Report on the financial statements of the European Agency for the Evaluation of Medicinal Products concerning the financial year 2001, together with the Agency's replies
Date: 2002-09-26
Institutions: European Court of Auditors
Subjects: European Medicines Agency, financial control, financial year, report

C 326/26

EN

Official Journal of the European Communities

27.12.2002

on the financial statements of the European Agency for the Evaluation of Medicinal Products
concerning the financial year 2001, together with the Agency’s replies

REPORT

(2002/C 326/04)

CONTENTS

Paragraph

Page

THE COURT’S OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

MAIN OBSERVATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Implementation of the budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Application of financial provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Purchases of goods and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

System for estimating requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Programming of purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Choice of procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-4

5-25

5-9

10-12

13-18

19-25

19-22

23-24

25

Tables 1 to 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

27

27

27

27

28

28

28

29

29

30

33

27.12.2002

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Official Journal of the European Communities

C 326/27

THE COURT’S OPINION

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

The Court has examined the financial statements of the
2.
European Agency for the Evaluation of Medicinal Products for the
financial year ended 31 December 2001. In accordance with
Article 57(7) of Council Regulation (EEC) No 2309/93, the bud-
get was implemented on the responsibility of the Director. This
responsibility includes the drawing up and presentation of the
financial statements (2) in accordance with the internal financial
provisions
adopted on the basis of Article 57(11) of
Council Regulation (EEC) No 2309/93. The Court of Auditors is
required under Article 248 of the Treaty establishing the Euro-
pean Community to examine these accounts.

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

4.
This examination has enabled the Court to obtain reason-
able assurance that the annual accounts for the financial year
ended 31 December 2001 are reliable and that the underlying
transactions, taken as a whole, are legal and regular.

MAIN OBSERVATIONS

Implementation of the budget

5.
The implementation of the appropriations for the financial
year 2001 and of the appropriations carried over from the previ-
ous year is set out in Table 1 (3).

(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 2001 were drawn up on 27 March 2002
and forwarded to the Agency’s Management Board, the Commission
and the Court of Auditors. The Court received these accounts on
5 April 2002. A summarised version of these financial statements is
presented in the tables attached to this report.

(3) All the tables in this report have been drawn up on the basis of the
most exact values possible for the data used. For presentation pur-
poses, the figures were rounded up or down, which may produce
minor differences in the totals. A dash indicates a non-existent or nil
value and 0,0 indicates a value below the rounding threshold.

Since 1998, a significant proportion of the subsidy paid to
6.
the Agency by the Commission has been carried over every year:
5,6 million euro at the end of 1998, 8 million euro at the end of
1999 and 7,2 million euro at the end of 2000. In 2001 7,9 mil-
lion euro of the 14,7 million euro subsidy provided for in the
budget was carried over, with just one payment of 6,8 million
euro having been made on 17 December 2001. The fact that this
situation persists means that the Commission and the Agency
should jointly examine the method for determining the amount
of this subsidy.

7.
The final appropriations for the financial year amounted to
65,9 million euro, of which 58,0 million euro was committed.
24,3 million euro was committed out of the operating appropria-
tions (Title III), which amounted to 28,6 million euro. Payments
made against the operating appropriations for the financial year
amounted to 17,7 million euro, of which 8,1 million was carried
over to the following financial year (an automatic carry-over of
4,3 million and a non-automatic one of 3,8 million) and 2,8 mil-
lion was cancelled. The cancellation figure is due partly to a
decrease in the Agency’s activities, following a fall in the demand
for its services, which was reflected by a fall in its actual revenue,
compared with what had been estimated.

The commitment appropriations carried over to 2002
8.
relate mainly to 13,5 million euro of operating appropriations
carried over, which constitutes an increase in relation to the previ-
ous financial year. This increase in carry-overs demonstrates the
need for the Agency to improve the quality and monitoring of the
programming of its activities.

9.
The appropriations carried over from the financial year
2000 amounted to 11,8 million euro, 10,6 million of which was
validated, and the balance was cancelled.

Financial statements

Tables 2 and 3 set out in summary form the revenue and
10.
expenditure account and balance sheet published by the Agency
in its Activity Report for the financial year 2001. Contrary to the
current regulations (4), the Agency included in its revenue 10,7
million euro due in respect of the financial year 2001. This prob-
lem of presentation does not affect the reliability of the accounts,
however.

11.
The Agency does not depreciate its fixed assets. It should
apply the valuation and depreciation rules adopted by the Com-
mission (5) so that the values entered in the balance sheet provide
a faithful picture of the goods comprising its assets.

(4) Article 15 of Council Regulation (EC, Euratom) No 1150/2000 of

22 May 2000 (OJ L 130, 30.5.2000, p. 8).

(5) Commission Regulation (EC) No 2909/2000 of 29 December 2000

(OJ L 336, 30.12.2000, p. 75).

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Official Journal of the European Communities

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The Agency frequently receives in advance lump sums for
12.
examinations which its customers are considering requesting.
However, the rules for determining the applicable fees are com-
plex and can give rise to different interpretations. As a result, it is
difficult to reconcile the amounts customers have paid and the
fees actually due. This situation results in delays in drawing up the
corresponding recovery orders. For example, on 31 December
2001 recovery orders in respect of 2,6 million euro had still not
been drawn up. The Agency should give its customers the option
of opening deposit accounts with the Agency.

Application of financial provisions

13.
No reasoned decision was taken by the director concern-
ing a fee reduction of 10 000 euro per file in the case of 28 files
(i.e. a total of 280 000 euro), as is required by Article 9 of Council
Regulation (EC) No 2743/98 of 14 December 1998 (1).

In the case of 25 of the 28 files, the decision concerned
14.
fees that had already been received in 2000. It has proved difficult
to transpose this at the accounting level, because the SI2 system
is not designed to deal with such cases. In order to regularise the
situation, a ‘negative’ recovery order for 280 000 euro was issued
(250 000 euro of which was entered in an extra-budgetary
account).

The Agency handles the annual fees manually. In Decem-
15.
ber 2001, these fees related to 195 products, approximately 80 %
of which were for human medicine and 20 % for veterinary. There
is a note from the Agency’s director requesting that recovery
orders be issued on the fifteenth of month ‘n’ for products for
which renewal fees were due in month n+2. As has been found
during previous audits, this deadline was not respected in the
majority of the annual fee files examined.

16.
In 2000, the sum of the unpaid invoices relating to
inspection work amounted to 330 000 euro, i.e. 26 % of forecast
revenue. In 2001, the total value of the unpaid invoices (before
1 November 2001) was 270 000 euro, or 38 % of forecast rev-
enue. Coordination between the accounting and administrative
departments is provided for in the inspections procedure and
should be improved.

17.
A contract for an amount of 236 640 euro was signed
between a consultant and the Agency (2) on 31 December 2001.
The chronology of the implementation of the procedures that cul-
minated in the signature of this contract clearly demonstrates that
the intention was to utilise the 2001 appropriations before they
lapsed (3) and to finance work, which patently could not be car-
ried out before 2002, by means of appropriations carried over
from 2001 to 2002. This practice is incompatible with the prin-
ciple concerning the annual nature of the budget.

Furthermore, some of the provisions of the contract are
18.
unsatisfactory: after describing the technical aspects of program-
ming, the contract should make a link between the payment of
invoices and project implementation whereas all that is provided
is a schedule of payments to be made.

Purchase of goods and services

System for estimating requirements

The Agency’s workload is estimated each year at the time
19.
the budget and work programme are drawn up, which enables the
following to be determined:

— expected revenue;

— requirements concerning staff and premises, as well as cur-

rent purchases;

— the list of informatics projects to be carried out.

20.
The preparation and planning of purchases are left to the
initiative of the managers of the Agency’s various sectors of activ-
ity. The proposed purchasing procedure is examined by the Advi-
sory Committee on Procurements and Contracts (ACPC).

21.
However, these forecasts are indicative because, firstly, the
Agency’s revenue varies and, secondly, insufficient account is
taken of the constraints on the purchasing procedures. Owing to
uncertainty as to the volume of revenue (4), the managers tend to
wait until the end of the year before submitting their purchase
requests. For the period to 2000-2001, 65 % of the contracts were
signed in the second half of the year and 26 % of those were
signed in the last two months. This concentration of contract sig-
nature at the end of the financial year cannot be justified on the
basis of varying revenue, since a considerable percentage of rev-
enue (5) is made up of a subsidy from the Commission. The
Agency should ensure that the system for estimating its require-
ments is improved.

22.
The need to improve the system for estimating require-
ments can be illustrated by one project, for an amount of USD
236 000, to extend a joint informatics development with the
World Health Organisation, the first phase of which was launched
at the beginning of 2000 and completed in June 2001. The pro-
posal to extend this project, over the period from July 2001 to
June 2002, received a positive opinion from the ACPC on 19 July
2001. The commitment proposal (6), which was drawn up on
13 November 2001, after a supplementary budget had been
adopted, was finally approved by the Financial Controller on
20 December 2001, after some of his remarks had been taken

(1) OJ L 345, 19 december 1998, p. 7.
(2) Reference No C/01/2001.3.
(3) Commitment No SI2.8418, for a sum of 203 508 euro, representing
85 % of the contract amount, was signed on 19 December 2001.

(4) The Agency is only able to make reliable revenue estimates in the case
of new medicines submitted to it, which account for some 10 % of the
applications addressed to it.

(5) 30 % in principle.
(6) Reference No SI2.8217.

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Official Journal of the European Communities

C 326/29

into consideration. A ‘Memorandum of Understanding’, instead of
a contract, was signed on 23 January 2002. In the meantime, the
service provider continued to provide its services in the second
half of 2001 in the absence of both a valid contract and sufficient
appropriations to finance its work.

If a purchasing schedule were to be drawn up covering
24.
the time from when the file is submitted to the ACPC up to the
date on which delivery of the goods or services is sought, there
would be less recourse to private treaty agreements and purchas-
ing management would improve.

Programming of purchases

Choice of procedure

23.
Purchases are not programmed. As a result, in 2000 and
2001, 51 % of the administration and informatics sections’ con-
tracts were concluded on the basis of private treaty agreement,
frequently on the grounds of utmost urgency.

25.
The choice of purchasing procedure is still unduly influ-
enced by the need for urgency as a result of the lack of program-
ming and it is not guided, as it should be, by a concern to exercise
an optimal purchasing policy in terms of sound management.

This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 25 and
26 September 2002.

For the Court of Auditors

Juan Manuel FABRA VALLÉS

President

Implementation of the budget for the financial year 2001

Table 1

Revenue
collected

Expenditure
allocation

Appropriations under the final budget

Appropriations carried over from the
previous financial year

Available appropriations
(2001 budget and financial year 2000)

entered

commit-
ted

paid (1)

carried
over

cancelled

outstanding
commitments

paid

cancelled

appro-
priations

commit-
ted

paid

carried
over

cancelled

Expenditure

(Mio EUR)

Title I
Staff

Title II
Administration

Title III
Operating
expenditure

7,4

42,4

2,3

52,1

23,7

23,0

22,4

0,5

0,7

13,6

10,8

8,1

4,9

0,5

28,6

Total

65,9

24,3

58,0

17,7

8,1

48,3

13,5

2,8

4,1

0,5

4,5

6,8

11,8

0,3

0,2

24,2

23,5

22,7

0,5

0,9

4,1

0,4

18,1

15,3

12,2

4,8

0,9

6,2

10,6

0,6

1,3

35,4

31,1

77,7

69,9

23,9

58,8

8,1

13,5

3,4

5,2

Revenue

Revenue entered
in the final
budget for the
financial year

Origin of revenue

Commission
subsidies

15,3

Own revenue

48,0

Other revenue

Total

2,6

65,9

(1) The appropriations carried over include 3,8 million euro of non-automatic carry-overs.
NB: The totals may contain discrepancies due to the effects of rounding.
Source: The Agency’s data. These tables summarise the data provided by the Agency in its own financial statements.

C
3
2
6
/
3
0

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
C
o
m
m
u
n
i
t
i
e
s

.

.

2
7
1
2
2
0
0
2

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Official Journal of the European Communities

C 326/31

Revenue and expenditure account for the financial years 2001 and 2000

Table 2

2001

2000

(1 000 EUR)

Revenue received during the financial year (1)
Commission subsidy
Community subsidy for orphan drugs
Fees
EEA contribution
Miscellaneous revenue

Budgetary expenditure for the financial year
Staff — Title I of the budget
Payments
Appropriations carried over

Administration — Title II of the budget
Payments
Appropriations carried over

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

Total revenue (a)

Total expenditure (b)

Out-turn for the financial year (a-b)

Balance carried over from the previous financial year
Reimbursement to/from the Commission
Appropriations carried over from the previous financial year and cancelled
Exchange-rate differences
Other adjustments

(1) This amount includes 10,7 million euro of revenue due in respect of the financial year 2001.
NB: The totals may contain discrepancies due to the effects of rounding.
Source: The Agency’s data. These tables summarise the data provided by the Agency in its own financial statements.

Balance for the financial year

14 000
1 300
42 708
288
4 504

62 800

22 437
538

8 143
4 851

17 687
8 113

61 769

1 031

1 926
0
1 258
345
– 520

4 040

13 200
1 000
39 236
245
1 354

55 035

19 939
474

7 422
4 538

15 129
6 810

54 312

723

3 276
3 276
2 082
– 613
– 266

1 926

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Balance sheet as at 31 December 2001 and 31 December 2000

Table 3

(1 000 EUR)

Assets

2001

2000

Liabilities

2001

2000

Fixed assets
Equipment and furniture

4 397

4 423

Fixed capital
Own capital
Balance for the financial year

Subtotal

4 397

4 423

Subtotal

Current assets
VAT to be recovered
Sundry accounts receivable and advances
Commission subsidy receivable

363
3 719
8 162

653
2 551
8 000

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

4 397
4 040

8 437

3 788
9 714
311
363

4 423
1 926

6 349

2 510
9 313
336
653

Cash accounts
Banks — sight accounts
Imprest accounts

Subtotal

12 244

11 204

Subtotal

14 176

12 812

Suspense accounts
Sums to be re-used
Deferred fees

12 711
17

Subtotal

12 728

9 169
7

9 176

Total

29 369

24 803

1 460
5 296

6 756

1 210
4 432

5 642

Subtotal

Total

29 369

24 803

NB: The totals may contain discrepancies, due to the effects of rounding.
Source: The Agency’s data. These tables summarise the data provided by the Agency in its own financial statements.

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THE AGENCY’S REPLIES

The Agency welcomes the Court’s concluding statement
4.
that the examination of the Agency’s accounts for the budget year
2001 confirms that the annual accounts are reliable and that the
underlying transactions, taken as a whole, are legal and regular.

The Agency also recognises that the Court has not only evaluated
in depth the full range of financial activities of the Agency but
also the budgetary and accounting structure and procedures.

6.
It has to be noted that the activities of the Agency are
financed by fees payable by the applicants for marketing autho-
risations (approximately 75 % of revenue) and a Community con-
tribution (approximately 25 %).

The majority of the fees are paid in advance of the applications
being submitted and this means the Agency always maintains a
positive cash flow.

In 2002 the Agency and the Commission discussed this issue and
agreement has been reached that the balance of past years shall
be transmitted and that from 2002 onwards the annual contribu-
tion shall be paid in three instalments (March, July and October).
In October of each year, a meeting between the Agency and the
Commission will take place in order to establish the real needs of
the Agency until the end of the budget year.

7.
It has to be taken into account that the Agency cannot
forecast with complete accuracy the amounts eventually received
for fee income in any one year, in particular since the fee income
has to be estimated at the end of year no 2 and revised at the end
of year no 1. The estimated fee income for the budget year 2001
was EUR 45,7 million and actual fee revenue was EUR 42,7 mil-
lion.

8.
The amount of carry-forwards is to a considerable extent
a result of the fact that the end of the year is often a particularly
busy period for the pharmaceutical companies which, as a con-
sequence, leads to a higher number of submissions and fee pay-
ments to the Agency. The evaluation activities related to both the
applications and the fees are carried out during the course of the
following year.

A major part of the carry-forwards provide for the payments due
to national competent authorities (NCAs) for the evaluation work
done by the rapporteurs and co-rapporteurs (normally 50 % of
the application fee). These amounts are paid on completion of the
rapporteur/co-rapporteur evaluation work and the receipt of the
respective reports between 70 and 90 days after the fee has been
received by the Agency.

The issue of accounting for revenue by the Agency will be
10.
reviewed in the context of the recasting of the Financial Regula-
tion. However, at present the Agency’s management believes the
accounting policies used correctly reflect the financial results of
the Agency. Supplementary information on cash collected and
payments made is given in the statement of revenue and expen-
diture in accordance with the Financial Regulation.

11.
During 2002 a Framework Financial Regulation for all
EU Agencies, including the European Agency for the Evaluation
of Medicinal Products, will be decided. It is planned to introduce
depreciation in 2003 in accordance with the instructions to be
issued by the Commission’s Accounting Officer.

12.
The amount in question of EUR 2,6 million concerns fees
received in advance of the official start of the evaluation proce-
dure, which is when the recovery order is prepared. For recurring
operations where fees are payable in advance, the Agency will
evaluate with the customers the feasibility of opening a deposit
account.

This issue was a very specific and exceptional situation
13.
based on imperative public health grounds. The absence of finan-
cial incentives to facilitate implementation of Community mea-
sures could have led to a series of products being taken off the
market, with unacceptable consequences in terms of public health,
in particular treatment disruption for patients.

In the specific case, the Committee responsible has given its sup-
port to the approach chosen and the Management Board was
informed and did not raise any objections. The Agency will, how-
ever, make every effort so that the financial rules and regulations
are fully respected in the future.

14.
Given the constraints of the budgetary accounting system
SI2 it is, as the Court highlights, difficult to introduce the subject
type of transaction into the system. The solution the agency has
chosen on this issue was dictated by the urgency of the matter.
The Agency will however consider more adequate ways of settle-
ment should such a situation occur again.

Appropriate steps have been taken to ensure that recov-

15.
ery orders for annual fees are issued on time.

16.
The collection of invoices for inspections is in certain
cases complex as applicants, even though they are legally obliged
to pay within 30 days of the invoice date, often try to delay pay-
ment until the inspection has taken place. Improved procedures
have been put in place to monitor the collection of inspection
fees.

9.
The statement can be confirmed. It should, however, be
noted that carry-forwards contain an element of estimation as to
the final amounts payable, e.g. fitting out of the premises etc. The
Agency will continue its efforts to ensure that accrued liabilities
are accurate within acceptable material levels.

17.
The subject contract was essential to the smooth func-
tioning of the EudraVigilance system. It had been expected to
have both the contract and major parts of the work completed by
a working group separate from EudraVigilance prior to December

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Official Journal of the European Communities

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2001, but due to unforeseen delays and in order to set the project
in train as soon as possible, the signing of the contract and the
execution of the works fell into separate budget years. The Agency
will seek to avoid such schedules in the future.

18.
The work of the contractor is subject to weekly review.
The contractor’s timesheets, which are signed as evidence not
only of attendance at the Agency in accordance with the terms of
the contract, but also of satisfactory progress, support the peri-
odic payments made in accordance with the payment schedule.

The Agency will set up a procedure in order to ensure that con-
tracts will not only contain a schedule for payments but also a
schedule for the implementation of agreed actions and it will be
assured that the last payment will only be made after the final
delivery of goods and/or services.

The requirements with regard to additional office space,
19.
refurbishment, etc. are detailed in an internal budget document
which lists each item of expenditure linked, where appropriate,
with contract details.

20.
A list of proposed tenders is prepared at the beginning of
the year within the sector and prior notices are drawn up and
published in the Official Journals. All tender notices are submit-
ted to the ACPC for opinion before publication.

21.
The reason why many of the contracts are signed later
during the year is that a project may take several months to pre-
pare. The subsequent tender procedure can also take several

months. So projects commence at the beginning of the year but
often contracts cannot be signed until September or October.
Given that at least the Community contribution will in future
assure a reliable source of income through three instalments
agreed with the Commission (see point 6) it should be possible to
spread expenditure more evenly over the year.

22.
Negotiations between the Agency and the World Health
Organisation (WHO) on an extension of the cooperation on
Siamed had extended beyond the expiry date of the initial con-
tract. This was mainly due to the fact that the WHO insisted on a
different formula regarding the sharing of the cost, i.e., the Agency
had to cover about two thirds of the costs.

The procedure surrounding this project has since led to the cre-
ation of the position of a contract manager in order to follow up
more closely contractual relations with third parties.

23 and 24.
The reason that a number of contracts within
Administration and IT are concluded by ‘entente directe’ is that
certain companies, e.g. the supplier of telecommunications sys-
tems, only permit the installation of their particular brand of
hardware and software. Failure to comply may render the main-
tenance contract null and void.

It is agreed that the choice of procurement procedures is
25.
often determined by urgencies. This situation is partly due to the
difficulties the Agency faces with the estimation of demand dur-
ing a given budget year. The Agency will make an effort to
strengthen its procedures of forecasting and budget planning.