Report on the financial statements of the European Agency for the Evaluation of Medicinal Products (EMEA London) for the financial year ended 31 December 1998, together with Agency's replies
Date: 1999-10-07
Institutions: European Court of Auditors
Subjects: European Medicines Agency, financial control, financial year, management audit, report

C 372/14

EN

Official Journal of the European Communities

22.12.1999

on the financial statements of the European Agency for the Evaluation of Medicinal Products
(EMEA London) for the financial year ended 31 December 1998, together with Agency(cid:146)s replies

REPORT

(1999/C 372/03)

CONTENTS

Paragraph
reference

OPINION OF THE COURT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 to 4

MAIN OBSERVATIONS CONCERNING THE IMPLEMENTATION OF THE BUDGET OF THE
EUROPEAN AGENCY FOR THE EVALUATION OF MEDICINAL PRODUCTS (EMEA (cid:151) LONDON)
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 to 10

Analytical accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tender procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Quality management system ((cid:145)QMS(cid:146)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

6

7

IT department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 to 10

Tables 1 and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Agency(cid:146)s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

15

15

15

15

15

15

17

19

22.12.1999

EN

Official Journal of the European Communities

C 372/15

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 Euro-
pean Agency for the Evaluation of Medicinal Products for the
financial year ended 31 December 1998. In accordance with
Article 57(7) of Council Regulation (EEC) No 2309/93, the bud-
get was implemented at the responsibility of the Executive Direc-
tor. 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 Coun-
cil Regulation (EEC) No 2309/93. The Court of Auditors is required
under Article 248 of the Treaty establishing the European Com-
munity 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 Decem-
ber 1998 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 (cid:151) LONDON)
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 1998

ture established by Council Regulation (EC) No 297/95 (4).
Amongst other things, Council Regulation (EC) No 297/95 estab-
lished that the level of the fees charged by the Agency must be
based on the costs of the service provided. However, the fees have
not so far been based on real costs since neither the Agency nor
the National Authorities have had the analytical tools to measure
costs actually incurred. The Agency is now taking steps towards
creating a system of analytical accounting. A time management
system was introduced in 1998 and the Agency is developing a
method to measure other costs. The resulting information should
make it possible to identify the staff and other costs of the differ-
ent activities. The Agency should pursue this initiative so that,
when the fee regulation will next be reviewed by the European
Parliament in 2001, the proposal can be based on reasonably
accurate analytical accounting. In addition, it is important that the
competent national authorities also document their costs, so that
the payments made by the EMEA to them can be justified.

Tender procedures

6. Some opinions of the Advisory Committee on Procurements
and Contracts (ACPC) do not follow the provisions in the
Agency(cid:146)s Financial Regulation (FR). For example, procedures invok-
ing urgency were used in situations, where they were not justi-
fied.

Quality management system ((cid:145)QMS(cid:146))

7. Following a decision by the Agency to install a quality man-
agement system a first contract of up to ECU 198 000 was made
with a consultancy firm without a satisfactory tender procedure.
Up to the end of 1998 ECU 295 000 was paid to the company
concerned. There was no increase in the fee income of the Agency
in 1998, but staff expenditure increased by 32 % (see Table 2).
Against the background of a static level of activity, the Court
questions whether the considerable effort devoted to the QMS,
which has not yet resulted in the Agency achieving certification,
can be justified.

Analytical accounting

IT department

5. The present level of fees is regulated by a Council Regulation
from 1998 (3) based upon general principles and an overall struc-

(1) OJ L 214, 24.8.1993, p. 1.
(2) As required under Article 57(9) of Council Regulation (EEC) No
2309/93, the accounts for all the Agency(cid:146)s revenue and expenditure
for the financial year 1998 were drawn up on 25 March 1999 and
forwarded to the Agency(cid:146)s Management Board, the Commission and
the Court of Auditors. The Court received these accounts on 6 April
1999. A summarised version of these financial statements is pre-
sented in the tables attached to this report.

(3) Council Regulation (EC) No 2743/98 of 14 December 1998 (OJ L 345,

19.12.1998).

8. There is one IT staff member for every nine users. Given the
small number of applications developed in house and the limited
number of users to support, the number of IT staff at the Agency
seems high.

The staffing in the IT department is not tailored to the Agency(cid:146)s
needs. There are too many non-specialist principal administrators
and too few experienced technicians. For example, the Agency
lacks a qualified database administrator.

(4) OJ L 35, 15.2.1995, p. 1.

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Official Journal of the European Communities

22.12.1999

IT security should be improved. There is no written security
9.
policy, nor a documented risk analysis. Passwords are not changed
at regular intervals. Nobody has been appointed to replace the
developer who implemented the specific EMEA features in the SI
2 budgetary system, in the event of his illness or departure.

In order to improve the availability and stability of its IT ser-
10.
vices, the Agency in autumn 1998 employed consultants to make
a study of the Agency(cid:146)s computer environment. The cost of ECU
42 500 was to cover also the implementation costs of improve-
ments in its server structure. By the end of the audit the actual
implementation had not yet started nor were there any plans for
the continuation of the project.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 7 October 1999.

For the Court of Auditors

Jan O. KARLSSON

President

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Official Journal of the European Communities

C 372/17

Table 1

Balance sheet as at 31 December 1998 and 1997

Assets

1998

1997

Liabilities

1998

1997

(ECU 1 000)

Fixed assets
Equipment and furniture

3 569

3 257

Fixed capital
Own capital
Balance for the financial year

Subtotal

3 569

3 257

Subtotal

Current assets
Recoverable VAT
Sundry accounts receivable (1)

Cash accounts
Banks (cid:151) deposit accounts

Banks (cid:151) demand accounts

Imprest account

Subtotal

331
5 783

6 114

786

423

11

576
759

1 335

8 165

422

48

Current liabilities
Non-automatic carry-overs of appropriations
Automatic carry-overs of appropriations
Social liabilities
Sundry accounts payable
VAT

Subtotal

Subtotal

1 220

8 635

Suspense accounts
Sums to be reused
Deferred revenue - fees

3 569
812

4 381

675
2 586
46
22
331

3 660

948
1 914

Subtotal

2 862

3 257
1 166

4 423

1 398
3 797
33
204
576

6 008

981
1 815

2 796

Total assets

10 903

13 227

Total liabilities

10 903

13 227

(1) Concerning the 1998 figure, the total includes an amount of ECU 5 734 000 to be collected from the Commission.
Source: Prepared by the Court of Auditors on the basis of data from the Agency.

C 372/18

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Official Journal of the European Communities

22.12.1999

Revenue and expenditure account for the financial years 1998 and 1997

Table 2

Revenue

Subsidy received or receivable from the Commission (1)
Evaluation fees
Miscellaneous revenue

Expenditure

Staff expenditure (cid:151) Title I of the budget
Payments
Appropriations carried over

(ECU 1 000)

1998

1997

14 000
12 562
691

Total revenue

27 253

14 000
12 945
552

27 497

14 224
374

10 778
392

Buildings, equipment and miscellaneous administrative expenditure (cid:151) Title II of the
budget
Payments
Appropriations carried over

Operating expenditure (cid:151) Title III of the budget
Payments
Appropriations carried over

3 414
613

6 280
2 274

Total expenditure

27 179

Out-turn for the financial year

Balance carried over from the previous financial year
Amount refunded to the Commission
Appropriations carried over from the previous financial year which lapse
Exchange rate differences and other adjustments

74

1 166
(cid:150) 1 166
529
209

Balance for the financial year

812

(1) Concerning the 1998 figure, an amount of ECU 5 734 000 is to be collected in 1999.
Source: Prepared by the Court of Auditors on the basis of data from the Agency.

4 344
1 157

6 726
3 646

27 043

454

4 583
(cid:150) 4 583
637
75

1 166

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Official Journal of the European Communities

C 372/19

REPLIES OF THE EMEA

(The numbering of the points corresponds to that used by the Court)

5. Analytical accounting

After having determined its unit costs, and on the basis of the
time management system introduced in 1998, the Agency has cal-
culated the cost of each of its activities in the first half of 1999.
The method used has been discussed by a working group set up
by the Management Board and the results obtained will be sub-
mitted to the Board at its meeting of 29 September 1999. Once
any necessary adjustments have been made, the Agency will fina-
lise the system and try to implement it in a relevant IT environ-
ment.

6. Tender procedures

Following the suggestions made by the Court, the Agency(cid:146)s Advi-
sory Committee on Procurements and Contracts, whilst still
endeavouring to contribute to the proper functioning of the
EMEA, has adopted a stricter interpretation of the Financial Regu-
lation and other existing rules.

7. Quality management system ((cid:145)QMS(cid:146))

When the Agency was set up, only three months lapsed between
the arrival of the first staff and the beginning of the operational
activities. While in the administrative field the Staff Rules and
Regulations and the Financial Regulation constituted the frame-
work to which work had to conform, in the much vaster opera-
tional field guidance was obtained only from the experience of
the persons involved. The need was soon perceived to draw up
procedures and, subsequently, to monitor their implementation.
It was felt that a quality management system constituted the most
efficient way of involving staff (a quarter of the EMEA staff par-
ticipated actively in developing the Agency(cid:146)s QMS) in setting up

the procedures and, more importantly, creating a feeling of (cid:145)own-
ership(cid:146) of the system. At present, the monitoring of the respect of
procedures set up is taking place. Certification was not a prime
objective. Staff expenditure increase in 1998 is a direct conse-
quence of a steep increase in work in 1997 and of salary weight-
ing.

8. Staffing of the IT department

Since the Court(cid:146)s inspection, the ratio of IT staff to users (Agency
staff and delegates) has decreased and is now one to 14. Recruit-
ment of new staff and retraining aim at better meeting the
Agency(cid:146)s requirements. It should be borne in mind that the IT
department not only serves the EMEA(cid:146)s staff; it also attends to the
delegates of the National Competent Authorities and to the Euro-
pean informatics network for pharmaceutical regulation.

9.

IT security

While improvements are always possible, the Agency has a rigor-
ous back-up procedure (e.g., for SI 2 it is the SI 2 team in
Brussels), a protection scheme against viruses, an effective firewall
protection, password-protected software access (e.g. SI 2, Lloyd-
slink). The frequency of password changes is in line with common
practice of organisations using similar systems (Windows NT).

10. Optimisation of the IT server environment

The implementation of the project, which had been delayed ini-
tially, is scheduled for completion by the end of September 1999.