Report on the annual accounts of the Office for Harmonization in the internal Market for the financial year 2011, together with the Office’s replies
Date: 2012-09-18
Institutions: European Court of Auditors
Subjects: European Union Intellectual Property Office, administration of the Institutions, auditing, budgetary control, financial control, powers of the institutions (EU)








C_2012388EN.01021401.xml










15.12.2012   


EN


Official Journal of the European Union


C 388/214





REPORT
on the annual accounts of the Office for Harmonization in the internal Market for the financial year 2011, together with the Office’s replies
2012/C 388/36

INTRODUCTION







1.


The Office for Harmonization in the Internal Market (hereinafter "the Office"), which is located in Alicante, was established by Council Regulation (EC) No 40/94 (1). The Office’s task is to implement the Union legislation on trade marks and designs, which gives undertakings uniform protection throughout the entire area of the European Union (2).





INFORMATION IN SUPPORT OF THE STATEMENT OF ASSURANCE







2.


The audit approach taken by the Court comprises analytical audit procedures, direct testing of transactions and an assessment of key controls of the Office’s supervisory and control systems. This is supplemented by evidence provided by the work of other auditors (where relevant) and an analysis of management representations.





STATEMENT OF ASSURANCE







3.


Pursuant to the provisions of Article 287 of the Treaty on the Functioning of the European Union, the Court has audited the annual accounts (3) of the Office, which comprise the “financial statements” (4) and the “reports on the implementation of the budget” (5) for the financial year ended 31 December 2011, and the legality and regularity of the transactions underlying those accounts.





The Management’s responsibility







4.


As authorising officer, the President implements the revenue and expenditure of the budget in accordance with the financial rules of the Office, under his own responsibility and within the limits of the authorised appropriations (6). The President is responsible for putting in place (7) the organisational structure and the internal management and control systems and procedures relevant for drawing up final accounts (8) that are free from material misstatement, whether due to fraud or error, and for ensuring that the transactions underlying those accounts are legal and regular.





The Auditor’s responsibility







5.


The Court’s responsibility is to provide, on the basis of its audit, the European Parliament and the Council (9) with a statement of assurance as to the reliability of the annual accounts of the Office and the legality and regularity of the transactions underlying them.










6.


The Court conducted its audit in accordance with the IFAC International Standards on Auditing and Codes of Ethics and the INTOSAI International Standards of Supreme Audit Institutions. These standards require that the Court plans and performs the audit to obtain reasonable assurance as to whether the annual accounts of the Office are free of material misstatement and the transactions underlying them are legal and regular.










7.


An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the accounts and the legality and regularity of the transactions underlying them. The procedures are selected based on the auditor’s judgment, including an assessment of the risks of material misstatement of the accounts and of material non-compliance of the underlying transactions with the requirement of the legal framework of the European Union, whether due to fraud or error. In assessing those risks, the auditor considers internal controls relevant to the preparation and fair presentation of the accounts and supervisory and control systems implemented to ensure legality and regularity of underlying transactions, in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of accounting estimates made, as well as evaluating the overall presentation of the accounts.










8.


The Court considers that the audit evidence obtained is sufficient and appropriate to provide a basis for the opinions set out below.






Opinion on the reliability of the accounts








9.


In the Court’s opinion, the Office’s Annual Accounts (10) present fairly, in all material respects, its financial position as of 31 December 2011 and the results of its operations and its cash flows for the year then ended, in accordance with the provisions of its Financial Regulation and the accounting rules adopted by the Commission’s accounting officer (11).






Opinion on the legality and the regularity of the transactions underlying the accounts








10.


In the Court’s opinion, the transactions underlying the annual accounts of the Office for the financial year ended 31 December 2011 are legal and regular in all material respects.










11.


The comments which follow do not call the Court’s opinions into question.





COMMENTS ON BUDGETARY AND FINANCIAL MANAGEMENT







12.


The Court identified several shortcomings as regards the 2011 service level agreement between the Office and the Translation Center for the Bodies of the EU (CDT). The agreement was signed by the Office on. 20 June 2011 and according to article 10, applied from 1st January 2011. The execution of the contract started before the contract signature. On request of CDT, the Office made a payment of 1,8 million euro in compensation (12). Furthermore, this payment was authorised without a budget commitment and without available appropriations (13).










13.


The Court identified five cases amounting to 2,9 million euro where budgetary commitments were approved after legal commitments.





COMMENTS ON KEY CONTROLS OF THE OFFICE’S SUPERVISORY AND CONTROL SYSTEMS







14.


There is a need to improve the Office’s management of fixed assets. For intangible assets developed by the Office, accounting procedures and information on costs were not reliable.










15.


Cash held by the Office as at 31 December 2011 totalled 520 million euro (495 million euro in 2010). Following the treasury policy approved by the Budget committee in 2010 the cash was held in 9 banks in 5 Member States.





OTHER COMMENTS







16.


The Office needs to improve the transparency of recruitment procedures. The threshold scores for admission to interviews and written tests were not set in advance and questions for oral and written tests were not set before the applications were examined by the selection boards. Moreover, there was no decision by the Appointing Authority to appoint the selection board and in one case the segregation of duties between the Appointing Authority and the selection board was not ensured.





This Report was adopted by Chamber IV, headed by Dr Louis GALEA, Member of the Court of Auditors, in Luxembourg at its meeting of 18 September 2012.


For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA

President





(1)  OJ L 11, 14.1.1994, p. 1.

(2)  The Annex summarises the Office’s competences and activities. It is presented for information purposes.

(3)  These accounts are accompanied by a report on the budgetary and financial management during the year which gives further information on budget implementation and management.

(4)  The financial statements include the balance sheet and the economic outturn account, the cash-flow table, the statement of changes in net assets and a summary of the significant accounting policies and other explanatory notes.

(5)  The budget implementation reports comprise the budget outturn account and its annex.

(6)  Article 33 of Commission Regulation (EC, Euratom) No 2343/2002 (OJ L 357, 31.12.2002, p. 72).

(7)  Article 38 of Regulation (EC, Euratom) No 2343/2002.

(8)  The rules concerning the presentation of the accounts and accounting by the Agencies are laid down in Chapters 1 and 2 of Title VII of Regulation (EC, Euratom) No 2343/2002 as last amended by Regulation (EC, Euratom) No 652/2008 (OJ L 181, 10.7.2008, p. 23) and are integrated as such in the Financial Regulation of the Office.

(9)  Article 185(2) of Council Regulation (EC, Euratom) No 1605/2002 (OJ L 248, 16.9.2002, p. 1).

(10)  The Final Annual Accounts were drawn up on 27 June 2012 and received by the Court on 29 June 2012. The Final Annual Accounts, consolidated with those of the Commission, are published in the Official Journal of the European Union by 15 November of the following year. These can be found on the following website http://eca.europa.eu or http://www.oami.europa.eu/.

(11)  The accounting rules adopted by the Commission’s accounting officer are derived from International Public Sector Accounting Standards (IPSAS) issued by the International Federation of Accountants or, in their absence, International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board.

(12)  The minimum value was set in the agreement to be 16,3 million euro. The services provided in 2011 totalled 14,5 million euro.

(13)  This payment was made from the 2012 budget.


ANNEX

Office for Harmonization in the Internal Market (Alicante)


Competences and activities








Areas of Union competence deriving from the Treaty


(Articles 36 and 56 of the Treaty on the Functioning of the European Union)




Free movement of goods

[…] prohibitions or restrictions justified on grounds of the protection of industrial and commercial property must not constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States. […]
[…] restrictions on freedom to provide services within the Union are prohibited in respect of nationals of Member States who are established in a State of the Union other than that of the person for whom the services are intended. […]





Competences of the Office


(Council Regulation (EC) No 40/94)




Objectives

To implement the Union legislation on trade marks and designs, which gives undertakings the right to uniform protection throughout the entire area of the European Union?

Tasks







—


To receive and enter applications for registration.










—


To examine the conditions for entry in the Register and compatibility with Union legislation.










—


To search at the industrial property offices of the Member States for any pre-existing national trade marks.










—


To publish applications.










—


To examine any opposition by third parties.










—


To register or reject applications.










—


To examine applications for revocation or invalidity.










—


To handle appeals against decisions.









Governance




Administrative Board


Composition







—


One representative of each Member State.










—


One representative of the Commission and their alternates.





Task







—


To advise the President on matters for which the Office is responsible.










—


To prepare lists of candidates (Article 125) for President, Vice-Presidents and chairmen and members of the Boards of Appeal.





President of the Office







—


Appointed by the Council from a list of at most three candidates which has been prepared by the Administrative Board.





Budget Committee


Composition







—


One representative of each Member State and one representative of the Commission and their alternates.





Task







—


To adopt the budget and the financial regulation, grant discharge to the President and determine the cost of search reports.





Decisions related to the applications

Decisions are taken by:






(a)


the Examiners;










(b)


the Opposition Divisions;










(c)


the Administration of Trade Marks and Legal Division;










(d)


the Cancellation Divisions;










(e)


the Boards of Appeal.





External audit

Court of Auditors.

Discharge authority

The Office’s Budget Committee.





Resources made available to the Office in 2011 (2010)





Budget

387 million euro (365).

Staff at 31 December 2011

687 (643) posts in the establishment plan, posts occupied 629 (608) + 116 (133) other staff (auxiliary contracts, seconded national experts, local and employment agency staff, special advisers)

Total staff: 745 (741)






Products and services supplied 2011 (2010)





Trade marks

Numbers of applications: 105 859(98 200) Number of registrations: 93 849(100 800)

Cases of opposition: 17 026(17 700)

Appeals to the Boards of Appeal: 2 622(2 570) Appeals pending: 2 573(2 157)


Designs

Designs received: 87 473(74 700) Designs registered: 77 665(73 500)






Source: Information supplied by the Office.







THE OFFICE’S REPLIES






12.


The Agreement for 2010 was tacitly renewed and as the Agreement for 2011 was finalized only in June 2011, it was applied retroactively. The minimum number of pages to translate in 2011 being lower than planned, the parties agreed on a compensation to maintain the global amount of 16,3 million euro. The corresponding budget commitment was done on the 2012 budget. The Office has centralised the management of all transactions in one operational unit in order to reinforce communication between the units and avoid validations of budget commitments ex post.










13.


Following the Court’s mission additional budgetary commitments were made before end of 2011.










14.


The Office takes good note of the comments and will continue to improve the procedures and practice in relation to the precision of information on the software development.










15.


As at 31 December 2011 the Office held its cash in 9 banks in 5 Member States. The funds were placed with entities with a rating of at least one double A in line with the minimum rating included in the Treasury guidelines endorsed by the Budget Committee, as well as in conformity with the instructions of the Commission. In 2012, the Office opened bank accounts with two additional central banks in order to further diversify risks.










16.


In order to improve transparency of the selection procedures, the Office is finalizing its guidelines on Selection procedures. In addition, the Office intends to work on internal rules of functioning for Selection Committees. The Office practice is that Selection Committees, in their first meeting, discuss on interpretation of the criteria of the vacancy notice, define the content and structure of the interview. This meeting takes place before the examination of CVs. The Office will pay special attention to avoid any kind of inconsistencies in the appointments of Selection Committees.