U.S. Department of Health and Human Services 

Food and Drug Administration


Fiscal Year 2000 CFO’s Annual Report


T A B L E O F C O N T E N T S 

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


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


SECTION I 

Management Discussion and Analysis 

Highlights of Fiscal Year 2000 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-1

Foods Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-10

Human Drugs Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-15

Biologics Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-23

Animal Drugs and Feeds Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-29

Medical Devices and Radiological Health Program . . . . . . . . . . . . . . . . . . . . . . . . . . .I-35

Toxicological Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-41

Financial Management Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-46

Financial Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-53

Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .I-58

SECTION II 

Consolidated Financial Statements 

Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-1

Consolidated Statement of Net Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-2

Consolidated Statement of Changes in Net Position . . . . . . . . . . . . . . . . . . . . . . . . . . .II-3

Combined Statement of Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-4

Combined Statement of Budgetary Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-5

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

SECTION III 

Required Supplementary Information (Unaudited) 

Combining Statement of Budgetary Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .III-1

Supplemental Consolidating Statement of Net Cost–Program Costs by Ap p ro p ri at i o n . . III-2

Supplemental Statement of Net Cost by Expense Type and Program . . . . . . . . . . . . . .III-3

Deferred Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .III-4

Intragovernmental Transactions – Intra-governmental Assets . . . . . . . . . . . . . . . . . . . .III-5

Intragovernmental Transactions – Intra-governmental Liabilities . . . . . . . . . . . . . . . . .III-6

Intragovernmental Transactions – Intra-governmental Revenues and Expenses . . . . . .III-7

SECTION IV 

Required Supplementary Stewardship Information (Unaudited) 

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

SECTION V 

Reports on the Audit of FDA’s FY 2000 Financial Statements 

Office of Inspector General’s Transmittal Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .V-1

Independent Auditors’ Report on Consolidated Financial Statements . . . . . . . . . . . . . .V-3

Independent Auditors’ Report on Internal Controls . . . . . . . . . . . . . . . . . . . . . . . . . . .V-5

Independent Auditors’ Report on Compliance with Laws and Regulations . . . . . . . . . .V-8

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

Food & Drug Administration FY 2000 CFO’s Annual Report


ACTING PRINCIPAL DEPUTY 

COMMISSIONER’S STATEMENT 

I present to you the Food and Drug Administration’s (FDA) annual financial 

report for fiscal year (FY) 2000. I am pleased to report that FDA has earned 

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

comparing the fiscal information from these statements with performance 

information reported under the Government Performance and Results Act, 

taxpayers will realize that FDA is a good investment and that the dollars we 

spend yield valuable results. 

As a science-based regulatory agency, FDA’s mission affects the health and 

well being of all Americans. FDA is responsible for overseeing a regulated 

industry that produces over $1 trillion worth of products. Whether at home, 

or at work or at play, FDA shields us from public health hazards that range 

from debilitating to the deadly. FDA protects consumers and consumers trust FDA. Surveys show that FDA’s 

good work performance is recognized both by the public and regulated industries, and this performance is 

accomplished at the low annual cost of about $4 per person. 

Fiscal year 2000 brought many successes to the FDA as we took many steps to further protect and promote the 

public health. FDA continued to strengthen its commitments to stakeholders through improved business practices. Collaboration with regulated industries and public health advocates has produced not only a safer drug 

and food supply for the nation, but also reduced costs for both government and industry. 

More than 3,600 new medical devices were approved or cleared by FDA during FY 2000. Many are first-of-akind devices representing breakthrough technology or offer significant advances over existing technology. For 

new drugs, there were 106 approvals with a median approval time of 11.6 months, a three-percent decrease 

compared to the FY 1999 approval times. Increasing use of information technology has streamlined application 

submissions and has opened up the entire decision making process. FDA’s award winning web-site now supports this open process by storing over 3 million pages of information, including the transcripts of advisory 

committee meetings. 

There are many challenges facing FDA in the coming year. To maintain the public trust, the Agency must 

remain vigilant and responsive to ever escalating public health challenges. High-technology industries are 

expanding at an exponential rate. Billions of dollars are being poured into research and development for new 

products including those made from biotechnology, food additives, pharmaceuticals, and devices. Our ability to 

judge the worth and safety of new products is dependent, in part, upon the resources and scientific expertise that 

we have available to address these issues. 

As we look toward the challenges of the future, I am proud of what FDA has accomplished. We continue to 

successfully tackle numerous initiatives while continuing to fulfill the core missions of serving our customers 

and protecting the public. I am confident that FDA will continue meeting these challenges well into the 21st 

century. 

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

Food & Drug Administration FY 2000 CFO’s Annual Report


MESSAGE FROM THE 

CHIEF FINANCIAL OFFICER 

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

Financial Officer’s (CFO) Annual Report for fiscal year 2000. This is the third 

consecutive year in which FDA has received an unqualified financial statement audit opinion from the Office of Inspector General. This notable 

achievement reflects the Agency’s continued commitment to sound financial 

management practices and compliance with the CFO Act of 1990 and the 

Government Management Reform Act of 1994. 

This report includes FDA’s financial statements, an overview of the Agency, 

and independent auditor reports on our financial statements, internal control 

structure, and compliance with laws and regulations. The FY 2000 financial 

statements have been prepared in accordance with all new accounting standards established by the Office of Management and Budget and the Federal Accounting Standards Advisory 

Board. While we are proud that our achievement reflects the hard work of Agency’s management, we recognize 

the challenges the Agency faces as it regulates in a global business environment. To that end, we continue to 

upgrade and integrate our financial management systems and improve upon our information technology infrastructure to better support FDA’s programs and operations. 

Our commitment to maintaining a clean audit opinion underpins our adherence to sound financial management 

of the Agency’s $1.2 billion budget. The independent audit process provides the Agency and taxpayers with reliable information on the adequacy of our internal controls and the accuracy of our financial reporting. This clean 

audit opinion helps assure the public that we are meeting the growing demands of our public health mission in a 

business-like manner. To continue to provide the public with such assurances, we must continue to meet the 

increasingly difficult challenge of competing for investments in an environment of very tight resources. 

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

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

committed to the stewardship responsibilities needed to continue to maintain the highest level of accountability 

for the management of the Agency’s financial resources. 

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

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

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

Robert J. Byrd 

ii 

Food & Drug Administration FY 2000 CFO’s Annual Report


Management 

Discussion and 

Analysis of FDA 

Food & Drug Administration FY 2000 CFO’s Annual Report


WELCOME TO THE FDA CHIEF FINA N C I A L 

OFFICER’S FY 2000 A N N UAL REPORT 

This rep o rt presents the Food and Dru g 

Administration’s (FDA) financial statements and key 

accomplishments for FY 2000. 

The report describes and discusses FDA’s stewardship 

of resources and how those resources were used to 

achieve the Agency’s mission in the past year. 

The Management Discussion and Analysis (MD&A) 

presents: 

• Highlights of Fiscal Year 2000 Performance; 

• An overview of FDA’s mission, strategic goals, 

strategies, organization, resources, challenges and 

trends, and net cost discussion; 

• FDA Programs’ overview, initiatives, goals, and 

accomplishments; 

• Financial management performance and 

accomplishments; and systems, controls, and legal 

compliance; and, 

• Discussion on financial analysis and condition. 

FDA: An Introduction 

The U.S. Food and Drug Administration 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 

reg u l ated industry that produces over $1 tri l l i o n 

worth of products. The products include the entire 

national food supply except for 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; and cosmetics. FDA-regulated products account for nearly 25 

cents of every consumer dollar spent in the United 

States each year. 

FDA enforces the Federal Food, Drug, and Cosmetic 

Act and several other public health laws. 

HIGHLIGHTS OF


FISCAL YEAR 2000 PERFORMANCE


FDA selected several areas to highlight some of its 

Agency level accomplishments. These are discussed 

below.A complete review of the FY 2000 performance 

goals and results may be found in the FDA FY 2000 

Performance Report. 

Agency Outreach 

FDA makes extraordinary efforts to bring its message 

to the American public and strives to gain the public’s 

trust and support through an open and transparent decision-making process. 

FDA takes many approaches to keeping industry and 

the public well informed. Informational meetings, 

industry partnerships, safety brochures, and an extensive web-site are all part of the Agency’s informational campaign. 

Input from all points of view is encouraged and FDA 

strives to ensure that everyone knows that its decisions 

are fair and are based on good scientific principles. 

FDA’s extensive and award winning web-site supports 

its open process by including over three million pages 

of information, including transcripts of all advisory 

committee meetings. More than 800,000 people visit 

the web-site each month. 

FDA’s outreach efforts have paid off. In a survey conducted this past year by the Pew Research Center, a 

wide variety of groups judged FDA to be a high performer. More than 75 percent of consumers, health 

professionals, patients, and industry representatives 

I-1
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


said that they trusted FDA to make the right decisions 

in performing its mission. The survey also found that 

FDA kept all parties well informed about its procedures, that it kept accurate records, and that it protected the rights of individuals. 

The International Arena 

The scope of FDA’s regulatory activities extends to 

nations around the world. Food shipments to the 

United States from overseas have quadrupled in the 

past decade. Globalization of both the food and drug 

supply requires intensive efforts on FDA’s part. 

FDA has a three-pronged approach to ensuring the 

safety of imports—prevention, detection, and targeting. Collaboration with other nations is essential in 

carrying out this work. In FY 2000, FDA continued its 

work in developing agreements with its foreign counterparts for exchanging expertise and for eliminating 

duplication of efforts. Important work continues in 

s t a n d a rdizing pre m a rket ap p l i c ations for reg u l at e d 

products across international borders. The ultimate 

goal is the establishment of a core document that manufacturers can use in each country. 

FDA conducts direct inspections of foreign facilities, 

completing 800 foreign inspections last year. In addition, FDA conducts assessments of foreign food safety 

systems and targets countries with a high volume of 

exports to the United States. In FY 2000, assessments 

we re conducted in Chile, El Salva d o r, and New 

Zealand. As a final step in protecting the American 

public, FDA inspects imports as they cross the border, 

targeting those firms with poor histories of compliance. FDA constantly refines its risk-based criteria for 

screening imports. 

Postmarket Surveillance 

Every medicine and medical device that offers a cure to 

millions also will present a risk to a limited number of 

others. Because of rare adverse reactions, interactions 

and many other factors, FDA cannot ensure a totally 

risk-free approval process. What it can do, however, 

is to provide the best possible oversight of the effect of 

drugs and devices once they are marketed nationwide. 

FDA conducts a similar oversight on the safety of 

foods. 

The Adverse Event Reporting System collected about 

300,000 reports last year on human drugs and biological products in the marketplace. When a potential 

adverse reaction is detected, FDA quickly moves to 

head off any threat to the public health. Improvement 

in the surveillance of medical devices continued in FY 

2000 through the expansion of the Medical Device 

Surveillance Network (MeDSuN), a hospital-based 

reporting system using statistical sampling to improve 

results. 

FDA also combats foodborne illnesses through a variety of approaches, including educational collaborations with industry, consumer groups, and other government agencies. Foodborne illness and death have 

decreased by 20 percent in recent years. 

Fast and Safe Drug and Device Approvals 

As many citizens know, FDA has decreased new drug 

approval review times over the past several years from 

about 26 months to less than 12 months. Not only has 

this performance improved the quality of life for millions of Americans, it has saved the pharmaceutical 

industry billions of dollars. However, FDA efforts to 

improve the entire drug approval process have not 

I-2
--

Food & Drug Administration FY 2000 CFO’s Annual Report


ended. FDA has been working with industry to shorten the long lead time for drug development by advising 

firms on how to design effective clinical trials. This 

advisory role has been effective and according to the 

most recent data has reduced the total development 

time by 18 percent. 

In FY 2000, FDA approved important medicines treating leukemia and human immunodeficiency virus. The 

Agency also approved medical devices that treat hearing loss, gall bladder disease, vision problems, an diabetic foot ulcers. The approval time for medical 

devices has been decreasing – from over two years in 

1995 to about one year in FY 2000 – despite the fact 

that the number of products continues to grow rapidly. 

Agency Overview 

Mission 

FDA’s current mission, as adopted in the 1997 FDA’s 

Modernization Act (PL 105-115), sets forth the following responsibilities for the Agency: 

1. To promote the public health by promptly and 

efficiently reviewing clinical research and taking 

appropriate action on the marketing of regulated 

products in a timely manner; 

2. With respect to such products, protect the public 

health by ensuring that— 

• foods are safe, wholesome, sanitary, and 

properly labeled; 

• human and veterinary drugs are safe and 

effective; 

• there is reasonable assurance of the safety and 

effectiveness of devices intended for human use; 

• cosmetics are safe and properly labeled; and 

• public health and safety are protected from 

electronic product radiation. 

3. To participate through appropriate processes with 

representatives of other countries to reduce the burden 

of regulation, harmonize regulatory requirements, and 

achieve appropriate reciprocal arrangements; and 

4. As determined to be appropriate by the Secretary, 

carry out paragraphs (1) through (3) in consultation 

with experts in science, medicine and public health, 

and in cooperation with consumers, users, manufacturers, importers, packers, distributors, and retailers of 

regulated products. 

Strategic Goals 

To carry out this mission, the Commissioner’s strategic 

management team developed two agency level strategic goals. These are: 

• To help safe and effective new products enter 

the market rapidly, thus greatly enhancing the 

Nation’s health. 

To achieve this goal, FDA must continue to work 

with industry and to use scientific information 

derived from research and surveillance to support 

sound review decisions. 

• To assure that products already on the market 

are safe. 

To achieve this goal, FDA monitors well over a 

trillion dollars worth of products that are essential 

to the health and well being of every U.S. citizen. 

FDA must judge the suitability of sources of 

domestic and international production, operate an 

integrated system of reporting and correcting 

problems associated with product use, and check 

advertising and labeling, particularly on the 

Internet. 

These two strategic goals are intended to create a comp re h e n s ive safety assurance system that monitors 

FDA-regulated products throughout their life span 

from conception through consumption. Each of FDA’s 

programs has established the same goals, thus aligning 

the programs with FDA’s overall mission and goals. 

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MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


Strategies 

While the goals of timely premarket review and postmarket safety assurance are continuous, their successful pursuit in the 21st century will be seriously challenged by a much more complex technological, economic, and social environment. FDA will not be able 

to address such complexity in the future by working 

independently, by relying on its current level of scientific understanding, or by attempting to protect the 

public from all risk situations. The task is simply too 

daunting. The key courses of action for FY 2000 and 

beyond have been and will be to: 

• strengthen science and standards 

FDA must develop the capacity to regulate 

products of much greater complexity and 

sophistication than ever before. Sound science is 

essential for making timely and crucial regulatory 

decisions that affect every American citizen. A 

strong science capability is crucial for: 

• making sound pre-market review decisions; 

• assessing and managing risks of products in the 

market place; and 

• buttressing the standards that engender worldwide confidence in FDA-backed products, 

methods and processes. 

• collaborate with partners 

It is no longer plausible for FDA, working alone, 

to effectively carry out its mission. Academia, 

health providers, other government agencies, 

regulated industries, and consumers all have a 

role to play. FDA must work with others who 

share its values and goals to meet FDA’s public 

health and safety mission. 

• focus on highest priority risk 

In an ideal world, FDA would like to eliminate 

completely the risk associated with the consumption and use of foods, drugs, biologics, and 

medical devices. Rather, FDA will focus its 

attention on the most serious risks first. FDA has, 

and will continue, to increase the efficiency of 

“fast track” review processes in order to address 

the most urgent needs for new medical products. 

Surveillance and compliance efforts also will 

continue to be directed toward identifying and 

taking action on the most serious health threats to 

U.S. consumers. 

Science-Based Strategies to Achieve Safety Goals 

Strategic Goals Bring Products of New 

Technology to Market 

Reduce Risk of Marketed 

Products 

Strategies to 

Address 

Complexity Strengthen 

Science and 

Standards 

Collaborate 

with 

Partners 

Focus on 

Highest 

Priority Risk 

Figure 1 

As the graphic above (Figure 1) shows, these strategies will work together to assure safety in a significantly more 

complex 21st century environment. In addition to carrying out strategies to manage complexity, FDA continues 

to be responsive to the statutory review and inspection requirements mandated by the Federal Food, Drug and 

Cosmetic Act, as amended, and reinforced by FDA Modernization Act. 

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Food & Drug Administration FY 2000 CFO’s Annual Report


P rograms Th at Will Implement A ge n cy 

Strategic Goals and Strategies 

FDA is organized into the six major program areas1 

listed below. These programs are also budget line 

items contained in the President’s Budget. These programs are managed with the support from the Office of 

Regulatory Affairs’ field offices. 

• Foods 

• Human Drugs 

• Biologics 

• Animal Drugs and Feeds 

• Medical Devices and Radiological Health 

• Toxicological Research 

Each of the six programs is highlighted in their own 

individual sections (following this Overview) displaying mission, net program costs, accomplishments, and 

p e r fo rmance results. Data va l i d ation issues are 

addressed in the FDA FY 2000 Performance Report. 

Organization 

FDA is organized into eight major components consisting of an Office of the Commissioner, an Office of 

Regulatory Affairs (which is responsible for the FDA 

field force), and the following six Centers as displayed 

in the organizational chart (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 

• National Center for Toxicological Research (NCTR). 

The Office of the Commissioner 

This component consists of eight subordinate offices 

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 

Regulatory 

Affairs 

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 

National Center 

for 

Toxicological 

Research 

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 

Figure 2 

_________________________________________ 

1 In FY 2000, there were seven programs (the original six plus the Tobacco Program). On March 21, 2000, the U. S. Supreme Court 

declared the FDA lacked authority to issue and enforce its tobacco regulations. FDA immediately terminated its tobacco program. For 

information on its results of the tobacco performance goals, see FDA’s FY 2000 performance report at: www.fda.gov. 

I-5
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


that provide legal guidance, develop plans and policies, 

direct public and consumer affairs programs, promote 

the Agency’s international relationships among foreign 

governments, and deliver administrative services. 

The Office also includes the Office of Science 

Coordination and Communication, which was created 

to advise the Commissioner and other senior officials 

on scientific issues impacting FDA policy and direction. 

The Deputy Commissioner for Management and 

Systems serves as the FDA’s Chief Financial Officer 

(CFO). The CFO’s organization, functions, initiatives, 

accomplishments, and performance measures are presented in the section on “Financial Management 

Performance.” 

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 remaining one, NCTR, performs regulatory research in support of the product centers. With the exception of 

NCTR, located in Jefferson,Arkansas, the Office of the 

C o m m i s s i o n e r, the Centers , and the Office of 

Regulatory Affairs (ORA) are headquartered within the 

Washington, DC metropolitan area. 

The Office of Regulatory Affairs 

This component is composed of a headquarters unit 

and a nationwide field force. The ORA conducts 

i nve s t i gational and lab o rat o ry functions for all of 

FDA’s major product areas: Foods, Human Drugs, 

Biologics, Animal Drugs and Feeds, and Medical 

Devices and Radiological Health products. The ORA 

has approximately 3,100 full-time equivalents. 

Field facilities include Regional Offi c e s , D i s t ri c t 

Offices, laboratories, 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 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 130 resident posts distributed 

widely across the country. These are smaller offices 

which serve primarily as a base for investigators so that 

FDA can have investigative staff widely dispersed to 

respond to emergencies whenever they occur, as quickly as possible to minimize any potential harm. With all 

of these Field facilities combined, FDA maintains 

offices and staff in 49 of the States, and in the District 

of Columbia and Puerto Rico. See Figure 3 for a map 

of ORA’s field locations. 

Resources 

The total FDA resource level for FY 2000 was $1.412 

b i l l i o n .2 This number incl u d e s : ap p ro p ri ations fo r 

salaries and expenses (S&E), building and facilities 

( B & F ) , user fees; offsetting collections (re i mbursables); carry-over balances from prior years; and 

adjustments. For a description of the user fees, see 

Appendix 1. 

Fi g u re 4 shows the four sources of bu d ge t a ry 

resources: S&E, user fees, and B&F. The “other” category includes royalties and other accounts. Over ninety percent of the Agency’s resources are dedicated 

toward salaries and expenses as FDA performs its mission-related activities through a direct work force. The 

B&F appropriation funds major repairs on existing 

facilities, as well as the acquisition of new office buildings and lab o rat o ry facilities for its headquart e rs , 

NCTR, and field operations. User fees supplement 

S&E activities, especially for the review of certain 

applications for human drugs. 

_________________________________________ 

2 Source: The amount is from the FY 2000 combined Statement 

of Budgetary Resources. 

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Food & Drug Administration FY 2000 CFO’s Annual Report


Figure 3


Figure 4


I-7
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


The chart below (Figure 5) displays S&E resources by equivalents (FTEs). Figure 6 displays the percentage of 

major program -- human drugs, foods, devices, biolog- FTEs used by the six centers, ORA, and Office of the 

ics, animal drugs, NCTR, and Tobacco. The other cat- Commissioner. Although the ORA is the largest share 

egory includes Other Activities, Central Services, and at 35 percent, its principal purpose is to support the 

Rent & GSA rental. The two largest programs, human regulatory activities of all the centers except NCTR. 

drugs and foods, represent about fifty percent of FDA’s The Prescription Drug User Fees Act (PDUFA) user 

resources. Further discussion of budgetary resources is fees support about 1,000 FTEs, mostly within CDER 

found in the section on Financial Analysis. and CBER, while Certification fees support 30 FTEs 

within CFSAN. Mammography Quality Standards Act 

For FY 2000, FDA had approximately 8,917 full-time (MQSA) fees support 48 FTEs in CDRH and ORA. 

Figure 5 

Figure 6 

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Food & Drug Administration FY 2000 CFO’s Annual Report


Challenges and Trends 

While FY 2000 saw many successes, FDA must overcome a number of hurdles to continue to maintain its 

high standards of consumer protection. Among these, 

FDA must address: 

• Scientific breakthroughs – FDA scientists will 

need to keep up with rapidly-advancing 

technologies in all product areas. 

• More sophisticated products – These technologies 

will translate into products with new complexities 

and risks. 

• New public health threats – FDA needs to be 

prepared to respond rapidly to unexpected health 

risks, such as tougher strains of antibiotic-resistant 

bacteria or more dangerous foodborne illnesses. 

• International Commerce – Monitoring of imports 

and cooperation with foreign regulators will become 

more important as international commerce continues 

to grow. 

• Consumer information -- Finally, today’s 

sophisticated consumers and the wide availability of 

information about FDA-regulated products will 

challenge us to be sure consumers are getting the 

information they need from the right sources. 

Net Program Costs – A Short Discussion 

For the FY 2000 CFO’s Annual Report, net program 

costs will be used in the individual program sections 

instead of budgetary information (budget authority, 

user fees, and FTEs) that were used in the FY 1999 

Report. Net program cost information comes from the 

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

(GAAP) and the form and content for entity financial 

statements specified by the Office of Management and 

Budget (OMB). GAAP for Federal entities are the 

s t a n d a rds pre s c ribed by the Fe d e ral A c c o u n t i n g 

S t a n d a rds A dv i s o ry Board, wh i ch is the offi c i a l 

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 accrual-based transaction. 

I-9
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


Foods Progra m 

FDA Programs 
Food & Drug Administration FY 2000 CFO’s Annual Report


Foods Program 

Background 

T he Foods Progra m , a d m i n i s t e red by the 

Center for Food Safety and Ap p l i e d 

Nutrition (CFSAN) and supported by 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 quality 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 55,000 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 3 

Fiscal Year Net Program Cost 

2000 $364,914,000 

1999 $320,432,000 

1998 $265,469,000 

The Foods Program has experienced a 13.9 percent 

increase in net costs since FY 1999. This increase is 

attributed to the full implementation of the President's 

Food Safety Initiative. The net cost provides total 

expenses of the program including the net exchange of 

revenues and allocation of indirect expenses such as 

the Office of the Commissioner costs (e.g., administrative and policy direction), Office of Regulatory Affairs’ 

field operations’costs, rent, and other overhead. For an 

explanation of net program costs, see the discussion on 

page I-9. 

Selected Initiatives, Goals, and 

Accomplishments 

Foreign Outreach and Education 

To enhance the food safety systems in foreign countries and thus, improve the quality of food products 

imported into the United States, FDA conducted a 

series of seminars, training, and meetings in Chile, El 

Salvador, and New Zealand during FY 2000. 

_________________________________________ 

3 Source: Statements of Net Costs for FYs 1998, 1999, and 2000. The source for the remaining programs’cost tables is the Statements 

of Net Costs for the three fiscal years. 

I-11
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


Chile 

• CFSAN participated in a joint U.S. – Chile seminar 

on food safety in June 2000. 

• The Joint Institute for Food Safety and Applied 

Nutrition in conjunction with the Government of 

Chile held a training program on produce safety, 

emphasizing good agricultural practices. 

El Salvador 

• In August, CFSAN conducted dairy farm sanitation 

and milk safety training, emphasizing on-farm 

practices. 

New Zealand 

• A regional food safety meeting was held in 

Auckland, New Zealand in August 2000. 

Proceedings of the outreach meetings in Chile were 

completed and posted on the Web. The posting was 

unique for CFSAN in that it included videos of the 

presentations. The availability of this posting was 

widely publicized through constituent updates, the 

Agricultural Research Library, and through food safety education publications. 

Structure/Function Claims 

FDA published a final rule that defines the types of 

statements that can be made concerning the effect of a 

dietary supplement on the structure or function of the 

body (65 FR 9999; January 6, 2000). FDA held a public meeting on March 30, 2000, addressing pregnancyrelated claims under the structure/function rule. 

Pearson v. Shalala 

FDA published a Federal Register notice on the strategy for responding to petitions for health claims for 

dietary supplements, including the health claims at 

issue in Pe a rson Court Decision (65 FR 59855; 

October 6, 2000). It also issued final determinations 

on October 10th for two health claims (folic acid and 

neural tube defects, and fiber and colorectal cancer) 

and on October 31st for one claim (omega-3 fatty 

acids). 

• Health Claim Regarding Folic Acid and Neural 

Tube Defects 

FDA did not approve the proposed health claim, which 

stated "0.8 mg of folic acid in a dietary supplement was 

more effective in reducing the risk of neural tube 

defects than a lower amount in foods." FDA did provide examples of appropriate qualified claims. A copy 

of the letter is ava i l able on our web site at 

http://vm.cfsan.fda.gov/~dms/ds-ltr7.html. 

• Health Claim Regarding Fiber and Colorectal 

Cancer 

FDA determined that the proposed health claim about 

dietary fiber reducing the risk of colorectal cancer 

could not be authorized because the results of studies 

about dietary fiber consistently showed a lack of relationship between dietary fiber supplements and the risk 

of colorectal cancer. Nor could the claim be qualified 

because the suitable evidence against the claim outweighed the evidence for it. A copy of the letter is 

available on our web site at 

http://vm.cfsan.fda.gov/~dms/ds-ltr8.html. 

• Letter regarding Dietary Supplement Health 

Claim for Omega-3 Fatty Acids and Coronary 

Heart Disease Letter 

FDA determined that the use of omega-3 fatty acids as 

dietary supplements is safe and lawful under 21 CFR § 

101.14, provided that daily intakes do not exceed three 

grams per person per day from conventional food and 

dietary supplement sources. A copy of the letter is 

available on our web site at 

http://vm.cfsan.fda.gov/~dms/ds-ltr11.html. 

I-12
Food & Drug Administration FY 2000 CFO’s Annual Report


Performance Plan Goals 

Food Safety: Premarket Review of Food Ingredients 

The first strategic goal of the Foods Program identified 

in the FDA FY 2000 Final Performance Plan is 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% of food and color 

additive petitions within 360 days of receipt. 

Results 

CFSAN achieved its goal for those petitions qualifying 

for expedited review and those who did not: 

• Completed the safety evaluation in less than 360 

days for all five food and color additive petitions 

that qualified for expedited review. 

• Completed the safety evaluation in less than 360 

days for 77% (59 of 77) of food and color additive 

petitions that did not qualify for expedited review. 

Food Safety: Postmarket Surveillance 

The second strat egic goal identified in the Fi n a l 

Performance Plan is 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 

s a fety assurance during and after production and 

through the commercial distribution stage. FDA has 

the statutory authority to inspect establishments, examine or analyze samples, and conduct investigations to 

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

safety assurance for domestic foods and cosmetics 

through compliance programs that guide surveillance 

and enforcement activities. 

The greatest challenge the Foods Program faces is how 

to cope with the growth of the regulated industry and 

the growth and changes in health risks. The FY 2000 

performance goal below expresses how FDA targeted 

products with the highest risk of violating food safety 

and sanitation standards. FDA also 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 

Increase the percentage of high-risk domestic food 

establishments inspected once every year. The performance target for FY 2000 was 90% - 100% of establishments once every one to two years. 

Result 

The performance target was exceeded for FY 2000 

from 3,000 inspections in FY 1999, to 5,710 in FY 

2000 (an increase of 90% over 1999). 

I-13
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


From HHS News, May 3, 2000 

FDA TO STRENGTHEN PRE-MARKET REVIEW OF BIOENGINEERED FOODS 

The Food and Drug Administration (FDA) announced today plans to refine its regulatory 

approach regarding foods derived through the use of modern biotechnology. The initiatives 

unveiled stem in part from input received during FDA’s public outreach meetings held late 

last year and build upon programs already underway at FDA to help ensure the safety of all 

foods. 

“FDA’s scientific review continues to show that all bioengineered foods sold here in the 

United States today are safe as their non-bioengineered counterparts,” said Jane E. Henney, 

M.D., Commissioner of Food and Drugs. “We believe our initiatives will provide the public 

with continued confidence in the safety of these foods.” 

FDA will publish a proposed rule mandating that developers of bioengineered foods and animal feeds notify the agency when they intend to market such products. FDA also will 

require that specific information be submitted to help determine whether the foods or animal 

feeds pose any potential safety, labeling, or adulteration issues. 

I-14
Food & Drug Administration FY 2000 CFO’s Annual Report


Human Drugs 

FDA Programs 
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


Human Drugs Program 

Background 

T he 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, properly labeled, and that information on proper use is available to all users. To achieve 

this mandate, premarket review, postmarket assurance, 

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 United States; 

• 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. 

Costs 

Fiscal Year Net Program Costs 

2000 $251,243,000 

1999 $223,855,000 

1998 $176,531,000 

The Human Drugs Program has experienced a 12.2 

percent increase in net costs in FY 2000. The net cost 

provides total expenses of the program including the 

net exchange of revenues and allocation of indirect 

expenses such as the Office of the Commissioner costs 

(e.g., administrative and policy direction), Office of 

Regulatory Affairs’ field operations’ costs, rent, and 

other overhead. For an explanation of net program 

costs, please see the discussion on page I-9. 

Selected Initiatives, Goals, and 

Accomplishments 

Antimicrobial Resistance Initiative 

CDER approved Zyvox, the first of a new class of 

antibiotics with labeling for use against resistant organisms. The labeling encouraged use that would preserve 

the drug for serious diseases. 

A proposed rule, Labeling Requirements for Systemic 

Antibacterial Drug Products Intended for Human Use, 

was published. CDER staff had a lead role in drafting 

an interagency Public Health Action Plan to Combat 

Antimicrobial Resistance. CDER held an Advisory 

Committee meeting to discuss issues related to testing 

for development of resistant Human 

I m mu n o d e fi c i e n cy virus (HIV-1) in the course of 

developing new products for the treatment of HIV 

infection. 

Product Quality Research Institute Initiative 

The Product Quality Research Institute (PQRI) is a 

first-ever collaboration among CDER, academic, and 

I-16
I-17

Food & Drug Administration FY 2000 CFO’s Annual Report


industry scientists to conduct research in the areas of 

pharmaceutical chemistry, biopharmaceutics, and science management. The purpose of this research is to 

establish better testing methods, standards, and controls for assessing product quality and manufacturing 

and management processes. This knowledge aids the 

A ge n cy in developing consistent and re a s o n abl e 

requirements for product quality information in regulatory filings. Leveraging scientific expertise in this way 

contributes to streamlining the drug development and 

approval processes for industry and the FDA while 

ensuring the highest level of product quality. 

In FY 2000, PQRI initiated seven working groups to 

address the following regulatory issues: blend uniformity, manufacturing changes, packaging changes, bulk 

drug post-approval changes, drug substance impurity 

testing, drug substance particle size analysis, and topical and aerosol forms 

The Blend Uniformity Working Group is expected to 

make recommendations to FDA by early next year on 

science-based changes to regulations for blend uniformity testing. These recommendations will ensure that 

there is thorough mixing of the drug within the blend 

and dosage unit. Current regulations advocate the testing of each production batch of a powder-blend drug. 

However, industry experience suggests that testing 

every batch is not necessary or meaningful because the 

current blend sampling technology is flawed and does 

not necessarily provide representative results. 

Pediatric Exclusivity Activities -- Section 111 of the 

FDA Modernization Act 

Section 111 authorizes FDA to grant six months of 

marketing exclusivity if a sponsor conducts and files 

pediatric studies responsive to a Written Request for 

pediatric studies. Fifty-seven Written Requests were 

issued in FY 2000 with 19 being Pediatric Exclusivity 

determinations. Twelve were for active ingredients for 

which pediatric labeling has been approved based on 

studies conducted to satisfy a Written Request. 

CDER updated the annual list of approved drugs for 

which pediatric information may produce health benefits in the pediatric population. It also maintained and 

u p d ated a pediat ric intera c t ive web page at 

http://www.fda.gov/cder/pediatric. CDER developed 

the age n d a , and coord i n ated and part i c i p ated in 

Pe d i at ric A dv i s o ry Subcommittee meetings of 

N ovember 1999 and September 2000. Seve ra l 

guidances were published to help in pediatric drug 

development. 4 

CDER provided training for all the clinical and project 

management staff on the Pediatric Rule and interactions with industry related to Section 111. It assisted 

in the organization of, and participated in, the Surgeon 

General’s National Conference on Mental Health in 

Children and co-sponsored the National Institute of 

Mental Health and FDA workshop on the development 

of psychotropic agents for young children. 

Web Based Educational and Regulatory Initiative 

In keeping with its goal to disseminate timely and 

accurate information to the medical community and 

the public, CDER launched the first regulatory web site 

with a focus on a specific disease. The site, called 

Oncology Tools, consolidates existing information and 

developed new material developed to provide cancerrelated information for consumers, patients, and health 

care professionals. See accompanying press release on 

page I-22. 

The purpose of this approach is to emphasize and promote scientific, evidence-based development of drug 

products for life threatening illnesses. Through this 

web site, CDER is able to provide educational material and guidance documents in a convenient format to 

advance the development of cancer therapies, better 

_________________________________________ 

4 Guidance for Industry: Pediatric Oncology, Studies in Response to a Written Request; International Conference on Harmonization: 

Clinical Investigation of Medicinal Products in the Pediatric Population; Regulations Requiring Manufacturers to Assess the Safety and 

Effectiveness of New Drugs and Biological Products in Pediatric Patients, Final Rule. 
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


coordinate cancer information among various FDA 

centers, enhanced service to our constituents, and new 

information on the services CDER can provide. For the 

first time, it is now possible to view a list of all 

approved oncology drug products along with the product label, advisory committee transcripts and summaries of the clinical evidence that supported the marketing claim. 

The web-site has received national recognition from 

news organizations, has been favorably reviewed in the 

oncology press, and has been linked to by the National 

Institute’s Cancer Net as well as many other cancer 

related web sites. Comments have been received from 

around the world, and the web site is now being translated into several languages to broaden its scope. See 

web site at: http://www.fda.gov/cder/cancer. 

Performance Plan Goals 

Premarket Review 

The first strategic goal of the Human Drugs Program 

identified by the FDA FY 2000 Final Performance 

Plan was to reduce human suffering and enhance public health by facilitating access to important, lifesaving 

drugs, and assuring availability of safe and effective 

drugs. 

Achieving this goal included continued efforts to meet 

mandated review times for new and generic drug application submissions. This was accomplished through 

c o n t i nued commu n i c ation and collab o ration with 

industry, academia, professional societies, and health 

care organizations. CDER also continued to develop 

standards and training for evaluating drugs to ensure 

c o n t i nued perfo rmance of consistent, h i g h - q u a l i t y 

reviews. Several quality assurance efforts were devel-

_________________________________________ 

oped to evaluate the quality of reviews. 

CDER’s ability to meet review times for new drug submissions has been achieved through the Prescription 

Drug User Fee Act (PDUFA). PDUFA authorized the 

assessment and collection of user fees for drug applications, establishment registrations, and product listings to enhance and expand FDA's existing review 

process. FDA (CDER and the Center for Biologics 

Evaluation and Review) committed to certain performance goals in response to these additional resources. 

Results have been remarkable. PDUFA proved to be a 

success for the pharmaceutical industry, FDA, and consumers, and benefited public health. FDA’s efforts in 

exceeding the performance goals established under 

PDUFA were so successful that, in 1997, Congress 

authorized PDUFA II under the FDAMA for another 

five years. 

FDA has exceeded the PDUFA performance goals for 

each successive fiscal year. PDUFA goals are calculated for each fiscal year cohort.5 Progress related to 

goal achievement is stated as of a certain date until the 

cohort is considered closed.

6 The term, "review and 

act on," is understood to mean the issuance of a complete action letter after the completed review of a filed 

application. The action letter, if not an approval, 

details the specific deficiencies and the actions necessary prior to resubmitting the application for consideration of approval. Under PDUFA II, in addition to the 

90 percent within-goal performance level, FDA began 

to transition to shorter review periods for some submission types by introducing secondary goals and performance objectives. 

I n fo rm ation is provided on two pre m a rket go a l s : 

NDAs and generic drug applications. For the NDA 

goals, both FY 1999 and FY 2000 preliminary results 

are shown. 

5 A cohort is defined as the group of submissions received by the Agency during a particular FY. For the FY 2000 cohort, data is considered preliminary. Final data are due pending the performance measure in mid to late 2001. 

6 The Agency is allotted time set by PDUFA to review and act on a submission. A one-time three-month extension is allowed only for 

original NDAs if a major amendment is received. For example, if a standard NDA is received on September 30, 2000 (the last day of FY 

2000), the submission is part of the FY 2000 cohort. If not amended, the Agency's work on the submission through September 30, 2001 

would be within the 90 percent goal period, after which, completion of review or action would be considered late. 

I-18
Food & Drug Administration FY 2000 CFO’s Annual Report


Performance Goal 

The FY 1999 cohort review performance goals covered under PDUFA II for NDAs are: 

• Review and act on 90 percent of standard NDAs within 12 months of receipt; 

• Review and act on 30 percent of standard NDAs within 10 months of receipt; and 

• Review and act on 90 percent of priority original NDAs within six months of receipt. 

Results 

CDER met its FY 1999 performance goals as displayed in Table 1. 

Table 1 

Fiscal Year 1999 Cohort (as of 10/31/00)7 

Submission Type Number of 

Submissions Filed 

Goal 

(months) 

Number of 

Reviews “On Time” 

Percent of 

Reviews “On Time” 

NDAs - Priority 31 90% in 6 mo. 31 100% 

NDAs - Standard 94 

90% in 12 mo. 92 98%* 

30% in 10 mo. 63 67% 

*See footnote. 

CDER also surpassed the 90 percent on-time review goals for New Molecular Entities (NME), reviewing all 17 

priority and all 25 standard applications within goal. Also, 56 percent of standard NMEs were reviewed within 

10 months, surpassing the 30 percent goal. The number of original NDAs filed for the FY 1999 submission 

cohort increased nearly 10 percent from FY 1998. 

Performance Goal 

The FY 2000 cohort review performance goals for NDA submissions under PDUFA II are: 

• Review and act on 90 percent of standard NDAs within 12 months of receipt; 

• Review and act on 50 percent of standard NDAs within 10 months of receipt; and 

• Review and act on 90 percent of priority original NDAs within 6 months of receipt. 

Results 

In FY 2000,8 CDER took 239 actions on NDAs, 106 of which were approvals. The median approval time was 

11.6 months, a three percent decrease compared with FY 1999. Sixty-five of these NDAs were approved in 12 

_________________________________________ 

7 There are two FY 1999 standard NDAs that are still pending a first action. Both applications have received goal date extensions and are 

currently within goal. The potential performance for the FY 1999 standard 12 month goal is 100 percent. The FY 1999 table will not be 

final until all applications are complete. 

8 Accomplishment of the FY 2000 cohort-year performance goals is not immediately measurable at the close of the fiscal year. Some 

preliminary results are available. Final data will be available mid to late 2001. 

I-19
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


months or less. Of these 106 NDA approvals, 39 were for NMEs – drugs that are chemically different in structure from those already on the market. Of the 39 NMEs, 12 were drugs given a priority review (products offering 

a significant improvement over currently marketed drugs). Drugs approved in FY 2000 under Subpart H 

(Accelerated Approval) regulations are listed below. 

Table 2 

NDA’s Approved for Accelerated Approval in FY 2000 

Drug 

Mylotarg (gemtuzumab ozogamicin) 

Kaletra (lopinavir/ritonavir capsule) 

Kaletra

(lopinavir/ritonavir oral solution)

Mifeprex (mifepristone) 9 

Approval 

Time 

6.6 months 

3.5 months 

3.5 months 

18.0 months10 

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 

a d m i n i s t rat i o n , q u a l i t y, p e r fo rmance ch a ra c t e ri s t i c s , 

and intended use. Generic drug ap p l i c ations are 

termed "abbreviated" in that they generally do not 

_________________________________________ 

Purpose 

Treatment of patients with CD33 positive acute 

myeloid leukemia in first relapse who are 60 years of 

age or older and who are not considered candidates for 

cytotoxic chemotherapy 

In combination with other antiretroviral agents for the 

treatment of HIV-1 infection in adults and pediatric 

patients age six months and older 

In combination with other antiretroviral agents 

for the treatment of HIV-1 infection in adults and 

pediatric patients age six months and older 

For medical termination of intrauterine pregnancy 

through 49 days' pregnancy 

require preclinical (animal) and clinical (human) data 

to establish safety and effectiveness. These parameters 

were established upon the approval of the innovator 

drug product. A Congressional Budget Office report 

estimates "that the purchase of generic drugs reduced 

the cost of prescriptions (at retail prices) by roughly $8 

to $10 billion in 1994.” 11 

9Mifeprex was approved under a special provision of the subpart H regulations that provide for restricted distribution. 

10The total approval time for Mifeprex was adjusted. The time period from 09/18/96 to 08/19/99 was excluded because the sponsor had 

to find a new manufacturer; the final study report for the U.S. clinical trial was completed and submitted late in the review; and, stability 

issues had to be addressed before the sponsor could resubmit the application for review. The time period from 02/18/00 to 03/31/00 was 

excluded while the sponsor prepared for a facilities reinspection. 

11Congressional Budget Office, A CBO Study: How Increased Competition from Generic Drugs Has Affected Prices and Returns in the 

Pharmaceutical Industry (ftp://ftp.cbo.gov/6xx/doc655/pharm.pdf, July 1998), p. 13. 

I-20
Food & Drug Administration FY 2000 CFO’s Annual Report


Performance Goal 

Review and act upon 45 percent of fileable original 

generic drug applications within six months after the 

submission date. 

Results 

Preliminary data indicate CDER may meet its goal for 

FY 2000. In the six months from November 1999 to 

April 2000, CDER’s Office of Generic Drugs (OGD) 

acted on 47 percent of original applications. This is an 

increase from the 31 percent acted on during the previous six months. 

During FY 2000, OGD approved 232 ANDAs. This is 

an increase over the 198 approved last fiscal year. Of 

these, several represent the first time a generic has been 

approved for a product. Examples of important first 

time approvals include: 

• Paclitaxel, for treatment of breast, ovarian and other 

cancer (generic for Taxol by Bristol Myers Squibb); 

• Enalapril, for treatment of hypertension (generic for 

Vasotec by Merck); 

• Midazolam, for induction of general anesthesia and 

sedation (generic for Versed by Roche); 

• Digoxin, for congestive heart failure (generic for 

Lanoxin by Glaxo Wellcome); and 

• Doxazosin, used to treat hypertension and benign 

prostatic hyperplasia (generic for Cardura by 

Pfizer) 

Table 3 

Generic Approvals by Fiscal Year 

Fiscal Year Number of Approvals 

1993 170 

1994 168 

1995 201 

1996 214 

1997 256 

1998 230 

1999 198 

2000 232 

Significant strides were made toward a paperless 

review environment. With $1.5 million in funding 

earmarked for satisfying information technology 

needs, CDER purchased upgraded hardware and software, and contractual support for the review of electronic submissions. CDER received 101 ANDAs containing at least a portion of the data in electronic format (30 percent of all submissions). This is an 

increase over the 88 ANDAs with some portion in 

electronic format submitted last fiscal year. The 

increase reflects the commitment of OGD to support 

the Agency’s efforts to increase overall efficiency of 

the review process. 

Postmarket Assurance 

The second strat egic goal of the Human Dru g s 

Program in FY 2000 was to prevent unnecessary injury 

and death to the American public caused by adverse 

drug reactions, injuries, medication errors, and product 

problems. 

CDER uses a number of approaches to monitor and 

assess postmarketing risk to ensure the continued safe 

use of drug products. FDA’s current Adverse Events 

Reporting System (AERS) database for drugs and therapeutic biological products contains over two million 

reports. FDA evaluates spontaneous reporting data 

from AERS to identify any serious, rare, or unexpected adverse events or an increased incidence of events. 

Based on its evaluation, FDA may decide to initiate 

regulatory action requiring, for example, safety-related 

l abeling ch a n ge s , Dear Healthcare Pro fe s s i o n a l 

Correspondence, Public Service Announcements, a 

new risk communication tool such as the Medication 

Guide, a risk management program, or, as a last resort, 

recommend market withdrawal. 

Information is provided on CDER’s status of improving the AERS. 

Performance Goal 

Expedite processing and evaluation of adverse drug 

I-21
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


events through implementation of AERS which allows 

for electronic periodic data entry and acquisition of 

fully coded information from drug companies. 

Results 

CDER implemented a major release of AERS in May 

2000. This release provided new functionality by 

enhancing searching cap ab i l i t y, b e c o m i n g 

International Conference on Harmonization compliant, 

and providing better integration for electronic submissions. 

These enhancements to AERS allowed CDER to 

improve its ability to collect and analyze medical products adverse event data to ensure timely and appropriate action. For example, in FY 2000, FDA recommended the withdrawal of two drugs from the market 

as a result of reported adverse events. Cisapride, a 

t re atment for heart bu rn , was re m oved when FDA 

became aware that its use was associated with 341 

reports of heart rhythm abnormalities including 80 

reports of deaths. Rezulin was withdrawn when severe 

liver toxicity became known to occur. An Advisory 

Committee meeting was held to discuss the effectiveness and possible enhancements to an existing risk 

management program to prevent fetal exposures to 

Accutane as well as psychiatric side effects associated 

with the drug. 

FDA Press Release, July 7, 2000 

FDA LAUNCHES ONCOLOGY TOOLS WEBSITE 

CDER WEBSITE OFFERS ACCESS TO CANCER-RELATED INFORMATION 

The U. S. Food and Drug Administration’s Center for Drug Evaluation and Research (CDER) 

internet web site has expanded its capability to provide cancer-related information for consumers, 

p at i e n t s , and health care pro fessionals. This new web page, O n c o l ogy Tools at 

http://www.fda.gov/cder/cancer, can be searched by specific types of cancer and by approved drug 

therapies. This will make it easier for consumers and patients to obtain information about different types of cancer and treatments, as well as clinical trials and patient support groups available to

them.

Internet users can now directly access such documents as cancer drug labeling, approval summaries, and advisory committee transcripts. vailable for health

care professionals and others and includes cancer-related regulatory tools, references for performing clinical studies, and drug dose calculators.

The Oncology Tools page was developed by the Division of Oncology Drug Products with the support of CDER's Office of Training and Communications in order to make the web site more user

friendly to the wide range of different groups that use it.

FDA review divisions responsible for oncology products include the Center for Drug Evaluation

and Research (CDER), the Center for Biologics Evaluation and Research (CBER), the Center for

Devices and Radiological Health (CDRH), the Center for Food Safety and Nutrition (CFSAN) and

FDA's Office of Special Health Initiatives (OSHI). The new web site includes a link to each of the

other centers. fice of Special Health Issues (OSHI) works with cancer patients and cancer patient advocacy programs on issues related to the FDA drug approval process, cancer clinical

trials and access to investigational therapies.

Specialized information is also a

FDA's Of

I-22
Food & Drug Administration FY 2000 CFO’s Annual Report


Biologics 

FDA Programs 
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


Biologics Program 

Background 

T he Biologics Program, administered by the 

Center for Biologics Eva l u ation 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 plasmapheresis centers, 

blood banks, 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 

2000 $132,860,000 

1999 $146,773,000 

1998 $137,962,000 

The Biologics Program has experienced approximately 

a 9 percent decline in net program costs due to a higher amount of PDUFA fees collected in FY 2000. The 

net cost provides total expenses of the program including the net exchange of revenues and allocation of indirect expenses such as the Office of the Commissioner 

costs (e.g., administrative and policy direction), Office 

of Regulatory Affairs’ field operations’ costs, rent, and 

other overhead. For an explanation of net program 

costs, please see the discussion on page I-9. 

Selected Initiatives, Goals, and 

Accomplishments 

Countering Bioterrorism Initiative 

The President’s initiative on Countering Bioterrorism 

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 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 Department of 

Health and Human Services (DHHS), and the Office of 

Management and Budget. CBER also works with 

other DHHS A ge n c i e s , i n cluding the Nat i o n a l 

Institutes of Health (NIH) and the Centers for Disease 

Control and Prevention. 

CBER is also developing new regulatory models to 

accommodate the need for preparedness in the case of 

an emergency attack. For example, procedures and 

I-24
Food & Drug Administration FY 2000 CFO’s Annual Report


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. 

In FY 2000, CBER received one-time funding of $7.5 

million from the Dep a rt m e n t ’s Public Health and 

Social Services Emergency Fund to begin the process 

of developing the necessary expertise and infrastructure to address regulatory activities for the Presidential 

Initiative to Counter Bioterrorism. The one-time funding was used to expeditiously develop and license new 

vaccines for anthrax and smallpox and the associated 

vaccinia immune globulin products used to treat or prevent serious vaccinia infections brought on by the 

smallpox vaccine. 

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 Biologi c ’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. 

As part of ongoing efforts to ensure patient protection 

in gene therapy trials, FDA and NIH announced on 

March 7, 2000, two new initiatives to further strengthen the safeguards for individuals enrolled in clinical 

studies for gene therapy. These two new initiatives --

the Gene Therapy Clinical Trial Monitoring Plan and 

the Gene Transfer Safety Symposia -- complement and 

advance current patient protections. 

FDA and NIH have taken both individual and cooperat ive actions to ach i eve gre ater 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 below (Figure 7) shows the magnitude of 

investigational research. The number of INDs and 

Investigational Device Exemptions (IDEs) received by 

CBER since 1997 has increased steadily. 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 7 

I-25
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


Biotechnology-produced products have increased dram at i c a l ly in recent ye a rs. The number of INDs 

received by CBER rose from five in FY 1980 to 453 in 

FY 2000. During FY 2000, FDA received 11,121 

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 

146 INDs in FY 2000. 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 

Premarket Review 

The first strategic goal of the Biologics Program, identified in the FDA FY 2000 Final Performance Plan, is 

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 PDUFA12 , 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 tra n s p l a n t at i o n , a l l e rgenic pro d u c t s , a n d 

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, 2000. 

Information is provided on two performance goals that 

cover PDUFA and non-PDUFA products. 

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 or receipt. 

• Review and act on 90 percent of priority original 

NDA and PLA/BLA submissions filed during FY 

2000 within 6 months of receipt. 

Accomplishment of the cohort-year performance goals 

is not immediately measurable at the close of the fiscal 

year. The outcome can be measured either 6 or 12 

months after the last submission received in FY 2000, 

depending upon the category of submission (for 12 

month standard applications – November 2001, for ten 

month standard applications – September 2001, and for 

priority original applications – April 2001). 

Results 

CBER has met or exceeded its performance goals in 

FY 1994 through FY 1999. Table 4 shows CBER's 

performance on the PDUFA FY 1999 cohort. The data 

provided are as of September 30, 2000. 

The FY 1999 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 1999. This means that 

not more than 10 percent of new product applications 

received and filed during FY 1999 should be overdue. 

Overdue is defined for standard new product as not 

having issued a comprehensive action letter within 12 

months of receipt and filing of the application, and for 

_________________________________________ 

12 It should be noted that the PDUFA program excluded 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. 
Food & Drug Administration FY 2000 CFO’s Annual Report


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. 

Table 4 

Biologics Program FY 1999 PDUFA Cohort as of 9/30/00 

Application 

Type 

Number 

Submitted 

Number 

Filed 

RTF, UN 

or WF 

First Action 

w/in Goal (%) 

Submissions 

Overdue (%) 

New 

Product 

Standard 

6 5 1 100 0 

New 

Product 

Priority 

2 1 1 100 0 

RTF = Refuse to File; UN = Unacceptable for filing (User Fee not paid); WF = Withdrawn before filing;

CBE = Change being effected immediately; CBE = Change being effected after 30 days; NA = Not applicable.

Performance Goal 

The FY 2000 cohort review performance goal for nonPDUFA 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. 

Final perfo rmance results will be ava i l able in 

November 2001 for the FY 2000 cohort. 

Results 

For FY 1999, the performance targets for blood bank 

and source plasma PLA/BLA submissions, and major 

supplements were 60% and 90%, respectively. CBER 

reported that its actual FY 1999 performance for blood 

bank and source plasma PLA/BLA and PLA/BLA 

major supplements exceeded their target. CBER 

achieved results of 100 percent and 99 percent, respectively. The non-PDUFA review resources in CBER are 

not protected from cuts as the PDUFA resources are by 

the PDUFA legislation. CBER’s non-PDUFA review 

resources have been cut in recent years due to unfunded pay raises, increased current service costs, and other 

budget actions. 

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. 

I-27
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


Performance Goal 

Assure that FDA inspections of domestic biologics 

manufacturing, repacking, and blood banks establishments result in a high rate of conformance (at least 

90%) with FDA requirements. 

Results 

CBER reported that a 96% rate of conformance was 

achieved in FY 2000. 

Conformance rate estimates the post-inspection status 

of establishments inspected in the given year. They are 

based on the number of establishments inspected, the 

incidence of serious deficiencies detected (Official 

Action Indicated), and statistical data on deficiency 

corrections. This is due to FDA’s selection of high risk 

firms. Since firms inspected are not selected randomly from the entire population, the rates should be 

applied across that population. However, as coverage 

of the inventory of firms is improved, the rates will better represent the overall status of the industry sector. 

From February 17, 2000 Press Release – HHS News 

First Pneumococcal Vaccine Approved for Infants and Toddlers 

FDA today approved the first vaccine to prevent invasive pneumococcal diseases in infants 

and toddlers – diseases which can cause brain damage and, in rare cases, death. The vaccine 

prevents invasive diseases caused by the organism Streptococcus pneumoniae (also known 

as pneumococcus) including bacteremia (an infection of the bloodstream) and meningitis, an 

infection of the lining of the brain or spinal cord. 

The vaccine will be marketed as Prevnar by a unit of Wyeth-Ayerst Laboratories, a Division 

of American Home Products Corporation in Philadelphia, Pennsylvania. Infants can receive 

the vaccine as a series of four inoculations administered at 2, 4, 6, and 12-15 months of age. 

“This new vaccine is great news for parents and their children because now, for the first time, 

we have a highly effective way to prevent a major cause of meningitis and serious blood 

infections in the most susceptible children – those under two years of age.” Said Dr. Jane 

Henney, Commissioner of Food and Drugs. “When we prevent these infections, we are also 

preventing brain damage and mortality from pneumococcal diseases. 

I-28
Food & Drug Administration FY 2000 CFO’s Annual Report


Animal Drugs 

and Feeds 

FDA Programs 
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


Animal Drugs and Feeds Program 

Background 

T he Animal Drugs and Feeds Program, administered by the Center for Veterinary Medicine 

(CVM) and supported by ORA, is responsible for protecting the health and safety of all animals that serve 

either as companions or food sources for mankind and 

to assure that food from animals is safe for human consumption. 

This is accomplished through the review of animal 

drug applications submitted to FDA and continuous 

surveillance of all approved animal drugs, devices, and 

feeds marketed in interstate commerce. 

The primary goals of the Animal Drugs and Feeds 

Program are to: 

• assure that only safe and effective animal drugs, 

devices, feeds and feed additives are marketed; 

• assure that foods from animals that are administered drugs and food additives, in accordance with 

label directions, are safe for human consumption; 

and 

• work pro-actively 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. 

The Animal Drugs and Feeds Program conducts surveillance on marketed products and the reg u l at e d 

industry. This is accomplished through a review of 

drug experience reports and completion of compliance 

programs that are implemented by FDA field offices. 

The field offices also perform inspections, sample collections and analyses, investigations, and other post 

market activities. Regulatory actions are taken as 

needed to control violative goods and firms. 

In addition, the Animal Drugs and Feeds Program 

actively pursues educational initiatives in partnership 

with the major groups representing the feed industry 

and state government regulators. Increased understanding and knowledge of the regulations concerning 

animal drugs and feeds improve compliance and overall program efficiency. 

Costs 

Fiscal Year Net Program Costs 

2000 $63,591,000 

1999 $62,579,000 

1998 $52,603,000 

The Animal Drugs and Feeds Program has experienced 

approximately a two percent increase in net costs in FY 

2000. The net cost provides total expenses of the 

program including the net exchange of revenues and 

allocation of indirect expenses such as the Office of the 

Commissioner costs (e.g., administrative and policy 

d i re c t i o n ) , O ffice of Reg u l at o ry A ffa i rs ’ fi e l d 

operations’ costs, rent, and other overhead. For an 

explanation of net program costs, see the discussion on 

page I-9. 

Selected Initiatives, Goals, and 

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 section 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. 

I-30
Food & Drug Administration FY 2000 CFO’s Annual Report


Section 506A was implemented by CVM during FY 

2000 as follows: 

• A proposed rule amending 21 CFR 514.8 

Supplemental new animal drug applications was 

published in the October 1, 1999, Federal Register 

(64 FR 53281). 

• A notice of availability of the draft companion 

guidance document to the above proposed rule 

entitled #83 Guidance for Industry: Chemistry, 

Manufacturing and Controls Changes to an 

Approved NADA or ANADA was announced in the 

October 1, 1999, Federal Register (64 FR 25492). 

Food Safety Initiative 

CVM participates in the surveillance, research, risk 

assessment, outreach, and educational activities of the 

President's Food Safety Initiative's (FSI). 

Under the surveillance activities, CVM has developed 

and coord i n ated the National A n t i m i c ro b i a l 

Resistance Monitoring System (NARMS), a collaborative effort among the FDA, United States Department 

of A gri c u l t u re (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 resistance 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 resistance to 17 

antibiotics in Salmonella and E. Coli bacteria and 8 

antibiotics in Campylobacter organisms. 

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 following 

activities were performed: 

• The system is now testing non-typhoid Salmonella, 

Campylobacter, Enterococcus, and E. coli isolates 

collected from animal sources. It is also testing 

non-typhoid Salmonella, Campylobacter,


Enterococcus, Shigella, Salmonella typhi, and

E. coli isolates from human clinical samples. 

• The veterinary side of NARMS incorporated an 

isolate collection from two additional state 

veterinary diagnostic laboratories. 

• Limited retail food testing was also done in conjunction with the Centers for Disease Control and 

Prevention. 

• Studies examining the effect of prudent use of 

antimicrobials on the farm were continued in 

association with the University of California at 

Davis and Michigan State University. 

Under outreach activities, NARMS was expanded into 

the international arena. A pilot study was conducted in 

Mexico that examined the significance of having animal agri c u l t u re in close proximity to hospitals. 

Medical microbiologists and investigators from hospitals of three Mexican states participated in the study. 

These inve s t i gat o rs we re initially trained at the 

USDA’s Russell Research Center in Athens, Georgia. 

They were trained in standardized laboratory methodologies for the isolation, identification, and antimicrobial susceptibility testing of foodborne Salmonella. 

Sample collection and isolation of Salmonella took 

place with clinically ill humans in the Mexican hospitals and from healthy children in community daycare 

centers. 

Under educational activities, CVM initiatives focused 

on prudent and judicious drug use practices and risk 

assessments to better quantify uncertainties for development of scientifically sound priorities and policy. 

I-31
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


Public Health Action Plan to Combat Antimicrobial 

Resistance 

The Interage n cy Task Fo rce on A n t i m i c ro b i a l 

Resistance, co-chaired by FDA, CDC, and NIH, was 

created in 1999 to develop the Federal government’s 

response to the emerging public health threat of bacteria and other disease-causing organisms that have 

become resistant to modern antimicrobial drugs. The 

task force includes Federal partners from the DHHS, 

D ep a rtment of Defe n s e, D ep a rtment of Ve t e ra n s 

A ffa i rs , U S DA , and the Env i ronmental Pro t e c t i o n 

Agency. 

A draft action plan, developed during FY 2000, provides a blueprint for specific, coordinated Federal 

actions for both the domestic and foreign areas. The 

domestic issue has four focus areas: surveillance, prevention and control, research, and product development. FDA plays a leadership role in each of the areas. 

Performance Plan Goals 

Premarket Review 

The first strategic goal of the Animal Drugs and Feeds 

Program identified in the FDA FY 2000 Performance 

Plan is to increase the availability and diversity of safe 

and effective 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. Working 

with industry early in the drug approval process in presubmission conferences, workshops, teleconferences, 

and the availability of CVM guidances through the 

I n t e rn e t , help increase industry effi c i e n cy, t h e reby 

reducing the overall developmental costs. 

During FY 2000, CVM acted on 5,497 submissions for 

new animal drug applications (NADAs), abbreviated 

new animal drug applications (ANADAs), investigational new animal drug files, and generic investigational new animal drug files. Of the 5,497 applications, 72 

were for original applications (and reactivated originals) and 851 were for supplements to previously 

approved applications. In addition, 367 phased data 

submissions were completed by the Center during FY 

2000. 

Of the actions taken in FY 2000, FDA published 43 

approval documents, reflecting NADA and ANADA 

approvals, in the Federal Register. These approvals 

included some very significant new product approvals, 

i.e., three new chemical entities, seven products for 

use in a new animal species, and four products available in new dosage forms. In addition, other approvals 

included seven original generic approvals, one drug 

effectiveness study implementation finalization, and 

nine new product indications. 

Information is presented on the performance goal 

addressing updating guidance documents. 

Performance Goal 

Revise and develop 14 guidances. 

Reform legislation and reinvention initiatives, such as 

the Results Act and FDAMA, require input from 

CVM’s customers and stakeholders. Input from customer surveys, stakeholder meetings, and other interactions with regulated industry helped CVM target 

re s o u rces towa rd developing guidance documents 

which will more accurately reflect the current veterinary medicated feed and drug approval and monitoring 

processes. These standards reflect changes in the 

approval processes resulting from the enactment of the 

Animal Drugs Availability Act and CVM’s efforts to 

re i nvent its new animal drug ap p roval pro c e s s e s . 

Ava i l ability of guidance documents fa c i l i t ates the 

accurate and complete preparation of drug applications. 

Results 

CVM met its FY 2000 goal. Specifically, CVM finalI-32
Food & Drug Administration FY 2000 CFO’s Annual Report


i zed four Ve t e ri n a ry Intern ational Cooperation on 

Harmonization (VICH) guidances, drafted five VICH 

guidances, in the process of finalizing one FDAMA 

guidance, revised/developed six ADAA guidances and 

drafted three ADAA guidances. 

Postmarket Activities 

The second strategic goal of the Animal Drugs and 

Feeds Program is to reduce the risks associated with 

marketed animal products. 

Once animal drugs and medicated feeds are marketed, 

the animal drugs and feeds program continues managing public health risks through activities such as 

inspections and antimicrobial resistance monitoring. 

These strategies for assuring safety compliance and 

scientific monitoring are made possible through partnerships with industry and the states. 

An outcome of CVM’s surveillance systems is the 

identification of potential human and/or animal health 

hazards. As part of the President’s FSI, CVM along 

with other FSI partners (USDA and CDC) developed 

an early warning system that monitors for resistance to 

antimicrobials that are used to combat foodborne bacteria that cause disease in humans. As mentioned 

above, NARMS has greatly improved FDA’s ability to 

detect emerging resistance among fo o d b o rn e 

pathogens. 

Performance Goal 

Increase to 6,000 isolates (2,000 – human and 4,000 – 

ve t e ri n a ry) the ove rall isolate testing rate fo r 

Salmonella in NARMS. 

Results 

CVM exceeded its measure overall for FY 2000. CVM 

had a total of 11,000 isolates (2,000 – human and 9,000 

– veterinary). Figure 8 illustrates the number of isolates by type for a five year period. 

Bacterial isolates (cultures) are collected from human 

and animal clinical specimens, from healthy farm animals, and from carcasses of food-producing animals at 

slaughter. The objectives of the system include: to provide descriptive data on the extent and temporal trends 

of antimicrobial susceptibility in Salmonella and other 

enteric organisms from human and animal populations; 

to facilitate the identification of resistance in humans 

and animals as it arises; identify areas for more investigation; guide research; and to provide timely information to veterinarians and physicians. The ultimate 

goal of these activities is to prolong the lifespan of 

approved drugs by promoting prudent and judicious 

use of antimicrobial drugs and to identify areas for 

more detailed investigation. 

Figure 8 

I-33
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


From FDA Consumer Magazine, January – February 2001 

Antibiotic Resistance From Down On The Chicken Farm 

Poultry growers use fluoroquinolone drugs to keep chickens and turkeys from dying from Escherichia coli (E. 

coli) infection, a disease that they could pick up from their own droppings. But the size of flocks precludes 

testing and treating individual chickens--so when a veterinarian diagnoses an infected bird, the farmers treat 

the whole flock by adding the drug to its drinking water. While the drug may cure the E. coli bacteria in the 

poultry, another kind of bacteria--Campylobacter--may build up resistance to these drugs. And that's the root 

of the problem. 

People who consume chicken or turkey contaminated with fluoroquinolone-resistant Campylobacter are at 

risk of becoming infected with a bacteria that current drugs can't easily kill. Campylobacter is the most common bacterial cause of diarrheal illness in the United States, according to the Centers for Disease Control and

Prevention. It's estimated to affect over 2 million persons every year, or 1 percent of the population. 

Commonly found in chickens, Campylobacter doesn't make the birds sick. But humans who eat the bacteriacontaminated birds may develop fever, diarrhea, and abdominal cramps. In people with weakened immune

systems, Campylobacter can be life-threatening. Eating undercooked chicken or turkey, or other food that has

been contaminated from contact with raw poultry, is a frequent source of Campylobacter infection. Not washing utensils, countertops, cutting boards,sponges, or hands after coming into contact with raw poultry can also

spread the bacteria and cause infection. People infected with Campylobacter may be prescribed a fluoroquinolone--which may or may not work. 

But the damage doesn't stop there. "Cross-resistance occurs throughout this class of drugs," says Stephen F.

Sundlof, DVM and Ph.D., director of FDA’s Center for Veterinary Medicine (CVM). "So resistance to one fluoroquinolone can compromise the effectiveness of all fluoroquinolone drugs." 

valuable drug classes available to treat human infections, fluoroquinolones are used to treat a wide range of

diseases, including the gastrointestinal illness caused by Campylobacter infection. 

The data to support these findings came from a study by the Minnesota Department of Health and a computerized system called NARMS--the National Antimicrobial Resistance Monitoring System. Data provided by

NARMS and other sources were used to develop a risk assessment. The risk assessment quantified, for the

first time, the magnitude of the dangers to humans eating chicken contaminated with fluoroquinolone-resistant C a m py l o b a c t e r. It showed that the number of people infected with fl u o ro q u i n o l o n e - re s i s t a n t

Campylobacter from eating chicken rose from an estimated 8,782 in 1998 to 11,477 in 1999. 

The risk assessment, completed in October, is only one action CVM has taken to address the antimicrobial

resistance problem over the years, says Sundlof. Another part of CVM's proactive program is its proposal to

take a stronger regulatory approach when approving new antimicrobial drugs for use in food animals. A

"framework document" lays out a plan for evaluating the safety of these drugs based on their importance to

human health. If the plan is implemented, the drugs of highest importance--those used to treat a serious or lifethreatening disease in humans for which there is no effective alternative treatment--would be subject to the

strictest criteria for approval for animal use. Among the studies that would be required by drug sponsors are

tests to show their product's potential to induce antibiotic resistance. 

framework document, see the CVM Home Page at www.fda.gov/cvm/.

"FDA and CVM will continue to work to put in place a regulatory system that addresses the dangers of antimicrobial resistance and offers better protection to public health," says Sundlof. "At the same time, CVM will

strive to assure the safe use of antimicrobial drugs in food-producing animals." 

Considered one of the most

For more details on the meeting and the

I-34
Food & Drug Administration FY 2000 CFO’s Annual Report


Medical Devices and 

Radiological Health 

FDA Programs 
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


Medical Devices and Radiological 

Health Program 

Background 

T he 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 reg u l ated by 

CDRH include microwave ovens, video display terminals, and medical ultrasound and x-ray machines. 

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 highrisk, 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 radiationemitting products, are regulated by FDA under the 

FD&C Act. The certification of mammography facilities is regulated under the Public Health Service Act. 

The FDA 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. The FDA 

reviews the following types of applications: 

• Premarket Approval Application (PMA) and PMA 

supplement - ensures the data submitted by the 

manufacturer demonstrate the device is safe and 

effective. Also included are Humanitarian Device 

Exemption (HDE) applications, which are similar to 

PMAs, but are exempt from the PMA effectiveness 

requirements. 

• Product Development Protocol (PDP) - 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 passfail 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 5. 

Table 5 

Subject to general controls, such as good 

manufacturing practices 

Class I Devices 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.

Required to undergo premarClass III Devices ket evaluation and receive

FDA approval prior to being 

marketed.

I-36
Food & Drug Administration FY 2000 CFO’s Annual Report


Costs 

Fiscal Year Net Program Costs 

2000 $203,773,000 

1999 $192,600,000 

1998 $190,446,000 

The Medical Device and Radiological Health Program 

experienced approximately a six percent increase in net 

costs in FY 2000. The net cost provides total expenses 

of the program including the net exchange of revenues 

and allocation of indirect expenses such as the Office 

of the Commissioner costs (e.g., administrative and 

policy direction), Office of Regulatory Affairs’ field 

operations’ costs, rent, and other overhead. For an 

explanation of net program costs, see the discussion on 

page I-9. 

Selected Initiatives, Goals, and 

Accomplishments 

The first strategic goal of the Medical Devices and 

Radiological Health Program identified in the FDA FY 

2000 Performance Plan is to provide quicker access to 

important, life-saving, and health-enhancing medical 

devices, while assuring their safety and effectiveness. 

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 and premarket 

notifications. 

Performance Goal 

The FY 2000 performance goal was to complete an ontime percentage of 85 percent for PMA and HDE first 

actions (combined), within 180 and 75 days respectively. 

Results 

For applications reviewed and filed during the first six 

months of FY 2000, CDRH achieved its goal by 

approving 43 PMAs, including six HDEs, with an ontime percentage of 91 percent for PMAs and HDEs 

combined. FDA improved its performance considerably from FY 1999 when the on-time percentage was 

69 percent. The chart below (Figure 9) presents 

CDRH’s improving performance over the past five 

years. 

Figure 9 

Note: Figure 9 is data from all receipt cohorts. Data contained in 

the chart reflects a cut off date of March 31, 2000, for PMAs and 

September 30, 2000, for HDEs for all cohorts. 

In addition, there were no back logs for new product 

submissions and turnaround times for processing these 

submissions improved across the board. Specifically, 

FDA: 

• Received a total of 9,753 major product review submissions in FY 2000. 

I-37
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


• PMA average total review time from filing to 

approval improved to 11.9 months in FY 2000. 

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. 

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 13 within 90 days. 

Results 

The CDRH achieved its FY 2000 performance goal 

with a 100 percent rate of completion within this timeframe. Figure 10 shows FDA’s improved timeliness in 

completing 510(k) first actions. 

In addition, the average total time to process 510(k)s to 

clearance remained unchanged at 102 days in FY 2000, 

an improvement from 114 days in FY 1998 and a peak 

of 216 days in FY 1994. Average FDA review time 

was 77 days for FY 2000, and it has continued to 

_________________________________________ 

13The data are for the first six months of FY 2000. 

decrease from a peak of 184 days in FY 1994. 

Figure 10 

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 

re l i able mammograp hy, and was amended by the 

Mammography Quality Standards Reauthorization Act 

(MQSRA) of 1998. 

The MQSA Program certifies mammography facilities 

and performs annual inspections to ensure that they 

remain in compliance with established quality stanI-38
Food & Drug Administration FY 2000 CFO’s Annual Report


dards. 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. 

The 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. 

Performance Goal 

The FY 2000 performance goal is that 97 percent of 

m a m m ograp hy facilities ach i eve compliance with 

inspection standards, with less than 3 percent with 

Level 1 findings. 

This goal helps ensure that mammography facilities 

remain in compliance with established quality standards and improve the quality of mammography in the 

United States. 

Result 

CDRH achieved this goal. It marked the third consecutive year of achieving the 97 percent goal for mammography facilities complying with inspection standards. 

I-39
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


From FDA Talk Paper, October 16, 2000 

FDA Report on New Medical Devices Approved in FY 2000 

FDA's Center for Devices and Radiological Health approved or cleared more than 3,600 new products during FY 2000. Many are first-of-a-kind medical devices representing breakthrough technology; many others offer significant advances over existing technology. Devices were approved 

to treat hearing loss, gall bladder disease, vision problems, diabetic foot ulcers, and female sexual 

arousal disorder. Products were also approved to monitor fetal oxygen, to seal air leaks in lungs 

following lung cancer surgery, and to test cholesterol at home. And almost 800 laboratory test kits 

were approved, including some that help detect the early stages of alcoholism. 

One of the most significant approvals--one that could eventually change the practice of surgery--

is a robotic arm that enables a surgeon to perform laparoscopic gall bladder and reflux disease surgery while seated at a console with a computer and video monitor. The product--the first of its 

kind--represents the first step in the development of new robotic technology. 

In another "first," FDA approved a digital mammography system for breast cancer screening in 

women. Studies showed that the digital system was comparable to the standard use of radiographic film in screening and diagnosing breast cancer. However, the new technology offers several 

potential advantages over film/screen mammography, including electronic storage and transfer, 

manipulation of image area, and large dynamic range. 

In another significant action, taken after extensive deliberation and review, FDA approved the continued marketing of saline-filled breast implants made by two firms. The manufacturers were 

required to conduct studies to show that the implants were safe and effective and, as a condition of 

approval, provide information to patients on risks and benefits. That information is now available 

on FDA's web site and in patient brochures developed by the companies. 

FDA also granted humanitarian device exemptions to six companies to make devices available 

after only limited testing for patients with rare medical conditions. Included is an implanted device 

to control chronic nausea and vomiting of patients with a gastrointestinal disorder called gastroparesis. HDEs are intended to benefit patients who have a disease or condition that affects fewer 

than 4,000 people annually in the United States. 

I-40
Food & Drug Administration FY 2000 CFO’s Annual Report


Tox i c o l ogical Research 

FDA Programs 
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


National Center for Toxicological 

Research 

Background 

T he National Center for Tox i c o l ogi c a l 

Research (NCTR) conducts FDA missioncritical, 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. 

The NCTR provides FDA with a high-quality, costeffective, health science research program, which provides new scientific knowledge through the application 

and leveraging of research findings from NIH, partnerships with other federal agencies, national and international orga n i z ations 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 the ORA. 

Costs 

Fiscal Year Net Program Costs 

2000 $43,347,000 

1999 $40,420,000 

1998 $45,755,000 

NCTR Program experienced a seven percent increase 

in net costs in FY 2000. The net cost provides total 

expenses of the program including the net exchange of 

revenues and allocation of indirect expenses such as 

the Office of the Commissioner costs (e.g., administrative and policy direction) and other overhead. For an 

explanation of net program costs, see the discussion on 

page I-9. 

Selected Initiatives, Goals, and 

Accomplishments 

Development of a State-of-the-Art Phototoxicity 

Facility 

Use of alpha-hydroxy acid containing cosmetics is 

increasing as the public seeks drugs or cosmetic preparations that will give a more youthful appearance. The 

impact of continuous use of this type of treatment on 

the incidence of sunlight-induced skin cancer is not 

known. 

A critical need existed for a FDA phototoxicity facility 

with the capacity to conduct comprehensive toxicological evaluations on compounds such as skin exfoliants 

found in many over-the-counter cosmetics and/or drug 

and cosmetic dyes. 

NCTR part n e red with the National Institute of 

Environmental Health Sciences (NIEHS), as part of the 

N ational Tox i c o l ogy Progra m , to construct the 

F DA/NIEHS Phototoxicity Research and Te s t i n g 

Laboratory to address this need. The facility is operatI-42
Food & Drug Administration FY 2000 CFO’s Annual Report


ed under an Interagency Agreement between FDA and 

NIEHS and has the distinction of being only the second 

facility in the nation capable of conducting this type of 

research. The Phototoxicity facility allows the research 

subjects (i.e., mice) to be exposed to either simulated 

solar light or fluorescent tube-generated ultra-violet 

light. 

Input into the design of the facility was obtained from 

the FDA Photosciences Network and experts in phototoxicology and physical science. These experts will 

continue to provide critical advice on the design of the 

experimental protocols. As a result, the facility will 

meet the rigors of scientific scrutiny and will generate 

data for human health risks from the effects of compounds on light-induced skin cancer. 

Performance Plan Goals 

Risk Assessment for Regulated Products 

As identified in the FDA FY 2000 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 the 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 

p roducts during the pre m a rket ap p l i c ation rev i ew 

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 non-animal models. 

Performance Goal 

Develop with other organizations gene chip and gene 

array technology. The performance measure for FY 

2000 is to conduct molecular epidemiology studies to 

identify biomarkers of the most frequently occurring 

cancers in highly susceptible sub-populations. 

The importance of risk chip technology is that it allows 

researchers to screen large numbers of people simultaneously for different types of biological indicators of 

effect. Each person is different, having a different 

genetic profile; therefore, by looking at an individual’s 

enzyme profile or the proteins in their blood, scientists 

can identify specific markers that distinguish one individual from another. This allows the identification of 

individuals at risk for adverse drug reactions and facilitates FDA review of individual susceptibility using 

profiles of agents with known toxicities and allows 

selection of a diverse group for clinical trials. For 

instance, this technology will allow scientists to identify people at high risk for various cancers such as pancreatic cancer thus aiding in diagnosis and treatment. 

These DNA gene expression microarrays are being 

developed collaboratively with private industry to better understand individual susceptibility and to improve 

interspecies extrapolation. 

Results 

Research in FY 2000 involved thirteen major studies to 

identify bio-markers of the most frequently occurring 

pancreatic, colorectal, breast, larynx, ovary, lung, urinary bladder, bone marrow, esophagus, and prostate 

cancers in highly susceptible sub-populations. Patients 

are being recruited for case control studies involving 

breast and prostate cancer. Preliminary results with 

pancreatic cancer patients indicate that patients with a 

particular genetic profile are at higher risk for developing pancreatic cancer. Research is continuing as 

scheduled. 

This research has focused on the food borne carcinoge n s , d ru g s , tobacco usage and nat u ral occurri n g 

I-43
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


chemicals that have hormonal activity. The results of 

this research are expected to provide an assessment of 

the relative risks of dietary and environmental carcinogens in humans and result in appropriate recommendations for managing public health risk both in the United 

States and throughout the world. 

Knowledge Bases That Predict Human 

Toxicity 

The second strategic goal of NCTR is to develop computer-based systems (knowledge bases) that predict 

human toxicity to enhance the efficiency and effectiveness of pre-market product reviews. 

An Agency-wide need, as identified by the NCTR 

stakeholders, is the application of unique computerbased predictive systems to aid in assessing human 

t oxicity to optimize non-clinical and clinical predictability. The FDA reviewers face an ever-increasing 

quantity and complexity of data in new drug and product applications. Clearly, tools that provide reviewers 

quick access to relevant scientific information and a 

capability of predicting toxicity can expedite review 

decisions. The NCTR, in partnership with other FDA 

Centers, government agencies, and industries, is developing a computer-based predictive system that can 

predict the toxicological activity of a compound by 

using biological indicators of damage, chemical structures via molecular modeling, and advanced mathematical and computational tools. 

Performance Goal 

Develop computer-based models and infrastructure to 

predict the health impact of increased exposure to 

estrogens and anti-estrogen compounds. 

Estrogenic activity is found in FDA-regulated products, as well as environmental chemicals, such as plastics and pesticides. Thus, it is important to understand 

the varying toxicological and pharmacological properties and the mechanisms of action of these regulated 

compounds. Clearly, tools that provide reviewers 

quick access to relevant scientific information and a 

capability for predicting toxicity can expedite review 

decisions. In order to provide the FDA with computational expertise in this area, the NCTR, in partnership 

with other FDA centers, government agencies, and private industry, developed an endocrine disrupter knowledge base with the capability of predicting hormonal 

activity of untested chemicals. 

Results 

During FY 1999, thirty-six chemicals were used to 

confirm the predictive value of the computer modeling 

system for FDA’s CDER and CFSAN. Goals for FY 

2000 include: 

1) development of improved methods and new strategies for detecting and predicting the developmental 

toxicity in laboratory animals and the human populat i o n , focusing on rep ro d u c t ive tract deve l o p m e n t , 

whole embryo development, and the molecular biology 

of development; and 

2) development of a knowledge base for the binding of 

chemicals to the estrogen and androgen receptor. It 

was reported in medical journals that over 230 chemicals have estrogen receptor binding activity and that 

this activity may be used to predict whether these compounds are hazardous to females at risk for breast or 

uterine cancer. Studies on androgen receptor binding, 

involved in prostrate cancer, are still ongoing. 

These models will continue to be applied to specific 

regulatory issues across a number of FDA product centers. The endocrine disrupter knowledge base will help 

to identify additional areas in which further research 

will aid in the making of FDA regulatory decisions. 

Methods for Use in FDA Standards 

Development and Product Risk Surveillance 

The third strategic goal of NCTR is to conduct research 

to understand mechanisms of toxicity, assess new 

I-44
Food & Drug Administration FY 2000 CFO’s Annual Report


product technology, and provide methods for use in 

FDA standards development and product risk surveillance. 

In 1997, the President directed members of his 

Cabinet, including the Secretary of Health and Human 

Services, to identify specific steps to improve the safety of the food supply. Therefore, FDA 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. 

NCTR is developing methods to identify markers of 

fo o d b o rne pat h ogens and to assess whether these 

micro-organisms are undergoing change, thus becoming more virulent. To address the question of human 

risk from food pathogens, NCTR scientists are working 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 

An example of the research being conducted under this 

goal involves competitive exclusion, a process by 

which healthy chickens are exposed to a known mixture of bacteria, which prevent infection of the chicken 

with bacteria that may be harmful to humans. 

Competitive exclusion products have the potential to 

eliminate or reduce the use of antibiotics in poultry 

husbandry for prevention of colonization of birds by 

Salmonella sp. The law requires that all components of 

ve t e ri n a ry dru g s , i n cluding competitive ex cl u s i o n 

products, be defined. It is also desirable that mixed 

bacterial cultures applied to poultry for internal colonization do not contain human pathogens or antibioticresistant bacteria. Therefore, the NCTR research staff 

have developed a project with CVM for isolation and 

identification of the bacteria in competitive exclusion 

cultures, using the most reliable phenotypic and genotypic microbial identification techniques available. 

Preliminary results have already alerted CVM to the 

possibility that competitive exclusion products can 

introduce bacteria with undesirable antibiotic-resistance into the human food supply. 

Scientists have also been evaluating a cell culture 

model that can determine more quickly and accurately 

whether a competitive exclusion product can effectively exclude Salmonella sp. or other invasive bacteria 

from intestinal cells. This assay will be available to 

producers and the FDA to evaluate the efficacy of competitive exclusion products. 

I-45
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


Financial Manage m e n t 

Pe r fo rm a n c e 
Food & Drug Administration FY 2000 CFO’s Annual Report


Financial Management 

Background 

F DA 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 

c o n d i t i o n , cost of operat i o n , and future re s o u rc e 

assessments. 

Financial management performance goals are developed in a number of ways: 

• Good management practice within FDA’s Office of 

Management and Systems. This organization, 

headed by the Deputy Commissioner for 

Management and Systems and Chief Financial 

Officer, is responsible for financial management, 

human resource management, procurement and 

grants management, information systems, and 

logistical and facilities services. See Figure 11 for 

organizational chart. 

• 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 on 

financial management. The following list of legislation requires action related to financial manage 

ment. See Appendix 2 for a brief description for 

each of these statutes. 

• Prompt Pay Act of 1982 (as amended) 

• Federal Managers’ Financial Integrity Act of 1982 

• Chief Financial Officers Act of 1990 

• Cash Management Improvement Act of 1990 

• Government Performance and Results Act of 1993 

• Government Management Reform Act of 1994 

• Federal Acquisition Streamlining Act of 1994 

• Debt Collection Improvement Act of 1996 

• Federal Financial Management 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 

• Corrective Action Plans arising from annual CFO 

Act Audits. These plans contain process improvement goals for correcting identified conditions 

found in the financial statement audits. 

Director, Office of 

Human Resources & 

Management Services 

Director, Office of 

Financial Management 

(Deputy CFO) 

Director, Office of 

Facilities Acquisition, 

& Central Services 

Chief Information 

Officer 

Deputy Commissioner for 

Management & System 

(Chief Financial Officer) 

Figure 11 

I-47 
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


Selected Initiatives, Goals, and 

Accomplishments 

During FY 2000, FDA continued to strengthen its 

infrastructure through several agency initiatives. 

• Strategic Workforce Planning Initiative. The Office 

of Human Resources and Management Services 

(OHRMS) coordinated the first Agency-wide workorce planning initiative designed to engage FDA 

leadership in a systematic process for anticipating 

future workforce requirements and planning ways 

to fill the gaps between existing resources and 

future requirements. OHRMS established an 

advisory work group with representatives from 

FDA components and FDA’s union, the National 

Treasury Employees’ Union (NTEU). They 

gathered information on workforce competencies 

from interviews and focus groups, and developed a 

planning guide addressing key areas such as leadership development, science workforce development, 

workforce skills and workforce leveraging. An 

OHRMS representative also participated in the 

budget planning process to ensure that workforce 

planning strategies were considered. 

• New Accounting System Initiative. To resolve 

several audit findings and achieve compliance with 

he Federal Financial Management Improvement Act 

(FFMIA), the Office of Financial Management 

(OFM) began the process for determining the feasibility of upgrading or replacing its accounting 

system. OFM hired an independent accounting 

firm to assist in developing the business case 

analysis. OFM is also participating in a DHHS 

financial systems workgroup that is analyzing 

different financial system models currently in use in 

other agencies. The work group is developing a 

comprehensive project plan on financial systems 

activities and a preliminary estimate of out year 

costs for a new financial management system. The 

costs and justification information will support 

requests for funding the new accounting system. 

• Headquarters Consolidation. In FY 2000, the plan 

for the two headquarters campuses is becoming a 

reality. The Prince George County, Maryland 

facility located in College Park, Maryland, is 

approximately 60 percent completed. It will house 

the Center for Food Safety and Applied Nutrition. 

The Montgomery County Campus located at White 

Oak, Maryland will house the CBER, CDER, 

CDRH, ORA, and OC components. The design of 

the CDER laboratory will result in approximately 

110,000 square feet of space with occupancy projected for late 2002. Design of the CDER office 

space began in October 2000. Funding for FY 

2000 included $35 million for the construction of 

the CDER laboratory and the design of the CDER 

offices. The Phase II funding in FY 2001 is $92 

million for the construction of office space for 

approximately 1,600 CDER employees and will 

result in the total consolidation of CDER at White 

Oak. 

• IT Security: Presidential Decision Directive 63 

(Cyber Terrorism). The Chief Information Officer’s 

(CIO) organization is complying with the directive, 

which calls for a national effort to ensure the security of the Nation’s critical infrastructure – defined 

as those physical and cyber-based systems essential 

to minimum operations of the economy and the 

Government. The directive requires all Federal 

agencies to: (1) assess the risk and vulnerability of 

their mission-essential infrastructure to cyberterrorism, (2) designate roles and responsibilities, (3) 

develop a plan of action for addressing the most 

significant risks first, and (4) monitor progress and 

performance. 

The CIO has completed the installation of new fire 

wall hardware and software technologies aimed at 

detecting and deterring unauthorized network 

access. The CIO also developed new or revised 

policies and procedures on responding to and 

reporting network security threats and virus attacks. 

The CIO has completed security audits to evaluate 

access controls to ensure that FDA’s information is 

I-48
Food & Drug Administration FY 2000 CFO’s Annual Report


not compromised by internal or external threats. 

The CIO implemented firewall technology and 

successfully defended the Agency against the 

“Melissa” and “I LoveYou” virus attacks. 

• Year 2000 (Y2K) Compliance. The CIO provided 

leadership on completing the Agency's Y2K 

remediation program, and established the Agency's 

Y2K Day One program for final verification and 

validation of Y2K compliance. The results were a 

successful FDA-wide Y2K transition. All critical 

information technology infrastructure was tested 

and verified as Y2K compliant prior to the first 

working day of Year 2000. 

Select Financial Management Measures 

Financial Statements Audit - 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. 

For the four reporting periods (FY 1997 through 2000), 

FDA has received three unqualified14 or “clean” opinions from the independent audit firm that has audited 

its financial statements. 

The independent auditors also reported on the organization’s internal controls and compliance with laws 

and regulations that impact on the reliability of the 

financial statements. In the past three periods, FDA 

received no material weaknesses.15 FDA has made 

c o n s i d e rable progress in resolving three mat e ri a l 

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 1999 audit rep o rt , F DA re c e ived thre e 

reportable conditions: preparation of financial statements, property and equipment, and information systems controls. While accepting these findings, FDA 

took a more concerted effort during FY 2000 to aggressively resolve them. For example, it established a new 

branch organization in the Division of Accounting to 

prepare financial statements and to interact with the 

Table 6 

Measures FY 1997 FY 1998 FY 1999 FY 2000 

Timely audit opinion no yes yes 

Clean (or inqualified) audit opinion no yes yes yes 

No. of material weaknesses 3 0 0 0 

No. of reportable conditions 5 3 3 1 

No. of instances of non-compliance 

with laws and regualtions 0 0 0 0 

(excluding FFMIA) 

No. of instances of 

non-compliance with FFMIA 1 1 1 1 

yes 

_________________________________________ 

14An unqualified opinion is a statement by the auditor that an entity’s financial statements present fairly the financial position, results of operation, and 

other financial aspects of an organization in conformity with generally accepted accounting principles applicable to the entity. 

15A CFO material weakness is a significant finding which, in the opinion of the auditors, poses a risk or threat to the internal control systems of 

an audited entity, such as a program or operation. 

I-49
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


independent auditors. Other actions initiated include 

the process of acquiring a new replacement accounting 

system. This effort extends beyond the Agency to the 

Department, and FDA is participating in an intrad ep a rtmental wo rk group examining rep l a c e m e n t 

accounting systems for DHHS use. 

While the auditors found that FDA was generally in 

compliance with laws and regulations impacting on 

financial statements, it found that FDA was not compliant with the FFMIA. The auditors are required to 

report whether the Agency’s financial management 

systems substantially comply with the Federal financial management system re q u i re m e n t s , Fe d e ra l 

accounting standard s , and the United Stat e s 

Government Standard General Ledger at the transaction level. The results of the auditor’s tests disclosed 

instances where the FDA’s financial management system did not substantially comply with FFMIA. FDA 

a ck n ow l e d ged this finding of non-compliance and 

decided that its resolution would require a thorough 

review of its requirements and needs for upgrading or 

acquiring a new accounting system. This multi-year 

i n i t i at ive is incorp o rated in the CFO’s Corre c t ive 

Action Plan. 

Payment Processing 

Compliance with Prompt Payment Act 

In FY 2000, FDA processed 128,287 commercial 

invoices, subject to the Prompt Payment Act, totaling 

approximately $291.2 million. Such payments were 

made in compliance with the Act and were 99 percent 

on-time. 

In addition to invoices subject to prompt payment regulations, FDA also processes payments for grants and 

a variety of transfers between government agencies. 

The majority of transfers are accomplished electronically through the Department of Treasury's On Line 

Payment and Collections (OPAC) System. There were 

approximately 2,886 OPAC entries in FY 2000. 

Electronic Funds Transfer (EFT) 

In response to the Debt Collection Improvement Act of 

1996, FDA continued implementation of its policy to 

require EFT payments in order to enhance its accounts 

payable system. In FY 2000, FDA completed 144,571 

EFT payments related to vendor invoices and travel 

vouchers (headquarters, district offices, and NCTR 

combined), and OPAC billings from other Federal 

agencies. A major reason for the increase is the abandonment of third party draft payment schedules and 

u t i l i z ation of FDA’s automated payment system. 

Figure 12 depicts the progress made by FDA in reducing the number of check payments while increasing the 

total of EFT payments from FY 1996 to FY 2000. 

Figure 12 

Facilities, Acquisitions, and Central Services 

Program 

The Office of Facilities, Acquisitions, and Central 

Services (OFACS) administers contracts, small purchases, special government-wide credit card, grants 

and cooperative agreements. For FY 2000, the total 

acquisition program purchases were $311.9 million as 

shown in Figure 13. While the percentage of contract 

p u rchases fe l l , the perc e n t age of Intern at i o n a l 

Merchant Purchase Authorization Card program, and 

grants and cooperative agreements purchases grew to 

eight percent each. 

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Food & Drug Administration FY 2000 CFO’s Annual Report


Figure 13 

International Merchant Purchase Authorization 

Card (IMPAC) Program 

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, 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 2000, FDA completed 69,515 purchase card 

transactions. The Agency's usage trend can be seen 

graphically in Figure 14. 

Figure 14 

Internet Services and Support 

FDA is increasing its use of internet technology to disseminate health information to the public; offer information of interest to health professionals, patients, 

consumers, industry, state, and local officials and many 

others; and conduct improved administrative proceedings by accepting comments electronically and allowing the public to electronically register for public meetings. 

In FY 2000, the FDA Internet Web Site infrastructure 

and services provided to the industry and the public 

were significantly expanded. The number of application and database servers to support additional webenabled databases continues to grow. This is illustrated in Figure 15. 

Figure 15 

The number of times per month the web site has been 

accessed has dramatically increased in the past three 

year period. There has been a 200 percent jump in the 

number of hits since FY 1998. This is displayed in 

Figure 16. 

Figure 16 

I-51
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


Internet technology has improved FDA’s administrative proceedings. Prior to the advent of Internet technology within the FDA, the public was required to submit their comments on proposed regulations in writing 

to the FDA’s Dockets Management Branch. This was 

a time-consuming process for both the public and 

Agency units. Now, FDA accepts the electronic submission of comments, and also allows the public to 

register electronically for open meetings. With the 

enhancements made to the Dockets Manage m e n t 

Branch Web site, the amount and types of data available to the public is tremendous. For ex a m p l e, 

Advisory Committee Briefing packages are now posted on the Web. Public access to the web site continues 

to increase, with the number of pages viewed jumping 

from approximately 500 million in FY 1999 to 3.6 billion in FY 2000. In addition to the benefits provided to 

the public, FDA components also benefit from the 

electronic documents by receiving critical rulemaking 

documents via e-mail in a timely manner. 

Systems, Controls and Legal Compliance 

The Federal Accounting Standards Advisory Board 

requires the Management Discussion and Analysis to 

address the systems, controls and legal compliance 16 

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 aggre s s ive ly correct we a k n e s s e s , a n d 

implement proper safeguards to prevent waste, fraud, 

and mismanagement of Agency resources. 

To improve administrative accountability, the Centers 

and ORA entered into a partnership agreement with the 

Office of Management and Systems. The agreement, 

Partnership for Administrative Quality (PAQ), is a 

structured process for the evaluation of the administrative activities in the Centers, Office of Commissioner’s 

components, and the headquarters offices of ORA. 

The PAQ review areas include: financial management, 

procurement, property management, physical security, 

information technology security, and human resources 

management. Centers and Offices are beginning to 

include findings from their internal PAQ reviews in 

their FMFIA individual assurance statements. As the 

PAQ program mat u re s , all components will have 

assessment data available for inclusion in their FMFIA 

statement. 

The components’ individual assurance statements are 

consolidated and summarized in the FDA’s FY 2000 

assurance statement. No management control material 

weaknesses were disclosed. 

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. Because 

FDA’s financial management systems are about 30 

years old and rely on older technology, FDA management hopes to replace their primary general ledger 

accounting system with one that meets all of the 

Federal financial management requirements. This 

action may take several years from business case 

analysis, FDA approval, procurement, testing, to operation. _________________________________________ 

16These 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 98-08. 

I-52
Food & Drug Administration FY 2000 CFO’s Annual Report


Financial Analysis

MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


Financial Analysis 

T he 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. ovides a 

"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. xecution and whether 

budgetary accounting rules are being followed. 

One must be careful to recognize the differences between expenses recorded 

on an accrual 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. 

Pr

Helps to assess budget e

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Food & Drug Administration FY 2000 CFO’s Annual Report


Agency’s Financial Condition 

The balance sheet reflects a positive net position 

(assets less liabilities). When compared to the past two 

fiscal years (FY 1998 and FY 1999), the growth of net 

position as shown in Figure 17 may be 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, special security, 

and building related systems were acquired to outfit 

new regional laboratories and headquarters consolidation (the Center for Food Safety and Applied Nutrition 

is moving to College Park, Maryland in fall of FY 

2001). FDA received additional appropriated monies 

for premarket review activities. 

Budgetary Resources and Outlays 

As presented in the Statement of Budgetary Resources, 

FDA’s budget authority for FY 2000 was $1,053 

million, not including spending authority of $182 

million from user fee and reimbursable collections. 

Total budget authority as of September 30, 2000, 

including offsetting collections, carry-over balances 

from prior years and adjustments, was $1,412 million. 

Of this amount, $1,308 million had been obligated during FY 2000. Figure 18 shows the total of budgetary 

resources 17 by major type -- salaries and expenses; 

user fees; buildings and facilities; and other minor 

accounts, such as certification fund and royalties. 

Total outlays were approximately $1,023 million during FY 2000, which represents a 7.6 percent increase 

over FY 1999 total outlay of $951 million. Figure 1918 

shows FDA's outlay trend over the past five fiscal 

years. For FY 2000, FDA received budgetary increases to recover the full costs of GSA Rent, to expand the 

Food Safety Initiative, and a one-time increase to cover 

FDA’s premarket application review. 

Figure 17 

Figure 18 

_________________________________________ 

17Source: Combining Statement of Budgetary Resources for the Year 

Ended September 30, 2000. 

18Source: Combining Statement of Budgetary Resources,FY 2000 Figure 19 

I-55
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA


Costs 

Gross FY 2000 expenses were $1.25 billion, which 

includes projects funded by user fees. Deducting $180 

million in earned revenues, FY 2000 net costs were 

$1.07 billion. This compares with gross expenses of 

$1.17 billion and net costs of $1.01 billion for FY 

1999. Figure 2019 and Figure 2120 illustrate FDA’s 

expenses by type and program. These are the budget 

p rograms rep o rted under GPRA, wh i ch rep re s e n t 

FDA’s major responsibility segments as defined by the 

Statement of Federal Financial Accounting Standard 

# 4 , M a n age rial Cost Accounting Concepts and 

Standards. 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 20 

• Personal Services & Benefits rose by eight percent 

from $686.3 million in FY 1999 to $740 million in 

FY 2000, due to increases from the Congress on 

funding the President’s Food Safety Initiative and 

FDA’s premarket application review processes. 

• Non-capitalized equipment (formerly called 

expendable equipment) declined in FY 2000 by 

12.5 percent from $31.5 million in FY 1999 to 

$28.0 million in FY 2000, due to process improvements made to the Agency’s property management 

program. 

Figure 21 

• The Foods Program's FY 2000 net costs increased 

by 13.9 percent from the FY 1999 due to the expansion of the President’s Food Safety Initiative. 

• The Human Drugs Program’s net costs increased by 

12.2 percent due to increases in user fees authorized 

by PDUFA II and a Congressional increase for 

FDA’s premarket application review processes. 

• Biologics programs' net costs decreased approximately by 9 percent due to a larger amount of 

PDUFA II user fees collected. 

• For the Tobacco Program’s net costs, there was a 75 

percent decline from FY 1999. This was due to the 

U.S. Supreme Court ruling of March 21, 2000, that 

held FDA did not have the authority to regulate 

tobacco. FDA began the process of terminating the 

Tobacco Program. The net costs represent shut 

down costs for contracts and other administrative 

expenses. 

_________________________________________ 

19 Source: Supplemental Statement of Net Cost by Expense Type and Program, FY 2000. Please note that some rounding differences may show a different total than the supplemental statement.

20 Source: Supplemental Statement of Net Cost by Program Costs byAppropriation, FY 2000. 

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Food & Drug Administration FY 2000 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. One implication of this is that liabilities cannot be 

liquidated without legislation that provides 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. 

I-57
MANAGEMENT DISCUSSION AND ANALYSIS OF FDA 

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. including additional rental expenses and certain 

types of information technology investments, are funded by PDUFA. The 

amount of PDUFA collections expended in FY 2000 was $147.3 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. the amount of MQSA collections 

expended was $12.8 million. 

Export The newest user fee program was established by the Export Reform and 

Certification 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. ogram. 

FY 2000, the amount of user fees expended was $1.3 million. t 

certificates 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, 

Other Services 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. 

expenses of employees of the program are funded directly by FDA's Revolving 

Fund for Certification and Other Services. The fund's activities are financed 

entirely by fees paid by the affected commercial organizations. the 

amount of fees expended was $3.9 million. 

Salary and expenses, 

CDRH 

In FY 2000, 

Each of the product centers administers its own pr In 

Expor

Salaries and 

In FY 2000, 

I-58
Food & Drug Administration FY 2000 CFO’s Annual Report 

Appendix 2 

Financial Management Legislation 

Federal Managers’ Financial Integrity Act of 1982 

The Federal Managers’ Financial Integrity Act (FMFIA) of 1982, Public Law 97-255, was signed into law on 

September 8, 1982. It amended the Accounting and Auditing Act of 1950. It requires ongoing evaluations and 

reports on the adequacy of the systems of internal accounting and administrative control of each executive 

agency. 

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 FY 1999, 

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. FY 1999 

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. 

I-59
OVERVIEW OF FOOD AND DRUG ADMINISTRATION 

Appendix 2 (continued) 

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. 

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 

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Food & Drug Administration FY 2000 CFO’s Annual Report 

Appendix 2 (continued) 

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 

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. 

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OVERVIEW OF FOOD AND DRUG ADMINISTRATION


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


I-62
Food & Drug Administration FY 2000 CFO’s Annual Report


Financial Statements 

and Footnotes 

Food & Drug Administration FY 2000 CFO’s Annual Report

FINANCIAL STATEMENTS


II-2�
Food & Drug Administration FY 2000 CFO’s Annual Report


II-3�
FINANCIAL STATEMENTS


II-4�
Food & Drug Administration FY 2000 CFO’s Annual Report


II-5�

Food & Drug Administration FY 2000 CFO’s Annual Report


Notes to Fiscal Year 2000 

Financial Statements 

Food and Drug Administration 

U.S. Department of Health and Human Services 

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 Statement of Budgetary 

Resources 

Food & Drug Administration FY 2000 CFO’s Annual Report


Note 1 - Summary of Significant Accounting Policies 

A. Reporting Entity 

The Food and Drug Administration (FDA) is a separate 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 a general fund, 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 Suspense* 

75F3875.6 and 75F3885.6 Budget Clearing 

753099, 752499, 

752449, 751099, 751499 Miscellaneous Receipts 

* canceled during FY 2000 and balances transferred to either 75F3875.6 or 75F3885.6 

II-9
NOTES TO FINANCIAL STATEMENTS


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 (collaborators). 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 

2000, FDA received about $1 million. 

II-10
Food & Drug Administration FY 2000 CFO’s Annual Report


E. Assets 

Entity assets are those assets which the reporting entity holds and has the authority to use in its operations. Nonentity assets are assets the entity holds, but does not have authority to use. FDA does not have any non-entity 

assets. Therefore, all assets reported on the financial statements are entity assets that FDA is able to use in its 

operations. 

Intragovernmental assets are those that arise from transactions with other Federal entities. Assets With the 

Public are those that arise from transactions with state or local government agencies, or the general public. 

F. Fund 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 billed under interagency agreements. 

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. 

All receivables are classified as current. 

H. Advances to Grantees 

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 

accrued grantee expenditures, and “Accrued Grant Liability” is reported when accrued expenditures exceed 

advances as of September 30. All advances are considered current assets. 

II-11
NOTES TO FINANCIAL STATEMENTS


I. General Property, Plant & Equipment, Net (PP&E) 

All 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. 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 projects that are ongoing at year-end are classified as construction-inprogress. Such expenditures are subsequently reclassified as depreciable real property 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. 

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. For FDA’s Revolving Fund for Certification and Other Services, 

all liabilities are funded by offsetting collections. 

II-12
Food & Drug Administration FY 2000 CFO’s Annual Report


K. Accounts Payable 

Accounts payable consists of amounts due for goods and services received, progress in contract performance by 

others, interest due on accounts payable, and other miscellaneous payables. 

L. Accrued Grant Liability, Net 

Statement of Federal Financial Accounting Standards #5, Accounting for Liabilities of the Federal Government, 

requires the accrual of amounts payable to grantees at year-end. 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 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 down 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 

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. 

M. 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. 

N. 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 balance of the accrued annual leave 

account is adjusted monthly to reflect current pay rates. Sick leave and other types of nonvested leave are 

expensed as taken. 

II-13
NOTES TO FINANCIAL STATEMENTS


O. 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. The OPM also accounts for all health and life insurance programs for retired eligible employees. 

Pensions: Pensions provide benefits upon retirement and may also provide benefits for death, disability, or other 

termination of employment before retirement. Pension plans may also include benefits to survivors and dependents, and they may contain early retirement or other special features. Most FDA employees participate in the 

Civil Service Retirement System (CSRS) or the Federal Employee Retirement System (FERS). Under CSRS, 

FDA makes matching contributions equal to 8.51 percent of basic pay. For FERS employees, FDA contributes 

the employer’s matching share for Social Security and contributes an amount equal to one percent of employee 

pay to a savings plan and matches up to an additional four percent of pay. Most employees hired after 

December 31, 1983, are covered by FERS. OPM reports on CSRS and FERS assets, accumulated plan benefits, 

and unfunded liabilities, if any, applicable to Federal employees. 

Other Retirement Benefits (ORB): Retirement benefits other than pensions are all forms of benefits to retirees 

or their beneficiaries provided outside the pension plan. Examples include health and life insurance. Retirement 

health care benefits are the primary ORB expense. 

Other Post-employment Benefits (OPEB): Post-employment benefits other than pensions include all types of 

benefits provided to former or inactive, but not retired, employees, their beneficiaries, and covered dependents. 

Inactive employees are those who are not 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. 

II-14
Food & Drug Administration FY 2000 CFO’s Annual Report


P. 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 $361 as of September 30, 2000. 

Q. Revenues and Other Financing Sources 

Funding for FDA is classified as revenue or other financing sources. Revenue is an inflow of resources that the 

Government demands, earns, or receives by donation. Revenue comes from two sources: exchange transactions 

and nonexchange transactions. Other financing sources include appropriations used, imputed financing sources, 

and transfers of assets between FDA and other Federal entities. 

Exchange and Non-Exchange Revenue: In accordance with GAAP, FDA classifies revenues as either exchange 

revenue or 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 

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. FDA does not recognize any nonexchange revenues in its operations. 

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 Judgement 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. 

II-15
NOTES TO FINANCIAL STATEMENTS


R. 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. 

S. 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. 

T. Comparative Data 

OMB Bulletin 97-01 provides that comparative financial statements are permitted but not required until reporting 

periods beginning after September 30, 2000. Therefore, management has elected not to provide comparative 

data. 

U. 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: 

Appropriated General Funds $401,556 

Other Funds 49,997 

Revolving Funds 4,065 

Total Fund Balances with Treasury $455,618 

No restrictions on Fund Balances with Treasury exist at September 30, 2000. 

II-16
Food & Drug Administration FY 2000 CFO’s Annual Report


Note 3 - Accounts Receivable, Net 

Accounts Receivable, Net consist of the following: 

Gross Net 

Receivable Allowance Receivable 

Intragovernmental 

Interagency Agreements $ 6,314 $ - $ 6,314 

With the Public 

Prescription Drug User Fee Act 9,521 825 8,696 

Mammography Quality Standards Act 2,921 200 2,721 

Travel Refunds & Miscellaneous 1,690 17 1,673 

Export Reform & Enhancement Act 498 7 491 

Interest Receivable 31 - 31 

IRS Offsets 5 - 5 

Total With the Public 14,666 1,049 13,617 

Total Accounts Receivable $20,980 $1,049 $19,931 

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-17
NOTES TO FINANCIAL STATEMENTS


Note 5 - General Property, Plant, and Equipment, Net 

Balances for the major categories of FDA Property, Plant and Equipment, Net are listed below: 

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 10 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 Property 220,229 80,228 140,001 

Construction in Progress N/A 12,121 - 12,121 

Total $320,135 $131,373 $188,762 

Note 6 - Other Assets 

Other Assets is comprised of the following: 

Intra- With the 

governmental Public 

Disputed Cash Advance over GSA Rent $ 14,019 $ -

Travel and Employee Advances - 348 

Prepaid Subscriptions 238 

Total Other Assets $ 14,257 

-

$ 348 

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. 

II-18
----------------

Food & Drug Administration FY 2000 CFO’s Annual Report


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, 2000: 

------------- Intragovernmental------------- With the Public----------------

Liabilities Liabilities 

Total 

$ 2,807 

Liabilities Liabilities 

Covered By Not Covered Covered By Not Covered 

Budgetary By Budgetary Budgetary By Budgetary 

Resources Resources Resources Resources Total 

$ 1,102 $ 1,705 $ 1,729 $ 2,198 $ 2,927 

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 FY 2000 present 

value of these estimates was calculated using a discount rate of 6.15 percent in the first year, 6.28 percent in the 

second year, and 6.30 percent in the third year and thereafter. 

II-19
---------------

NOTES TO FINANCIAL STATEMENTS


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. The 

projected number of years of benefit payments is 37 years. 

This liability at September 30, 2000, amounted to $21,087, and is considered a liability not covered by budgetary 

resources. 

Note 9 - Accrued Payroll and Benefits 

Accrued Payroll and Benefits consist of the following: 

-------------Intragovernmental------------- With the Public---------------

Liabilities Liabilities 

Covered By Not Covered 

Budgetary By Budgetary 

Resources Resources Total 

$ 36,734 $ 1,10- $ 36,734 

$ 1,10- $ 51,406 $ 51,406 

$ 1,10- $ 1,10- $ 1, 10-

$ 1,10- $ 1,10- $ 1,10-

$ 36,734 $ 51,406 $ 88,140 

Liabilities 

Covered By 

Liabilities 

Not Covered 

By Budgetary 

Resources 

$ 1,10-

$ 1,10-

$ 1,10-

$ 3,237 

$ 3,237 

Total 

$ 3,237 

$ 6,223 

$ 1,10-

$ 1,10-

$ 9,460 

Budgetary 

Resources 

$ 1,10-

$ 1,10-

$ 6,223 

$ 1,10-

$ 6,223 

Accrued Payroll 

Accrued Leave 

Payroll Withholding 

Accrued Workers' 

Compensation 

Total 

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). In many cases, these reports are received several months after the grantee 

actually incurs the expense, resulting in an understated grant expense in the financial statements. To mitigate this, 

FDA estimates and accrues amounts due grantees for their expenditures through September 30, 2000, in accordance with DHHS accounting procedures. 

At fiscal year-end when FDA recorded the estimated accrual for amounts due to grantees for their expenses, the 

accrual amount exceeded the amount of outstanding advances. Therefore, FDA reported a liability for “Accrued 

II-20
---------------

Food & Drug Administration FY 2000 CFO’s Annual Report 

Grant Liability” as of September 30, 2000, as follows: 

Grant Advances Outstanding (before year-end grant accrual) $ 8,711 

Less: Estimated Accrual for Amounts Due to Grantees 10,893 

Accrued Grant Liability, Net $ 2,182 

Note 11 - Other Liabilities 

Other Liabilities consist of the following: 

------------- Intragovernmental-------------

Liabilities Liabilities 

Covered By Not Covered 

With the Public---------------

Liabilities 

Covered By 

Budgetary 

Resources 

$ 141 

$ 409 

$ 1,10-

$ 1,10-

$ 550 

Liabilities 

Not Covered 

By Budgetary 

Resources Total 

$ 728 $ 728 

$ 505 $ 505 

$ 1,10- $ 409 

$ 1,10- $ 141 

$ 1,233 $ 1,783 

Capital lease 

Contingent Liability 

Deferred Revenue 

Other 

Total 

Budgetary By Budgetary 

Resources Resources Total 

$ 1,10- $ 985 $ 1,10-

$ 1,10- $ 1,10- $ 1,10-

$ 1,10- $ 1,10- $ 1,10-

$ 1,10- $ 1,10- $ 1,10-

$ 1,10- $ 985 $ 985 

All other liabilities are considered current except for the capital lease liability. The portion of the total capital 

lease liability of $1,713 considered current is $80, and the remaining balance, $1,633, is considered non-current. 

Also see Note 15 for more information on capital leases. 

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. 

II-21
NOTES TO FINANCIAL STATEMENTS


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. 

Appropriated Revolving 

Funds Funds Total 

Unexpended Appropriations: 

Unobligated: 

Available $ 27,361 $ - $ 27,361 

Unavailable 14,130 - 14,130 

Undelivered Orders 288,304 - 288,304 

Total Unexpended Appropriations 329,795 - 329,795 

Cumulative Results of Oper ations 177,966 4,132 182,098 

Total Net Position $ 507,761 $ 4,132 $ 511,893 

Note 13 - Prior Period Adjustments 

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. 

Unexpended Appropriations $ 

Personal Property Cost, Net (1,035) 

Real Property Cost, Net 781 

Supplemental CSRS Adjustment (667) 

Total $ 

3,249 

2,328 

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, 2000, FDA’s undelivered orders were $288,304. The entire balance has been funded with budgetary resources received in FY 2000 and prior years. 

II-22
Food & Drug Administration FY 2000 CFO’s Annual Report


A summary of long-term commitments for construction projects is as follows: 

Amount 

Fiscal Year ($ In Millions) 

2001 $ 15.8 

2002 16.2 

2003 12.0 

Total $ 44.0 

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 Judgement Fund maintained by the U.S. Department of the Treasury under title 31 United States 

Code, section 1304. Unfavorable judgements do not result in claims against FDA directly. Losses paid by the 

Judgement Fund on behalf of FDA do not require reimbursement. As of September 30, 2000, FDA has accrued 

$505 for a legal contingent liability to be paid by the Treasury Judgement Fund. 

In addition, there are various pending class action suits against HHS. However, HHS 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. 

Note 15. Leases 

A summary of assets under capital lease is as follows: 

Equipment-Security System $ 1,380 

Structures-Cooling Tower 806 

Subtotal 2,186 

Less: Accumulated Depreciation (117) 

Total Assets Under Capital Lease (Note 5) $ 2,069 

II-23
NOTES TO FINANCIAL STATEMENTS


Future lease payments due: 

Fiscal Year 

2001 

2002 

2003 

2004 

2005 

2006 and Thereafter 

Total Future Lease Payments 

Less: Imputed Interest 

Total Capital Lease Liability (Note 11) 

Capital Operating 

Leases Leases 

$ 231 $ 104,734 

231 108,229 

224 111,855 

223 116,233 

223 120,803 

2,091 1,612 ** 

3,223 $ 563,466 

(1,510) 

$ 1,713 

** Future Lease payments are expected; however, dollar figures for GSA cannot be reasonably estimated. 

As of September 30, 2000, FDA had one personal property capital lease for a security system used at its 

Jamaica, NY field office. The lease has 19 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, 2000. Operating leases for 

real property cover GSA and non-GSA leased assets. Operating leases comprise the majority of FDA’s fiscal 

year 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. FDA had eight non-GSA operating leases in FY 2000 consisting mostly of laboratories and officespace. 

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, 2000, FDA maintained 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. 

Note 16 - Combined Statement 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. 

II-24
Food & Drug Administration FY 2000 CFO’s Annual Report


FDA received approximately 74.6%, or $1,053,083, of its total FY 2000 budgetary resources of $1,412,236 

through appropriations. FDA’s S&E account was appropriated $1,040,638, which accounts for 99% 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. Budgetary 

resources obligated for undelivered orders as of September 30, 2000, totaled $288,304. 

Other sources of funding for FY 2000 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 12.9% of total FY 2000 budgetary resources. Unobligated carryovers represent 

amounts of spending authority that have not been committed or earmarked for expenditure. Carryovers represent 

about 8.5% of 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. 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 2000, FDA had 

funds of $3,040 temporarily not available for national public health emergencies, but was not required to use any 

of these funds. 

During FY 2000, the beginning unobligated balances were decreased by $1 to correct for understated obligations 

(undelivered orders) in FY 1999. Research into the error uncovered how the difference occurred, and improved 

edit checks will prevent the problem from recurring. 

The obligated carryovers from FY 1999 were restated by $155 on 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. 

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Food & Drug Administration FY 2000 CFO’s Annual Report


Required 

Supplementary 

Information 

(Unaudited) 

Food & Drug Administration FY 2000 CFO’s Annual Report


III-1�
REQUIRED SUPPLEMENTARY INFORMATION


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Food & Drug Administration FY 2000 CFO’s Annual Report


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III-4

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)


Deferred Maintenance (Unaudited) 

Deferred maintenance is maintenance that was not performed when it should have been, was scheduled and not 

performed, or was delayed for a future period. Maintenance is the act of keeping fixed assets in acceptable 

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 does not include 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 employs a periodic inspection of real property to determine its current condition 

and estimate costs to correct 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 evaluation or investigation of regulated products. The following table presents 

FDA’s real property for which deferred maintenance exists as of September 30, 2000: 

Category Asset 

Condition 

Cost to Return to 

Acceptable Condition 

Critical 

Amount 

Non-Critical 

Amount 

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 
Food & Drug Administration FY 2000 CFO’s Annual Report


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REQUIRED SUPPLEMENTARY INFORMATION


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Food & Drug Administration FY 2000 CFO’s Annual Report


Required 

Supplemntary 

Stewardship 

Information 

(Unaudited) 

Food & Drug Administration FY 2000 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, 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 

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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, 2000


(Unaudited)


products for use in rare diseases or conditions where no current therapy exists or where current therapy would be 

improved. In FY 2000, there were 83 active OPD grants. 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. 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 1998-2000 (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: 

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--

--

--

--

Food & Drug Administration FY 2000 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, 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 

$3,070 

17,794 

4,752 

$25,616 

99 

$2,097 

9,605 

6,990 

$18,692 

98 

$11,687 

285 

8,159 

33,233 

$53,364 

Fiscal Year 

NOTE:

Pilot Clinical Pharmacology Program is excluded from FY 1999 and FY 2000 since it is used to “train” pharmacologists

and does not meet the definition of research and development.

Toxicological Research is excluded from FY 1999 and FY 2000 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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Food & Drug Administration FY 2000 CFO’s Annual Report


R ep o rts on the Au d i t


of FDA’s FY 2000


Financial Stat e m e n t s


Food & Drug Administration FY 2000 CFO’s Annual Report


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INDEPENDENT AUDITORS’ REPORTS


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Food & Drug Administration FY 2000 CFO’s Annual Report


* This report is a condensed version of the original Independent Auditors' Report on Internal Controls, dated of the same date, that 

was included in the DHHS Office of Inspector General’s audit report submission (number A-17-00-00006), dated March 2001. 

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INDEPENDENT AUDITORS’ REPORTS


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INDEPENDENT AUDITORS’ REPORTS


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