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
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 Agencyís 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 - LONDON) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 1998. 5 to 10 Analytical accounting. Tender procedures. Quality management system ( QMSí). 5 6 7 IT department. 8 to 10 Tables 1 and 2. The Agencyís 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 - 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 Agencyís Financial Regulation (FR). For example, procedures invok- ing urgency were used in situations, where they were not justi- fied. Quality management system ( QMSí) 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 Agencyís revenue and expenditure for the financial year 1998 were drawn up on 25 March 1999 and forwarded to the Agencyís 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 Agencyís 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. C 372/16 EN 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 Agencyís 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 22. 12. 1999 EN 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 - deposit accounts Banks - 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 EN 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 - 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 - Title II of the budget Payments Appropriations carried over Operating expenditure - 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 - 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 - 4 583 637 75 1 166 22. 12. 1999 EN 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 Agencyís 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 ( QMSí) 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 Agencyís QMS) in setting up the procedures and, more importantly, creating a feeling of áown- ershipí 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 Courtís 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 Agencyís requirements. It should be borne in mind that the IT department not only serves the EMEAís 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