Report on the financial statements of the Office for Harmonisation in the Internal Market (OHIM - Alicante) for the financial year ended 31 December 1998, together with the Office's replies
22. 12. 1999 EN Official Journal of the European Communities C 372/61 on the financial statements of the Office for Harmonisation in the Internal Market (OHIM - Alicante) for the financial year ended 31 December 1998, together with the Officeís replies REPORT (1999/C 372/011) CONTENTS Paragraph reference THE COURT S OPINION. 1-4 MAIN OBSERVATIONS ON THE IMPLEMENTATION OF THE BUDGET OF THE OFFICE FOR HARMONISATION IN THE INTERNAL MARKET FOR THE FINANCIAL YEAR ENDED 31 DECEM- BER 1998. Accounting software. 5-12 5-6 Other observations. 7-11 The Officeís activities. 12 Tables 1 and 2. The Officeís replies. Page 62 62 62 62 62 64 66 C 372/62 EN Official Journal of the European Communities 22. 12. 1999 THE COURT S OPINION 6. The Office has not yet introduced a system of analytical accounts (see the Special Annual Report concerning the financial year 1997, paragraph 1. 5 (3)), without which the level of its fees can neither be evaluated nor, perhaps, adjusted where necessary. 1. This report is addressed to the Budget Committee of the Office for Harmonisation in the Internal Market in conformity with Article 137(2) of Council Regulation (EC) No 40/94 (1). Other observations 2. The Court has examined the financial statements of the Office for Harmonisation in the Internal Market for the financial year ended 31 December 1998. In accordance with Article 119(2c) of Council Regulation (EC) No 40/94, the budget was implemented under the responsibility of the President of the Office. This respon- sibility included the drawing-up and presentation of the financial statements (2) in accordance with the internal financial provisions, as provided for in Article 138 of Regulation (EC) No 40/94. The Court of Auditors is required under Article 248 of the Treaty establishing the European Community to audit these accounts. 3. The Court performed 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. The Court carried out such tests of the accounting records and other audit procedures as it deemed necessary in the circumstances. By means of this audit, the Court obtained a reasonable basis for the opinion expressed below. 4. This examination has enabled the Court to obtain reasonable assurance that the annual accounts for the financial year ended 31 December 1998 are reliable and that the underlying transactions, taken as a whole, are legal and regular. MAIN OBSERVATIONS ON THE IMPLEMENTATION OF THE BUDGET OF THE OFFICE FOR HARMONISATION IN THE INTER- NAL MARKET FOR THE FINANCIAL YEAR ENDED 31 DECEM- BER 1998 Accounting software 7. Payments (ECU 42,1 million) amounted to only 61 % of the final appropriations for the financial year (ECU 68,5 million after the adoption of the second supplementary and amending budget) and 78 % of commitments; 15 % (ECU 10,5 million) of these appropriations were automatically carried over to the 1999 finan- cial year and 23 % of the final appropriations (ECU 15,9 million) were cancelled. 8. The Office had to adopt two amending budgets, firstly because the time required for the trade mark registration procedure was underestimated and, secondly, in order to amend the accounting procedures in accordance with the observations in the Courtís Special Annual Report concerning the financial year 1997 (see paragraph 1. 7) and, thirdly, because difficulties arose in respect of the recruitment of staff (Title 1). 9. Most of the appropriations carried over concern Titles II and III of the budget and, in particular, purchases of immovable prop- erty (ECU 3 million carried over because work fell two months behind schedule and because of a delay in the issuing of invoices for certain items of work), special projects entrusted to third par- ties (ECU 1,3 million carried over because the implementation of computer projects was spread over two financial years) and research reports (ECU 3,2 million carried over on account of the time required to complete the research work (three months), to which the period of payment (one month) must be added). 10. With regard to the appropriations carried over from the financial year 1997 (ECU 26,2 million), it was found that 5 % of these (ECU 1,4 million) had to be cancelled. A large percentage (62 %) of these cancellations related to expenditure on publica- tions and research reports where the costs had been greatly over- estimated or the services for which provision had been made were not supplied. 11. To comply with Article 2, Administrative Decision 98, the Office should have depreciated its assets (installations and furni- ture, movable equipment and computer equipment) during 1998. 5. The Office continued to keep its budgetary accounts by means of a spreadsheet rather than accounting software. Since 1 Janu- ary 1999 the Office has been using new and appropriate budget- ary software. The Officeís activities (1) OJ L 11, 14. 1. 1994, p. 1. (2) As required under Article 137, paragraph 1, of Regulation (EC) No 40/94, the accounts of the Officeís total revenue and expenditure for the financial year 1998 were drawn up on 3 March 1999 and for- warded to the Officeís Management Board, the European Parliament, the Commission and the Court of Auditors. These accounts were received by the Court on 30 March 1999. A summarised version of these financial statements is presented in the tables attached to this report. 12. Since 1996 the Office has received approximately 100 000 applications for the registration of individual trade marks, of which 93 % have successfully completed the first stage of the pro- cedure but only 59 % have been forwarded for publication. The 100 000 applications mentioned above led to objections on the (3) OJ C 406, 28. 12. 1998, p. 55. 22. 12. 1999 EN Official Journal of the European Communities C 372/63 part of the Office in 11 % of cases and to registration in 24 %. On account of the fact that the number of registrations of Commu- nity trade marks considerably exceeded estimates and because of the build-up of delays at each stage of the procedure, certain changes in the internal organisation of the Office were needed. The Office should make a greater effort to reduce the periods of time generally taken to complete the procedures. The statistics available show that the shortest and longest time required between filing for registration and registration is 383 and 821 days respec- tively, the average being 600 days. This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 22 and 23 September 1999. For the Court of Auditors Jan O. KARLSSON President C 372/64 EN Official Journal of the European Communities 22. 12. 1999 Table 1 Balance sheet for the financial years 1998 and 1997 Assets 1998 1997 Liabilities 1998 1997 (ECU 1 000) Fixed assets Installations and furniture Movable equipment Computer equipment Intangible assets Assets under construction (1) Current assets Sundry accounts receivable VAT and duties to be recovered Cash accounts Bank Imprest accounts Fixed capital Own capital Balance for the year 1 177 58 3 911 458 5 140 737 58 2 880 241 10 744 20 735 3 916 3 111 Subtotal 10 744 3 916 Subtotal 31 479 7 027 Current liabilities Automatic carry-overs of appropriations Reuse appropriations Sundry accounts due VAT and duties Advances from customers 10 517 665 57 749 16 362 26 210 41 52 940 13 111 Subtotal 28 350 40 354 Subtotal 82 773 855 48 228 2 Subtotal 48 230 30 940 970 42 492 3 42 495 Total assets 59 829 47 381 Total liabilities 59 829 47 381 (1) Assets under construction include the building land (a donation) for the sum of ESP 1 (EUR 0,006). The deed of donation specifies that this land now belongs to the Office. If this land is sold to a third party the proceeds obtained by the Office must be paid to the donor. Exclusive sale of the land may also be made to the latter for the sum of ESP 1. In the event of sale to the donor, the Spanish authorities have undertaken to purchase the buildings put up by the OHIM. Source: Prepared by the Court of Auditors on the basis of the Officeís data. 22. 12. 1999 EN Official Journal of the European Communities C 372/65 Revenue and expenditure account for the financial years 1998 and 1997 Table 2 (ECU 1 000) 1998 1997 Revenue Own revenue Sundry revenue Expenditure Staff - Title I of the budget Payments Appropriations carried forward (1) Buildings, equipment, etc. - Title II of the budget Payments Appropriations carried forward (1) Operating expenditure - Title III of the budget Payments Appropriations carried forward (1) 66 944 1 825 Total revenue 68 769 19 986 344 13 732 6 328 8 384 3 845 Total expenditure 52 619 Out-turn for the financial year Balance carried over from previous year Appropriations carried forward and cancelled Exchange-rate differences 1997/Exceptional revenue 1998 16 150 3 111 1 431 43 Balance for the financial year 20 735 53 353 1 905 55 258 14 366 236 8 796 12 428 2 832 13 546 52 204 3 054 (3 840) 4 033 (136) 3 111 (1) In its Special Annual Report concerning the 1997 financial year (paragraph 1. 7), the Court observed that the Officeís interpretation of the Financial Regulation was not strictly in accordance with the budgetary principles of annuality and universality. The situation was rectified in 1998 and this led, in particular, to a reduction in the volume of the appropriations carried forward and an increase in the out-turn for the financial year. Source: Prepared by the Court of Auditors on the basis of the Officeís data. C 372/66 EN Official Journal of the European Communities 22. 12. 1999 REPLIES OF THE OHIM 6. Analytical accounts ECU 10,5 million (20 %) in appropriations was carried over, for the reasons set out in Point 9. ECU 15,9 million was cancelled at the end of the financial year, for the following reasons: In 1997 (the first full financial year of Community trade-mark management activities), the OHIM started to set up an analytical accounting system. After developing the model to be followed, and entering the statistical data available, tests were carried out in 1998. In 1999, the human resources necessary for the operation of the system were put in place. It should be borne in mind that not all the stages of the Officeís activity as regards Community trade-mark management have yet stabilised. While the processing of new trade-mark applications has indeed stabilised, other sectors, such as oppositions, cancel- lations and the boards of appeal, have not yet reached their ácruis- ing speedí. A minimum degree of stability, in terms of both activ- ity and the organisation in place, is necessary in order to obtain significant results in analytical accounting. It is therefore neces- sary to wait until the year 2000 before usable results from the analytical accounting system can be obtained. Finally, it would seem premature to consider evaluating, and a fortiori adjusting, the level of fees before the year 2000. Furthermore, it should be pointed out that until the OHIM enters into a stable phase of self-financing (from the year 2006, when Community trade-mark renewals will begin), any notion of adjust- ing the level of fees would seem to be premature. Indeed, the fees have not been fixed independently of each other, but are part of a whole. The opposition fee, for example, has been fixed at a suf- ficiently low level to enable as many proprietors of prior rights as possible to make claims, even though it does not fully cover all the expenditure incurred by the Office in carrying out such a pro- cedure. 7. The final appropriations for the financial year may be broken down as follows: Final appropriations: ECU 68,5 million (1) Appropriations used: ECU 52,6 million Of which appropriations can- celled: ECU 15,9 million Of which appropriations car- ried over: ECU 10,5 million - delays in the construction of the permanent seat (amounting to ECU 6,2 million), - the impact of the large, and unexpected, increase in Commu- nity trade-mark applications, which inevitably led to conges- tion in the services and thus to a backlog in the Officeís activi- ties; some recruitment operations therefore had to be postponed (amounting to ECU 1. 9 million), - the non-utilisation of appropriations for future expenditure under Title 10 (2)(ECU 6,6 million); these appropriations cor- respond to the surplus carried over as revenue to the follow- ing financial year. 8. During 1997, the number of new Community trade-mark applications rose from 22 000 to 30 000 per year. The first SAB was adopted on 10 March 1998 and contained the neces- sary adjustments to reflect the development in the Officeís activities since the budget for 1998 was approved, in Febru- ary 1997. 10. The appropriations carried over from the 1997 financial year and cancelled at the end of the 1998 financial year amount to ECU 1,4 million, and include: - expenditure on the publication and postal charges of the Community Trade Marks Bulletin (ECU 0,5 million and 0,3, respectively). This expenditure proved to have been overestimated in terms of volume, due to procedural delays, and in terms of prices, since the rates charged by the Officeís partners were lower than expected, (1) The Officeís budget was drawn up and implemented in ecu until 1 January 1999, the date of the changeover to the euro. (2) This title sets out in Chapter 100, its only chapter, the appropriations intended to áfinance future operating or investment expenditure the nature of which is certainí. 22. 12. 1999 EN Official Journal of the European Communities C 372/67 - expenditure on the search reports drawn up by the national offices, a proportion of which had still not been supplied at the end of the financial year, amounting to ECU 0,3 million. 11. An administrative decision on the depreciation of immov- able assets was adopted by the Office in November 1998, which barely left enough time for it to be implemented before the end of the financial year. The reserve for depreciation has been in operation since the beginning of the 1999 financial year