Report on the financial statements of the Office for Harmonisation in the Internal Market (OHIM - Alicante) for the financial year ended 31 December 1998, together with the Office's replies
Date: 1999-10-07
Institutions: European Court of Auditors
Subjects: European Union Intellectual Property Office, financial control, financial year, management audit, report

22.12.1999

EN

Official Journal of the European Communities

C 372/61

on the financial statements of the Office for Harmonisation in the Internal Market (OHIM (cid:151)
Alicante) for the financial year ended 31 December 1998, together with the Office(cid:146)s replies

REPORT

(1999/C 372/011)

CONTENTS

Paragraph
reference

THE COURT(cid:146)S OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-4

MAIN OBSERVATIONS ON THE IMPLEMENTATION OF THE BUDGET OF THE OFFICE FOR
HARMONISATION IN THE INTERNAL MARKET FOR THE FINANCIAL YEAR ENDED 31 DECEM-
BER 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accounting software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5-12

5-6

Other observations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7-11

The Office(cid:146)s activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12

Tables 1 and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Office(cid:146)s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

62

62

62

62

62

64

66

C 372/62

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Official Journal of the European Communities

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THE COURT(cid:146)S OPINION

6. The Office has not yet introduced a system of analytical
accounts (see the Special Annual Report concerning the financial
year 1997, paragraph 1.5 (3)), without which the level of its fees
can neither be evaluated nor, perhaps, adjusted where necessary.

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).

Other observations

2. The Court has examined the financial statements of the Office
for Harmonisation in the Internal Market for the financial year
ended 31 December 1998. In accordance with Article 119(2c) of
Council Regulation (EC) No 40/94, the budget was implemented
under the responsibility of the President of the Office. This respon-
sibility 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 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 audit
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.

4. This examination has enabled the Court to obtain reasonable
assurance that the annual accounts for the financial year ended 31
December 1998 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 INTER-
NAL MARKET FOR THE FINANCIAL YEAR ENDED 31 DECEM-
BER 1998

Accounting software

7. Payments (ECU 42,1 million) amounted to only 61 % of the
final appropriations for the financial year (ECU 68,5 million after
the adoption of the second supplementary and amending budget)
and 78 % of commitments; 15 % (ECU 10,5 million) of these
appropriations were automatically carried over to the 1999 finan-
cial year and 23 % of the final appropriations (ECU 15,9 million)
were cancelled.

8. The Office had to adopt two amending budgets, firstly because
the time required for the trade mark registration procedure was
underestimated and, secondly, in order to amend the accounting
procedures in accordance with the observations in the Court(cid:146)s
Special Annual Report concerning the financial year 1997 (see
paragraph 1.7) and, thirdly, because difficulties arose in respect of
the recruitment of staff (Title 1).

9. Most of the appropriations carried over concern Titles II and
III of the budget and, in particular, purchases of immovable prop-
erty (ECU 3 million carried over because work fell two months
behind schedule and because of a delay in the issuing of invoices
for certain items of work), special projects entrusted to third par-
ties (ECU 1,3 million carried over because the implementation of
computer projects was spread over two financial years) and
research reports (ECU 3,2 million carried over on account of the
time required to complete the research work (three months), to
which the period of payment (one month) must be added).

10. With regard to the appropriations carried over from the
financial year 1997 (ECU 26,2 million), it was found that 5 % of
these (ECU 1,4 million) had to be cancelled. A large percentage
(62 %) of these cancellations related to expenditure on publica-
tions and research reports where the costs had been greatly over-
estimated or the services for which provision had been made were
not supplied.

11. To comply with Article 2, Administrative Decision 98, the
Office should have depreciated its assets (installations and furni-
ture, movable equipment and computer equipment) during 1998.

5. The Office continued to keep its budgetary accounts by means
of a spreadsheet rather than accounting software. Since 1 Janu-
ary 1999 the Office has been using new and appropriate budget-
ary software.

The Office(cid:146)s activities

(1) OJ L 11, 14.1.1994, p. 1.
(2) As required under Article 137, paragraph 1, of Regulation (EC) No
40/94, the accounts of the Office(cid:146)s total revenue and expenditure for
the financial year 1998 were drawn up on 3 March 1999 and for-
warded to the Office(cid:146)s Management Board, the European Parliament,
the Commission and the Court of Auditors. These accounts were
received by the Court on 30 March 1999. A summarised version of
these financial statements is presented in the tables attached to this
report.

12. Since 1996 the Office has received approximately 100 000
applications for the registration of individual trade marks, of
which 93 % have successfully completed the first stage of the pro-
cedure but only 59 % have been forwarded for publication. The
100 000 applications mentioned above led to objections on the

(3) OJ C 406, 28.12.1998, p. 55.

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Official Journal of the European Communities

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part of the Office in 11 % of cases and to registration in 24 %. On
account of the fact that the number of registrations of Commu-
nity trade marks considerably exceeded estimates and because of
the build-up of delays at each stage of the procedure, certain
changes in the internal organisation of the Office were needed.

The Office should make a greater effort to reduce the periods of
time generally taken to complete the procedures. The statistics
available show that the shortest and longest time required between
filing for registration and registration is 383 and 821 days respec-
tively, the average being 600 days.

This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 22 and 23
September 1999.

For the Court of Auditors

Jan O. KARLSSON

President

C 372/64

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Official Journal of the European Communities

22.12.1999

Table 1

Balance sheet for the financial years 1998 and 1997

Assets

1998

1997

Liabilities

1998

1997

(ECU 1 000)

Fixed assets
Installations and furniture
Movable equipment
Computer equipment
Intangible assets
Assets under construction (1)

Current assets

Sundry accounts receivable
VAT and duties to be recovered

Cash accounts
Bank
Imprest accounts

Fixed capital
Own capital
Balance for the year

1 177
58
3 911
458
5 140

737
58
2 880
241

10 744
20 735

3 916
3 111

Subtotal

10 744

3 916

Subtotal

31 479

7 027

Current liabilities
Automatic carry-overs of appropriations
Reuse appropriations
Sundry accounts due
VAT and duties
Advances from customers

10 517
665
57
749
16 362

26 210
41
52
940
13 111

Subtotal

28 350

40 354

Subtotal

82
773

855

48 228
2

Subtotal

48 230

30
940

970

42 492
3

42 495

Total assets

59 829

47 381

Total liabilities

59 829

47 381

(1) Assets under construction include the building land (a donation) for the sum of ESP 1 (EUR 0,006). The deed of donation specifies that this land now belongs to the Office.
If this land is sold to a third party the proceeds obtained by the Office must be paid to the donor. Exclusive sale of the land may also be made to the latter for the sum of ESP
1. In the event of sale to the donor, the Spanish authorities have undertaken to purchase the buildings put up by the OHIM.

Source: Prepared by the Court of Auditors on the basis of the Office(cid:146)s data.

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Revenue and expenditure account for the financial years 1998 and 1997

Table 2

(ECU 1 000)

1998

1997

Revenue

Own revenue
Sundry revenue

Expenditure

Staff (cid:151) Title I of the budget
Payments
Appropriations carried forward (1)

Buildings, equipment, etc. (cid:151) Title II of the budget
Payments
Appropriations carried forward (1)

Operating expenditure (cid:151) Title III of the budget
Payments
Appropriations carried forward (1)

66 944
1 825

Total revenue

68 769

19 986
344

13 732
6 328

8 384
3 845

Total expenditure

52 619

Out-turn for the financial year

Balance carried over from previous year
Appropriations carried forward and cancelled
Exchange-rate differences 1997/Exceptional revenue 1998

16 150

3 111
1 431
43

Balance for the financial year

20 735

53 353
1 905

55 258

14 366
236

8 796
12 428

2 832
13 546

52 204

3 054

(3 840)
4 033
(136)

3 111

(1) In its Special Annual Report concerning the 1997 financial year (paragraph 1.7), the Court observed that the Office(cid:146)s interpretation of the
Financial Regulation was not strictly in accordance with the budgetary principles of annuality and universality. The situation was rectified
in 1998 and this led, in particular, to a reduction in the volume of the appropriations carried forward and an increase in the out-turn for
the financial year.

Source: Prepared by the Court of Auditors on the basis of the Office(cid:146)s data.

C 372/66

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Official Journal of the European Communities

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REPLIES OF THE OHIM

6. Analytical accounts

ECU 10,5 million (20 %) in appropriations was carried over, for
the reasons set out in Point 9. ECU 15,9 million was cancelled at
the end of the financial year, for the following reasons:

In 1997 (the first full financial year of Community trade-mark
management activities), the OHIM started to set up an analytical
accounting system. After developing the model to be followed,
and entering the statistical data available, tests were carried out in
1998. In 1999, the human resources necessary for the operation
of the system were put in place.

It should be borne in mind that not all the stages of the Office(cid:146)s
activity as regards Community trade-mark management have yet
stabilised. While the processing of new trade-mark applications
has indeed stabilised, other sectors, such as oppositions, cancel-
lations and the boards of appeal, have not yet reached their (cid:145)cruis-
ing speed(cid:146). A minimum degree of stability, in terms of both activ-
ity and the organisation in place, is necessary in order to obtain
significant results in analytical accounting. It is therefore neces-
sary to wait until the year 2000 before usable results from the
analytical accounting system can be obtained. Finally, it would
seem premature to consider evaluating, and a fortiori adjusting,
the level of fees before the year 2000.

Furthermore, it should be pointed out that until the OHIM enters
into a stable phase of self-financing (from the year 2006, when
Community trade-mark renewals will begin), any notion of adjust-
ing the level of fees would seem to be premature. Indeed, the fees
have not been fixed independently of each other, but are part of a
whole. The opposition fee, for example, has been fixed at a suf-
ficiently low level to enable as many proprietors of prior rights as
possible to make claims, even though it does not fully cover all
the expenditure incurred by the Office in carrying out such a pro-
cedure.

7. The final appropriations for the financial year may be broken

down as follows:

Final appropriations: ECU 68,5
million (1)

Appropriations used: ECU 52,6
million

Of which appropriations can-
celled: ECU 15,9 million

Of which appropriations car-
ried over: ECU 10,5 million

(cid:151) delays in the construction of the permanent seat (amounting

to ECU 6,2 million),

(cid:151) the impact of the large, and unexpected, increase in Commu-
nity trade-mark applications, which inevitably led to conges-
tion in the services and thus to a backlog in the Office(cid:146)s activi-
ties; some recruitment operations therefore had to be
postponed (amounting to ECU 1.9 million),

(cid:151) the non-utilisation of appropriations for future expenditure
under Title 10 (2)(ECU 6,6 million); these appropriations cor-
respond to the surplus carried over as revenue to the follow-
ing financial year.

8. During 1997, the number of new Community trade-mark
applications rose from 22 000 to 30 000 per year. The first
SAB was adopted on 10 March 1998 and contained the neces-
sary adjustments to reflect the development in the Office(cid:146)s
activities since the budget for 1998 was approved, in Febru-
ary 1997.

10. The appropriations carried over from the 1997 financial year
and cancelled at the end of the 1998 financial year amount
to ECU 1,4 million, and include:

(cid:151) expenditure on the publication and postal charges of the
Community Trade Marks Bulletin (ECU 0,5 million and
0,3, respectively). This expenditure proved to have been
overestimated in terms of volume, due to procedural
delays, and in terms of prices, since the rates charged by
the Office(cid:146)s partners were lower than expected,

(1) The Office(cid:146)s budget was drawn up and implemented in ecu until 1

January 1999, the date of the changeover to the euro.

(2) This title sets out in Chapter 100, its only chapter, the appropriations
intended to (cid:145)finance future operating or investment expenditure the
nature of which is certain(cid:146).

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(cid:151) expenditure on the search reports drawn up by the
national offices, a proportion of which had still not been
supplied at the end of the financial year, amounting to
ECU 0,3 million.

11. An administrative decision on the depreciation of immov-
able assets was adopted by the Office in November 1998,
which barely left enough time for it to be implemented before
the end of the financial year. The reserve for depreciation has
been in operation since the beginning of the 1999 financial
year.