Report on the financial statements of the Office for Harmonisation in the Internal Market (OHIM-Alicante) for the financial year ended 31 December 1997, together with the Office's reply
28. 12. 98 EN Official Journal of the European Communities C 406/55 on the financial statements of the Office for Harmonisation in the Internal Market (OHIM — Alicante) for the financial year ended 31 December 1997, together with the Office’s reply REPORT (98/C 406/10) 1. 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). MAIN OBSERVATIONS ON THE IMPLEMENTATION OF THE BUDGET OF THE OFFICE FOR HARMONISATION IN THE INTERNAL MARKET FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 1997 1. 2. The Court has examined the financial statements of the Office for Harmonisation in the Internal Market for the In financial year ended 31 December 1997. accordance with Article 119(2)(c) of Council Regulation (EC) No 40/94, the budget was implemented on the responsibility of the President of the Office. This responsibility 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 Council Regulation (EC) No 40/94. The Court of Auditors is required under Article 188c of the Treaty establishing the European Community to audit these accounts. 1. 3. The Court performed its audit in accordance with its auditing 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. 1. 4. With the exception of the fact mentioned in paragraph 1. 11, this examination has enabled the Court to obtain reasonable assurance that the annual accounts for the financial year ended 31 December 1997 are reliable and that the underlying transactions, taken as a whole, are legal and regular. (1) OJ L 11, 14. 1. 1994, p. 33. (2) As required under Article 137(1), of Council Regulation (EC) No 40/94, the accounts for all the Office’s revenue and expenditure in respect of the financial year 1997 were drawn up on 21 January 1998 and forwarded to the Office’s the Management Board, Commission and the Court of Auditors. These accounts were received by the Court on 27 January 1998. A summarised version of these financial statements is presented in the tables attached to this report. the European Parliament, Accounting software 1. 5. Although 1997 was the Office’s fourth year of activity (including three full years), the budgetary accounts are still kept by means of a spreadsheet rather than appropriate accounting software. The use of a spreadsheet had already been criticised in the Court’s Report on the previous financial years (3). The Office should also introduce a system of analytical accounts in order to be able to establish the real cost of the services that it provides. Other observations 1. 6. Payments (ECU 26,0 million) amounted to only 48 % of the appropriations for the financial year (ECU 54,0 million after third supplementary and amending budget); 48,5 % (ECU 26,2 million) of these appropriations were automatically carried over to the financial year 1998 and 3,5 % (ECU 1,8 million) were cancelled. the adoption of the 1. 7. The volume of carry-overs was mainly due to the accounting practice followed by the Office. This consists in committing all expenditure relating to each trade mark registration application right from the establishment of the relevant revenue. Under this approach, the year-end balance for these commitments is automatically carried over to the following financial year, regardless of the actual date of the request for services from the Office (research, translation, publication, etc. ) — whether the request is made before the end of the financial year or only during the following year. This practice is an (3) OJ C 393, 29. 12. 1997, p. 47. C 406/56 EN Official Journal of the European Communities 28. 12. 98 interpretation of the regulations which does not strictly comply with the budgetary principles of annuality and universality. accounts until it came to the closure of the accounts. Receipts are first entered in the trade mark management software (EUROMARC) and then recorded in the general accounts only once the payer has been identified. 1. 8. With regard to the appropriations carried over from the financial year 1996 (ECU 14,5 million), it is noted that 27,6 % of these (ECU 4,0 million) had to be cancelled. A these cancellations related to expenditure for translation, these carry-overs had postage and publication. corresponded these cancellations would not have been necessary. to more specific commitments, large percentage (88,0 %) of If 1. 9. Article 13 of the Office’s Financial Regulation provides for its budget to be published in the Official Journal of the European Communities. This was done only for supplementary and amending budget No 3. 1. 10. Part of the cash balance (ECU 0,35 million out of ECU 42,50 million) was not entered in the general Headquarters its for the the construction of intermediary office of In 1997, the Office signed a contract with 1. 11. the Spanish Cosoami, future Government, headquarters. If the Office does not receive a sufficient number of trade mark registration applications, it will be possible to complete the building work only with the help of a subsidy from the general budget. Irrespective of the Budget Committee’s agreement to the launching of this operation, it would have been desirable for the Office to have obtained the Commission’s consent before signing the contract with Cosoami. This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 29 October 1998. For the Court of Auditors Bernhard FRIEDMANN President 28. 12. 98 EN Official Journal of the European Communities C 406/57 Table 1 Balance sheet for the financial years 1996 and 1997 Assets 1997 1996 Liabilities 1997 1996 (ECU 1 000) Fixed assets Installations and furniture Movable equipment Computer equipment Intangible assets Sub-total Current assets Commission subsidy Sundry accounts receivable VAT and duties to be recovered Sub-total 737 58 2 880 241 3 916 30 940 970 383 48 1 890 91 2 412 6 289 42 429 6 760 Cash accounts Bank Imprest account 42 492 3 42 495 44 291 5 44 296 Sub-total Fixed capital Own capital (1) Balance for the year Long term liabilities 3 916 3 111 Sub-total 7 027 2 412 (4 318) 46 (1 860) Current liabilities Automatic carry-overs of appropriations Re-use appropriations Institutions Sundry accounts due Balance of Commission subsidy VAT and duties to be recovered Advances from customers Sub-total 26 210 14 517 41 52 940 13 111 40 354 69 478 35 6 289 429 33 511 55 328 Total assets 47 381 53 468 Total liabilities 47 381 53 468 (1) This amount corresponds to fixed assets. Source: Prepared by the Court of Auditors on the basis of the Office’s data. C 406/58 EN Official Journal of the European Communities 28. 12. 98 Table 2 Balance for financial years 1996 and 1997 Revenue Commission subsidy Sundry revenue Own revenue Expenditure Staff — Title I Payments Appropriations carried forward Buildings, equipment, etc. — Title II Payments Appropriations carried forward Operating — Title III Payments Appropriations carried forward (ECU 1 000) 1997 1996 1 905 53 353 8 291 1 061 12 369 Total revenue 55 258 21 721 14 366 236 8 796 12 428 2 832 13 546 8 903 402 3 279 8 272 89 5 843 Out-turn for the financial year Out-turn carried over from previous year (1) Appropriations carried forward and cancelled Exchange-rate differences Total expenditure 52 204 26 788 3 054 (3 840) 4 033 (136) (5 067) 683 66 Balance for the financial year 3 111 (4 318) (1) Balance for the financial year 1995 Balance for the financial year 1996 478 (4 318) (3 840) Source: Prepared by the Court of Auditors on the basis of the Office’s data. 28. 12. 98 EN Official Journal of the European Communities C 406/59 REPLY OF THE OFFICE 1. 5. Accounting software With regard to budget accounts, the Commission, contrary to what it had said, was unable to make the various SINCOM 2 software modules available to the agencies. The Office had therefore to undertake the necessary preparations for implementation by 1 January 1999 of the ISPS accounting module developed for the Commission by SAP. The costs are relatively low, given the investments already made as regards the general accounts. Concerning analytical accounts, the Office continued to work on this matter in 1998. Analytical accounting will be operational by the end of 1998. Because of the unexpected influx in 1996 of 43 000 trade mark applications, as opposed to 15 000 forecast by authorised professionals and by the Commission, the Office had to prioritise, and process this mass of trade mark applications on a first-in first-out basis. Inevitably, it took longer to complete the various trade mark application processing stages, resulting in significant carry-overs at the end of 1997, permitted under Article 6. 2 of the Financial Regulation. Conclusion: In the light of the remarks made by the Court of Auditors, the OHIM will take the necessary steps to ensure that the time between commitment to expenditure for each processing stage and payment is as short as possible in the future. 1. 6. See the explanations given in Point 1. 7. 1. 8. Lapsed appropriations 1. 7. Appropriations carried over to trade mark registration Expenditure relating is expenditure which is certain to be undertaken once a filing date has been attributed trade mark application, in accordance with the Office’s obligations under the CTMR. to a The significant volume of appropriations carried over from the 1996 financial year which lapsed in 1997 (ECU 4 million) results primarily from a decline in translation and publication costs, over which the Office has no control. The reduction in particular the average number of pages translated and published for each trade mark application, which proved to be three and one respectively rather than the 4,5 and three initially forecast. in expenditure reflects A number of these services, such as translation, national searches and publication, are undertaken by outside agencies or bodies imposed on the Office. The Office therefore felt it was appropriate to undertake the corresponding expenditure commitments upon receipt of trade mark application fees. the appropriations lapsed because of In addition, exceptional circumstances relating to the launch of the Office’s activities in 1996. As a result of the changes in the situation cited in Point 1. 7 above, a proportion of the appropriations for 1996 carried over to the 1997 financial year could not be used. The Office believed that this practice, based on automatic carry-over, complied with: — the principle of annuality, with the exceptions set out enables the Financial Regulation, which in appropriations to be carried over; — the principle of universality since the revenue is not allocated to any particular item of expenditure. It also reflects the specific nature of the Office which, as an intellectual property rights office, only receives fees against the provision of services to users. 1. 9. Publication of the budget Because of the time limits imposed under the CTMR in this regard, the Office had prepared the 1997 budget at the end of 1995, based on estimates of the Office’s activities which by 1996 proved to have been completely underestimated. Thus, at the beginning of the 1997 financial year, OHIM decided to present a supplementary and amending budget (SAB) for 1997 which totally revised the overall budget. This SAB, which was more realistic and reflected the number of trade mark C 406/60 EN Official Journal of the European Communities 28. 12. 98 applications actually filed in 1996, was published in the Official Journal of the European Communities. The 1998 budget was indeed published in the Official Journal of the European Communities (OJ L 64, 5. 3. 1998). Preparations are being made the publication of the first SAB for 1998, which will also be published in the Official Journal of the European Communities. for 1. 10. The recording of individual receipts To ensure that the time limit for recording receipts is as short as possible, the Office is giving priority to identification of customer accounts and is endeavouring to reduce to a minimum (three to four days) the time taken to record the receipts in the SAP R-3 accounting system. 1. 11. The Office’s headquarters of Alicante) as part of the follow-up to the agreement reached in 1994 between the Spanish Government and the Commission on the provision by Spain, free of charge, of a provisional seat for the Office and the purchase by the latter of the future permanent seat. 2. Purchase of the headquarters With regard to the financing of the building work, this will be met from the Office’s revenue, based on an average of 27 000 trade mark applications per year, and through overdraft facilities contracted to this end in 1998. to 30 000 Should the annual number of trade mark applications fall to 25 000 over several financial years, the Office would, once the ceiling on its credit facilities had been reached, have to apply for a Community subsidy, possibly at the end of 2003 or at the beginning of 2004. 1. The procedure underlying the conclusion of an agreement between OHIM and Cosoami 3. Consultation of the Commission The agreement binds the OHIM to the COSOAMI consortium created by the Spanish authorities (Ministry of Industry, Generalitat of Valencia, Diputación of the Province of Alicante and the Town Having noted the Commission’s remarks regarding the contract signed between the OHIM and the COSOAMI, the Budget Committee decided to give its approval for the acquisition of the building