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
Official Journal C 372 , 28/12/2001 P. 0086 - 0095
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 (2001/C 372/11) CONTENTS >TABLE> 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 implemented 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 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 2000 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 HARMONIZATION IN THE INTERNAL MARKET (ALICANTE) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2000 Implementation of the budget and budgetary accounts 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 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 (procedures contesting and appealing against the Office's decisions may be initiated one to two years after a trade mark has been registered). 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 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. 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. Financial arrangements 10. Member States are paid for carrying out research work without having to provide any supporting documentation, which is contrary to the Financial Regulation. Management 11. Since 1995, the Commission has managed the Office's salaries 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. 12. In a previous report(5), it was recommended that the Office 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. Changes in the Office's staff and activities 13. The Office's staff, who are employed under the Staff Regulations, 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 allocate appropriations for the recruitment of auxiliary employees (AEs), whose contracts are limited to one year, and of local employees (LEs). 14. Table 4 shows the growth of the Office's staff and the categories to which they belong. It shows not only that staff numbers 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 factor 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 created) are temporary in 65 % of cases and auxiliaries in the remaining 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 procedures. Lastly, by means of internal competitions based on written 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 selection procedure involving external candidates. 19. On average, recruitment costs amounted to approximately 1410 euro per recruit. The examination of a sample of 30 members of staff revealed no notable problems as regards qualifications for the posts they held. 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. 21. For the purposes of the audit, staff were placed in two categories: - staff responsible for support activities (support staff), i.e. activities which ensure that the Office can continue to operate (e.g. administrative, accounting and secretarial services); - 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 operational. 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 predominance 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 increased significantly (by an average of 54 % and 36 % respectively 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 activities and the increase in its staff and related costs, the increase in these items was compared with the increase in the amount of revenue 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 difficulties 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 expenditure charged to appropriations for the year and appropriations carried over from Title III). Conclusion 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 explanations for this situation may be posited: - the difficulty of establishing accurate estimates of staffing requirements; - 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 disadvantages: - 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 questioning 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 Community Institutions and the other decentralised bodies with a view to recruiting staff on the broadest possible basis. 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. Furthermore, in general terms the Office should improve its staff management 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 (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 arithmetical errors. A dash indicates an unavailable or zero value and 0,0 indicates a value lower than the rounding-off threshold. (5) 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. TABLES 1 TO 6 Table 1 Implementation of the budget >TABLE> Table 2 Revenue and expenditure account for the financial years 2000 and 1999 >TABLE> 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 3 Balance sheet as at 31 December 2000 and 31 December 1999 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> >TABLE> Table 4 Changes in staff numbers >TABLE> PEs: Permanent employees. TEs: Temporary employees. AEs: Auxiliary employees. LEs: Local employees. Table 5 Analysis of variations in staff numbers >TABLE> Table 6 Changes in staff and related costs >TABLE> The office's replies Implementation of the budget and budgetary accounts 7. The Office takes note of the Court of Auditor's observation and will pursue its efforts to improve its budgetary forecasting system. 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 11. In March 2001, the Office raised with the Commission the 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 financial 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 working 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 the analytical accounting system of statistical data that is already available on trade mark administration and information contained in the productivity sheets. Changes in the Office's staff and activities 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 creation 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 applicants. 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 agencies. As far as the abovementioned typical career path itself is concerned, it has enabled the Office (as observed by the Court in paragraph 19) to save a considerable amount in terms of recruitment costs and salaries and to subject staff to a trial period lasting, 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, deeming 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 perform tasks directly linked to the Community trade mark registration procedure. According to the sample examined by the Court, some 58 % of staff perform operational tasks. The Office considers 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 (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.