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
Date: 1998-10-29
Institutions: European Court of Auditors
Subjects: Community body, financial control, financial year, management audit, report, single market

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

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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

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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

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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

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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

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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.