

• developed simple, rapid, sensitive detection techniques to identify pathogenic, drug resistant 

strains of bacteria; 

• developed a standardized assay for determining the effectiveness of competitive exclusion 

products; and 

• are developing new in vitro systems to assess the safety of drug residues. 

NCTR provides results of its investigations to the FDA to assist in formulating regulations to help 

contain the spread of drug-resistant microorganisms and protect the efficacy of the “miracle drugs” 

for future use. 

Impact on Public Health, 

Reports of antibiotic-resistant bacteria isolated 

Emer

Others 

In addition, the NCTR has established collaborative agreements with 

Specifically

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Food & Drug Administration FY 2001 CFO’s Annual Report


Financial Management 

and A n a l y s i s 
MANAGEMENT DISCUSSION AND ANALYSIS


Financial Management and Analysis 18 

The purpose of this chapter is to provide an overview of FDA’s Chief Financial Officer’s 

organization, highlight key financial performance results and select administrative accomplishments, and review the status of FDA’s systems, controls and legal compliance. The 

chapter will also examine FDA’s principal consolidated financial statements – highlighting significant changes from the prior year. 

FDA’s Chief Financial Officer’s Organization 

The Senior Associate Commissioner for Management and Systems serves as FDA’s Chief 

Financial Officer and head of the Office of Management and Systems (OMS) within in the 

Office of the Commissioner. The OMS provides the infrastructure and support for FDA’s 

programs to conduct their work. These programs include human resource management, 

budget preparation and financial management, procurement and grants management, 

logistical and facilities services, and information networks and systems. 

organizational chart. 

The FDA CFO measures financial management performance to comply with external 

requirements, improve internal processes, and strengthen management controls and systems. The results provide timely and accurate information on FDA’s financial condition, 

cost of operation, and future resource assessments. 

Financial management performance goals are developed in a number of ways: 

• Good management practice within the OMS. The FDA CFO reports on select 

administrative accomplishments through the annual OMS performance report that 

describes the major OMS initiatives and results achieved during FY 2001. 

Director, Office of 

Human Resources & 

Management Services 

Director, Office of 

Financial Management 

(Deputy CFO) 

Director, Office of 

Facilities, Acquisition, 

& Central Services 

Chief Information 

Officer 

Senior Associate Commissioner for 

Management & System 

(Chief Financial Officer) 

Figure 12 

18 The Department’s Accounting Manual, Chapter 5-20, “HHS Annual Financial Report, 

“C”, requires the Management Discussion and Analysis to include major program and financial management goals, 

objectives, and results. 

See Figure 12 for 

Section 5-20-20, sub-section 

It also requires discussion of the financial statements and financial condition. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


• FDA’s submission to the DHHS Financial Management Plan. This is a forward 

looking document spanning a five year period by which DHHS and its operating 

divisions seek to improve financial management processes and systems, and 

implement new financial requirements. 

Since 1990, there has been an explosion of laws impacting financial management. The list 

of legislation19 requiring action related to financial management includes: 

• Chief Financial Officers Act of 1990 

• Government Performance and Results Act of 1993 

• Government Management Reform Act of 1994 

• Federal Acquisition Streamlining Act of 1994 

• Federal Financial Management Improvement Act of 1996 

• Debt Collection Improvement Act of 1996 

• Information Technology Management Reform Act of 1996 

• Travel and Transportation Reform Act of 1998 

• Federal Activities Inventory Reform Act of 1998 

• Federal Financial Assistance Management Improvement Act of 1999 

• Reports Consolidation Act of 2000 

• Corrective Action Plans arising from annual financial statements audit reports. These 

plans contain process improvement goals for correcting identified conditions found in 

the financial statement audits. 

Selected Initiatives, Goals, and Accomplishments 

Selected several initiatives that were accomplished during FY 2001. These are described 

below. 

Complete the roll-out of the Enterprise Administrative Support Environment 

(EASE) to the entire Agency. 

The Office of the Information Resources Management (OIRM) reported that it completed 

its objective—over 9,000 employees are on the EASE system, except for multiple 

appointment consultants who are still being paid manually at this time. 

The completion of this goal will permit the full migration to electronic time and attendance—thereby improving efficiency of processing time records and improving the effectiveness in regards to accuracy of records inputted into the system. 

19 See Appendix 2 for a description of the laws affecting Federal financial management today. 

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MANAGEMENT DISCUSSION AND ANALYSIS


Improve network management through a variety of process improvements. 

The FDA wide area network was migrated from the Federal Telecommunication System 

2000 to the FTS 2001 contract. The network topology was reengineered for better performance. OIRM also implemented new equipment that can support performance and 

security features. 

Survey the FDA workforce to determine the quality of work life satisfaction. 

The Office of Human Resources and Management Services reported that 80 percent of the 

employees say that they are able to balance their work and family life due to programs 

such as “any 80 hours worked, flexiplace arrangements, and alternative work schedules.” 

FDA has eighteen percent of the workforce participating in some sort of work at home 

program. When compared to the overall Federal participation of three percent, FDA is 

one of the leaders in using alternative programs. 

Improve the labor management by participating in initiatives that promote wellbeing of FDA employees. 

The FDA and National Treasury Employees Union established a national labor-management partnership council in early FY 2001. During the past year, they developed a joint 

Collective Bargaining Agreement training, established the FDA Smoking Cessation 

Program; and developed the FDA Child Care Subsidy Program. 

Create a FDA Facilities Operation Plan 

The Office of Facilities, Acquisition, and Central Services (OFACS) implemented a facilities operations plan that will enable them to improve the level of service to FDA Centers 

and to ORA. This plan has a number of operational changes that will improve communications, improve performance and solicit customer feedback which should increase the 

level of trust and confidence in the Centers and ORA in OFACS’s provision of services to 

these organizations. 

Improve FDA’s Security Program 

OFACS recruited and hired a highly qualified Director of Security Operations, Policy, and 

Planning for the Agency. It also developed a FDA contingency of operations plan 

(COOP). 

OFACS established enhanced security measures at FDA headquarters and Field locations 

after the terrorist attack of September 11, 2001; and is conducting an assessment of security needs at each FDA facility. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Improve communication with budget stakeholders inside and outside of the 

Department. 

The Office of Financial Management (OFM) and other units within the Agency worked 

closely to improve the communication of FDA resource issues and mission priorities with 

Departmental, OMB, and congressional staffs. OFM facilitated informational briefings 

and visits to FDA facilities to improve the understanding of FDA’s mission. 

Funds Control 

OFM developed a new training manual on procedures for implementing reimbursable 

inter-agency agreements where FDA receives income from other agencies. Training sessions were conducted for all of FDA components. 

Gainsharing Initiative 

Working with the Office of Human Resources and Management Services and the FDA’s 

Union, National Treasury’s Employees Union, OFM established a travel gainsharing program in FDA. The new General Services Administration (GSA) approved effort allows 

employees to share in the savings when they contribute Frequent Flyer miles to defray the 

cost of TDY transportation, or stay in lodging that is less than GSA approved amounts. 

Travel Manager Project 

OFM is implementing “Travel Manager,” an off-the-shelf software system throughout 

FDA. This software is used throughout the federal government for automating the travel 

process. The software includes: 

• Generating Travel authorization and vouchers with electronic signature approval; 

• Initiating electronic payments to travelers; and 

• Provide updated per diem rates and carrier rates. 

Accomplishments for FY 2001 include: 

• Initiated Phase II of the Travel Manager project where the goal is to have the FDA 

traveler paid within 48 to 72 hours after final approval of the voucher. To achieve 

this goal, a set of audit rules was established where the authorization and voucher 

were actually audited within Travel Manager eliminating the need for an audit of 

the voucher; 

• Developed an accounting interface that eliminated duplicate data entry of 

obligations into FDA’s accounting and Center Financial Management systems. This 

eliminated the main cause for delays in paying FDA travelers; and 

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MANAGEMENT DISCUSSION AND ANALYSIS


• Trained the EASE Help Desk in resolving user related Travel Manager problems, 

leveraging the Help Desk already established in support of the EASE project. 

Streamlining Financial Processing in the Field 

To meet the requirements for the new DHHS unified financial management system, OFM 

is consolidating its Treasury payment and collection operations from 15 agency location 

codes (ALC) to one, and reducing the number of field office accounting points from 25 

to seven. This centralization would enable OFM to manage the payment disbursement 

and receivable collections from one location. This will facilitate the preparation and generation of Treasury reports, but more importantly, allow OFM to meet the increasing 

demands from DHHS and OMB, support compliance to the Federal Financial 

Management Improvement Act and OMB Circular A-127, and enhance security by meeting the internal controls recommended by OMB Circular A-130. The one ALC structure 

is consistent with JFMIP approved off the shelf Core Accounting Systems. A project team 

has developed a concept of operations model to scope out the type of financial management that should be performed by OFM and other components. 

Financial Management Performance Measures and Results 

Financial Statements Audit 

OFM prepares annual financial statements as set forth by the requirements of OMB 

Bulletin 97-01, “Form and Content of Agency Financial Statements,” as amended, 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 issues the audit opinion and reports of findings and recommendations and 

compliance with laws and regulations. 

Several performance measures address the results of the financial statements audit. These 

are summarized in Table 6 for the past four years with the number of findings in parenthesis. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


For the five reporting periods (FY 1997 through 2001), FDA has received four unqualified 2 0 

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 past 

four periods, FDA received no material weaknesses.21 FDA has made considerable 

progress in resolving three material weaknesses that were declared in the FY 1997 CFO 

audit report. In the subsequent audit reports, these prior findings were lowered to the level 

of reportable conditions due to corrective efforts implemented by FDA. 

In the FY 2000 audit report, FDA received a reportable condition in FDA’s information 

systems controls and a finding of non-compliance to the Federal Financial Management 

Improvement Act (FFMIA). A series of short-term and long-term actions was implemented to address these findings. The long-term actions addressed the eventual replacement of FDA’s financial management system with a system that meets all of the Executive 

Branch requirements. In June 2001, the Secretary of HHS, in keeping with his one 

“DHHS” centralization theme, decided against decentralized accounting systems proposed by DHHS operating divisions. He chose an approach that included two financial 

management systems that would serve the Department and its operating divisions. Since 

the Secretary’s announcement, FDA personnel have actively participated in the 

Department’s planning efforts for the unified system to help ensure that the system satisfies FDA’s financial requirements. 

The FY 2001 audit report included one reportable condition in FDA’s information system 

controls and the same FY 2000 finding of non-compliance to the FFMIA. FDA made 

improvements to address the deficiency in FDA’s information systems controls. Some of 

these included the completion of certification and accreditation statements for FDA’s general support system, and implementation of new procedures covering tracking software 

changes, dial-up point-to-point account management, and test plan standards. To address 

the continued FFMIA non-compliance, FDA is working to ready itself for the eventual 

implementation of the DHHS system by consolidating accounting reconciling and reporting functions, conducting data assessment and clean up, and preparing the Agency financial community for the coming changes. 

20 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 applicable to the entity. 

21 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 or Required Supplementary Stewardship Information 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 AND ANALYSIS


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 facilitate reconciliation process, and to 

improve collection procedures for monies that are owed to DHHS. 

Compliance with Prompt Payment Act 

FDA had a FY 2001 target of 96 percent of commercial vendor payments made on time. 

FDA reported that it had achieved a payment rate of 98.7 percent which meant it had met 

its objective. 

In a related matter, the Division of Accounting conducted a process reengineering initiative examining invoice payments, specifically those that require receiving reports prior to 

payment. The process improvement team included members from OFM and the Centers. 

This collaborative effort resulted in reduced interest payments and increased customer satisfaction by maximizing the use of e-mail notification to match or follow-up on receiving 

reports, by providing training to OFM staff, and by establishing a central contact point to 

focus on receiving report issues. The result will be reduced interest penalties paid by the 

Agency. 

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. 

This requirement became effective in DHHS during the middle of FY 2000. 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 any problem area. 

The FY 2001 target of timely payment of approved travel vouchers within 30 calendar 

days of submission to first-level reviewing officials is 95 percent. During FY 2001, 

97 percent of approved travel vouchers were paid within 30 calendar days, which exceeded the goal. 

Improve collection of debt owed to FDA 

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 2001 target was to increase collections by ten percent over the prior year. FDA 

accomplished this target in FY 2001. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Contracting Program 

OFACS administers contracts, small purchases, Bankcard (credit card) program, and 

grants. In FY 2001, the total of the contracting program was $145.6 million in contracts, 

$131.5 million in simplified acquisitions, $29.4 million in Bankcard transactions, $51 million in interagency agreements, and $26.1 million in grants. See Figure 13 for a graphic 

representation. 

Figure 13 

Bankcard Actions 

FDA has participated in this purchase card program since 1989. Currently, all FDA components are using the cards. Cardholders are authorized for transactions of no more than 

$2,500 per single purchase (with some exceptions), and are subject to monthly cumulative 

limits. Cardholders can acquire 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 2001, FDA completed 77,926 purchase card transactions. The Agency’s usage 

trend can be seen graphically in Figure 14 on next page. Improvements for FY 2001 

include the development of a web-based training for cardholders, approving officials and 

central control points. 

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MANAGEMENT DISCUSSION AND ANALYSIS


Figure 14 

Simplified Acquisition Actions 

The term, “Simplified Acquisitions,” apply 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 off of the GSA Schedule under $2,500 may be purchased 

without further competition; however, purchases over $2,500 must be competed amongst 

GSA Schedule vendors. In FY 2001, FDA experienced some growth in this purchase type. 

See Figure 15 to display nine years of simplified acquisitions actions. 

Figure 15 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Systems, Controls, and Legal Compliance 

The Federal Accounting Standards Advisory Board requires the Management Discussion 

and Analysis to address the systems, controls, and legal compliance22 that support the 

preparation of financial statements and financial documentation. This is accomplished 

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 all levels of management throughout FDA to become involved in the FMFIA review and reporting process. This approach 

utilizes 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. As such, 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. 

Management Controls Review 

During FY 2001, 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 FY 2001 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 currently conform to these requirements because the prior year’s 

Chief Financial Officer’s (CFO) Act audit findings reveal several instances of non-compliance to the FFMIA. 

The Offices of Financial Management and Facilities, Acquisition, and Central Services 

developed a corrective action plan outlining the actions needed to remove the finding of 

non-compliance to FFMIA. Since the Secretary’s June 2001 announcement creating a 

unified financial management system (UFMS), FDA personnel have actively participated 

in the development and implementation of the system. Additionally, FDA has undertaken specific activities, such as streamlining accounting functions and consolidating 

Treasury disbursing activities in field locations, to prepare for the deployment of the 

UFMS. 

22 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. 

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MANAGEMENT DISCUSSION AND ANALYSIS


Financial Analysis 

The purpose of this section is to provide a discussion on the principal financial statements 

highlighting significant changes from the prior year conditions. 

Financial statement reporting is required to be displayed in several formats as specified by 

the Federal Accounting Standards Advisory Board and OMB Bulletin 97-01, “Form and 

Content of Agency Financial Statements,” as amended. The purpose of the five required 

financial statements are summarized in Table 7: 

Table 7 

Financial 

Statement Description 

Balance Sheet Reports the operating assets, liabilities, and net position. 

"snap-shot" of FDA's financial condition as of the fiscal year-end. 

Changes in 

Net Position 

Provides information on the changes in financial position from year to 

year and the causes of the changes. 

Net Cost 

Breaks down total expenses by the seven 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. 

Budgetary 

Resources 

Provides information on total budgetary resources available, the status 

of those resources, and outlays. 

whether budgetary accounting rules are being followed. 

One must be careful to recognize the differences between expenses 

recorded on an accr ual basis of accounting as compared to obligations 

reported on the Statement of Budgetary Resources. 

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. 

Provides a 

Helps to assess budget execution and 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Discussion on Select Financial Statements 

Agency’s Financial Condition 

The balance sheet reflects a positive net position (assets less liabilities). When compared 

to the past three fiscal years (FYs 1998, 1999, and 2000), the growth of net position as 

shown in Figure 16 is due to a variety of reasons. FDA has been revitalizing its physical 

infrastructure for several years. New state-of-the-art scientific equipment, office furniture, counter-bioterrorism initiative, and building related systems were acquired to outfit 

new regional laboratories (ORA’s New York and Arkansas Regional Laboratories) and 

headquarters consolidation (the Center for Food Safety and Applied Nutrition is moving 

to College Park, Maryland in February 2002). FDA received additional appropriated 

monies for premarket review activities. However, the most significant reason is the civil 

monetary penalties derived from Federal court-approved consent decrees. For FY 2001, 

more than $100 million in resources payable to the Treasury Department flowed to FDA. 

Figure 16 

Costs 

Gross FY 2001 expenses were $1.33 billion, which includes projects funded by user fees. 

Deducting $177 million in earned revenues, FY 2001 net costs were $1.15 billion. This 

compares with gross expenses of $1.25 billion and net costs of $1.07 billion for FY 2000. 

Figure 1723 and Figure 1824 (on following pages), illustrate FDA’s expenses by type and 

23Source: Supplemental Statement of Net Cost by Expense Type and Program, FY 2001. Please note that some 

rounding differences may show a different total than the supplemental statement. 

24Source: Supplemental Statement of Net Cost by Program Costs by Appropriation, FY 2001. Please note that Tobacco 

program area is not shown in Figure 21. Its net program cost was $297,000 in FY 2001. 

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MANAGEMENT DISCUSSION AND ANALYSIS


program. These are the budget programs reported under GPRA, which represent FDA’s 

major responsibility segments. Amounts reported on the Statement 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. 

Figure 17 

•	 Personal Services & Benefits rose by 6.6 percent from $740 million in FY 2000 to 

$788.9 million in FY 2001, due to increases from the Congress on funding the food 

safety initiative, premarket application review processes, inspections, enforcement 

of Internet drug sales, counter-bioterrorism activities, and improving generic drug 

application review and approval times. 

• Contractual Services increased by 8.5 percent from $218 million in FY 2000 to 

$237 million in FY 2001, due to increases from the Congress on funding the orphan 

product grants, food safety initiative, and establishing an agricultural products 

testing laboratory with the New Mexico State University. 

• Non-capitalized equipment (formerly called expendable equipment) increased by 

36.4 percent from $28 million in FY 2000 to $38 million in FY 2001. This increase 

is due to the additional funding increases approved by the Congress. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Figure 18 

• The Animal Drugs and Feeds Program’s FY 2001 net costs increased by 30.7 percent from the FY 2000 due to funding increases for the food safety initiative and for 

premarket application review activities. 

• The Biologics program’s FY 2001 net costs increased by 21.1 percent due to 

funding increases for counter-bioterrorism initiative and for premarket application 

review activities. 

• The Medical Device and Radiological Health Program’s net costs increased by 

9.6 percent from the FY 2000 due to a funding increase for the premarket 

application review activities. 

• The Foods Program’s net costs increased by 6.9 percent due to continued funding 

of the food safety initiative, increases for dietary supplements, and the relocation of 

CFSAN to its new facility located in College Park, Maryland. 

• The Human Drugs Program’s net costs grew by 1.6 percent due to increases in user 

fees authorized by PDUFA II and a Congressional increase for FDA’s premarket 

application review processes. 

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MANAGEMENT DISCUSSION AND ANALYSIS


Financing 

The Consolidated Statement of Financing is designed to report the difference in accrual 

based measures used in the Statement of Net Cost and obligation-based measures used in 

the Statement of Budgetary Resources. In order 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 Statement 

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 mainly of three 

items: change in budgetary resources obligated but goods or services not yet received, 

resources that finance the acquisition of assets or liquidation of liabilities, and resources 

that fund expenses recognized in prior periods. 

FDA’s budgetary resources obligated but not yet received increased by $37.3 million from 

FY 2000 to FY 2001 and represent obligations recorded during FY 2001 for which 

expenses will not be incurred until a subsequent period. The acquisition of assets or liquidation of liabilities totals $35 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 

previous periods, totaling $3.6 million, represent unfunded expenses recognized in prior 

periods but paid with FY 2001 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 $15.4 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 $10.1 million as of September 30, 2001, and represent an increase in financing 

sources yet to be provided. The primary items in this category are unfunded annual leave 

expense and actuarial FECA liabilities. Both categories experienced increases of $5.3 

million and $1.9 million, respectively. The increase in costs funded in future periods is 

included in the reconciliation because it is part of the net cost of operations but not in obligations as adjusted, and non-budgetary resources. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Budgetary Resources and Outlays 

As presented in the Statement of Budgetary Resources, FDA’s budget authority for FY 

2001 was $1.126 billion, not including spending authority of $190 million from user fee 

and reimbursable collections. Total budget authority as of September 30, 2001, including 

offsetting collections, carry-over balances from prior years and adjustments, was $1.466 

billion. Of this amount, $1.38 billion had been obligated during FY 2001. Figure 19 

shows the total of budgetary resources25 by major type -- salaries and expenses; user fees; 

buildings and facilities; and other minor accounts, such as certification fund and royalties. 

Figure 19 

Total outlays were approximately $1.07 billion during FY 2001, which represents a 5.1 

percent increase over FY 2000 total outlays of $1.02 million. 

25 Source: Combining Statement of Budgetary Resources for the Year Ended September 30, 2001. 

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MANAGEMENT DISCUSSION AND ANALYSIS


Figure 20 shows FDA’s outlay trend over the past five fiscal years. For FY 2001, FDA 

received budgetary increases to cover the food safety initiative, premarket review activities, inspections, enforcement of Internet drug sales, counter-bioterrorism, dietary supplements, constructing the Los Angeles Laboratory, improving generic drugs’ review, and 

improvements to FDA’s post-approval surveillance to identify adverse events associated 

with products on the market. 

Figure 20 

26 Source: Combined Statement of Budgetary Resources, FY 2001 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Use of Financial Statements 

For the preparation of the Food and Drug Administration (FDA)’s annual financial 

report, the Office of Management and Budget (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 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. 

liabilities 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 97-01 and are unaudited. 

One implication of this is that 

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Food & Drug Administration FY 2001 CFO’s Annual Report


Consolidated 

Principal Financial 

Statements 
FINANCIAL STATEMENTS


II-2

Food & Drug Administration FY 2001 CFO’s Annual Report


II-3

FINANCIAL STATEMENTS


II-4

Food & Drug Administration FY 2001 CFO’s Annual Report


II-5

FINANCIAL STATEMENTS


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Food & Drug Administration FY 2001 CFO’s Annual Report


Notes to 

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 - Net Position 

Note 13 - Prior Period Adjustments 

Note 14 - Commitments and Contingencies 

Note 15 - Leases 

Note 16 - Combined Statements of Budgetary 

Resources 

Note 17 - Custodial Activity 
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, 2001 and 2000


(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 seven “programs” as follows: Foods, Human Drugs, Biologics, Medical Devices & 

Radiological Health, Animal Drugs & Feeds, Toxicological Research, and Tobacco. 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 

75X6875.6 Anti-Terrorism Supplemental 

75X8147 Gift Fund 

75F3875.6 and 75F3885.6 Budget Clearing 

753099, 752499, 752449, 

751099, 751499 Miscellaneous Receipts 

II-8

Food & Drug Administration FY 2001 CFO’s Annual Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2001 and 2000


(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 97-01, Form and 

Content of Agency Financial Statements, as amended. 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. 

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 accrual-based 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 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 Combining Statement of Budgetary Resources, is based on 

budgetary concepts and definitions provided by OMB Circular A-11 and by Circular A-34, 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 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 2001, FDA received 

approximately $1.9 million ($1 million for FY 2000). 

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, 2001 and 2000


(In Thousands)


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. FDAreported no non-entity assets in


FY 2000, and has one non-entity asset for accounts receivable related to civil monetary penalties (CMPs) to


report for FY 2001. Therefore, assets reported on the financial statements are entity assets that FDAis able to


use in its operations, except for FY 2001 accounts receivable related to CMPs as further described in Note 3 and


Note 17.


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 gen­


eral public.


F. Fund Balance with Treasury 

Fund balance with Treasury is 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 disbursements, either directly or through the DHHS 

Payment Management System (PMS). 

G. Accounts Receivable, Net 

Accounts receivable consist of amounts owed to FDA by other Federal entities and the public. 

Intragovernmental accounts receivable are mostly related to amounts due from organizations for civil monetary 

penalties and amounts billed under interagency agreements. Receivables arising from CMPs are recorded when 

the penalties are assessed by the Department of Justice and FDA. 

Public accounts receivable primarily represent amounts due from organizations for 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. 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." Advances are reported net of 

II-10

Food & Drug Administration FY 2001 CFO’s Annual Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2001 and 2000


(In Thousands)


accrued grantee expenditures, and “Accrued Grant Liability” is reported when accrued expenditures exceed 

advances as of September 30. All advances are considered current payments made to FDA employees and are 

reported in Note 6, “Other Assets.” Advances are reported net of accrued grantee expenditures, and “Accrued 

Grant Liability” is reported when accrued expenditures exceed advances as of September 30. All advances are 

considered current assets. 

I. General Property, Plant & Equipment, Net (PP&E) 

PP&E is capitalized at cost if the initial acquisition cost is $25 or more and 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 year-end are classified as 

construction and software in-progress. Such expenditures are subsequently reclassified as depreciable PP&E 

upon project completion and acceptance. 

The majority of space and property that FDA occupies is provided by the General Services Administration 

(GSA), which charges rent based on commercial rental rates for similar properties. Therefore, the cost of GSA 

owned properties is not recorded on 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. 

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, 2001 and 2000


(In Thousands)


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. 

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. Civil monetary penalties collected and receivable from private organizations are considered non entity and a corresponding non-entity liability payable to the Department of Treasury’s 

miscellaneous receipt account is recorded. For FDA’s Revolving Fund for Certification and Other Services, all 

liabilities are funded by offsetting collections. 

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 performs the daily accounting functions for FDA and reports the necessary information on a monthly 

basis to FDA for grant advances 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 bills they 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. It is calculated 

with a data regression model that uses historical grantee advance and expenditure data. 

To estimate the second component, expenses incurred but not reported (IBNR), DHHS gathered information on 

II-12

Food & Drug Administration FY 2001 CFO’s Annual Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2001 and 2000


(In Thousands)


spending patterns from four different groups 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 for accrued 

grants. 

N. Deferred Revenue 

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 adjusted quarterly to reflect current pay rates. Sick leave and other types of non-vested leave are 

expensed as taken. 

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 on its Consolidated Balance Sheet for pensions, other retirement benefits, and other postemployment 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. The 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. 

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, 2001 and 2000


(In Thousands)


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 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 $270, and $361 as of September 30, 2001 and 2000, 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 non-exchange 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 (1) firms submitting applications to FDA for review of new 

human drugs and biologics and manufacturers of 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 on FDA’s Consolidated Statement of Net Cost and serve to 

reduce the reported cost of operations borne by the taxpayer. Non-exchange revenue derives from the 

II-14 
Food & Drug Administration FY 2001 CFO’s Annual Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2001 and 2000


(In Thousands)


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. 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. 

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 on the Consolidated Statement of Net Cost, and an imputed financing source is recognized on the Consolidated Statement 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. With the exception of pending, threatened, or potential litigation, 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. For pending, threatened, or potential 

litigation, a liability is recognized when a past transaction or event has occurred, a future outflow or other sacrifice of resources is more likely than not to occur, 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.bilities at the date of the financial statements, 

II-15

NOTES TO FINANCIAL STATEMENTS 

U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPALFINANCIAL STATEMENTS


As of September 30, 2001 and 2000


(In Thousands)


and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from 

those estimates. 

U. Reclassifications 

Certain FY 2000 balances reported last year have been reclassified to conform to FY 2001 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. 

Note 2 - Fund Balances with Treasury 

FDA’s undisbursed account balances are listed below by fund type: 

2001 2000 

Appropriated General Funds $432,230 $401,556 

Other Funds 28,649 49,997 

Revolving Funds 4,693 4,065 

Total Fund Balances with Treasury $465,572 $455,618 

No restrictions on Fund Balances with Treasury exist at September 30, 2001 and 2000. 

II-16

Food & Drug Administration FY 2001 CFO’s Annual Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPALFINANCIAL STATEMENTS


As of September 30, 2001 and 2000


(In Thousands)


Note 3 - Accounts Receivable, Net 

Accounts Receivable, Net consist of the following: 

2001 

Gross Net 

Receivable Allowance Receivable 

Intragovernmental 

Civil Monetary Penalties $122,378 $ - $122,378 

Interagency Agreements 7,410 - 7,410 

Total Intragovernmental 

With the Public 

Prescription Drug User Fee Act 

Mammography Quality Standards Act 

Travel Refunds & Miscellaneous 

Export Reform & Enhancement Act 

Other 

With the Public 

Total Accounts Receivable 

$129,788 - $129,788 

6,872 1,087 5,785 

2,765 223 2,542 

5,046 125 4,921 

544 22 522 

29 - 29 

15,256 1,457 13,799 

$145,044 $ 1,457 $143,587 

2000 

Intragovernmental 

Interagency Agreements 

With the Public 

Prescription Drug User Fee Act 

Mammography Quality Standards Act 

Travel Refunds & Miscellaneous 

Export Reform & Enhancement Act 

Other 

Total With the Public 

Total Accounts Receivable 

Gross Net 

Receivable Allowance Receivable 

$ 6,314 $ - $ 6,314 

9,521 825 8,696 

2,921 200 2,721 

1,690 17 1,673 

498 7 491 

36 - 36 

14,666 1,049 13,617 

$20,980 $ 1,049 $ 19,931 

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, 2001 and 2000


(In Thousands)


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 three percent 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 2001 total 

$61,619 net of DOJ fees of approximately $1,906. Receivables arising from CMPs are recorded when the penalties are assessed by FDA/DOJ. FDA has recorded intragovernmental accounts receivable totaling $122,378 

based on settlement agreements or court decisions against private entities during FY 2001. A corresponding 

non-entity custodial liability payable to the Department of Treasury is recorded for the same figure. CMP 

receivables were not recorded in FY 2000 due to immateriality. 

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, 2000, is $155. 

II-18

Food & Drug Administration FY 2001 CFO’s Annual Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2001 and 2000


(In Thousands)


Note 5 - General Property, Plant, and Equipment, Net 

Balances for the major categories of FDA Property, Plant and Equipment, Net are listed below. 

2001 

Service Life Acquisition Accumulated Net Book 

Classes of Fixed Assets (Years) Value Depreciation Value 

Personal Property: 

Laboratory and Office Equipment 10 $ 72,278 $ 42,077 $ 30,201 

ADP and Telecom Equipment 8 24,672 12,506 12,166 

Internal Use Software 4 1,457 364 1,093 

Capital Lease - Security System 20 1,380 132 1,248 

Total Personal Property 99,787 55,079 44,708 

Real Property: 

Buildings, Facilities, & Structures 5 - 50 214,742 87,118 127,624 

Capital Lease - Structure 

Land 

Total Real Property 

In Progress: 

Construction 

Software 

Total In Progress 

Total 

30 806 81 725 


N/A 8,957 - 8,957 


224,505 87,199 137,306


N/A 20,505 - 20,505


N/A 5,485 - 5,485


25,990 - 25,990


$350,282 $ 142,278 $208,004


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, 2001 and 2000 

(In Thousands) 

2000 

Service Life Acquisition Accumulated Net Book 

Classes of Fixed Assets (Years) Value Depreciation Value 

Personal Property: 

Laboratory and Office Equipment 10 $ 64,929 $ 39,597 $ 25,332 

ADP and Telecom Equipment 8 21,476 11,485 9,991 

Capital Lease - Security System 20 1,380 63 1,317 

Total Personal Property 87,785 51,145 36,640 

Real Property: 

Buildings, Facilities, & Structures 5 - 50 210,466 80,174 130,292 

Capital Lease - Structure 30 806 54 752 

Land N/A 8,957 - 8,957 

Total Real Pr operty 220,229 80,228 140,001 

Construction in Progr ess N/A 12,121 - 12,121 

Total $320,135 $131,373 $188,762 

Note 6 - Other Assets


Other Assets is comprised of the following:


2001 2000 

Intra- With the Intra- With the 

governmental Public governmental Public 

Disputed Cash Advance over GSA Rent $14,019 $ - $14,019 $ -

Travel and Employee Advances - 13 - 348 

Prepaid Subscriptions 239 41 238 -

Total Other Assets $14,258 $ 54 $14,257 $ 348 

II-20

-------------

Food & Drug Administration FY 2001 CFO’s Annual Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2001 and 2000


(In Thousands)


The majority of other assets consist of funds held pending dispute resolution with GSA. The dispute concerns 

GSA rent charged to FDA that exceeds the cap imposed by Congress for annual GSA rent charges. GSA rent 

expenses charged FDA through the Online Payment and Collection System that exceed the cap have been 

charged back to GSA and the resulting cash balance is treated similar to a cash advance. 

Note 7 - Environmental and Disposal Costs 

Environmental and Disposal Costs are the costs of removing, containing, or disposing of (1) hazardous waste 

from property, or (2) material or property that consists of hazardous waste at permanent or temporary sites 

selected for closure or shutdown. 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 either under the terms of the 

lease or by all applicable federal, state, and local environmental laws. With respect to the decommissioning of 

FDA laboratories, the Army Corps of Engineers has been providing technical guidance, based upon its prior base 

closure experience. FDA currently has several interagency agreements with the Army Corps of Engineers for 

scope-of-work development and remediation activities. 

FDA recognized an estimated liability for government-related future cleanup of hazardous waste related to FDA 

operations. Such estimates do 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 table presents estimated FDA cleanup costs for decommissioned laboratories as of September 30, 2001 and 2000: 

------------- Intragovernmental ---------------- With the Public----------------

Liabilities Liabilities 

Total 

$ 

$ 

2,774 

2,807 

Liabilities 

Covered By 

Budgetary 

Resources 

$ 654 

$ 729 

Liabilities 

Covered By Not Covered Not Covered 

Budgetary By Budgetary By Budgetary 

Resources Resources Resources Total 

2001 $ 879 $ 1,895 $ 1,559 $ 2,213 

2000 $ 1,102 $ 1,705 $ 2,198 $ 2,927 

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, 2001 and 2000


(In Thousands)


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 subsequently seeks reimbursement 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 5.21 percent in the first year and thereafter for FY 2001 

(6.15 percent in the first year, 6.28 percent in the second year, and 6.30 percent in the third year and thereafter 

for FY 2000). 

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 or CPIMs) 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, 2001 and 2000, amounted to $23,011 and $21,087, respectively, and is considered 

a liability not covered by budgetary resources. 

Note 9 - Accured Payroll and Benefits 

Accrued Payroll and Benefits consist of the following: 

2001 

------------- Intragovernmental -------------

Liabilities Liabilities 

Covered By Not Covered 

Total 

3,445 

6,804 

$ -

-

$ 10,249 

Budgetary By Budgetary 

Resources Resources 

$ - $ -

- -

6,804 -

- 3,445 

$ 6,804 $ 3,445 

Liabilities 

Not Covered 

By Budgetary 

Resources Total 

$ - $ 38,996 

56,555 56,673 

- -

- -

$ 56,555 $ 95,669 

Liabilities 

Covered By 

Budgetary 

Resources 

--------------- With the Public--------------­

-

-

$ 

118 

$ 14 

38,996 

39,1

Accrued Payroll 

Accrued Leave 

Payroll Withholding 

Accrued Workers' 

Compensation 

Total 

II-22

Food & Drug Administration FY 2001 CFO’s Annual Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2001 and 2000


(In Thousands)


2000 

--------------- With the Public---------------

Liabilities Liabilities Liabilities 

Covered By Not Covered Not Covered 

Budgetary By Budgetary By Budgetary 

Resources Resources Resources Total 

Accrued Payroll $ - $ - $ - $ 36,734 

Accrued Leave - - 51,406 51,406 

Payroll Withholding 

------------- Intragovernmental -------------

Total 

3,237 

6,223 

$ -

-

$ 9,460 

6,223 -

Liabilities 

Covered By 

Budgetary 

Resources 

-

-

$ 

-

$ 

36,734 

36,734 

- ­

Accrued Workers' 

Compensation - 3,237 - -

Total $ 6,223 $ 3,237 $ 51,406 $ 88,140 

Note 10 – Accrued Grant Liability, Net 

Grant advances are liquidated upon the grantee’s reporting of expenditures on the quarterly SF-272 Report 

(Federal Cash Transaction Report). FDA also estimates and accrues amounts due grantees for their expenditures 

through September 30, in accordance with DHHS accounting procedures. 

The Accrued Grant Liability, net of advances to grantees, as of September 30, 2001 and 2000, is as follows: 

2001 2000 

Grant Advances Outstanding (before year-end grant accrual) $ 5,674 $ 8,711 

Less: Estimated Accrual for Amounts Due to Grantees 8,889 10,893 

Accrued Grant Liability, Net $ 3,215 $ 2,182 

II-23

-------------

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, 2001 and 2000


(In Thousands)


Note 11 - Other Liabilities 

Other Liabilities consist of the following: 

2001 

------------- Intragovernmental ------------- --------------- With the Public---------------

Liabilities Liabilities Liabilities 

Covered By Not Covered Not Covered 

Total 

-

3,163 

$ 

-

$ 

967 

4,130 

Liabilities 

Covered By 

Budgetary 

Resources 

37 

417 

$ -

-

$ 454 

Budgetary By Budgetary By Budgetary 

Resources Resources Resources Total 

$ - $ 967 $ 670 $ 670 

- - 161 161 

3,163 - - 417 

- - - 37 

$ 3,163 $ 967 $ 831 $ 1,285 

2000 

Capital lease 

Contingent Liability 

Deferred Revenue 

Other 

Total 

------------- Intragovernmental --------------- With the Public---------------

Liabilities Liabilities Liabilities 

Covered By Not Covered Not Covered 

Total 

-

-

$ 

-

$ 

985 

985 

Liabilities 

Covered By 

Budgetary 

Resources 

141 

409 

$ -

-

$ 550 

Budgetary By Budgetary 

Resources Resources 

$ - $ 985 

- -

- -

- -

- $ 985 

By Budgetary 

Resources Total 

$ 728 $ 728 

505 505 

- 409 

- 141 

$ 1,233 $ 1,783 

Capital lease 

Contingent Liability 

Deferred Revenue 

Other 

Total 

All other liabilities are considered current except for the capital lease liability. The portion of the total capital 

lease liability of $1,637 ($1,713 for FY 2000) considered current is $91 ($80 for FY 2000), and the remaining 

balance, $1,546 ($1,633 for FY 2000), is considered non-current. Also see Note 15 for more information on 

capital leases. 

II-24

Food & Drug Administration FY 2001 CFO’s Annual Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2001 and 2000


(In Thousands)


Note 12 - Net Position 

Net position is the difference between assets and liabilities. This section contains two line items: Unexpended 

Appropriations, which includes unobligated appropriations and undelivered orders, and Cumulative Results of 

Operations. Unobligated appropriations are either available for obligation or not available (permanently or temporarily) pursuant to a specific provision in law. Undelivered orders represent appropriations obligated for 

goods or services ordered but not yet received. Cumulative results of operations represent the net difference 

between (1) expenses and losses and (2) financing sources, including appropriated capital used, revenues, and 

gains since the inception of the activity. 

2001 2000 

Appropriated Revolving Appropriated Revolving 

Funds Funds Total Funds Funds Total 

Unexpended Appropriations: 

Unobligated: 

Available 

Unavailable 

Undelivered Orders 

Total Unexpended Appropriations 

Cumulative Results of Operations 

Total Net Position 

$ - $ 29,279 

14,055 - 14,055 

286,164 - 286,164 

329,498 - 329,498 

166,263 4,723 170,986 

$ 495,761 $ 4,723 $500,484 

29,279 $ - $ 27,361 

14,130 -

288,304 -

329,795 -

177,966 4,132 182,098 

$ 4,132 $ 511,893 

$ 27,361 $ 

14,130 

288,304 

329,795 

$ 507,761 

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, 2001 and 2000


(In Thousands)


Note 13 - Prior Period Adjustments 

FDA continues to perform various analyses of its account balances in an effort to improve the financial data 

recorded in its accounting records. Prior period adjustments, representing a $2,328 decrease in the September 

30, 1999, net position, were recorded to correct errors in prior years’ financial statements, and are detailed 

below. 

2001 2000 

Unexpended Appropriations $ - $ 3,249 

Personal Property Cost, Net - (1,035) 

Real Property Cost, Net - 781 

Supplemental CSRS Adjustment - (667) 

Total $ - $ 2,328 

II-26

Food & Drug Administration FY 2001 CFO’s Annual Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2001 and 2000


(In Thousands)


Note 14 - 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, 2001 and 2000, FDA’s undelivered orders were $286,164 and $288,304, respectively. The entire 

balance has been funded with budgetary resources received in FY 2001 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 Amount 

2002 $27,682 

2003 28,149 

2004 7,384 

Total $63,215 

Contingencies 

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, 2001, FDA has accrued 

$161 ($505 for FY 2000) for a legal contingent liability to be paid by the Treasury Judgment Fund. In this case, 

a judgment of as high as $16,000 could be awarded against FDA, but the final amount of this liability will be 

decided in future litigation. 

In addition, there are various pending class action suits against DHHS. However, DHHS management and legal 

counsel are unable to determine the impact or the ultimate outcome of these suits at this time. Therefore, the 

potential impact on FDA’s financial statements is unknown. 

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, 2001 and 2000


(In Thousands)


Note 15. Leases 

Future lease payments are as follows: 

Capital Operating 

Fiscal Year Leases Leases 

2002 $ $ 107,856 

2003 223 112,018 

2004 222 115,966 

2005 222 120,101 

2006 222 122,633 

2007 and Thereafter 1,869 1,470 ** 

Total Future Lease Payments 2,998 $ 580,044 

Less: (1,361) 

Total Capital Lease Liability (Note 11) $ 1,637 

240 

Imputed Interest 

** 	Future Lease payments are expected; however, dollar figures for GSA cannot be 

reasonably estimated. 

As of September 30, 2001 and 2000, FDA had one personal property capital lease for a security system used at 

its Jamaica, NY field office. The lease has 18 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, 2001 and 2000. 

Operating leases for real property cover GSA and non-GSA leased assets. Operating leases comprise the 

majority of FDA’s fiscal year 2001 and 2000 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 2001, FDA had five (eight for FY 2000) 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, 2001 and 2000, FDAmaintained approximately 250 vehicles leased from GSA. 

GSA charges FDA rates which 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-28

Food & Drug Administration FY 2001 CFO’s Annual Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

NOTES TO CONSOLIDATED PRINCIPAL FINANCIAL STATEMENTS


As of September 30, 2001 and 2000


(In Thousands)


Note 16 - Combined Statements of Budgetary Resources 

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. FDA also has a multi-year appropriation to 

record collections and disbursements for patents and royalties. 

FDA received 76.8 percent or $1,125,823 (74.6 percent, or $1,053,083 for FY 2000), of its total FY 2001 budgetary resources of $1,465,651 ($1,412,236 for FY 2000) through appropriations. FDA’s S&E account was 

appropriated $1,091,524 ($1,040,638 for FY 2000), which accounts for 97 percent (99 percent for FY 2000) 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 13 percent of total FY 2001 (12.9 percent for FY 2000) budgetary resources. 

Unobligated carryovers represent amounts of spending authority that have not been committed or earmarked for 

expenditure. Carryovers represent about 7.1 percent of FY2001 (8.5 percent for FY 2000) budgetary resources. 

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 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 2001, FDA had funds of $3,040 temporarily not available for national public 

health emergencies. The FDA requested the use of $2,384 of the Contingency Fund balance to reimburse FDA 

for the extraordinary costs associated with the Bovine Spongiform Encephalopathy (BSE) threat. The total that 

was obligated for this effort was $1,880. 

FDA was given the authority to obligate $4,750 in the DHHS/Public Health and Social Services Emergency 

Fund related to the purpose of supporting the DHHS bioterrorism effort. All accounting and costs associated 

with this amount have been included in the DHHS statements and not FDA’s statements. 

The FY 2000 Combined Statement of Budgetary Resources includes corrections and restatements of FY1999 

figures. During FY 2000, the beginning unobligated balances were decreased by $1 to correct for understated 

obligations (undelivered orders) in FY 1999. The obligated carryovers from FY 1999 were restated by $155 in 

the FY 2000 Statement of Budgetary Resources to correct an error in FY 1999. The obligated balance at 

September 30, 1999, incorrectly included FDA’s imprest fund of $155. Outlays on the Statement of Budgetary 

Resources did not match the outlays reported on the reports submitted to Treasury. Therefore, the obligated balance at October 1, 1999, was adjusted to exclude the imprest fund in order to arrive at the correct outlay total as 

of September 30, 2000. 

II-29 
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, 2001 and 2000


(In Thousands)


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. 

Note 17 – 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 2001 were $61,619. CMP collections are immediately forwarded to the Department of Treasury when collected and cannot be used for FDA 

operations. Also see Note 5. 

II-30

Food & Drug Administration FY 2001 CFO’s Annual Report


Required 

Supplementary 

Information 

(Unaudited) 
REQUIRED SUPPLEMENTARY INFORMATION


III-2

Food & Drug Administration FY 2001 CFO’s Annual Report


III-3

REQUIRED SUPPLEMENTARY INFORMATION


III-4

Food & Drug Administration FY 2001 CFO’s Annual Report


III-5

REQUIRED SUPPLEMENTARY INFORMATION


III-6

Food & Drug Administration FY 2001 CFO’s Annual Report


III-7

REQUIRED SUPPLEMENTARY INFORMATION


U.S. Department of Health and Human Services 

Food and Drug Administration 

REQUIRED SUPPLEMENTARY INFORMATION


As of September 30, 2000


(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 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, 2001 and 2000: 

FY 2001 

Category Asset 

Condition 

Cost to Return to 

Acceptable Condition 

Critical 

Amount 

Non-Critical 

Amount 

Buildings Fair to Poor $29,356 $4,525 $24,831 

Laboratories Fair to Poor $9,426 $3,090 $6,336 

Utility Systems Poor $7,056 $1,940 $5,116 

Total $45,838 $9,555 $36,283 

FY 2000


Buildings Poor $32,508 $4,125 $28,383 

Laboratories Fair $9,486 - $9,486 

Utility Systems Poor $6,975 - $6,975 

Total $ 48,969 $4,125 $ 44,844 

III-8

Food & Drug Administration FY 2001 CFO’s Annual Report


III-9

REQUIRED SUPPLEMENTARY INFORMATION


III-10

Food & Drug Administration FY 2001 CFO’s Annual Report


III-11

REQUIRED SUPPLEMENTARY INFORMATION


III-12

Food & Drug Administration FY 2001 CFO’s Annual Report


Required 

Supplemntary 

Stewardship 

Information 

(Unaudited) 
SUPPLEMENTARY STEWARDSHIP INFORMATION


U.S. Department of Health and Human Services 

Food and Drug Administration 

RESEARCH & DEVELOPMENT


REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION


For the Year Ended September 30, 2001 and 2000


(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 or substantially contribute to the approval of these products under the Federal Food, Drug, 

and Cosmetics Act. 

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Food & Drug Administration FY 2001 CFO’s Annual Report


U.S. Department of Health and Human Services 

Food and Drug Administration 

RESEARCH & DEVELOPMENT


REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION


For the Year Ended September 30, 2001 and 2000


(Unaudited)


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 1998-2001 (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

--

--

--

--

--

--

--

SUPPLEMENTARY STEWARDSHIP INFORMATION


U.S. Department of Health and Human Services 

Food and Drug Administration 

RESEARCH & DEVELOPMENT


REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION


For the Years Ended September 30, 2001 and 2000


(Unaudited)


RESEARCH AND DEVELOPMENT EXPENSES 

(In Thousands) 

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 

00 

$ 

17,794 

4,752 

$25,616 

99 

$ 

9,605 

6,990 

$18,692 

98 

$11,687 

285 

8,159 

33,233 

$53,364 

01 

$ 2,770 

2,273 

20,813 

$25,856 

Fiscal Year 

3,070 2,097 

NOTE:


Pilot Clinical Pharmacology Program is excluded from FY 1999 through FY 2001 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 2001 because it is considered peer-review scientific research


that supports FDA’s current and future regulatory needs. This does not meet the definition of research and development.


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Reports on the A u d i t


of FDA’s FY 2 0 0 1


Financial Statements

INDEPENDENT AUDITORS’REPORTS


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INDEPENDENT AUDITORS’ REPORTS


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Food & Drug Administration FY 2001 CFO’s Annual Report


V-5

INDEPENDENT AUDITORS’ REPORTS


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Food & Drug Administration FY 2001 CFO’s Annual Report


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INDEPENDENT AUDITORS’ REPORTS


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INDEPENDENT AUDITORS’ REPORTS


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Food & Drug Administration FY 2001 CFO’s Annual Report


A p p e n d i c e s

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 1997, Congress re-authorized PDUFA 

for another five-year period. The user fees are paid by the drug industry. 

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 2001 was $160.7 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). 

administers the program. 2001, the amount of MQSA collections expended 

was $12.4 million. 

Export 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. 

FY 2001, the amount of user fees expended was $1.5 million. 

issued for food products are subject to FD&C Act, but are not covered by EREA. 

Certification and 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. 

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. 2001, the amount of 

fees expended was $3.8 million. 

Salary 

CDRH 

In FY 

Each of the product centers administers its own program. In 

Export certificates 

Salaries and expenses of 

In FY 

Page 1

Food & Drug Administration FY 2001 CFO’s Annual Report 

Appendix 2 

Financial Management Legislation 

Chief Financial Officers Act of 1990 

The Chief Financial Officers Act of 1990 focused attention on financial management improvements in the 

Federal Government by requiring the identification of a responsible official to advise on financial management. 

The law created a framework for financial organizations to focus on the integration of accounting, budget, and 

other financial activities under one umbrella; the preparation of audited financial statements; and the integration 

of financial management systems. It also requires federal agencies to prepare CFO strategic five-year plan. The 

Act required 14 Cabinet level Departments and ten major agencies to establish the position of a CFO who 

reports to the agency head. 

Government Performance and Results Act of 1993 

The Government Performance and Results Act (GPRA) which is to be fully implemented beginning in FY1999, 

has placed new management expectations and requirements on federal agencies by creating a framework for 

more effective planning, budgeting, program evaluation and fiscal accountability for Federal programs. The 

intent of the Act is to improve public confidence in Federal agency performance by holding agencies accountable for achieving program results and to improve Congressional decision making by clarifying and stating program performance goals, measures and costs up front. Federal agencies are required to implement GPRA 

through their processes for strategic plans, annual performance plans, and annual performance reports. FY1999 

is the first year that annual performance plans are required. Actual accomplishments for FY 1999 are required to 

be reported in FY 2000. 

Government Management Reform Act of 1994 

The Government Management Reform Act (GMRA) amends the CFO Act and expands requirement for audited 

financial statements to cover all programs. It also provides OMB with the authority to streamline statutory 

reporting by Federal agencies, requires the use of electronic funds transfer for payments to Federal employees 

and beneficiaries, and creates the Franchise Fund Pilot program for studying the concept of government enterprise. 

Federal Acquisition Streamlining Act of 1994 

The Federal Acquisition Streamlining Act (FAS) of 1994 was enacted to revise and streamline the acquisition 

laws of the Federal government. FASA also expanded the definition of records, placed additional record retention requirements, and gave agencies statutory authority to access computer records of contractors doing business with the government. 

Page 1 
APPENDICES


Appendix 2 (continued) 

Debt Collection Improvement Act of 1996 

The Debt Collection Improvement Act (DCIA) of 1996, Public Law 104-134, was signed into law on April 26, 

1996. The law’s provisions will enhance and improve debt collection government-wide. Key provisions of the 

Act are: 

• Enhanced administrative offset authority, the Treasury Offset Program 

• Enhanced salary offset authority 

• Taxpayer Identification Numbers required 

• General extension of the Debt Collection of 1982 authorities 

• Barring delinquent debtors from obtaining Federal credit 

• Reporting to credit bureaus 

• Government-wide cross servicing 

• Establishment of debt collection centers 

• Gainsharing 

• Tax refund offset program 

• Contracting with private attorneys 

• Administrative wage garnishment 

• Debt sales by agencies 

Federal Financial Management Improvement Act of 1996 

The Federal Financial Management Improvement Act (FFMIA) of 1996, Public Law 104-208, requires that each 

agency shall implement and maintain financial management systems that comply substantially with Federal 

financial management systems requirements, applicable Federal accounting standards, and the United States 

Government Standard General Ledger at the transaction level. 

Information Technology Management Reform Act of 1996 

Information Technology Management Reform Act (ITMRA) ensures that the Federal Government investment in 

information technology is made and used wisely. The law was designed to increase competition, eliminate burdensome regulations, and help the Government benefit from efficient private sector techniques. 

ITMRA requires agencies to develop a formal process for maximizing the benefits of information technology 

acquisition, including planning, assessment, and risk management. 

The Act created the statutory position of Chief Information Officer in major Federal Government agencies. It 

requires the Office of Management and Budget, the agencies, and the Chief Information Officers to improve 

information technology practices. It requires mission and program driven strategic planning for information 

technology. It requires senior user management guidance to ensure information technology activities align with 

agency plans and operations. It requires regular assessments of information technology skills inventory, skills 

Page 2 
Food & Drug Administration FY 2001 CFO’s Annual Report 

Appendix 2 (continued) 

requirements, and skills development programs. In short, the ITMRA requires the development of an effective 

and efficient, mission-oriented, results-oriented information technology practice in each and every Federal 

agency. 

Travel and Transportation Reform Act of 1998 

The Travel and Transportation Reform Act of 1998 (TTRA), required Federal employees to use Federal travel 

charge cards for all payment of official Government travel, to amend title 31, United States Code, to establish 

requirements for prepayment audits of Federal agency transportation expenses, to authorize reimbursement of 

Federal agency employees for taxes incurred on travel or transportation reimbursements, and to authorize test 

programs for the payment of Federal employee travel expenses and relocation expenses. 

Federal Activities Inventory Reform Act of 1998 

The Federal Activities Inventory Reform Act (FAIRA) requires Federal agencies to list activities eligible for privatization and to make this list available to the public. FAIRA permits prospective contractors and other interested parties to challenge the omission of particular activities from the list. Nevertheless, although agencies are 

directed to review the list, FAIRA does not actually require agencies to review the activities on the list soon after 

the list has been made available to the public. 

Federal Financial Assistance Management Improvement Act of 1999 

The Federal Financial Assistance Management Improvement Act, Public Law 106-107, requires OMB and the 

Federal agencies to work together with the various grantee communities to streamline, simplify, and provide 

electronic options for the grants management processes employed by the Federal agencies. The purposes of this 

Act, signed into law on November 20, 1999, are to improve the delivery of services to the public and the effectiveness and performance of Federal grant programs. Federal agencies are working with OMB to: (1) develop 

uniform administrative rules; (2) develop common application and reporting processes; (3) replace paper with 

electronic processing in administration of grant programs; and (4) identify statutory impediments to grants simplification. 

Report Consolidation Act of 2000 

This legislation was enacted to authorize and encourage the consolidation of financial and performance management reports that are more meaningful and useful to the Congress, the President, and the public. The act provides for permanent authorization for consolidated reports, permits several alternative approaches to reporting, 

requires an Inspector General assertion on the agency’s progress in addressing the most serious management and 

performance challenges, and requires the head of an agency to make an assertion on the completeness and reliability of the performance and financial data in the report(s). 

Page 3 
APPENDICES


Appendix 3 

FDA-Related Acronyms and Abbreviations 

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


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


Page 1 
Key FDAFinancial Management Officials 

Jef f Weber


Senior Associate Commissioner for Management and Systems (Acting) and


Chief Financial Officer


Helen Horn 

Director, Office of Financial Management (Acting) and


Deputy Chief Financial Officer


Dave Petak


Director, Division of Accounting


Peter Kelchner


Chief, CFO Liaison Branch