Report on the annual accounts of the European Agency for the Evaluation of Medicinal Products concerning the 2003 financial year together with the Agency's replies
Date: 2004-09-30
Institutions: European Court of Auditors
Subjects: European Court of Auditors, European Medicines Agency, administration of the Institutions, financial control, interinstitutional relations (EU), operating result, report

C 324/30

EN

Official Journal of the European Union

30.12.2004

on the annual accounts of the European Agency for the Evaluation of Medicinal
Products concerning the 2003 financial year together with the Agency’s replies

REPORT

(2004/C 324/05)

CONTENTS

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

OBSERVATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

2-5

6-14

Tables 1 to 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

31

31

31

33

38

Paragraph

Page

30.12.2004

EN

Official Journal of the European Union

C 324/31

INTRODUCTION

OBSERVATIONS

1.
The European Agency for the Evaluation of Medicinal
Products (hereinafter referred to as the Agency) was created by
Council Regulation (EEC) No 2309/93 of 22 July 1993 (1). The
Agency operates through a network and coordinates the scien-
tific resources made available by the national authorities in order
to ensure the evaluation and supervision of medicinal products
for human or veterinary use. Table 1 summarises the powers and
responsibilities of the Agency on the basis of the information sup-
plied by it.

THE COURT’S OPINION

2.
This opinion is addressed to the European Parliament and
the Council, pursuant to Article 185(2) of Council Regulation
(EC, Euratom) No 1605/2002 (2).

3.
The Court has examined the annual accounts of the
Agency for the financial year ended 31 December 2003. In accor-
dance with Article 57a(1) of Council Regulation (EEC)
No 2309/93, the budget was implemented on the responsibility
of
the Executive Director. This responsibility includes the
drawing-up and presentation of the accounts (3) in accordance
with the internal financial provisions adopted on the basis of
Article 57a(11) of the same regulation. The Court is required
under Article 248 of the Treaty establishing the European Com-
munity to examine these accounts.

4.
The Court carried out its audit in accordance with its
auditing policies and standards, which have been adapted from
generally accepted international auditing standards to reflect the
specific nature of the Community context. It examined the
accounting documents and applied the procedures it considered
necessary in this context.

5.
The Court has thus obtained reasonable assurance that the
annual accounts for the financial year ended 31 December 2003
are reliable. The Court would nevertheless draw attention to the
situation described in paragraph 10. Except for the situations
described in paragraphs 7 and 12, the Court has obtained reason-
able assurance that the underlying transactions, taken as a whole,
are legal and regular.

(1) OJ L 214, 24.8.1993, p. 18; following the adoption of Regulation (EC)
No 726/2004 of the European Parliament and of the Council of
31 March 2004 (OJ L 136, 30.4.2004, p. 1) the Agency’s new name
is the European Medicines Agency.

(2) OJ L 248, 16.9.2002, p. 1.
(3) As required under Article 83(3) of the Agency’s financial regulation,
the final accounts for the financial year 2003 were drawn up on
14 May 2004 and forwarded to the Court of Auditors, which received
them on 24 September 2004. A summarised version of these accounts
is presented in the tables attached to this report.

6.
The implementation of the appropriations for the finan-
cial year 2003 and of the appropriations carried over from the
previous year is set out in Table 2. Tables 3 and 4 set out, in sum-
mary form, the revenue and expenditure account and the balance
sheet published by the Agency for the financial year 2003.

7.
On 5 June 2003, the Management Board of the Agency,
subject to approval by the Commission, adopted a new financial
regulation and corresponding implementing rules, which came
into effect as of the second half of the financial year 2003 (4). In
its opinion No 6/2003 of 17 July 2003, the Court had drawn
attention to differences between the Agency’s own financial regu-
lation and the framework Financial Regulation applicable to the
agencies in general. In paragraph 7 of its opinion, the Court
emphasised in particular that the Agency’s implementing rules on
the award of contracts must be in line with the provisions of the
general Financial Regulation and the general implementing rules.
For example, whereas the general rules provide for a committee
for the evaluation of tenders to be set up for any contract involv-
ing an amount exceeding 13 800 euro, the Agency sets this
threshold at 75 000 euro (Table 5 sets out the differences noted).

The Agency’s accounts for 2003 were drawn up on the
8.
basis of the accounting principles laid down by its new financial
regulation (5). The accounting data relating to the financial year
2002 have not been processed again in accordance with the
accounting rules used when the accounts for the financial year
ended on 31 December 2003 were drawn up.

Article 43(1)(e) of the Agency’s financial regulation pro-
9.
vides that the accounting officer shall validate the systems laid
down by the authorising officer to supply or justify accounting
information. This validation has not taken place.

10.
In 2003 the Agency carried out a physical inventory of
fixed assets that was based on the nature of the assets, even
though the fixed asset accounts are kept according to the year
that the assets are acquired. This situation makes it difficult to rec-
oncile the physical data and the accounting data. Furthermore,
some assets appear in neither the inventory nor the fixed asset
accounts. Their total value after depreciation was assessed at
4 188 000 euro (6) and was included in the balance sheet under
the item ‘Fixed assets’. The Agency should set up a system for
managing the fixed assets that ensures that the inventory data are
both exhaustive and consistent with the accounting data.

11.
In the application of internal control measures, continu-
ity is not ensured. For example, certain case-files do not contain
all the supporting documents required to create a commitment or
a payment order.

(4) The Commission gave its opinion at the beginning of 2004.
(5) Article 78 of the Agency’s financial regulation.
(6) The sum relates to software and to alterations to the premises.

C 324/32

EN

Official Journal of the European Union

30.12.2004

In certain negotiated procedures the choice of supplier is
12.
based on the criterion of ‘former experience with the contractor’,
which is not provided for in the implementing rules (1) for the
financial regulation.

An examination of the recruitment files has brought to
13.
light a significant number of shortcomings in the formalisation
and the documentation: reasons are not given to support the
choice of candidates invited for interview or check-lists, which are
drawn up for the purpose of verifying the admissibility of the can-
didates, do not include all the selection criteria set out in the
vacancy notices.

The Agency’s ‘quality assurance’ unit serves as the inter-
14.
nal auditor. Two of its audits, carried out in 2002 on the organi-
sation of an electronic documentation system, brought to light a
significant increase in costs and time taken caused by insufficient
monitoring of the project. A subsequent audit carried out by an
external consultant in 2003 confirmed the weaknesses found by
the internal auditor. The project undertaken at the end of 2000
ought to have started production at the beginning of 2002 at an
estimated cost of 1,2 million euro. The system was still not opera-
in 2003 and the costs already incurred amounted to
tional
1,7 million euro.

This Report was adopted by the Court of Auditors in Luxembourg at its meeting of 29 and 30 September
2004.

For the Court of Auditors
Juan Manuel FABRA VALLÉS
President

(1) Article 86 of the detailed rules for the implementation of the Agen-

cy’s financial regulation.

30.12.2004

EN

Official Journal of the European Union

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EN

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30.12.2004

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30.12.2004

EN

Official Journal of the European Union

C 324/35

European Agency for the Evaluation of Medicinal Products — Revenue and expenditure accounts for the financial years 2003 and 2002

Table 3

2003

2002 (1)

(1 000 euro)

Revenue
Fees relating to marketing authorisations
Commission subsidy including subsidies received from the EEA
Community subsidy for orphan medicines
Contributions for Community programmes
Administrative revenue
Sundry revenue

Expenditure (2)
Staff expenditure
Administrative expenditure
Operating expenditure
Depreciation

Other factors

Appropriations carried over from the previous financial year and cancelled (d)
Exchange-rate differences and other adjustments (e)

Total (a)

Total (b)

Result (c = a – b)

58 657
19 786
2 814
1 208
2 153
848

85 466

29 663
10 905
32 838
2 364

75 770

9 696

823
413

Balance for the financial year (c + d + e)

10 932

38 372
14 846
2 407
9
1 688
54

57 376

26 216
10 718
21 467
0

58 401

– 1 025

1 377
– 352

0

(1) The data for the financial year 2002 have not been reprocessed according to the accounting principles followed for the financial year 2003 (see paragraph 8 of the report).
(2) The portion of the appropriations carried over which is to be regarded as expenditure for the financial year has been evaluated on an overall basis rather than on the basis

of examining individual transactions.

Source: The Agency’s data. This table summarises the data provided by the Agency in its own accounts.

C 324/36

EN

Official Journal of the European Union

30.12.2004

European Agency for the Evaluation of Medicinal Products — Balance sheets as at 31 December 2003 and 31 December 2002 (1)

Table 4

2002

Liabilities

2003

2002

(1 000 euro)

Assets

2003

3 401

Intangible assets

Fixed assets

0

Own capital

Budget outturn (a)

Outturn after adjustments (b)

Plant, machinery and tools

1 635

146

Economic outturn (a + b)

Furniture and vehicle fleet

Computer equipment

1 011

2 548

5 194

991

1 547

2 684

Subtotal

Current assets

Outturn carried over from previous financial
years (2)

Subtotal

17 804

Current liabilities

Amounts owed to Community institutions and
bodies

479

VAT paid and to be recovered

1 105

571

Payment appropriations to be carried over

11 936

Amounts receivable from Community
institutions and bodies

107

3 744

Sundry accounts payable

Sundry accounts receivable

1 034

2 854

Advances from customers

127

8 845

4 037

6 895

10 932

6 872

—

—

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2 684

2 684

444

6 811

603

9 293

Sundry receivables

Available assets

64

Subtotal

2 310

28 286

0

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9 982

Total

39 191

19 835

Subtotal

21 387

17 151

Total

39 191

19 835

(1) Use of the model proposed by the Commission has resulted in balances being reallocated between the existing headings.
(2) For 2002, the sum corresponds to the total of net fixed assets. For 2003, the sum also includes 4 188 000 euro corresponding to the activation in 2003 of assets acquired

in previous years (see paragraph 10 of the report).

Source: The Agency’s data. This table summarises the data provided by the Agency in its own accounts.

30.12.2004

EN

Official Journal of the European Union

C 324/37

Differences between the general implementing rules and the Agency’s implementing rules

Table 5

Committee for the evaluation of tenders (1)

Articles 145 and 146 of the general implementing rules

Article 107 of the Agency’s implementing rules

Contract threshold:

13 800 euro

75 000 euro

Rules for negotiated procedures in respect of low-value contracts

Value of contracts

Article 129 of the general implementing rules

Article 89 of the Agency’s implementing rules

less than 200 euro

payment of costs against invoices

less than 1 050 euro: negotiated procedure

award on the basis of a single tender

between 1 050 and 13 800 euro: negotiated
procedure with:

between 13 800 and 50 000 euro, restricted
procedure but without a CEI (2) with:

at least 3 candidates consulted

provided for in Article 82 but threshold unspeci-
fied

less than 1 500 euro: award on the basis of a
single tender

between 1 500 and 13 800 euro: at least 3 can-
didates consulted

at least 5 candidates consulted

at least 3 candidates consulted

(1) The only committee for the evaluation of tenders proposed by the Agency is the Advisory Committee on Procurement and Contracts, which is required to give its opinion

on contracts involving amounts exceeding 75 000 euro (Article 107), whereas this threshold is 13 800 euro in the general implementing rules.

(2) CEI: Call for expressions of interest.
Source: Court of Auditors.

C 324/38

EN

Official Journal of the European Union

30.12.2004

THE AGENCY’S REPLIES

The Agency has contacted the Commission to finalise the
7.
Financial Regulation. The changes made have been in the direc-
tion to satisfy the Commission’s comments as well as those of the
Court of Auditors. In particular the thresholds for contracts and
procurement have been aligned in the implementing rules.

8.
In accordance with International Public Sector Account-
ing Standard (IPSA) number 3, the resulting adjustments are
reported as an adjustment to the opening capital. Comparative
information for the year 2002 has not been restated, as it would
not have provided meaningful additional information. As the
European institutions and agencies have to present accounts com-
pliant with IPSAS for 2005, the Agency, following the calendar
established by the Accounting Officer of the European Commis-
sion, will have systems in place which will assure compliance by
January 1, 2005 including the presentation of comparative fig-
ures for 2004.

9.
The observation of the Court is relevant in a sense, how-
ever it was not a priority for the EMEA knowing that the current
systems, including both procedures and software, existed since
1998 and have provided the necessary and accurate data for the
establishment of the financial statements. These systems have not
been modified since the application of
the new financial
regulations.

The systems defined by the authorising officer will be formally
validated by the accountant in the course of 2004.

In 2003, the Agency capitalised intangible assets (mainly
10.
software licenses and certain software development costs) in
accordance with the standards issued by the Accounting Stan-
dards Committee. In order to establish the inventory of intangible
assets and fitting out costs in prior years a detailed analysis of
software and fitting out costs for 2000 to 2003 was pre-
pared. During 2004, all assets, tangible and intangible, are being
entered in the new asset management system and the accounting
is based on the classification by type as set out in the harmonised
accounting plan defined by the Commission’s Accounting Officer.

The Agency has noted the Court’s comments. It has taken

11.
corrective measures to avoid such situations in the future.

The Agency has noted the Court’s comments on the cri-

12.
teria of choice of contractors.

13.
The Agency follows selection procedures with care. The
admissibility of candidates to the selection procedure follows a
checklist in each individual case, which covers all the elements
stated in the announcement. This is documented on each indi-
vidual file. In addition to the existing justification for the choice
of each candidate for interview, the Agency will implement mea-
sures to improve the procedure and avoid the problems men-
tioned by the Court.

14.
In recognition of the serious difficulties being encoun-
tered in the implementation of the project, the Agency’s manage-
ment took action, beginning with the commissioning of the
external audit in early 2003. The specification has been refined
and implementation of the electronic document management
system has since been undertaken in the light of that analysis.