How to Conduct an Internal Audit. From two Former Customs Auditors Perspectives

Transcription

1 How to Conduct an Internal Audit From two Former Customs Auditors Perspectives

2 Audience Questions: How many of you Are Importers/Exporters/Brokers/Other? Have heard Cindy / John speak before? Have CBP Audit Experience? Are former or current government employees? Have ACE access? Have an Import Compliance Manual?

3 WHAT S NEW IN CBP S AUDIT WORLD?

4 CBP Audit Planning Process

5 CBP Audit Plan Process - NEW Various Targeted Sources for Audit Candidates Port Referrals based on CBP Form 28s/29s CEAR (Commercial Enforcement Analysis & Response Team) Referrals CEE (Centers of Excellence & Expertise) Referrals (Industry based) Regulatory Audit generated referrals CBP e-allegations Broker referrals Disgruntled employees or ex-employees False Claims Act - provides for whistleblower actions permitting anyone to file lawsuits alleging commission of a fraud against the federal government Trek Leather Case liability beyond the importer of record import compliance professionals and other employees, ultimate purchasers, exporters

6 Types of Audit Conducted by CBP Focused Assessments (FA) Comprehensive, risk based audits of importers that considers both internal control and compliance. Takes too long Internal control reviews are too subjective Primary focus is internal controls, not revenue recovery Policy is constantly changing, which requires training CBP staff FY2016 and FY decrease in FAs

7 Types of Audit Conducted by CBP Quick Response Audits (QRA) Single-issue audits with a narrow focus. These audits are designed to address a specific objective within a short period of time. Generally referrals are company specific and not industry specific Typically single objective (e.g. ADD/CVD, HTS, FTA, RP Valuation) QRAs are actual audits under 19CFR Focus is revenue recovery with some emphasis on internal controls Less subjective than a FA Much sexier than a FA for CBP Auditors Much more dangerous for Importers (revenue loss) FY2016 and FY2017 increase in QRAs nationally

8 Types of Audit Conducted by CBP Audit Surveys - Intended to be a quick assessment and allows the CBP auditor to focus his/her attention on the areas of greatest risk. Most often a single objective (e.g. ADD/CVD) Generally referrals are industry or commodity specific Audit Surveys are NOT actual audits under 19CFR Focus is revenue recovery with some emphasis on internal controls Less subjective than a FA & much sexier for CBP Auditors Much more dangerous for Importers: possible outcomes of audit survey: No further action needed (no risk or minimal risk found) Prior Disclosure submitted and will be perfected Auditor makes referral for Focused Assessment or QRA Auditor makes referral for Investigation Commencement of formal Investigation FY2016 and FY2017 increase in Audit Surveys

9 Types of Audit Conducted by CBP Broker Audits and Audit Surveys CBP is ramping up its broker audit activities since 2016 and now conducting broker audit surveys. Licensing - Is the broker properly licensed/permitted to transact CBP business on behalf on clients? Responsible Supervision & Control - Did the broker (license holder) exercise responsible supervision and control over brokerage (Ten Factors)? Powers of Attorney - Did the broker have valid powers of attorney to transact business on behalf of clients? Broker Billing, Payment of Duties/Fees & Refunds - Did the broker appropriately handle billing, payment of duties and fees to CBP, and client refunds?

10 How Should You Get Ready? Conduct Internal Audits Starting with

11 Import Risk Assessments Don t wait for the audit call. Identify and manage your risks!

12 Customs Risk Management Identifying imports that represent the greatest risk of noncompliance is key so that we can focus our limited resources in those areas.

13 Customs Trade Revenue Recovery Focus Areas Anti Dumping & Countervailing Duties underpaid or evaded Free Trade Agreements (FTA) ineligible or unsupported claims Tariff Classifications & CH98 underpaid duties Valuation underpaid duties due to undervaluation, undeclared additions (commissions, royalties, assists, packing, proceeds, TP adjustments, RP valuation, maquiladora valuation, etc.) Textiles / Wearing Apparel misclassification and underpaid duties, ineligible FTA claims, and IPR violations. Intellectual Property Rights - target and seize imports of counterfeit and pirated goods, and enforce exclusion orders on patent-infringing and other IPR violative goods. Import Safety - ensure that unsafe products do not enter the US.

14 Risk Assessment Example Analyze ACE Data and Other Information ACE data via portal application

15 Risk Assessment Classification Example In CY 2016, the company used 295 unique HTS numbers to enter merchandise (excluding CH 98), which represents a high risk. The number of HTS numbers used (excluding CH 98) has increased significantly compared to CY 2015 with 102 new HTS numbers used. The top 10 HTS numbers, by value, in 2016 were: XXXXXX. These 10 HTS numbers represented over 60% of the import value for CY The HTS tariff classifications which saw significant increases in value in CY 2016 were XXXXXXX. HTS Parts Provisions and Basket Provisions (HTS numbers described with other used in 2016 with significant value were: XXXXXXXX. A total of $35,215,707 (20% of total entered value) was entered duty-free under HTS Chapter 98 in 2016, which represents a high risk. The Chapter 98 HTS numbers used in 2016 were: XX and

16 Risk Assessment / Audit Targeting Example ACE Report ES-105 ADCVD Active Case List Risk Assessments are conducted annually to develop audit candidates Importer ACE data history is compared to ES-105 report CBP identifies potential ADD/CVD risks with regards to HTS- Country of Origin combinations in the company s import data matching active ADD/CVD cases. These imports may potentially fall under the scope of an ADD/CVD order and represent a significant risk based on the product type and/or the total entered value. 16

17 ADD/CVD Broker Entry Process Flag Don t let this be your only ADD/CVD control! 17

18 Risk Assessment ADD/CVD Example There were 150 ADD/CVD entries (Type 03) filed by the company during the period reviewed. These entries were subject to ADD Case A , which are for Aluminum Extrusions from China. The general ADD Rate is currently 33.18%. CVD rate is 7.37%. We identified 200 additional entry lines with the same HTS-CO combination that were not claimed as ADD/CVD which represent a high risk. We identified potential ADD/CVD risks with regards to HTS-Country of Origin combinations in the company s import data matching active ADD/CVD cases. These imports may potentially fall under the scope of an ADD/CVD order and represent a significant risk based on the product type and/or the total entered value.

19 Internal Post Entry Audits

20 Effective Post Entry Audit Programs Must be documented and clearly define the scope, sample selection process, audit frequency, etc. Should contain a Risk Assessment component Should be performed monthly or quarterly at a minimum (annually is not sufficient!) Should ensure all entries are included in the universe from which samples are selected Sample sizes should be based on identified risks and other factors Require that results be documented, analyzed, and appropriate corrective action taken for errors Action taken to correct error(s) with CBP or reason no action was taken Action taken to strengthen internal control to avoid recurrence of error(s)

21 Post-Entry Audit Samples Samples should be extracted from ACE or ITRAC data Samples should be performed by someone other than the person responsible for entries Samples should be selected based on targeted risk identified during the risk assessment Samples should also be selected randomly The sample should be sent out on a regular basis. For example, approximately 30 days after the end of the calendar month

22 Post-Entry Audit Best Practices An independent qualified auditor conducts the post-entry audit The audit consists of 12 questions that evaluate key compliance risk areas The results of all audits are recorded in a post-entry audit database with reporting capabilities Hard copy checklists are no longer sufficient or ideal Reporting and trend analysis is critical in identifying causes of errors and necessary internal control improvements Executive Management reports should be generated to track metrics, areas of continued non-compliance and areas needing improvement

23 Post Entry Audit Procedures (Must be Documented)

24 Post Entry Audit Guidelines (Critical to Ensure Competent Review)

25 Quarterly Post-Entry Audit Samples Review a minimum of 25 entry lines per quarter for each IOR Review only 1-5 invoice lines if there is explosion 15 of these sample entry lines are targeted based on risk 10 of these sample entry lines are selected randomly Audit consists of 12 questions that evaluate various compliance areas The results of all audits are recorded in the post-entry audit database Record all needed details regarding errors COMMENTS ACTION RESOLUTION DATE RESOLVED

26 Post Entry Audit Review Areas 1. IMPORTER / CONSIGNEE / MANUFACTURER ID NUMBERS 2. COUNTRY OF EXPORT 3. COUNTRY OF ORIGIN 4. TARIFF CLASSIFICATION 5. RELATIONSHIP 6. VALUATION 7. CURRENCY CONVERSION 8. NON DUTIABLE CHARGE DEDUCTIONS 9. SPECIAL TRADE PROGRAMS & SPECIAL DUTY PROVISIONS 10. ANTI-DUMPING DUTIES 11. OTHER GOVERNMENT AGENCY DOCUMENTATION 12. RECORDKEEPING

27 Post Entry Audit Database Input Form Data is pre-loaded from ACE! DB tracks errors, action, resolution

28 Compliance Rate Reports (EXAMPLES) 1. COMPLIANCE RATES BY BUSINESS UNIT 2. COMPLIANCE RATES BY IMPORTER OF RECORD NUMBER (FACILITY) 3. COMPLIANCE RATES BY AUDIT AREA (e.g. value, HTS, FTA) 4. COMPLIANCE RATES BY BROKER 5. COMPLIANCE RATES BY VENDOR (e.g. MID Code) 6. COMPLIANCE RATES BY HTS 7. COMPLIANCE RATES BY FTA 8. COMPLIANCE RATES BY COUNTRY OF ORIGIN 9. COMPLIANCE RATES BY COUNTRY OF EXPORT 10. GRAPHS TO SHOW TREND FOR ANY OF THE ABOVE

29 Compliance Rate Reports / Metrics The Various Report Tabs allow you to view the Audit Results for a Selected Date Range

30 Why are Internal Post Entry Audits Needed? Any effective internal control program will cover all five components of internal control. Post entry audit would be considered under the Monitoring component. An importer will very likely not pass a Focused Assessment without a robust post entry audit program. Post entry audits help ensure compliance and identify errors early for corrective action. Strong Post entry audit processes can provide management metrics, help identify causes and facilitate corrective action. Avoid large duty bills and penalties by identifying errors and potentially disclosing them to Customs.

31 Questions? Cindy Deleon (Former CBP Auditor & AFD) Senior Trade Auditor Deleon Trade LLC (281) Office John Metrich (Former CBP Auditor & AFD) Senior Trade Auditor Deleon Trade LLC (219) Cell 31