Report

on the financial statements of the European Agency for the Evaluation of Medicinal Products (EMEA London) for the financial year ended 31 December 1999 together with the Agency's replies

(2000/C 373/03)

CONTENTS

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OPINION OF THE COURT

1. This report is addressed to the Management Board of the European Agency for the Evaluation of Medicinal Products in conformity with Article 57(10) of Council Regulation (EEC) No 2309/93(1).

2. The Court has examined the financial statements of the European Agency for the Evaluation of Medicinal Products for the financial year ended 31 December 1999. In accordance with Article 57(7) of Council Regulation (EEC) No 2309/93, the budget was implemented on the responsibility of the Executive Director. This responsibility included the drawing-up and presentation of the financial statements(2) in accordance with the internal financial provisions, as provided for under Article 57(11) of Council Regulation (EEC) No 2309/93. The Court of Auditors is required under Article 248 of the Treaty establishing the European Community to examine these accounts.

3. The Court undertook its audit in accordance with its audit policies and standards. These have been adapted from generally accepted international auditing standards to reflect the specific characteristics of the Community context. Accordingly, the Court carried out such tests of the accounting records and other audit procedures as it deemed necessary in the circumstances. Through the audit, the Court obtained a reasonable basis for the opinion expressed below.

4. This examination has allowed the Court to obtain reasonable assurance that the accounts for the financial year ended 31 December 1999 are reliable and that the underlying transactions are, taken as a whole, legal and regular.

MAIN OBSERVATIONS CONCERNING THE IMPLEMENTATION OF THE BUDGET OF THE EUROPEAN AGENCY FOR THE EVALUATION OF MEDICINAL PRODUCTS (EMEA LONDON) FOR THE FINANCIAL YEAR 1999

Cost accounting

5. As pointed out last year a review of the fee regulation must be based on the costs of the service provided(3). The Management Board set up a Working Group on Costing. On the basis of an activity-based costing, the Agency introduced a system for the attribution of staff time to different activities. On this basis, staff expenditure was allocated to activities. Some other budget lines (instead of payments) were allocated on the basis of more or less arbitrary decisions and without any evaluation of the depreciation of technical equipment and installations.

6. In order to obtain a modern management tool that also constitutes a solid basis for future Council decisions on the fees, it would be preferable to integrate the cost accounting into a financial or budgetary accounting system, rather than the method currently used. This would also be a good basis for promoting a similar development in the Member States as regards the accurate estimation of evaluation costs. Currently, the Management Board considers it sufficient that Member States indicate only their estimated costs.

Financial accounting system

7. In order to avoid year 2000 problems in the long-standing accounting system, a commercial system was foreseen to be introduced at the beginning of 2000. Because of unnecessarily complicated procedures and delays, the new system has not yet been installed.

Tender procedures

8. The authorising officer authorised contracts on the basis of calls for tenders launched by the Commission with a favourable opinion of the Advisory Committee on Procurements and Contracts (ACPC) of the Agency. Neither the documentation on these purchases nor the contracts signed by the Commission had foreseen such an extension to the agencies. The Court considers that the authorisation by the Agency was not in accordance with the applicable regulations.

9. Contracts were entered into by the authorising officer on the basis of a favourable opinion of the ACPC, where bids had been excluded on incorrect grounds because of problems in the wording of the call for tenders and the tender letter respectively. Also in these cases the Agency should not have entered into a commitment. In order to prevent any recurrence of this, the ACPC should be consulted on the wording of tender notices before they are published in the Official Journal and should also be consulted about the text of tender letters before they are sent out.

Financial Regulation

10. With regard to VAT, the provisions of the general Financial Regulation applicable to the general budget in force at the time required the whole of the amount of the expenditure to be charged, including VAT. Once the VAT refunds had been collected, and pursuant to Article 27 of the abovementioned Financial Regulation, they could be reused. This practice was applied in all the European Union's institutions and bodies prior to the amendment made to the general Financial Regulation at the end of 1998(4), which now provides for charging the amount of expenditure net of tax. However, those agencies that have not yet amended their own Financial Regulation continue to apply the former provisions. The Court accordingly calls on the Agency to bring its Financial Regulation into line with the general Financial Regulation.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 18 May 2000.

For the Court of Auditors

Jan O. Karlsson

President

(1) OJ L 214, 24.8.1993, p. 18.

(2) As required under Article 57(9) of Council Regulation (EEC) No 2309/93, the accounts for all the Agency's revenue and expenditure for the financial year 1999 were drawn up on 20 March 2000 and forwarded to the Agency's Management Board, the Commission and the Court of Auditors. The Court received these accounts on 22 March 2000. A summarised version of these financial statements is presented in the tables attached to this report.

(3) OJ C 372, 22.12.1999, p. 15.

(4) Council Regulation No 2548/98 of 23 November 1998 (OJ No L 320, 28.11.1998, p. 1).

Table 1

Balance sheet as at 31 December 1999 and 1998

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Table 2

Revenue and expenditure account for the financial years 1999 and 1998

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The agency's replies

The EMEA notes the Court's opinion that the accounts for the financial year ended 31 December 1999 are reliable, and that the underlying transactions are, taken as a whole, legal and regular. The EMEA wishes to respond to the Court's observations (paragraphs 5 to 10).

Cost Accounting System

5. The Agency agrees that review of the fee regulation must be based on the costs of the service provided. To this end, the EMEA has established a cost-accounting system whereby its activities, in line with its work programme, have been grouped in 10 chapters with further subdivisions for the variety of activities in each overall chapter grouping. These groupings are linked in turn to the source of revenue that finances them. The Management Board has endorsed the cost-accounting system used by the EMEA, which has now been fully implemented.

EMEA staff register their time each day in accordance with this structure of activities per 15-minute block. In this way, a detailed picture of time spent on each activity is created. On the basis of the time worked throughout the Agency, therefore, the actual cost of the work on fee activities and activities to be covered by the subsidy from the General Budget of the European Communities is recorded accurately.

Staff and operational costs together account for 82 % of the budget and are charged directly to the activity they support. Building and equipment costs represent 18 % of the budget, mainly rent and service charges. These occupancy costs are allocated 60 % as an overhead to staff and 40 % to delegates and experts. This proportion has been reviewed and approved by the Management Board.

The impact of depreciation of technical equipment and installations is limited. Present EU financial rules do not provide for depreciation over periods in excess of one year. However, the EMEA will examine, for costing purposes, the feasibility of depreciating technical equipment and installations over the estimated useful lives of the assets.

6. The EMEA Management Board set up a Working Group on Costing in 1999. This group has developed a method to collect information in order to establish the cost of work that National Competent Authorities carry out for the EMEA.

This costing group has agreed on the nature and the format of the information needed. National Competent Authorities have started to collect the requested details based on actual costs where this data is available. In a few Member State costing systems similar to that at the EMEA are being developed. The costing group will review the information provided in 2000 and 2001.

Financial Accounting System

7. The principle reason for acquiring a new General Ledger package is to link the SI2 budgetary accounting system with UK banking software. The proposal to acquire the package was presented in 1999 and the delay was due to the need to have output data properly specified in SI2. The contract for a new General Ledger, SAGE, was signed in March 2000 and installation took place in April 2000.

Tender procedures

8. It has been the practice of many agencies, in agreement with the Commission services, to use the results of the Commission's tenders and its framework agreements. The EMEA had not previously been made aware that the procedure was not in accordance with the applicable regulations.

Sound financial management would indicate that small EU agencies should benefit from the tender results of the Commission's purchasing power that yield valuable cost benefits for goods and services.

At regular meetings between the Commission and the EU agencies the Commission has been asked to include the agencies in the Commission's tender specifications and we hope that this will resolve the issue formally.

9. The EMEA recognises that it would be a good principle that the ACPC be consulted on tender notices in advance of publication and it has decided to implement this policy immediately.

Value Added Tax

10. The EMEA is aware of the change in VAT treatment in the Financial Regulation of the European Commission. Contrary to the situation in many EU countries the EMEA has to pay VAT and later recovers it from the UK Government. The Agency will reconsider the situation and put forward suitable modifications to its Financial Regulation together with other changes that may be required following the general reform of financial and budgetary procedures in the EU. The Court will, of course, be consulted on all the changes in accordance with the normal procedure.