developments in u.s. customs audits: import compliance ... · § textiles / wearing apparel -...

U.S. Customs Compliance ConsultantsDELEON TRADE LLC

U.S. Customs Compliance Consultants

DELEON TRADE LLC

CindydeLeón,SeniorTradeAuditor(FormerCBPAuditor&AFD)

[email protected](281)466-2026

DevelopmentsInU.S.CustomsAudits:ImportComplianceManuals,ComponentsofInternal

Controls,RiskAssessments&Post-entryAudits

U.S. Customs Compliance ConsultantsDELEON TRADE LLC U.S. Customs Compliance ConsultantsDELEON TRADE LLC

WWW.DELEONTRADE.COM 2

AudienceQuesSons:Howmanyofyou………§  AreImporters/Exporters/Brokers/Other?§  HaveheardCindyspeakbefore?§  HaveCBPAuditExperience?§  Areformerorcurrentgovernmentemployees?§  HaveACEaccess?§  HaveanImportComplianceManual?§  HaveseenthenewStarWarsmovie?


WHAT’SNEWINCBP’SAUDITWORLD?



CBPRegulatoryAudit–RecentDevelopments

§  Washington D.C. Executive Director position is still vacant (internal staff is not applying)

§  Focused Assessments are not the main audit type (more on this next)

§  Quick Response Audits and Audit Surveys are the main audit types (more on this next)

§  CBP seems to be very enforcement minded again, increase in trade related investigations (see luncheon keynote speaker)

§  Increased focus on revenue (QRAs objective is revenue recovery)

§  Highest risk areas for audit (ADD/CVD, related party valuation misclassification, FTA, and IPR)

§  CBP is still focused on internal controls (better have them!)



DELEON TRADE LLC

CBP AUDIT PLANNING PROCESS



CBP Audit Plan Process - OLD QuanStaSveRiskAssessmentModel(QRAM)forFAs§  Risk based approach for selecting audit candidates: 15-20 Risk factors, including:

6

TOTALENTEREDVALUETOTALDUTYPAIDVOLUME(#OFLINEITEMS)COUNTRYVARIETYHTSVARIETYVALUE(%CHANGE)FREETRADEAGREEMENTVALUEHTSCHAPTER98VALUEADD/CVDVALUE(TYPE03ENTRIES)RELATEDPARTYVALUEPRIORITYTRADEISSUERISKFACTORREFERRALSFROMPORTOROGA

What’s your rank?



CBP Audit Plan Process - NEW VariousTargetedSourcesforAuditCandidates§  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 - 1592 liability beyond the importer of record… import

compliance professionals and other employees, ultimate purchasers, exporters



TypesofAuditConductedbyCBP

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 §  FY2015 and FY2016 decrease in FAs



TypesofAuditConductedbyCBP

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, RP Valuation) §  QRAs are actual audits under 19CFR 163.11 §  Focus is revenue recovery with some emphasis on internal controls §  Can be assigned to Staff Auditors (not limited to Senior Auditors) §  Less subjective than a FA §  Much sexier than a FA for CBP Auditors §  Much more dangerous for Importers §  FY2015 and FY2016 increase in QRAs



TypesofAuditConductedbyCBPAudit 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 163.11 §  Focus is revenue recovery with some emphasis on internal controls §  Can be assigned to Staff Auditors (not limited to Senior Auditors) §  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) –  Prior Disclosure submitted and will be perfected –  Auditor makes referral for Focused Assessment or QRA –  Auditor makes referral for Investigation –  Commencement of formal Investigation

§  FY2015 and FY2016 increase in Audit Surveys



DELEON TRADE LLC

CBP QUICK RESPONSE AUDIT ANNOUNCEMENT EXAMPLE


2015QuickResponseAuditAnnouncedViaEmailGoodaZernoonMr.XXXXXXXX,XYZCompanyunderIORnumbers12-3456789,11-2233445,andassociatedsuffixeshasbeenselectedforaudit.Weareconcentragngonyourimportagonsandpossibleang-dumpingandcountervailingduges.Pleaseprovidethecontactinformagonoftheindividualinchargeofimportagons.Thankyousomuchforyourassistance.SylviaS.Chaidez,CFEAuditorOfficeofInternagonalTradeRegulatoryAudit-HoustonFieldOffice1200GoldenKeyCircle,Suite461ElPaso,Texas79925(915)534-6113x229((915)[email protected]********************************************************************************************************************************************************************************************************************************************************Note:Theinformagoncontainedinthismessagemaybeprivilegedandconfidengalandprotectedfromdisclosure.Ifthereaderofthismessageisnottheintendedrecipient,oranemployeeoragentresponsiblefordeliveringthismessagetotheintendedrecipient,youareherebynogfiedthatanydisseminagon,distribugon,orcopyingofthiscommunicagonisstrictlyprohibited.Ifyouhavereceivedthiscommunicagoninerror,pleasenogfyusimmediatelybyreplyingtothemessageanddelegngitfromyourcomputer.Thankyou.BureauofCustoms&BorderProtecgon,OfficeofInternagonalTrade,RegulatoryAudit,HoustonFieldOffice,ElPasoBranchOffice*******************************************************************************************************************************************************************************************************************************************************


2015QuickResponseClosingEmailtoImporterTeam-Briefupdate.WeheldanexitconferenceonXYZCompany’sADD/CVDauditwithCBP–andthereportwasthatCBPfoundADD/CVDwasnotapplicabletothepartsselectedandthatXYZdeclaredtheclassificagonscorrectlyexceptforthe5partsthatweregenerators.Those5misclassificagonshadnorevenueimpact.Shesaidthewripenreportwillbeissuedwithin120daysoftoday’sdate.TheAuditorrecognizedhowsmoothlytheauditwentandhowresponsivethecompanywastoherrequests.Thankyousomuchforyourassistance.



DELEON TRADE LLC

INTERNAL CONTROLS & IMPORT COMPLIANCE MANUALS



Why are Internal Controls Needed?



Customs Compliance Manuals

§  ImportersshouldimplementeffecgveCustomsComplianceinternalcontrols(demonstratereasonablecare),consisgngof:

–  All5componentsofinternalcontrol

–  company-widepolicies,proceduresandmandate

–  riskassessmentandmanagementprocedures

–  specificinternalcontrolsprocedures(SOP’s)

–  detailedmonitoringprocedures(post-entryaudit)

–  referencematerialsorreferences

–  periodicupdates

16



ElementsofaGoodCustomsComplianceManual

§  Goodcustomscompliancecontrolsare:–  Notaregurgitagonoflawsandregulagons!–  Notaneducagonmanualforemployees!–  Notcreatedtocollectdustonashelf!

§  Internalcontrolsshould:–  addressallareasofrisk–  idengfyresponsibleparges–  describehowtoperformthetask–  explaintheprocessforindependentverificagonoftasks–  includeaprocessforreporgng&correcgngerrors–  Includeaprocesstoupdateandstrengtheninternalcontrols

(whenerrorsarefoundthinkofthepastandfuture)



CBP’sCommonInternalControlDeficiencies

§  NointernalcontrolproceduresInplace(i.e.classificagondatabase,postentryaudits,brokerguidelines,recordkeeping,etc.)

§  Internalcontrolproceduresinplace,butnotdocumented(importerfailstheFocusedAssessment)

§  WripenICPolicies/Proceduresaregeneral(RegulatoryRequirementsonlywithnorelateddesktopprocedures)

§  NotdocumengnginstrucgonstoandcommunicagonswithBroker

§  NoPostEntryAuditprocesstomonitor/verifyBroker’swork

§  Notmaintainingorupdagngclassificagondatabase

§  Brokernotusingclassificagondatabase



CBP’sCommonInternalControlDeficiencies§  OtherDepartmentsNotCommunicagngPotengalCBPRelated

InformagontotheImportDepartment(i.e.,tax,purchasing,finance,etc.)

§  NoAccoungngGeneralLedgerreviewtoidengfyvaluagonerrors(commissions,royalges,assists,etc)

§  NotTrackingand/orReporgngVariancestoCBP(Value,Quangty,etc.)

§  NotObtainingandMaintainingProofofEligibilityforSpecialTradeProgramClaims

§  LackofKnowledgeorSpecializedTraining

§  NoCBPReferenceMaterialsAvailabletoEmployeesorNotAccessed/Used

§  NoTesgngofEntriesforAccuracy

§  NoPeriodicReviewandAdjustmentofInternalControlProcedures



DELEON TRADE LLC

IMPORT RISK ASSESSMENTS

Don’t wait for the audit call.

Identify and manage your

risks!



Customs Risk Management

Identifying imports that represent the greatest risk of noncompliance so that we can focus our limited resources in those areas.



Customs Priority Trade Issues

§  Free Trade Agreements – prevent non-compliance.

§  Anti Dumping Duties - detect and deter circumvention.

§  Textiles / Wearing Apparel - ensure compliance with laws, regulations, quotas, Free Trade Agreement requirements, and Intellectual Property provisions.

§  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.



Risk Assessment Example

Analyze ACE Data and Other Information •  ACE data via portal application -

http://www.cbp.gov/trade/automated/getting-started/using-ace-secure-data-portal



Risk Assessment – Classification Example §  In CY 2015, the company used 195 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 compared to CY 2014 with 102 HTS numbers used. The top 7 HTS numbers, by value, in 2015 were: 4202929026, 6307909889, 4202929060, 4202925000, 4202923031, 4202923020, and 3926909995. These 7 HTS numbers represented over 61% of the import value for CY 2015.

§  The HTS tariff classifications which saw significant increases in value in CY 2015 were 6307909889 and 98170096.

§  Potential HTS Basket Provisions used in 2015 with significant value were: 4202929026, 6307909889, 4202929060, 4202923031, and 3926909995.

§  A total of $13,215,707 (18.59% of total entered value) was entered duty-free under HTS Chapter 98 in 2015, which represents a high risk. The Chapter 98 HTS number used in 2015 were: 98170096 and 9801001098.



Risk Assessment – ADD/CVD Example

q  There were 150 ADD/CVD entries (Type 03) filed by the company during the period reviewed. These entries were subject to ADD Case A-570-886, which are Polyethylene Carrier Bags from China. The general ADD Rate is currently 77.57%.

q  We identified additional entries with the same HTS-CO combination that were not claimed as ADD/CVD which represent a high risk (see the Import Analysis file for details).

q  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 (see the Import Analysis file for details).



DELEON TRADE LLC

POST ENTRY AUDITS



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 Ø  Action taken to correct error(s) with CBP or reason no action was taken Ø  Action taken to strengthen internal control to avoid recurrence of error(s)



Post-EntryAuditSamples§  SamplesshouldbeextractedfromACEorITRACdata

§  Samplesshouldbeperformedbysomeoneotherthanthepersonresponsibleforentries

§  Samplesshouldbeselectedbasedontargetedriskidengfiedduringtheriskassessment

§  Samplesshouldalsobeselectedrandomly

§  Thesampleshouldbesentoutonaregularbasis.Forexample,approximately30daysaZertheendofthecalendarmonth



Post-Entry Audit Best Practices

§  Anindependentqualifiedauditorconductsthepost-entryaudit§  Theauditconsistsof12quesgonsthatevaluatevariouscomplianceareas§  Theresultsofallauditsarerecordedinapost-entryauditdatabasewith

reporgngcapabiliges

ü  Hardcopychecklistsarenolongersufficientoridealü  Reporgngandtrendanalysisiscrigcalinidengfyingcausesoferrors

andnecessaryinternalcontrolimprovementsü  ExecugveManagementreportsshouldbegeneratedtotrackmetrics,

areasofcongnuednon-complianceandareasneedingimprovement



Post Entry Audit Procedures (Must be Documented)



Post Entry Audit Guidelines(Critical to Ensure Competent Review)



QuarterlyPost-EntryAuditSamples

§  Reviewaminimumof25entrylinesperquarterforeachIOR§  Reviewonly1-5invoicelinesifthereisexplosion§  15ofthesesampleentrylinesaretargetedbasedonrisk§  10ofthesesampleentrylinesareselectedrandomly§  Auditconsistsof12quesgonsthatevaluatevariouscomplianceareas§  Theresultsofallauditsarerecordedinthepost-entryauditdatabase

§  Recordallneededdetailsregardingerrors

ü  COMMENTSü  ACTIONü  RESOLUTIONü  DATERESOLVED



1.  IMPORTER/CONSIGNEE/MANUFACTURERIDNUMBERS2.  COUNTRYOFEXPORT3.  COUNTRYOFORIGIN4.  TARIFFCLASSIFICATION5.  RELATIONSHIP6.  VALUATION7.  CURRENCYCONVERSION8.  NONDUTIABLECHARGEDEDUCTIONS9.  SPECIALTRADEPROGRAMS&SPECIALDUTYPROVISIONS10. ANTI-DUMPINGDUTIES11. OTHERGOVERNMENTAGENCYDOCUMENTATION12. RECORDKEEPING

Post Entry Audit Review Areas



Post Entry Audit Database Input Form Data is pre-loaded from ACE!

DB tracks errors, action, resolution



1.  COMPLIANCERATESBYBUSINESSUNIT

2.  COMPLIANCERATESBYIMPORTEROFRECORDNUMBER(FACILITY)

3.  COMPLIANCERATESBYAUDITAREA(e.g.value,HTS,FTA)

4.  COMPLIANCERATESBYBROKER

5.  COMPLIANCERATESBYVENDOR(e.g.MIDCode)

6.  COMPLIANCERATESBYHTS

7.  COMPLIANCERATESBYFTA

8.  COMPLIANCERATESBYCOUNTRYOFORIGIN

9.  COMPLIANCERATESBYCOUNTRYOFEXPORT

10. GRAPHSTOSHOWTRENDFORANYOFTHEABOVE

Compliance Rate Reports (EXAMPLES)



TheVariousReportTabsallowyoutoviewtheAuditResultsforaSelectedDateRange

Compliance Rate Reports / Metrics



ByviewingtheSummarybyBusinessUnit,youwillbeabletoidenSfywhichBusinessUnitshaveunacceptableComplianceRates.

Compliance Rate Reports by Business Unit



TheSummarybyIORNumberwillfurtherassistinidenSfyingspecificproblemareas.

Compliance Rate Reports by Review Area



ComplianceRateReportsbyEntryTypes§  Specific results by MID(s), HTS(s), SPI(s), COO(s) or COE(s) for dates selected §  Drop boxes allow you to further limit the data to a specific Business Unit or IOR



Why are Post Entry Audits Needed?

§  Any effective internal control program will have 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.



Questions???

DELEON TRADE LLC Cindy Deleon

Office (281) 466-2026 Direct (708) 533-5224

[email protected]

developments in u.s. customs audits: import compliance ... · § textiles / wearing apparel -...

Documents