Report on the financial statements of the Office for Harmonization in the Internal Market for the financial year ended 31 December 2000, together with the Office's replies
Date: 2001-10-25
Institutions: European Court of Auditors
Subjects: European Union Intellectual Property Office, activity report, financial control, financial year

C 372/86

EN

Official Journal of the European Communities

28.12.2001

on the financial statements of the Office for Harmonization in the Internal Market for the
financial year ended 31 December 2000, together with the Office’s replies

REPORT

(2001/C 372/11)

CONTENTS

Paragraph

THE COURT’S OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-4

MAIN OBSERVATIONS ON THE IMPLEMENTATION OF THE BUDGET OF THE OFFICE FOR
HARMONIZATION IN THE INTERNAL MARKET (ALICANTE) FOR THE FINANCIAL YEAR
ENDED 31 DECEMBER 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Implementation of the budget and budgetary accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial statements and keeping of the accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in the Office’s staff and activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5-30

5-7

8-9

10

11-12

13-30

27-30

Tables 1 to 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Office’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

87

87

87

87

87

87

88

89

90

94

28.12.2001

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Official Journal of the European Communities

C 372/87

THE COURT’S OPINION

1. This report is addressed to the Budget Committee of the Office
for Harmonization 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 Harmonization in the Internal Market for the financial year
ended 31 December 2000. In accordance with Article 119(2)(c) of
Council Regulation (EC) No 40/94 (2), the budget was imple-
mented 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 proce-
dures as it deemed necessary in the circumstances. By means of
this audit, the Court obtained a reasonable basis for the opinion
expressed below.

23 % due to an increase in applications for registration during the
year. The increase in applications has a longer-term impact on the
development of the Office’s human and material resources (pro-
cedures contesting and appealing against the Office’s decisions
may be initiated one to two years after a trade mark has been reg-
istered).

6.
In addition, appropriations totalling 51,4 million euro which
were available for the financial year 2000 (33 % of the total) had
to be cancelled. The amount cancelled included a reserve of
37,9 million euro which was not used.

7. Appropriations totalling 5,0 million euro (i.e. 22 % of all
appropriations carried over) which were carried over from the
financial year 1999 to the financial year 2000 were not used.

The Office should seek to improve its estimates of amounts to be
carried over so as to cancel unnecessary appropriations as early
as possible.

Financial statements and keeping of the accounts

4. This examination has enabled the Court to obtain reasonable
assurance that the annual accounts for the financial year ended
31 December 2000 are reliable and that the underlying transac-
tions, taken as a whole, are legal and regular.

8. Tables 2 and 3 show, respectively, the revenue and expenditure
account for the financial year 2000 and the balance sheet as at
31 December 2000.

MAIN OBSERVATIONS ON THE IMPLEMENTATION OF THE
BUDGET OF THE OFFICE FOR HARMONIZATION IN THE
INTERNAL MARKET (ALICANTE) FOR THE FINANCIAL YEAR
ENDED 31 DECEMBER 2000

9. According to the rules applied by the Office, goods which are
part of its assets are included in the balance sheet when they are
paid for. As a result, the sum of 1,7 million euro corresponding
to computer equipment still to be paid for was not included in the
balance sheet or mentioned in an explanatory note.

Implementation of the budget and budgetary accounts

Financial arrangements

5. The implementation of the budget for the financial year 2000
is set out in Table 1 (4). The Office increased the initial budget by

10. Member States are paid for carrying out research work with-
out having to provide any supporting documentation, which is
contrary to the Financial Regulation.

(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 2000 were drawn up on 28 February 2001 then forwarded to
the Office’s Board of Management, the European Parliament, the
Commission and the Court of Auditors. The latter received them on
28 March 2001. The abridged version of the financial statements is
given in the tables annexed to this report.

(4) The calculations in all tables in this report are based on the most
accurate data available. As regards the presentation of figures, they
have been rounded off, which may give the appearance of arithmeti-
cal errors. A dash indicates an unavailable or zero value and 0,0 indi-
cates a value lower than the rounding-off threshold.

Management

11. Since 1995, the Commission has managed the Office’s sala-
ries in return for an annual contribution of 500 euro per member
of staff. This approach was justified in view of the small number
of staff employed at the Office during the start-up phase. Given
the increase in the Office’s staff (see Table 4), steps should be taken
to ensure that this amount is still justified.

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Official Journal of the European Communities

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In a previous report (1), it was recommended that the Office
12.
should draw up analytical accounts so as accurately to identify
and analyse the cost of its various activities. In 2000, the Office
developed methods to improve its evaluation of the costs of its
various services. It must continue along this path so as to fix the
Office’s fees more accurately.

19. On average, recruitment costs amounted to approximately
1 410 euro per recruit. The examination of a sample of 30 mem-
bers of staff revealed no notable problems as regards qualifica-
tions for the posts they held.

Changes in the Office’s staff and activities

20. Staff departures lead to a turnover rate (PEs, TEs, AEs and
LEs) averaging 3 % per year. Part of this rate can be attributed to
the expiry of contracts and part to de facto breaches of contracts,
essentially by the staff concerned.

13. The Office’s staff, who are employed under the Staff Regula-
tions, are either permanent or temporary employees (PEs or TEs).
The number of posts to be filled by staff employed under the Staff
Regulations is authorised by the budgetary authority each year
when the budget is adopted. Furthermore, the budget may allo-
cate appropriations for the recruitment of auxiliary employees
(AEs), whose contracts are limited to one year, and of local
employees (LEs).

21. For the purposes of the audit, staff were placed in two cat-
egories:

— staff responsible for support activities (support staff), i.e. activi-
ties which ensure that the Office can continue to operate (e.g.
administrative, accounting and secretarial services);

14. Table 4 shows the growth of the Office’s staff and the cat-
egories to which they belong. It shows not only that staff num-
bers are increasing more slowly but also that the proportion of
permanent employees is gradually increasing.

15. The staffing shortfall was partly made up by employment-
agency staff, on whom budgetary expenditure increased by a fac-
tor of 30 between 1996 and 2000 (payments for employment-
agency staff totalled 0,9 million euro in 2000).

16. On average, more than a quarter of the Office’s staff changes
status each year (transferring from auxiliary to temporary, or from
temporary to permanent status) and this trend is becoming more
pronounced. Furthermore, the new recruits (the Office has
recruited 634 members of staff of all categories since it was cre-
ated) are temporary in 65 % of cases and auxiliaries in the remain-
ing 35 % of cases (including a negligible number of local staff). As
at 31 December 2000, only one person had been recruited directly
to a permanent post by the Office since it was created.

17. Staff are initially recruited to auxiliary posts (very often after
an employment-agency contract in the case of the lowest grades)
and subsequently attain temporary status following internal pro-
cedures. Lastly, by means of internal competitions based on writ-
ten and oral tests, they become permanent employees.

18. The internal nature of this staff-management model is shown
in Table 5, which analyses recruitment by procedure and shows
that only 12 % of new employees were recruited following a selec-
tion procedure involving external candidates.

(1) OJ C 373, 27.12.2000, paragraph 6, see also OJ C 372, 22.12.1999,

paragraph 6 and OJ C 406, 28.12.1998, paragraph 1.5.

— other, so-called operational, staff who contribute directly to

achieving the Office’s objectives.

22. On average, 66 % of A-grade staff may be regarded as opera-
tional. In order to establish whether the duties of other categories
of staff who, regardless of the category to which they belong,
carry out tasks which do not merely involve implementation and
support, are operational a sample of 31 employees was used to
show that, when all categories are taken as a whole, 58 % of the
Office’s staff could be considered operational.

23. The change in the ratio of operational staff to support staff
seems normal and even slightly favourable, insofar as the pre-
dominance of the number of support staff during the Office’s first
two years of existence subsequently fell sharply; the proportion
of A-grade staff assigned to support duties is currently 32 %,
which is slightly lower than the average for the period examined
(34 %).

24. Table 6 describes changes in staff-related costs and operating
expenditure. The increase in salary costs, albeit significant, was
slower than the increase in staff numbers. This situation can be
attributed to the Office’s recruitment policy, which, as staff progress
from auxiliary to permanent status, delays entry into the formal
career structure and therefore slows down the increase in salary
costs.

25. As regards other staff-related costs, the audit paid particular
attention to professional-training (PT) expenditure and operating
expenditure, in particular in the field of IT. PT expenditure increased
in parallel with numbers, i.e. an annual increase of 23 % per capita.
Administrative expenditure, which includes the field of IT, also

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Official Journal of the European Communities

C 372/89

increased significantly (by an average of 54 % and 36 % respec-
tively per year), albeit considerably less than the number of staff.
As a result, per capita changes were smaller or even negative
owing to the fact that administrative expenditure includes the
major initial investments made by the Office.

26.
In order to grasp the relationship between the Office’s activi-
ties and the increase in its staff and related costs, the increase in
these items was compared with the increase in the amount of rev-
enue collected by the Office over a one-year period. The fact is
that the Office’s revenue is a function not only of the number of
applications submitted to the Office but also of the relative dif-
ficulties of processing them, as reflected in the differences between
the various fees charged. This comparison suggests that the Office’s
management is effective insofar as, on average, the use of human
resources and the cost of using them are increasing more slowly
than the Office’s workload. This observation is corroborated by
the fact that on average support expenditure (Titles I and II) is also
increasing less quickly than operating expenditure (actual expen-
diture charged to appropriations for the year and appropriations
carried over from Title III).

Conclusion

— the need for caution in the event of a possible slowdown in

applications for registration.

28. To recruit its staff, the Office has departed from the model
of selection by open competition following extensive publicity.
Although this approach minimises recruitment costs and makes
it possible to evaluate recruits over a long period and to act as a
brake on increases in salary costs, it has the following disadvan-
tages:

— the selection effect seems slight from the point of view of

career development at the Office;

— the measures taken to advertise vacancies and select staff are
inadequate even if there seem to be no grounds for question-
ing the quality of recruitment.

29. Given the expected development of the Office’s activities and
staff, it might be preferable for the Office, in the case of posts
involving support activities and for operational activities which
require administrative qualifications, to join forces with the Com-
munity Institutions and the other decentralised bodies with a
view to recruiting staff on the broadest possible basis.

27.
In general terms, it appears that the Office has been unable,
since its inception, to employ the number of staff which it has
asked for under the budgetary procedure. Two possible explana-
tions for this situation may be posited:

— the difficulty of establishing accurate estimates of staffing

requirements;

30. Although in terms of the overall productivity of its staff, the
situation at the Office is quite satisfactory, it will have to take great
care to maintain control of the situation, in particular as regards
salary costs. Furthermore, steps should be taken to appraise more
precisely and improve the impact of training and administrative
expenditure in relation to per capita staff productivity. Further-
more, in general terms the Office should improve its staff man-
agement and information system.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 25 October 2001.

For the Court of Auditors

Jan. O. KARLSSON

President

C 372/90

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Official Journal of the European Communities

28.12.2001

TABLES 1 TO 6

Table 1

Implementation of the budget

Title

I — Staff

Budget 2000
Carryovers 1999

II — Administration

Budget 2000
Carryovers 1999

III — Operations

Budget 2000
Carryovers 1999

X — Reserve

Total

Budget 2000
Carryovers 1999

Total

Total

Total

Total

Appropria-
tions

Commitments

Payments

%

Carryovers

Cancellations

%

(Mio EUR)

(a)

39,8
0,5

40,3

23,8
10,1

33,9

31,5
12,7

44,2

37,9

133,0
23,4

156,4

(b)

35,7
0,5

36,3

21,2
10,1

31,4

29,8
12,7

42,5

0,0

86,8
23,4

110,1

Table 2

(c)

35,1
0,5

35,6

13,0
9,5

22,5

21,0
8,4

29,4

69,2
18,3

87,5

(d=c/b)

98 %
91 %

98 %

61 %
94 %

72 %

71 %
66 %

69 %

80 %
78 %

79 %

(f)

0,5

0,5

8,2

8,2

8,8

8,8

17,4

17,4

(g=a-c-f)

(h=g/a)

4,2
0,0

4,2

2,6
0,7

3,2

1,7
4,3

6,0

37,9

46,4
5,0

51,4

11 %
9 %

11 %

11 %
6 %

9 %

5 %
34 %

14 %

100 %

35 %
22 %

33 %

Revenue and expenditure account for the financial years 2000 and 1999

(1 000 EUR)

2000

1999

110 243
3 404

Total revenue

113 647

Revenue
Own revenue
Miscellaneous revenue

Expenditure
Staff expenditure — Title I of the budget
Payments (1)
Appropriations carried over

35 123
466

13 020
8 202

21 019
8 767

Buildings, equipment and miscellaneous administrative expenditure — Title II of the bud-
get (2)
Payments
Appropriations carried over

Operating expenditure — Title III of the budget
Payments
Appropriations carried over

Total expenditure

86 597

Outturn for the financial year
Balance carried over from the previous financial year
Appropriations carried over from the previous financial year which lapsed
Exchange rate differences

27 050
18 325
6 952
– 56

Balance for the financial year

52 271

86 589
1 648

88 237

32 482
540

20 851
10 129

15 529
12 709

92 240

– 4 003
20 735
1 597
– 4

18 325

(1) For 1999, the amount included the employer’s contributions to the pension scheme for the Office’s staff from 1997, 1998 and 1999.
(2) For 1999, the sum of EUR 16 058 028 concerns the new building housing the OHIM’s definitive head office.

NB: Totals may include differences due to rounding up.
Source: Prepared by the Court of Auditors on the basis of data from the Office.

28.12.2001

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Official Journal of the European Communities

C 372/91

Balance sheet as at 31 December 2000 and 31 December 1999

Table 3

Assets

2000

1999

Liabilities

2000

1999

(1 000 EUR)

Fixed assets
Buildings (1)
Equipment and furniture
Intangible assets
Movable equipment
Computer equipment (2)
Fixed assets in course of construction (1)
Depreciation

Current assets
Recoverable VAT and other taxes
Sundry accounts receivable

Cash accounts
Banks
Imprest account

24 578
2 382
17
80
5 966
0
– 6 060

0
1 422
463
58
4 720
20 010
– 3 942

Subtotal

26 963

22 731

Subtotal

94
172

266

91 362
1

Sub-total

91 363

170
79

249

65 177
1

65 178

Fixed capital
Own capital
Balance for the year (3)

26 963
52 271

22 731
18 325

Sub-total

79 234

41 056

Current liabilities
Automatic carryovers of appropriations
Appropriations to be reused
Sundry accounts payable
VAT and established entitlements
Advances from customers (4)

17 436
180
35
34
21 673

23 378
2 058
152
113
21 401

Sub-total

39 358

47 102

Total assets

118 592

88 158

Total liabilities

118 592

88 158

(1) Fixed assets under construction include the land (a donation) for the sum of 1 PTA (0,0060 EUR). The deed of the 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 1
PTA. If the land is sold to the donor, the Spanish authorities have undertaken to purchase the buildings put up by the OHIM.

(2) The balance for the year includes the sum of EUR 6,9 Mio in unused appropriations carried over from 1999.
(3) Advances from customers include payments totalling EUR 3,9 Mio in opposition fees pending commencement of the procedure (Rule 19 of Regulation (EC) No 2868/95).
(4) The Agency is in possession of goods worth 1,7 million euro which are included neither in the inventory nor in the computer equipment column as they have not been

definitively received.

NB: Totals may include differences due to rounding up.
Source: Prepared by the Court of Auditors on the basis of data from the Office.

Table 4

Changes in staff numbers

Establishment plan

Posts occupied

Other staff

Total

22

83

257

350

407

490

713

PEs

0

17

56

55

172

265

371

TEs

19

44

111

212

176

171

132

Total

19

61

167

267

348

436

503

AEs

LEs

Total

2

0

30

16

51

60

62

0

7

2

2

1

0

0

2

7

32

18

52

60

62

Total

21

68

199

285

400

496

565

TEs

3

6

12

71

99

99

121

PEs

19

77

245

279

308

391

592

1994

1995

1996

1997

1998

1999

2000

PEs: Permanent employees.
TEs: Temporary employees.
AEs: Auxiliary employees.
LEs: Local employees.

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Official Journal of the European Communities

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Table 5

Analysis of variations in staff numbers

Increase

Competition

Other

1994

1995

1996

1997

1998

1999

2000

Total

0

1

46

14

10

2

0

73

21

49

88

79

123

116

85

561

Expiry of contract

Decrease

Termination of
contract

0

0

1

1

13

13

7

35

0

3

2

6

5

9

9

34

Total

21

50

134

93

133

118

85

634

Total

0

3

3

7

18

22

16

69

Turnover (%)

0 %

4 %

2 %

2 %

5 %

4 %

3 %

3 %

.

2
8
1
2
2
0
0
1

.

Table 6

Changes in staff and related costs

Salary cost

Total staff

Direct (1)

Indirect (2)

Total

1995

1996

1997

1998

1999

2000

68

199

285

400

496

565

2 458,0

6 806,4

158,8

446,3

2 616,8

7 252,7

11 907,8

821,2

12 728,9

16 634,2

1 114,4

17 748,7

22 066,1

7 869,3

29 935,4

27 039,5

5 037,9

32 077,3

Other
salary-
related
costs (3)

30,3

278,6

177,3

604,4

661,2

910,9

Overall
total (4)

2 647,2

7 531,3

12 906,2

18 353,0

30 596,7

32 988,2

Salary costs/head

Other staff-related costs

Operating expenditure

Direct

Indirect

Total

PT (5)

PT/head

Recruitment
and
installation

Total

Of wich
IT (6)

Total/head.

IT/head

36,1

34,2

41,8

41,6

44,5

47,9

2,3

2,2

2,9

2,8

15,9

8,9

38,5

36,4

44,7

44,4

60,4

56,8

22,1

88,3

327,4

264,8

338,3

323,0

0,3

0,4

1,1

0,7

0,7

0,6

594,2

2 771,3

1 301,8

1 246,1

6 880,6

2 813,9

1 144,3

15 057,2

4 001,2

939,7

995,1

25 609,9

5 728,1

26 401,3

5 675,6

1 096,0

22 483,5

6 602,1

40,8

34,6

52,8

64,0

53,2

39,8

19,1

14,1

14,0

14,3

11,4

11,7

(1 000 EUR)

(1) Salaries paid to staff in active employment (all categories taken together).
(2) Social benefits and other salary adjustments.
(3) Overtime and supplementary services.
(4) Expenditure related to salaries under Title I, excluding mission expenses, etc.
(5) PT: Professional training.
(6) IT: Expenditure on informatics.

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C 372/94

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Official Journal of the European Communities

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THE OFFICE’S REPLIES

Implementation of the budget and budgetary accounts

the analytical accounting system of statistical data that is already
available on trade mark administration and information contained
in the productivity sheets.

7. The Office takes note of the Court of Auditor’s observation
and will pursue its efforts to improve its budgetary forecasting
system.

Changes in the Office’s staff and activities

Financial Statements and keeping of the accounts

9. Further to the Court of Auditor’s observation, the Office will
henceforth include a note with its annual accounts containing the
information requested.

Financial arrangements

10. Following the Court of Auditor’s visit, the Office has already
submitted a proposal for a standard invoice to the national offices.
This invoice will be drawn up by the OHIM on receipt of the
search reports, sent to the national offices for their approval and
signature and returned to the OHIM before payment.

Management

In March 2001, the Office raised with the Commission the
11.
issue of the annual contribution of EUR 500 per member of staff
for the management of salaries. The Commission replied that it
was in the process of reexamining this matter.

12. The Financial Service has completed its work for the finan-
cial year 2000. Given that the analytical accounting system is in
its initial stage, the figures relating to the financial year 2000 are
merely approximate.

The report for 2000 contains the following information: costs
and the results of analytical accounting, the breakdown of work-
ing days by activity and by service and the breakdown of costs by
unit and by product. A second report on staff costs has also been
drawn up.

Some work necessary to complete the introduction of the system
still remains to be carried out. This is the case, for example, for
the establishment of certain information flows and integration in

16 and 17.
It should be noted that the procedures and conditions
for transfer from one type of employment status to another in the
course of a typical career path (agency staff → auxiliary staff →
temporary staff → official) are not always the same. Progress
along the career path is therefore not automatic and the internal
competitions for establishment as an official have allowed the cre-
ation of a small group of officials who, having demonstrated their
skills and capacities as non-permanent staff employed under the
Staff Regulations for a period of 18 months on average, have had
to pass written and oral tests in accordance with the principle of
equality applying to the Office’s staff as a whole. Moreover, initial
recruitment (agency or auxiliary status for categories C and D and
temporary status for categories A and B) is carried out so as to
ensure, as far as possible, maximum competition between appli-
cants. For this purpose, in order to fill vacancies for category
C and D posts, applicants are taken from databases containing
spontaneous applications received from all the Member States of
the EU as well as the databases of temporary employment agen-
cies.

As far as the abovementioned typical career path itself is con-
cerned, it has enabled the Office (as observed by the Court in
paragraph 19) to save a considerable amount in terms of recruit-
ment costs and salaries and to subject staff to a trial period last-
ing, on average, 24 months before they become officials.

21, 22 and 23. The Court and the Office initially differed over
the distinction made between operational staff and support staff
(the Court only makes this distinction for Category A staff, deem-
ing all category B, C and D staff to be support staff, while the
Office considers staff to be operational or support staff on the
basis of whether or not they are assigned to services which per-
form tasks directly linked to the Community trade mark registra-
tion procedure. According to the sample examined by the Court,
some 58 % of staff perform operational tasks. The Office consid-
ers that, if this analysis were extended to the staff as a whole, it
would give an overall percentage of 66 %.

25. As far as the impact of training on productivity per member
of staff is concerned, it must be noted that, despite the increases
in per capita expenditure on training, these still remain at a low
level (less than 1 % of expenditure under Title I for 2001) and
mainly concern language courses and IT training. It is to be hoped
that the ambitious training plan launched for the years ahead

28.12.2001

EN

Official Journal of the European Communities

C 372/95

(around 5 % of expenditure under Title I for 2002) will further
increase staff productivity.

29 and 30. The Court’s recommendations will duly be taken
into account.