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
Date: 2000-05-18
Institutions: European Court of Auditors
Subjects: European Medicines Agency, financial control, financial year, management audit, report

C 373/14

EN

Official Journal of the European Communities

27.12.2000

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

REPORT

(2000/C 373/03)

CONTENTS

Paragraph

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

1-4

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial accounting system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Financial Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5-10

5-6

7

8-9

10

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

The Agency’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

15

15

15

15

15

15

17

19

27.12.2000

EN

Official Journal of the European Communities

C 373/15

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 1999. In accordance with
Article 57(7) of Council Regulation (EEC) No 2309/93, the bud-
get was implemented on 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 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 EVALU-
ATION 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 deprecia-
tion of technical equipment and installations.

(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 expendi-
ture 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.

In order to obtain a modern management tool that also con-
6.
stitutes a solid basis for future Council decisions on the fees, it
would be preferable to integrate the cost accounting into a finan-
cial or budgetary accounting system, rather than the method cur-
rently used. This would also be a good basis for promoting a simi-
lar 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 esti-
mated 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 intro-
duced at the beginning of 2000. Because of unnecessarily com-
plicated 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 Con-
tracts (ACPC) of the Agency. Neither the documentation on these
purchases nor the contracts signed by the Commission had fore-
seen 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 word-
ing of the call for tenders and the tender letter respectively. Also
in these cases the Agency should not have entered into a com-
mitment. 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 col-
lected, and pursuant to Article 27 of the abovementioned Finan-
cial 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

(4) Council Regulation No 2548/98 of 23 November 1998 (OJ No

L 320, 28.11.1998, p. 1).

C 373/16

EN

Official Journal of the European Communities

27.12.2000

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

27.12.2000

EN

Official Journal of the European Communities

C 373/17

Table 1

Balance sheet as at 31 December 1999 and 1998

Assets

1999

1998

Liabilities

1999

1998

(1 000 EUR)

Fixed assets
Equipment and furniture

Current assets
Recoverable VAT
Sundry accounts receivable
Subsidy receivable from the Commission

Cash accounts
Bank — accounts
Imprest account

Subtotal

3 788

3 788

441
2 274
8 000

Subtotal

10 715

12 223
27

Subtotal

12 250

3 569

3 569

331
49
5 734

6 114

1 209
11

1 220

Fixed capital
Own capital
Balance for the financial year

Subtotal

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

Subtotal

Suspense accounts
Sums to be reused
Deferred revenue — fees
Amount due to the Commission

3 788
3 276

7 064

2 488
6 494
71
175
441

9 669

1 400
6 956
1 664

3 569
812

4 381

675
2 586
46
22
331

3 660

948
1 914

Subtotal

10 020

2 862

Source: Prepared by the Court of Auditors on the basis of data from the Agency.

Total assets

26 753

10 903

Total liabilities

26 753

10 903

C 373/18

EN

Official Journal of the European Communities

27.12.2000

Revenue and expenditure account for the financial years 1999 and 1998

Table 2

(1 000 EUR)

1999

1998

13 000
28 953
800
948

Total revenue

43 701

Revenue
Subsidy received or receivable from the Commission
Evaluation fees received
Contribution to Community programmes
Miscellaneous revenue

Expenditure

Staff expenditure — Title I of the budget
Payments
Appropriations carried over

16 686
535

3 409
3 152

12 106
5 295

Buildings, equipment and miscellaneous administrative expenditure — Title II of the budget
Payments
Appropriations carried over

Operating expenditure — Title III of the budget
Payments
Appropriations carried over

Total expenditure

41 183

Outturn 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

2 518

643
115

Balance for the financial year

3 276

Source: Prepared by the Court of Auditors on the basis of data from the Agency.

14 000
12 562

691

27 253

14 224
374

3 414
613

6 280
2 274

27 179

74
1 166
– 1 166
529
209

812

27.12.2000

EN

Official Journal of the European Communities

C 373/19

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 (para-
graphs 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 over-
all 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 bud-
get 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 pro-
portion has been reviewed and approved by the Management
Board.

The impact of depreciation of technical equipment and installa-
tions 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 depre-
ciating 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 pack-
age is to link the SI2 budgetary accounting system with UK bank-
ing 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

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

Sound financial management would indicate that small EU agen-
cies 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 agen-
cies 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 publica-
tion 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.