Report

on the financial statements of the Office for Harmonisation in the Internal Market (OHIM - Alicante) for the financial year ended 31 December 1999 together with the Office's replies

(2000/C 373/11)

CONTENTS

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THE COURT'S OPINION

1. This report is addressed to the Budget Committee of the Office for Harmonisation in the Internal Market in accordance with Article 137(2) of Council Regulation (EC) No 40/94(1).

2. The Court has examined the financial statements of the Office for Harmonisation in the Internal Market for the financial year ended 31 December 1999. In accordance with Article 119(2c), of Council Regulation (EC) No 40/94(2), the budget was implemented on the responsibility of the President of the Office. This responsibility includes the drawing-up and presentation of the financial statements(3) in accordance with the internal financial provisions provided for in Article 138 of Council 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 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 auditing 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 1999 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 INTERNAL MARKET FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 1999

Financial Regulation

5. Until December 1998 the general Financial Regulation required expenditure to be charged inclusive of VAT since VAT, once it had been refunded, could be used again. Since that date(4), the general Financial Regulation has required expenditure to be charged net of VAT. The Court calls upon the Office to incorporate this new procedure into its own internal rules.

Analytical accounting

6. In last year's report the Court drew attention to the absence of a system of analytical accounting. The Office is currently preparing a system which has still to be computerised before it can become operational.

Balance sheet

Inventory

7. At the end of the year inventory changes in the accounts were reconciled with the inventory register. However, during the year, responsibility for the general inventory and the computerised inventory were separated. Because of this separation, and after the comparison had been made, some assets were moved from the general to the computerised inventory. During the year a new system was used for the general inventory.

8. These changes in the management of the inventories created differences in the inventory totals between the accounts and the inventory register. During the audit visit, these differences could not be calculated precisely, but the magnitudes concerned are not such as to affect the reliability of the accounts.

9. The accounts and the inventory register should be reconciled regularly in order to ensure that the entries are compatible.

Intangible assets

10. Intangible assets are not included in the inventory register. According to the Office, these assets are various software packages covered by licences. The Office should draw up a new inventory book for intangible assets and establish whether these assets are still of value and whether they satisfy the inventory rules.

Human resources

11. As the table shows, staff numbers are increasing steadily and rapidly (see also paragraph 15), although the rate of increase is less than that of representative indicators of the Office's activities(5). The Office should nevertheless not ignore this factor and should be sure to continue its efforts to increase productivity.

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12. During the year the Office recruited 196 members of staff. Of these recruitments, 60 involved people changing their status from that of a temporary worker to a contract of employment as an auxiliary member of the staff and 53 involved members of staff moving from an auxiliary contract to a temporary one. Only 17 people were recruited following the publication of a vacancy.

13. The position of Head of the Human Resources Department has never been filled. It would be desirable for someone to be recruited to this post, given the total of 523 members of staff (at the end of 1999).

Premises

14. According to the contract, work should have been completed in June 1999. The official inauguration did indeed take place in June 1999, but the move to the building did not take place until June 2000.

15. The new building, which cost 23,6 million euro in total, has space for 400 people and is already inadequate. In fact, due to the highly satisfactory increase in trade mark applications, the Office calculates that it will require office space for 800 people by the end of 2001. Consequently, half the personnel will occupy offices located in three or four other buildings which will cost more than 90000 euro a month in rent.

Advisory Committee on Procurements and Contracts (ACPC)

16. During the year, 73 proposals exceeded the ceiling of 46000 euro above which the ACPC must be consulted: 26 contracts, for a total of more than 12,3 million euro, were concluded by private treaty, eight contracts, for a total of 1,6 million euro, followed restricted tendering procedures, seven for a total of 1,4 million euro followed negotiated procedures and 32 for a total of 32,2 million euro followed open tendering procedures. The Office should apply the rules on contracting more rigorously, so as to ensure maximum competition.

Written procedures

17. During 1999, the ACPC delivered several opinions on big projects using the written procedure. The Committee was therefore not able to do its job of discussing the projects. Thus, for the contract for the maintenance of the technical installations in the new building, the Office published a call for expressions of interest in the Official Journal at the end of March 1999. The bids received were opened on 6 May 1999. On 8 October 1999, the President of the ACPC asked the members of the Committee to give their opinion in writing before 14 October 1999 on a very long report concerning a contract worth 1,6 million euro. However, this matter did not fulfil the criteria for emergency cases for which the written procedure is provided.

Purchase of printers

18. At the end of the year, the ACPC gave a favourable opinion for the purchase of printers worth a total of 190000 euro from a single company, because of a "supply contract which, technically, cannot be separated from the main contract". However, purchases of standard printers could have been separated from the main contract.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 27 September 2000.

For the Court of Auditors

Jan O. Karlsson

President

(1) OJ L 11, 14.1.1994, p. 33.

(2) OJ L 11, 14.1.1994, p. 30.

(3) Pursuant to Article 137 (1), of Council Regulation (EC) No 40/94, the accounts of all revenue and expenditure of the Office for the financial year 1999 were drawn up on 28 March 2000 and then forwarded to the Office's Board of Management, the European Parliament, the Commission and the Court of Auditors. The latter received them on 31 March 2000. The abridged version of the financial statements is given in the tables annexed to this report.

(4) See Article 27(2a) of the Financial Regulation applicable to the general budget of the European Communities, as amended by Council Regulation (EC, ECSC, Euratom) No 2548/98 of 23 November 1998, OJ L 320, 28.11.1998, p. 1.

(5) See, in this connection, the Court's Annual Report on the financial year 1998, OJ C 372, 22.12.1999, paragraph 12.

Table 1

Balance sheet for the financial years 1999 and 1998

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Table 2

Revenue and expenditure account for the financial years 1999 and 1998

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The Office's replies

5. An amendment to the Office's Financial Regulation, setting out the recent changes to the provisions of the Financial Regulation applicable to the general budget of the European Communities, will be proposed to the OHIM's Budget Committee at its forthcoming meeting.

6. The Office confirms that the analytical accounting system has been introduced. It is expected that the first results of this system will be available for the second half of the year 2000.

8. The error discovered by the Court is an accounting one; no assets were left out of the physical inventory. A number of mobile telephones (GSM) and inverters, had not been included in the inventory record. The Office has already changed the way it reconciles the accounting and physical inventory records.

9. The Office has introduced provisions so that the regular reconciliation of the physical inventory and accounting inventory records covers all fixed assets rather than only new assets added to the inventory.

10. The Office is currently considering ways to improve the inventory method used for intangible fixed assets.

11. In 1999, the number of trade mark applications rose by more than 35 % in comparison with 1998. The Office is forced to adapt its staff numbers to this increase. It endeavours to:

- limit the increases in staff numbers to those directly involved in productive activities (approximately 80 % of the total staff), and

- increase productivity (approximately 13 %).

12. As regards job vacancies published by the Office in 1999, it must be noted that:

- 24 vacancies were published as part of selection procedures for temporary members of staff (mainly through advertisements in newspapers or various other publications);

- 98 vacancies were published following the organisation of competitions by the OHIM (four in 1999);

- 14 vacancies were published within the various Community institutions in accordance with Article 29(1)(c) of the Staff Regulations (transfers).

The Office has also introduced provisions to publish vacancies on its Internet site in the future.

13. A Head of Service for the "Personnel and Social Administration" Service has been recruited.

14. At the time of official inauguration of the permanent seat by the Spanish Government in June 1999 (a date fixed in the construction contract, concluded between the developer (Spanish authorities) and the building contractor), a considerable amount of work still had to be completed on the building. The Office did not have access to the building until the year 2000, and did not actually move into the building until 1 July 2000.

15. In September 2000, the Budget Committee examined the issue concerning Phase II, which will increase the seat's capacity to 800 people. Construction work could commence at the beginning of 2002, once the corresponding call for tenders has been concluded.

16. Since its inception, the Office has had to award contracts by private treaty because the corresponding calls for tender have proved to be unsuccessful.

On the one hand, the region where the OHIM is situated, has an economic infrastructure which is often lacking in companies capable of meeting the Office's needs, and on the other hand, companies which do not operate in the region show little interest in investing in Alicante just to respond to the OHIM's needs.

17. The 5 written procedures brought before the ACPC in 1999 represent 7,6 % of all matters dealt with by this body. Three were due to the urgent need to complete the Office's permanent seat.

18. The contract for the maintenance of technical installations concerns the equipment of the new seat (Phase I). In order for the building and its installations to be deemed complete, it was first necessary to be able to use the power supply; in turn, for this the Office was first required to conclude a maintenance contract. For these reasons, the Office had to deal with the matter within the shortest time, since each day's delay attributable to the Office affected rent expenditure for the buildings.

19. The purchase of standard printers constitutes a contract which, technically, can be independent. Nevertheless, the Office deemed it appropriate to consider this contract as ancillary to the contract signed by the Commission, as the technical specifications of the equipment needed by the Office were identical to those of the Commission. As a result, the Office could take advantage of the favourable conditions obtained from the supplier. The Office has followed the same practice for contracts concerning the purchase of computer equipment since it was set up in Alicante. Furthermore, with respect to the new call for tenders which the Commission plans to conclude in 2000, the Office has already asked that its needs be taken into account.