REPORT on the financial statements of the Office for Harmonization in the Internal Market (OHIM, Alicante) (Financial year 1996), together with the Office's replies (97/C 393/04)

1.1. This report is addressed to the Budget Committee of the Office for Harmonization in the Internal Market pursuant to Article 137 (2) of Council Regulation (EC) No 40/94 of 20 December 1993 (1).

1.2. The Court has examined the financial statements of the Office for Harmonization in the Internal Market for the financial year 1996. The budget was implemented under the responsibility of the President of the Office in accordance with the requirements of Article 119 (2) (c) of Regulation (EC) No 40/94 (2). His responsibilities include the preparation and presentation of the accounts (3) in accordance with the internal financial rules, as provided for by Article 137 of Regulation (EC) No 40/94. Article 188c of the Treaty establishing the European Community requires the Court of Auditors to audit these accounts.

1.3. The Court carried out its audit in accordance with generally accepted auditing standards in so far as they are applicable in the Community context. It carried out tests on the account books and records and such additional procedures as it considered necessary in this context. The main observations resulting from the Court's audit are set out in the second part of this report.

1.4. For the reasons indicated in paragraphs 1.8 to 1.12 (own revenue) the Court was unable to form an opinion as to whether the accounts underlying the revenue shown in the financial statements are reliable.

1.5. Subject to the above reservations, the financial statements for the financial year 1996 are reliable and the legality and regularity of the underlying transactions are, on the whole, assured.

MAIN OBSERVATIONS CONCERNING THE IMPLEMENTATION OF THE BUDGET OF THE OFFICE FOR HARMONIZATION IN THE INTERNAL MARKET FOR THE FINANCIAL YEAR 1996

Budget accounts

1.6. Although 1996 is the Office's third year of activity, the accounts department of the Office still does not have proper budget accounting software. Monitoring the implementation of the budget is carried out with the aid of a tool which is not a real accounting system (changes may be made to entries with no subsequent record of their having been made, absence of any link to the general accounts, etc.).

1.7. The Office does not possess any system of analytical accounting, which is, however, indispensable for the purpose of establishing the real cost of services rendered.

Own revenue

1.8. Before the entry into service, in May 1996, of the system set up to monitor the charges associated with the filing of trade marks (Euromarc), two alternative systems had been used temporarily to monitor applications for trade-mark registrations. The risk that is inherent in the transfer of data from these temporary systems to Euromarc is high and the Court was therefore unable to form an opinion as to whether such transfers were complete.

1.9. The Office was not able to demonstrate that the Euromarc system was functioning according to the description it had given. The Court is, therefore, not in a position to state with certainty that the reliability of the system is assured.

1.10. The new description drawn up by the Office reached the Court too late for it to be able to carry out the additional work that was necessary to remove this uncertainty.

1.11. For reasons which are mainly due to the unwieldiness of Euromarc and the complexity of the regulations, long delays in dealing with applications were observed. Some clients complained to the Office on this account. Moreover, the accumulated delay prevented the entry of more than ECU 12,4 million of revenue out of a total of ECU 45,9 million in receipts. The difference, i. e. ECU 33,5 million, was entered under liabilities and shown on the balance sheet as 'advances from clients`. Of this amount, ECU 4,7 million was made up of payments that could not be linked to the related trade-mark applications. Bearing in mind that new payments arrive every day, these old transactions must be identified as a matter of urgency.

ACPC

1.12. The Office's ACPC was not created until 1 April 1996. Several contracts for which the opinion of the ACPC would have been required, had already been approved by the Office on the basis of an 'operating report` accompanied, in some cases, by a note from the legal department concerning the regularity of the procedure followed. Such notes can, under no circumstances, replace the opinion of the ACPC.

Appropriations carried over; cancellations; transfers

1.13. Appropriations carried over to 1997 totalled ECU 14,5 million (total automatic carry-overs), i. e. 44,8 % of the total of ECU 32,4 million of appropriations for the financial year.

1.14. These appropriations carried forward originated in the large volume of trade-mark applications which had not been processed at the end of the year.

1.15. The total of current appropriations which lapsed was ECU 5,6 million, i. e. 17,3 % of the appropriations for the financial year. As far as the appropriations carried over from the financial year 1995 are concerned ECU 4,65 million, i. e. 14,6 %, lapsed (ECU 0,68 million). Transfers of appropriations amounted to ECU 7,6 million. The totals quoted, as well as the appropriations carried over to the financial year 1997 and the volume of revenue received, show the inaccuracy of the budget estimates for the financial year 1996. An amendment of the initial budget estimates should have been made during the financial year.

Buildings

1.16. The Office continues to occupy a building belonging to the Spanish authorities and placed at its disposal free of charge. However, no contract exists in this respect. As far as the final location is concerned, the Office has opened negotiations in respect of a proposed acquisition and has entered an initial amount in the budget for supervisory work.

1.17. It must be emphasized that the Office must ensure that the necessary appropriations are available before a legal commitment is entered into.

This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 15 and 16 October 1997.

For the Court of Auditors

Bernhard FRIEDMANN

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 the Office's revenue and expenditure for the financial year 1996 were drawn up on 21 February 1997. These accounts were received by the Court on 25 February 1997. The short form of these financial statements is to be found in the tables annexed to this report.

ANNEX

TABLE 1 BALANCE SHEET FOR THE FINANCIAL YEARS 1995 AND 1996

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Source: Drawn up by the Court on the basis of information supplied by the Office.

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(1) This amount corresponds to total fixed assets.

(2) The negative total of the balance for the year and capital does not constitute a loss of capital. It is the result of applying the Financial Regulation in respect of revenue (only revenue which has been collected) and expenditure (payments plus appropriations carried over).

(3) In the financial statements for the financial year 1995, the amount of Commission subsidy still to be paid at the end of the financial year is listed as revenue. With effect from the financial year 1996, in accordance with the Regulations, this amount is listed in the balance sheet under the liabilities.

REPLIES OF THE OFFICE FOR HARMONIZATION IN THE INTERNAL MARKET

1.4. Own revenue

The payment of the fees and charges associated with the filing and registration of a Community trade-mark is the final step in a lengthy procedure, which is laid down in Council Regulation (EC) No 40/94 of 20 December 1993.

Between the time a trade-mark application is filed and the time the corresponding charges are entered in the accounts there is usually an interval of two months, in the course of which the case is handled by at least three different types of staff.

The whole process is computerized and each category of staff involved is authorized to access the computer system which covers the duties for which they are responsible.

In order to be able to cover in a limited amount of time (two to three days) all the stages involved from receipt of application to entry in the accounts of the charges, it is absolutely essential that the cases selected at the outset receive priority treatment.

This is possible providing two conditions are met:

1. that a single user is authorized, temporarily and by way of exception, to have access to all computer systems required to complete all the stages, up to entry in the accounts, and

2. that the demonstration of the accelerated procedure takes place in a test environment in order that there may be all the flexibility of use required without the production base being contaminated.

During the visit of the auditors in February 1997 it was not possible to carry out such a demonstration in the time available for technical reasons.

Measures have already been put in place to ensure that a complete presentation of the revenue payment system can be made during the auditors' visit which is planned for October 1997.

1.6. Budget accounts

Like the other Agencies, the OHIM is awaiting the final version of the Sincom 2 budget accounting software. This software ought to be available towards the end of 1997. Once the OHIM receives the software, it will be brought into use over a period of a few months.

1.7. Analytical accounts

The Office will start to establish analytical accounts for certain areas of activity at the beginning of 1998, when it will have a sufficiently broad and stable production base in certain sectors to be able to establish realistic standards.

1.8. Own revenue - change of system

While changing over to the final system for monitoring applications and charges, the Office verified extremely thoroughly that the data transferred were consistent.

Moreover, bank reconciliations confirmed the results of the transfer.

The Office therefore considers that the transfer was carried out correctly.

1.9 - 1.10. System for the payment of charges

See reply to paragraph 1.4.

1.12. Delay in the identification/entry of payments

On account of the large number of applications received in 1996 (43 000 rather than the 15 000 anticipated), the Office built up a certain backlog in 1996 in the entry of application charges.

The Office has now almost caught up with this backlog.

As regards the ECU 4,7 million made up of non-identified payments, the situation has been rectified since March 1997, as intended and explained to the Court's auditors.

At present, the time-lag between the receipt of a cheque by the OHIM and its identification and transfer to the bank is six days.

1.13 ACPC

The ACPC began operating as soon as the Office's Financial Regulation and the implementing rules applicable to the Financial Regulation, which govern the composition of the ACPC, entered into force. Before the creation of the ACPC the OHIM had no alternative but to follow the procedure which it did, namely to consult the legal department in respect of contracts exceeding a threshold of ECU 42 000, in order to ensure that the procurement procedure was in accordance with the rules applicable to the conclusion of public contracts.

In the case of sizeable contracts, the OHIM was compelled during this transitional period to use the contracts of the other institutions and of the Commission in particular, in order to benefit from the legal guarantee attached to such contracts and the economies of scale which necessarily result.

1.14. Appropriations carried over

A relatively large amount of appropriations were carried over in 1996.

80 % of the carry-overs in question related to procedural expenditure (searches/translation/publication, etc.).

In accordance with Article 29 of the Financial Regulation, the Office must commit the procedural expenditure arising from Council Regulation (EC) No 40/94 on the Community trade-mark the moment application charges are entered in the accounts.

This is effectively unavoidable expenditure, the implementation of which is directly linked to the collection of the application charges.

Clearly, during this start-up phase, taking into account the fact that the number of applications was much higher than anticipated (+ 280 %), the discrepancy between the commitment of procedural expenditure and the actual implementation of the procedures in question is much greater than during normal operation.

This situation is progressively being regularized; in 1997 appropriations carried over in respect of procedural expenditure will be significantly less.

1.16. Lapsed appropriations/transfers of appropriations

The 1996 budget was drawn up at the end of June 1994 and submitted to the Budgetary Authority in February 1995. At that stage, there was nothing to suggest that the OHIM would be faced with such a number of trade-mark applications.

In June and September 1996 the OHIM informed its Budget Committee of how the situation was developing, drawing its attention to the budgetary consequences.

It should be noted that some of the lapsed appropriations come under Chapter 1 1 and relate in particular to Heading 1 1 3 3 (Constitution or maintenance of pension rights for temporary staff) (ECU 1 031 000).

These appropriations were entered in the budget at the request of the Commission in order to cover the employers' contribution to pensions payable to staff (it was said that this entry was contrary to the staff regulations). In the mean time, the Commission has indicated that no pension fund exists and that no amount is due as an employers' contribution.

As regards the other lapsed appropriations, they are essentially appropriations relating to procedural expenditure for which it was impossible to make commitments in 1996 due to lack of time.

1.17. Building

There is no lease contract between the Spanish authorities and the OHIM for the latter's occupation of its temporary seat at 20 Avenida de Aguilera.

There is, however, a document entitled 'Acte de remise des clés du siège provisoire` (Deed of delivery of keys to the temporary seat), which was signed on 25 February 1994 by the Cosoami and the OHIM and which provides for the OHIM to occupy the temporary seat until it is able to occupy the final seat.

1.18. Final seat

The OHIM has taken note of the Court's observation concerning the availability of appropriations for the acquisition of the final seat.

Its Budget Committee has, however, approved the acquisition of the first phase of the final seat by means of bank loan financing.