Report on the annual accounts of the Innovative Medicines Initiative Joint Undertaking for the financial year 2015, together with the Joint Undertaking’s reply
Date: 2016-10-18
Institutions: European Court of Auditors
Subjects: European Joint Undertaking, administration of the Institutions, auditing, budgetary control, financial control, innovation, medicinal product








C_2016473EN.01005701.xml










16.12.2016   


EN


Official Journal of the European Union


C 473/57





REPORT
on the annual accounts of the Innovative Medicines Initiative Joint Undertaking for the financial year 2015, together with the Joint Undertaking’s reply
(2016/C 473/07)

CONTENTS








 



Paragraph




Page





INTRODUCTION


1–5


58




INFORMATION IN SUPPORT OF THE STATEMENT OF ASSURANCE


6


58




STATEMENT OF ASSURANCE


7–14


58




Opinion on the reliability of the accounts


12


60




Opinion on the legality and regularity of the transactions underlying the accounts


13


60




COMMENTS ON BUDGETARY AND FINANCIAL MANAGEMENT


15–21


60




Presentation of the accounts


15


60




Implementation of the 2015 budget


16–17


60




IMI Joint Undertaking multiannual budget implementation under FP7


18–19


60




IMI Joint Undertaking multiannual budget implementation under Horizon 2020


20–21


60




OTHER MATTERS


22–26


61




Key controls and supervisory systems


22


61




Anti-Fraud Strategy


23–25


61




The Commission’s Internal Audit Service (IAS)


26


61




FOLLOW-UP OF PREVIOUS OBSERVATIONS


27–28


61




Monitoring and reporting of project research results


27


61




Conflicts of interest


28


62




ANNEX


62





INTRODUCTION









1.


The Joint Undertaking for the implementation of the Joint Technology Initiative on Innovative Medicines (IMI Joint Undertaking), located in Brussels, was set up in December 2007 (1) for a period of 10 years and started working autonomously on 16 November 2009. In May 2014 (2), the Council repealed the original Regulation and entrusted the Joint Undertaking, referred to as the ‘Initiative on Innovative Medicines 2 Joint Undertaking’ (IMI 2 Joint Undertaking) (3), with new tasks under the Horizon 2020 Framework programme for Research and Innovation (4) and extended the lifetime of the Joint Undertaking for the period up to 31 December 2024.












2.


The objective of the IMI Joint Undertaking under the Seventh Research Framework Programme (FP7) (5) is to significantly improve the efficiency and effectiveness of the drug development process, with the long-term aim that the pharmaceutical sector produces more effective and safer innovative medicines. Under Horizon 2020, the objective of the IMI 2 Joint Undertaking is to improve health by speeding up the development of, and patient access to, innovative medicines, particularly in areas where there is an unmet medical or social need. It does this by fostering collaboration between the key players involved in healthcare research, including universities, the pharmaceutical and other industries, small- and medium-sized enterprises (SMEs), patient organisations and medicines regulators (6).












3.


The Founding Members of the Joint Undertaking are the European Union (EU), represented by the European Commission, and the European Federation of Pharmaceutical Industries and Associations (EFPIA). Other Members and Associated Partners may also join the programme.












4.


The maximum EU contribution to the IMI Joint Undertaking, for research activities and administrative costs (7), is one billion euros to be paid from FP7. Contributions from pharmaceutical sector members must be equal to the EU contribution.












5.


The maximum EU financial contribution from Horizon 2020 to the activities of the IMI 2 Joint Undertaking is 1 638 million euros, of which up to 1 425 million to match the contribution of the pharmaceutical sector and up to 213 million to match contributions from other companies that decide to join IMI 2 as Associated Partners. The members must contribute equally to the administrative costs (which should not exceed 85,2 million euros for the IMI 2 Joint Undertaking).





INFORMATION IN SUPPORT OF THE STATEMENT OF ASSURANCE









6.


The audit approach taken by the Court comprises analytical audit procedures, testing of transactions at the level of the Joint Undertaking and an assessment of key controls of the supervisory and control systems, including a quality control review of the ex-post audits carried out by the Joint Undertaking at beneficiaries. This is supplemented by evidence provided by relevant work of other auditors and an analysis of management representations.










STATEMENT OF ASSURANCE









7.


Pursuant to the provisions of Article 287 of the Treaty on the Functioning of the European Union (TFEU), the Court has audited:






(a)


the annual accounts of the Innovative Medicines Initiative Joint Undertaking, which comprise the financial statements (8) and the reports on the implementation of the budget (9) for the financial year ended 31 December 2015; and










(b)


the legality and regularity of the transactions underlying those accounts.










The management’s responsibility










8.


In accordance with Articles 16 and 22 of Commission Delegated Regulation (EU) No 110/2014 (10), the management is responsible for the preparation and fair presentation of the annual accounts of the Joint Undertaking and the legality and regularity of the underlying transactions.






(a)


The management’s responsibilities in respect of the Joint Undertaking’s annual accounts include designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies on the basis of the accounting rules adopted by the Commission’s accounting officer (11), and making accounting estimates that are reasonable in the circumstances. The Director approves the annual accounts of the Joint Undertaking after its accounting officer has prepared them on the basis of all available information and established a note to accompany the accounts in which he declares, inter alia, that he has reasonable assurance that they present a true and fair view of the financial position of the Joint Undertaking in all material respects.










(b)


The management’s responsibilities in respect of the legality and regularity of the underlying transactions and compliance with the principle of sound financial management consist of designing, implementing and maintaining an effective and efficient internal control system comprising adequate supervision and appropriate measures to prevent irregularities and fraud and, if necessary, legal proceedings to recover funds wrongly paid or used.










The auditor’s responsibility










9.


The Court’s responsibility is, on the basis of its audit, to provide the European Parliament and the Council (12) with a statement of assurance as to the reliability of the annual accounts and the legality and regularity of the underlying transactions. The Court conducts its audit in accordance with the IFAC International Standards on Auditing and Codes of Ethics and the INTOSAI International Standards of Supreme Audit Institutions. These standards require the Court to plan and perform the audit to obtain reasonable assurance as to whether the annual accounts of the Joint Undertaking are free from material misstatement and the underlying transactions are legal and regular.












10.


The audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the accounts and the legality and regularity of the underlying transactions. The procedures selected depend on the auditor’s judgement, which is based on an assessment of the risks of material misstatement of the accounts and material non-compliance by the underlying transactions with the requirements in the legal framework of the European Union, whether due to fraud or error. In assessing these risks, the auditor considers any internal controls relevant to the preparation and fair presentation of the accounts, as well as the supervisory and control systems that are implemented to ensure the legality and regularity of underlying transactions, and designs audit procedures that are appropriate in the circumstances. The audit also entails evaluating the appropriateness of accounting policies, the reasonableness of accounting estimates and the overall presentation of the accounts.












11.


The Court considers that the audit evidence obtained is sufficient and appropriate to provide a basis for its statement of assurance.





Opinion on the reliability of the accounts









12.


In the Court’s opinion, the Joint Undertaking’s annual accounts present fairly, in all material respects, its financial position as at 31 December 2015 and the results of its operations and its cash flows for the year then ended, in accordance with the provisions of its financial rules and the accounting rules adopted by the Commission’s accounting officer.





Opinion on the legality and regularity of the transactions underlying the accounts









13.


In the Court’s opinion, the transactions underlying the annual accounts for the year ended 31 December 2015 are, in all material respects, legal and regular.














14.


The following comments do not call the Court’s opinions into question.





COMMENTS ON BUDGETARY AND FINANCIAL MANAGEMENT



Presentation of the accounts










15.


The final annual accounts issued by the IMI Joint Undertaking do not include the Budget Outturn Account nor the reconciliation table to the Economic Outturn Account. However, both items are published in the Joint Undertaking’s report on budgetary an financial management 2015, although the level of information differs from that given by most other Joint Undertakings, which demonstrates the need for clear Commission guidelines for the Joint Undertakings’ budgetary reporting.






Implementation of the 2015 budget










16.


The final 2015 budget available for implementation included commitment appropriations of 315,3 million euros and payment appropriations of 195,4 million euros. The utilisation rates for commitment and payment appropriations were 91 % and 73 %, respectively. The lower-than-expected implementation rate for payment appropriations was mainly due to delays in the negotiations for several Horizon 2020 projects, for which pre-financing payments were made in early 2016 (13).












17.


Of the total operational commitments made in 2015 (420,3 million euros), 50,2 % were individual commitments based on completed award procedures for grants and contracts. The remaining 49,8 % were global commitments for which the award procedure was not completed. The level of individual commitments in 2015 is due to delays in the negotiation procedure regarding the 2015 calls for Horizon 2020 projects.






IMI Joint Undertaking multiannual budget implementation under FP7










18.


Out of one billion euros for the operational and administrative activities of the IMI Joint Undertaking to be funded by the EU under FP7, the Joint Undertaking made commitments of 966 million euros and payments of 538,1 million euros (55,7 % of operational commitments) by the end of 2015. The high level of outstanding operational payments of 427,9 million euros (44,3 %) was mainly due to the slow and delayed start of activities during the first years of the Joint Undertaking and will be used to cover future payments for the signed grant agreements running until the end of 2021. The EU cash contribution to the Joint Undertaking’s administrative costs amounted to 27,2 million euros.












19.


Out of one billion euros for the other members’ in-kind and cash contributions, 503,1 million euros of in-kind contributions to operational activities had been reported to the IMI Joint Undertaking by 31 December 2015, of which 321,8 million euros or 63,9 % have been validated by the Governing Board. The other members’ cash contributions to the Joint Undertaking’s administrative costs amounted to 14,2 million euros.






IMI Joint Undertaking multiannual budget implementation under Horizon 2020










20.


Out of a total envelope of 1 638 million euros for the operational and administrative activities to be funded by the EU under Horizon 2020, the Joint Undertaking made operational commitments amounting to 351,7 million euros and payments amounting to 45,9 million euros (13 % of operational commitments). The low level of payments is mainly due to delays in negotiating the Horizon 2020 agreements with the industry partner. The EU cash contribution to the Joint Undertaking’s administrative costs amounted to 1,2 million euros.












21.


For the other members’ in-kind and cash contributions, out of a total envelope of 1 638 million euros, 68,6 million euros had been reported to the Joint Undertaking by 31 December 2015. The other members’ cash contributions to the Joint Undertaking’s administrative costs amounted to 2,8 million euros.





OTHER MATTERS



Key controls and supervisory systems










22.


The IMI Joint Undertaking has set up ex-ante control procedures based on financial and operational desk reviews, and performs ex post audits of grant beneficiaries. These checks are key tools for assessing the legality and regularity of the underlying transactions, including cash and in-kind contributions to the Joint Undertaking by members other than the EU. The residual rate for the ex-post audits reported in the IMI Joint Undertaking 2015 annual activity report was 1,5 % (14).






Anti-Fraud Strategy










23.


According to Article 12 of the Joint Undertaking’s Financial Rules, the budget should be implemented in compliance with effective and efficient internal control, including prevention, detection, correction and follow-up of fraud and irregularities.












24.


Following the adoption of an Anti-Fraud Strategy by the Commission in June 2011, the first common Research Anti-Fraud Strategy was adopted in July 2012, and updated in March 2015 to take account of changes introduced by Horizon 2020 (15). The Research Anti-Fraud Strategy includes an action plan to be implemented by the research Joint Undertakings.












25.


Internal control procedures are already in place at the IMI Joint Undertaking to provide reasonable assurance on the prevention and detection of fraud and irregularities, (ex-ante checks on payments, conflict of interest policy and ex-post audits at grant beneficiaries). The Joint Undertaking is implementing the measures in the action plan, such as making use of Commission databases to identify excluded organisations or potential double funding (16), in accordance with the agreed timetable.






The Commission’s Internal Audit Service (IAS)










26.


In February 2015, the IAS concluded an audit on ex-ante controls for grant management at the IMI 2 Joint Undertaking. The IAS recommended that the Joint Undertaking should make its ex-ante controls more effective by using a more risk-based and balanced approach, and should reinforce control procedures for the Certificates on Financial Statements (17). The IMI 2 Joint Undertaking is implementing the IAS audit recommendations, and taking the Court’s observations on these issues into account.





FOLLOW-UP OF PREVIOUS OBSERVATIONS



Monitoring and reporting of project research results










27.


As required by Horizon 2020 rules (18), the IMI 2 Joint Undertaking disclosed specific indicators on research results in its Annual Activity Report (performance indicators and indicators for monitoring cross-cutting issues) (19).






Conflicts of interest










28.


In July 2015, the Commission issued guidelines to the Joint Undertakings related to rules on conflicts of interest, including a common template for the declaration of absence of a conflict of interest, which should be incorporated by the Joint Undertaking into its procedures.





This Report was adopted by Chamber IV, headed by Mr Baudilio TOMÉ MUGURUZA, Member of the Court of Auditors, in Luxembourg at its meeting of 18 October 2016.


For the Court of Auditors

Klaus-Heiner LEHNE

President





(1)  Council Regulation (EC) No 73/2008 of 20 December 2007 setting up the Joint Undertaking for the implementation of the Joint Technology Initiative on Innovative Medicines (OJ L 30, 4.2.2008, p. 38).

(2)  Council Regulation (EU) No 557/2014 of 6 May 2014 establishing the Innovative Medicines Initiative 2 Joint Undertaking (OJ L 169, 7.6.2014, p. 54).

(3)  This report refers to the ‘Initiative on Innovative Medicines Joint Undertaking’ unless it is necessary to distinguish between the two programmes.

(4)  Regulation (EU) No 1291/2013 of the European Parliament and of the Council of 11 December 2013 establishing Horizon 2020 — the Framework Programme for Research and Innovation (2014-2020) and repealing Decision No 1982/2006/EC (OJ L 347, 20.12.2013, p. 104).

(5)  Decision No 1982/2006/EC of the European Parliament and of the Council (OJ L 412, 30.12.2006, p. 1).

(6)  The Annex summarises the Joint Undertaking’s competences, activities and available resources. It is presented for information purposes.

(7)  Administrative costs shall be financed by the JU’s members. For JU activities under FP7, the founding members shall contribute on an equal level, each of them with an amount not exceeding 4 % of the total financial contribution by the EU to the IMI JU. Any other member shall contribute in proportion to its total contribution towards research activities.

(8)  These include the balance sheet and the statement of financial performance, the cash-flow table, the statement of changes in net assets, a summary of the significant accounting policies and other explanatory notes.

(9)  These comprise the reports on implementation of the budget, a summary of budgetary principles and other explanatory notes.

(10)  OJ L 38, 7.2.2014, p. 2.

(11)  The accounting rules adopted by the Commission’s accounting officer are derived from the International Public Sector Accounting Standards (IPSAS) issued by the International Federation of Accountants or, where relevant, the International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board.

(12)  Article 47 of Delegated Regulation (EU) No 110/2014.

(13)  See annex to the 2015 budgetary and financial report, p. 11.

(14)  For a detailed description of the underlying ex-post audit methodology, together with the number of ex-post audits and the amounts covered, see IMI 2015 Annual Activity Report, pp. 107-110. The ex-post audits performed during 2015 covered projects funded by the Joint Undertaking under FP7. The audit approach for Horizon 2020 projects is set out in the Research common ex-post audit strategy for Horizon 2020. The ex-post audits for projects funded by the Joint Undertaking under Horizon 2020 will start in 2016.

(15)  For example, the setting-up of the Common Support Service, with a centralised audit service and harmonised business processes for the EU research bodies.

(16)  This action also includes assessment of the use of non-EU funding sources to prevent double funding.

(17)  The IMI model grant agreement (Annex II, Section 2 — Reporting and Payments, p. 7) states that: ‘[…] 4. A certificate on the financial statements shall be submitted by each participant when the amount of costs claimed is equal to or superior to EUR 375 000, when cumulated with all previous cost statements for which a certificate on the financial statements has not been submitted and in any case at the end of the project for any amount not previously certified’.


(18)  Article 31 of Regulation (EU) No 1291/2013.

(19)  See IMI 2015 Annual Activity Report, Annexes 5, 6 and 7, pp. 118-132.


ANNEX
Innovative Medicines Joint Undertaking (Brussels)
Competences and activities







Areas of Union competence deriving from the Treaty


Extracts from Articles 187 and 188 of the Treaty on the Functioning of the European Union



The Union may set up joint undertakings or any other structure necessary for the efficient execution of Union research, technological development and demonstration programmes.
The Council, on a proposal from the Commission and after consulting the European Parliament and the Economic and Social Committee, shall adopt the provisions referred to in Article 187.
The European Parliament and the Council, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee, shall adopt the provisions referred to in Articles 183, 184 and 185. Adoption of the supplementary programmes shall require the agreement of the Member States concerned.





Competences of the Joint Undertaking


Council Regulation (EU) No 557/2014 of 6 May 2014 establishing the Innovative Medicines Initiative 2 Joint Undertaking (OJ L 169, 7.6.2014, p. 54).




Objectives

According to Article 2 of Council Regulation (EU) No 557/2014, the IMI2 Joint Undertaking shall have the following objectives:






(a)


to support, in accordance with Article 25 of Regulation (EU) No 1291/2013, the development and implementation of pre-competitive research and of innovation activities of strategic importance to the Union’s competitiveness and industrial leadership or to address specific societal challenges, in particular as described in parts II and III of Annex I to Decision 2013/743/EU, and in particular the challenge to improve European citizens’ health and well-being;










(b)


to contribute to the objectives of the Joint Technology Initiative on Innovative Medicines, in particular to:






(i)


increase the success rate in clinical trials of priority medicines identified by the World Health Organisation;










(ii)


where possible, reduce the time to reach clinical proof of concept in medicine development, such as for cancer, immunological, respiratory, neurological and neurodegenerative diseases;










(iii)


develop new therapies for diseases for which there is a high unmet need, such as Alzheimer’s disease, and limited market incentives, such as antimicrobial resistance;










(iv)


develop diagnostic and treatment biomarkers for diseases clearly linked to clinical relevance and approved by regulators;










(v)


reduce the failure rate of vaccine candidates in phase III clinical trials through new biomarkers for initial efficacy and safety checks;










(vi)


improve the current drug development process by providing support for the development of tools, standards and approaches to assess efficacy, safety and quality of regulated health products.













Governance



Governance bodies of the IMI2 JU are (i) the Governing Board, (ii) the Executive Director, (iii) the Scientific Committee, (iv) the States
Representatives Group, and (v) the Stakeholder Forum. Other advisory groups may be set up by the Governing Board.
The Governing Board is composed of 10 members representing equally the two Members of the Joint Undertaking: the European Union (represented by the European Commission) and the European Federation of Pharmaceutical Industries and Associations (EFPIA). The Governing Board has overall responsibility for the strategic orientation and the operations of the IMI2 Joint Undertaking and supervises the implementation of its activities.
The Executive Director is the chief executive responsible for the day-to-day management of the IMI2 JU in accordance with the decisions of the Governing Board and is supported by a Programme Office. The Executive Director is the legal representative of the IMI2 JU and shall implement the budget of the JU.
The Scientific Committee, the States Representatives Group and the Stakeholder Forum are advisory bodies of the IMI2 JU.
Strategic Governing Groups set up by the Governing Board ensure the coordination of IMI2 JU’s work in certain strategic areas and work to make the development of new topics for calls for proposals more transparent and efficient.





Resources available to the Joint Undertaking in 2015




Budget

315 255 931  euros for commitments
195 397 810  euros for payments
These amounts include appropriations carried over from 2014 and exclude amounts recovered during the year.

Staff as at 31 December 2015

The establishment plan for 2015 provided for 35 temporary staff and 9 contract staff positions. 31 temporary and 4 contract posts were occupied. 80 % of these resources are directly assigned to support operational activities.





Activities and services provided in 2015



The IMI2 JU’s 2015 Annual Activity Report 2015 will be available online at
www.imi.europa.eu





Source: Information supplied by IMI2 JU.







THE JOINT UNDERTAKING’S REPLY






12 and 13.


IMI welcomes the positive conclusion of the Court on the reliability of its accounts as well as on the legality and regularity of all transactions underlying the annual accounts 2015.
IMI remains committed to managing its funding under the principle of sound financial management and through a trust-based approach with the participants in the projects whilst ensuring sufficient control and accountability.










15.


The 2015 final Report on Budgetary and Financial Management was sent to all stakeholders on 30 March 2016. Meanwhile, the methodological corrections requested by the auditors can only be implemented in the 2016 report.
Since September 2015, IMI Joint Undertaking (JU) has outsourced the function of Accounting Officer to the Accounting Officer of the European Commission. The different level of details is based on the Commission reporting practices. IMI JU strongly supports the Court’s recommendation on establishing guidelines for the budget reporting.










20.


Under IMI2 (H2020 programme) EUR 45,9 million were paid as pre-financings for the signed Grant Agreements. The first cost claims were due in Q1 2016.










21.


IMI2 JU Council Regulation stipulates that EUR 1 425 million is committed to the programme by EFPIA companies as in kind contribution. 11 grant agreements signed under IMI2 programme contain a commitment of EUR 123,5 million for in kind contribution. IMI2 has validated EUR 47,2 million following the ex-ante review of the audit certificate received.










23.


The IMI2 JU Anti-Fraud Strategy was adopted by its Governing Board on 22 July 2015. The strategy is aligned with the Common Anti-Fraud Strategy for the Research family approved on 7 February 2015.
The IMI2 JU Anti-Fraud Strategy (AFS) adopts principles and identifies actions to address common risks shared with the Common Research AFS as well as specific targets linked with its particular nature of Public Private Partnership and the specificities of its operational tasks.










26.


IMI has progressed in the implementation of the actions agreed with the IAS as specified in the Action plan approved on 13 March 2015.
IMI has implemented a recommendation on reinforcement of control procedures for Certificates on Financial Statements (CFS), leading IAS to acknowledge this. In this regard, IMI has established a standard operating procedure, internal guidance for CFS review and more detailed guidance for beneficiaries and CFS auditors. A separate guidance is established for EFPIA companies working on the basis of the certified methodology and preparing CFS at the end of the project.
IAS confirmed that IMI management implemented a recommendation on risk-based approach to ex-ante controls by means of a risk assessment of the system in place and by streamlining internal procedures.