REPORT concerning the financial statements of the Office for Harmonization in the Internal Market (OHIM-Alicante), together with the Office's Replies (97/C 81/04)

(For the period from 1 September 1994 to 31 December 1995)

1.1. This report is addressed to the Management Board of the Office for Harmonization in the Internal Market in accordance with Article 137 of Council Regulation (EC) No 40/94 of 20 December 1993 (1).

1.2. The Court of Auditors has examined the financial statements of the Office for Harmonization in the Internal Market for the financial years 1994 and 1995. The budget was implemented under the responsibility of the President of the Office in accordance with Article 119 (2) (c), of Council Regulation (EC) No 40/94 (2). His responsibilities include the preparation and presentation of the accounts in accordance with the internal financial provisions set out in Article 137 of Council Regulation (EC) No 40/94. Article 188c of the Treaty establishing the European Community requires the Court of Auditors to audit these accounts. This report constitutes the first audit of the Office.

1.3. The Court conducted the audit in accordance with generally accepted auditing standards in so far as they are applicable in the Community context. The Court carried out checks on the accounts and accounting records and also applied such auditing procedures as it considered necessary in this context. The main observations resulting from the Court's audit are presented in the second part of this report.

1.4. The financial statements for the financial years 1994 and 1995 are reliable and the underlying operations were carried out, on the whole, in accordance with the rules concerning legality and regularity.

Main observations concerning the implementation of the budget of the Office for Harmonization in the Internal Market for the financial years 1994 and 1995

The Commission subsidy

1.5. During the financial year 1995, the Office used only ECU 6,8 million of the subsidy granted, i. e. 68 %. The Court takes the view that the Office should have issued a recovery order for the total budget (ECU 10,1 million) in order to be able to meet the commitments carried over to the financial year 1996 (ECU 4,6 million).

Budget accounts

1.6. The Office introduced an accounting system in the course of the financial year 1995. This system permits entries to be modified a posteriori with no subsequent record of modifications that have been carried out. This situation contravenes the internal Financial Regulations (Articles 4 (1) and 29 (1)).

Appropriations carried over and transfers

1.7. The appropriations carried over to 1996 represent 46 % of the budget and mainly concern computer equipment (titles II and III of the budget). In addition, a total of ECU 2,529 million (25 % of the budget) in available appropriations was transferred from title 1 (personnel) to title II (administrative expenditure).

Inventory

1.8. The inventory is kept only in terms of quantities of items and not by value. For this reason, it is impossible to make any cross-check with the amounts entered in the balance sheet of the Office.

Separation of duties

1.9. The Office has not introduced a system of management which can ensure an appropriate separation of duties and the correct implementation of the provisions concerning revenue, commitments and payments (i. e. Authorizing Officer, Financial Controller and Accounting Officer).

Fixed assets

1.10. At present the Office occupies a building belonging to the Spanish Government. There is, however, no contractual agreement regulating this state of affairs. As far as a permanent headquarters for the future is concerned, the Office should now clearly specify what accommodation its services require.

This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 26 September 1996.

For the Court of Auditors

Bernhard FRIEDMANN

President

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(1) OJ No L 11, 14. 1. 1994, p. 1.

(2) As required by Article 137 (1) of Council Regulation (EEC) No 40/94, the accounts of all revenue and expenditure of the Office for the financial year 1995 were prepared for 29 March 1996, the date on which the accounts were signed by the President of the Office and forwarded to the Commission, to the Budget Committee and to the Court of Auditors. These accounts were received by the Court on 2 April 1996. The abridged version of these financial statements is presented in the tables annexed to this report.

THE OFFICE'S REPLIES

The Commission subsidy

1.5. Neither the Office nor the Commission realised that it was necessary to issue a recovery order.

The Office has noted the Court of Auditors' comment in this respect and has undertaken the necessary measures for a recovery note for the entire subsidy for 1996, minus the reserve, to be issued immediately.

Budget accounts

1.6. It is indeed true that the Office at present uses an accounting system, which permits entries to be modified a posteriori. While waiting for Sincom 2, the system developed by the Commission, to be made available, the Office has undertaken organizational measures to ensure that the present system offers additional safety guarantees.

In the meantime, the Office has no alternative but to wait for the Commission's accounting system which should be available by the end of the year. It would be too expensive for an individual agency to develop such a system itself.

Appropriations carried over and transfers

1.7. The Office's budget for 1995 was adopted with the Parliament setting aside ECU 2 million out of a total budget of ECU 10 100 000. This reserve was released in two tranches:

- ECU 1 000 000 in October 1995,

- the balance in November 1995.

It is clear that, in view of the uncertainty surrounding the real possibilities for releasing the reserve, this temporary blocking of appropriations had an impact on the use of the appropriations, in particular those under title I (staff). The Office could not under any circumstances undertake to recruit staff whose salaries it could not guarantee to be able to pay up to the end of the financial year.

As soon as the reserve had been released, measures were taken to use some of the appropriations freed, for those budget headings where the commitment of expenditure deadlines allowed it and where it was really needed. This led the Office to request a transfer of appropriations from title I to title II in order to proceed with the purchase of computer equipment which was required particularly urgently in view of the Office's schedule for becoming operational.

It should be pointed out here that the Office opened its doors on 1 April 1996 and that, since that date, more than 30 000 requests for trade marks have been received, compared with an estimated 15 000 requests for the entire financial year.

Inventory

1.8. At the time of the Court of Auditors' visit, the Office had just taken delivery from the Commission of the software for the computerized keeping of the inventory and the programme was at that stage being loaded. In the meantime, the physical and accounting inventories have been cross-checked.

Separation of duties

1.9. According to the Court of Auditors, this point refers to the sequence of signatures followed when committing expenditure and payment. It is therefore not a question of confusion of the different areas of responsibility of the Authorizing Officer, Accounting Officer and Financial Controller.

The comment refers to the fact that the Accounting Officer was signing the file before the Authorizing Officer. When the Office was just becoming operational and there was no account manager, this made it possible to check that funds were actually available before the authorizing officer signed.

The Office now has an account manager and can adhere to the following sequence of signatures for the various financial documents:

1. Account manager

2. Authorizing Officer

3. Financial Controller

4. Accounting Officer.

This is in line with the Court's comments.

Fixed assets

1.10. There is an agreement (copy annexed) between the Spanish Government's Minister for Industry and the former Commissioner for the Internal Market, Mr Vanni d'Archirafi on the basis of which the Spanish authorities make a building (provisional seat) available free of charge to the Office - this is the building currently occupied by the Office.

According to the same agreement, the Spanish Government will take the necessary steps to provide the Office with a permanent seat.

The decision concerning the ground and the tender specifications of the building to be constructed was taken by the Spanish authorities on 3 July 1996. The tender specifications relating to this construction will be published in the Official Journal (S series) on 30 July.

Following these recent developments, the Office will act immediately to undertake the necessary measures.