28-30 APRIL 2014

South African Revenue Services Customs Preferred Trader Accreditation Programme 2nd Global AEO conference Madrid, Spain

CUSTOMS– Strategic Outcomes

DELIVERY STRATEGY

TRADE ADMINISTRATION

• Efficient trade administration

• Assist with compliance

• Provide trade policy support

• Collect duties and taxes lawfully

• Managing incentive schemes & Free Trade Agreements

BORDER SECURITY

• Prevent smuggling

• Ensure confidence in trade and travel channels

• Promote SA as secure trading partner

ECONOMIC & COMMUNITY PROTECTION

• Prevent harm to the community, the economy and environment

• Protect industry from harmful, and unfair trade practice

Key to this approach is ensuring that taxpayers/traders understand their obligations

MAKE IT AS EASY AS POSSIBLE FOR THOSE TRYING TO COMPLY

MAKE IT AS HARD AS POSSIBLE FOR THOSE TRYING TO AVOID PAYING THEIR FAIR SHARE

Improve Service

ENHANCED COMPLIANCE

Improve Enforcement

Focusing our Resources- Hub Concept

CT HUB

DBN HUB

ALB HUB

DKF HUB

STAFF(2014)

• 2597 Customs Officers in total

• 1920 Team Members

• 270 Managers and Team leaders

• 407 Support Staff

STATS • Border line = 4862 Kms

• Sea Line = 2798 Kms

• Seaports = 8

• Airports = 10

• Inland ports = 1

• International Land ports = 2

• SACU land borders = 17

• Non-designated borders = 35

VOLUMES (2013)

• Transaction Volume: 5,560,000 declarations • Transaction Value: R 2,494,498,978,328

TRADERS(2014)

• 90% by value of declarations of all imports are submitted by 10% (4000) of traders.

• 80% by value of declarations of all exports are submitted by 10% (4000) of traders.

EDI(2014)

• Electronic International

transactions submissions have increased from 65% to 99%

• SACU transactions have increased from 30% to 90%

• Supporting documents are 100% digitised

Customs Modernisation Delivery

Preferred Trader Customs Inspection

Declaration Processing

Leveraging SARS Capabilities

Customs Systems Replacement

Value-Adding Activities

Registration Declaration Assessment Inspection Audit

Re

sou

rce

Dis

trib

uti

on

Current resource distribution

Post Modernisation resource distribution

Accreditation / Entity assurance audits

Removing mandatory checks

Periodic declarations & Simplifications

Entity based performance audits (systems & process)

Inspection

Proactive client management

Automated processing through integrated risk assessment

Compliance audits (customs regimes)

Modernised risk-based approach for Customs: Preferred Trader

Deliver A Paradigm Shift – Risk Management

LEGAL

ADMIN

MNGT

ENABLERS

One size fits all Flexible and tailored solutions

A unilateral approach Balance between regulatory control and trade facilitation

Indiscriminate intervention Focus on “high risk” with minimal intervention in ‘low risk’ areas

• Legal provisions • Appropriate ICT infrastructure • Consultative business process

GATE-KEEPING RISK MANAGING

• 70% of all import declarations are submitted by only 10% (4000) of the active traders.

• 90% by value of declarations of all import declarations are submitted by 10% (4000) of traders.

• 80% of all export declarations are submitted by only 10% (4000) of the active traders.

• 80% by value of declarations of all export declarations are submitted by 10% (4000) of traders.

Introduction of the Preferred Trader initiative - foundation for the AEO programme with Trade

Segmentation of the trade allows customised service provision and risk application

Focus efforts on the risky and facilitate the trusted - compliance vs. service

Operating Model alignment

8 Trader Management

Risk

Technical Stops

Enfo

rcem

en

t / Large

bu

s C

usto

ms

Spe

cific

Customs Interventions Client segmentation Audit Types

Doc Stops

Scanner Stops

CBCU

Integrated Audit

PT Entity Based Audit

PT Assurance Audit

Transactional Audit

Transactional inspection

Transactional Risk targeting

at frontline 20%

Client Management 80% via

Pre + Post Engagement

PT/AEO

Integrated Audit

SARS Compliance Behavioural Philosophy & Model – Alignment To PT

SARS Strategic Plan 2011-2014- Strategic Alignment

Strategic direction

•Develop partnerships with all supply chain stakeholders to facilitate legitimate trade

whilst combating illicit trade in order to strengthen and secure SARS’s economy, & collect revenues due

•A seamless transition to an integrated border management model, developed with

other government departments across the supply chain

Key deliverables •Rapid accreditation of traders qualifying for its preferred trader programme and refining the preferred trader programme

• An enhanced service offering (reduced paperwork, quicker processing times) to Preferred traders comprising 80% of all legal trade entering the country

PT index will comprise of two measurements:

•Preferred trader registration effectiveness: % Trade volume (number of

Preferred Traders declarations processed vs. total number of declarations processed. The objective of this factor is to measure the amount of trade covered by the preferred trader programme:

•Preferred trader compliance level: The objective of this factor is to measure the level of compliance among the registered preferred traders and will be measured by conducting regular compliance audits on the preferred trader pool.

- The Preferred Trader concept was conceived in 2010

- Driven by SARS Modernisation Strategy

- Its aligned to the SARS Strategy 2014-2017

- Aligned to the SARS Compliance Programme

- Legislated in Customs and Excise Act Section 64;

- Legislated as Level two Accreditation ito Rule 64E.13

- Legislated in the Customs Control bill

- Based on the WCO Safe Framework of Standards

- Revised Kyoto Convention : Risk based Approach

Preferred Trader Snapshot

Preferred Trader approach

– Risk based approach for client segmentation & volumetric

– SARS selection linked to Govt. priority industries & Self application approaches

– Self assessment &

– Self evaluation

– Audit verification

– Compliance improvement programmes

– Accreditation & benefits with relationship managers

– Participation in SACU PT

– Appropriate record of Customs compliance

– Computer systems & level of automation

– Accounting systems & standards

– Logistical systems

– Sufficient knowledge & Customs competency

– Sufficient financial resources

– No criminal convictions

– Tax compliance status

– Governance committees (C.A.R.C & SARS Compliance Risk Committee)

Key Elements Qualifying Criteria

Audit Standards for client systems and Level 2 Rules – Criteria

Focus Areas for PT Assurance Process 1. Risk screening 2. Audit Verification 3. Organisation vetting

and compliance evaluation

Customs sample test of the applicants declarations, evaluated by the Percentage error rate of the lines on all entries passed for the applicant for the preceding two (2) years for all regimes:

i) Quantity; ii) Classification iii) Valuation iii) Originating status iv) Duties relief, warehousing, special import

measures (permits), statistics, CITIES (industry codes), samples, Unsolicited goods (prohibited & restricted), VAT, other areas of concern.

Systems based Audit

Standards and test

conducted :

1. Purchasing

2. Receiving

3. Internal accounting

4. Accounting to Customs

5. Exporting

Determine effectiveness of client operational Systems to qualify for Accreditation for Customs control at the client:

Reliability of record keeping systems

Quality and consistency of track & traceability

Procedures to identify errors.

Procedures to self-manage & correct errors at the root cause

Have appropriate information technology security measures in place to protect the applicant’s computer system from unauthorised intrusion and to secure the applicant’s documentation

Effective control systems that manages accounting to Customs and all relevant Customs regimes.

Client selection

Receive Application and SA and SQ

Preform Risk Profiling

Accept or Reject Application

Pre Engagement

Primary Engagement

Audit Engagement

Audit On-Site

Reporting & Follow up

Send client application acceptance confirmation letter

Pre- audit engagement visit to discuss approach & process and confirmation of audit engagement date

Send client on-site verification notice letter

Systems Testing and Risk Testing

Perform sample testing as per audit programme

Audit Progress Meeting

Evaluate results vs. evaluation criteria & Standards

Compile Audit Report

Communicate Audit results to client

Monitor compliance or compliance programme where required

Submit Final Report to the Customs Accreditation Review Committee for Status Approval

SARS

Client Submit application in Regional office

Confirms interest & commitment to following Audit process

Complete and Submit Systems Questionnaire & additional information requested related to the audit

Conduct systems walkthrough

Develop Audit Plan

Select samples for the audit programme

Submit samples selected to the client

Correlates & submits declaration & supporting documents for verification

Client Hosts SARS to execute audit programme

Client Provides data & information as required / as per Audit Policy / Procedures

Hosts close out report meeting

Commits to implement any Compliance improvement initiatives

PT Audit Process – High level

PT Benefits for all PT clients, large & SMME’s may include

• Appointment of a Customs Relationship Manager tasked with facilitating the relationship between the client and customs;

• PT clients have direct access, no need to use contact and/or walk in centres • Reduction of the amount of any security required for compliance with a customs

procedure; • Fewer routine documentary and physical inspections; • Fewer audit interventions • Prioritising a request for tariff and valuation determinations; • Prioritising access to non-intrusive inspection techniques when goods are stopped

or detained for inspection.

• Qualifying for SACU PT programme. Note: • In the future an extended set of benefits will be available to clients, as befit a

specific Client type and Accreditation Level. • Future additional benefits available to Accredited Clients will be dependent on

new systems and legislative provisions ( i.e. further electronic interfaces, electronic warehousing, periodic, simplified clearances )

RKC alignment

6.2: Customs control shall be limited to that necessary to ensure compliance with the Customs law

6.3.In the application of Customs control, the Customs shall use risk management

6.5:The Customs shall adopt a compliance measurement strategy to support risk management.

6.6: Customs control systems shall include audit-based controls.

6.10: The Customs shall evaluate traders’ commercial systems where those systems have an impact on Customs operations to ensure compliance with Customs requirements

6.7. The Customs shall seek to co-operate with other Customs administrations and seek to conclude mutual administrative assistance agreements to enhance Customs control: SACU, EU, USA, BRICS

6.9. (TS) The Customs shall use information technology and electronic commerce to the greatest possible extent to enhance Customs control.

16

Guidelines to Accreditation & a detailed Guide developed

• Category 1 – General discussion

• Category 2 - Accreditation Legislation and Audit

• Category 3 – Tariff Classification

• Category 4 – Customs Valuation

• Category 5 – Rules of Origin

• Category 6 – Prohibited and Restricted Goods and Import Control

• Category 7 – Penal Provisions and Risk

• Category 8 - Appeals

• Category 9 – Internal Controls

• Category 10 – Integrity

Accreditation: Written test & answer database created

Internal staff tested as well

Client invited to sit for test

Invite letters, application forms & guide to study sent to PT clients

A minimum of 1-5 persons dealing with customs can write the test

Open book, 2 hour- 60% pass mark ( 2 add attempts)

5 different test venues

Applicants using ID’s will be confirmed and company notified of progress

Individual invites will be sent confirming date and venues: test programme as follows

• Registration

• Welcome and program overviews

• Information Session : Customs Preferred Trader (informal training 2hr)

• Assessment Admission Process (Pre-assessment Questionnaire)

• Lunch

• Competency Assessment

Competency certificate issued after 30 days

ACCREDITATION GUIDE COMPETENCY TESTING

COMPETENCY ASSESSMENT RESULTS TO DATE

Session Region Number of Candidates

Number Passed

Average Pass mark

26 – 30 Nov 2012 All regions 143 143 88.00%

27-Feb-13 G South 65 65 91.00%

27-Feb KZN 11 11 86.00%

19/28-March-2014 WEN 23 23 87.00%

Dec 2013 and Feb GN 32 32 94.00%

TOTAL 274 274 89.20%

Preferred Trader Today

• Engaged / invited 480 clients to participate in the programme • 205 Audits have been finalised for confirmation of the status • 156 Audit had compliance issues ranging from tariff; valuation; rebate for

compliance improvement • 205 traders contribute 25.25 % of transactional line volumes of the total trade

volume • Approximately R 3,15 bn ($301bn) revenue has been collected through the PT

audits and voluntary compliance from the sensitised clients

AUDIT ACTIVITIES 2010/2011 2011/2012 2012/2013 2013/2014 Totals 31 march 2014

Engagements: 125 117 117 121 480

Finalised Audits 40 62 52 51 205

Total CIP's: 35 52 33 36 156

Volumes % of trade Not Recorded 21.13% 24,42% 25.25 25.25%

Revenue Collected (Audit) Not Recorded R 1,4 bn R 0,8bn R0,9bn R 3,1bn

20

IMPORTS 2012/2013 COMPARISON

0

50,000,000,000

100,000,000,000

150,000,000,000

200,000,000,000

250,000,000,000

300,000,000,000

350,000,000,000

400,000,000,000

450,000,000,000

500,000,000,000

Africa America Asia Europe Oceania Other Unclassified

103bn 99bn

385bn

250bn

13bn 1,2bn

119 bn 102bn

460bn

299 bn

15bn 1,5bn

WORLD REGIONS IMPORTS

2012 Import CustomsValue

2013 Import CustomsValue

SACU IMPORTS= R44,56bn 34.87%

World Region 2012 Import CustomsValue 2013 Import CustomsValue % Tototal

Africa (3) R 103, 95bn R 119 ,15bn 11.94%

America (4) R 99, 89bn R 102 ,19bn 10.24%

Asia (1) R 385, 96bn R 460, 87bn 46.17%

Europe (2) R 250, 44bn R 299,45bn 30.00%

Oceania R 13, 52bn R 15, 02bn 1.51%

Other Unclassified R 1 263 147 267 R 1 573 116 434 0.16%

RSA EXPORTS 2012/2013 COMPARISON

R 0

R 50,000,000,000

R 100,000,000,000

R 150,000,000,000

R 200,000,000,000

R 250,000,000,000

R 300,000,000,000

Africa America Asia Europe Oceania Other Unclassified

232bn

85bn

252bn

165bn

8bn

76bn

265bn

86bn

298bn

198bn

9bn

68bn

WORLD REGIONS EXPORTS

2012 Export CustomsValue

2013 Export CustomsValue

World Region 2012 Export Customs Value 2013 Export Customs Value % Total

Africa (2) R 232 ,8 bn R 265, 9bn 28.67%

America (4) R 85,02 bn R 86,6bn 9.35%

Asia (1) R 252,09bn R 298, 89bn 32.23%

Europe (3) R 165,4bn R 198, 52bn 21.41%

Oceania R 8,35bn R 9 ,01bn 0.97% Other Unclassified R 76, 49bn R 68, 35bn 7.37%

SACU EXPORTS R113,6bn 42,75%

Formal Creation of a Regional SACU Programme with reciprocal benefits through Mutual Recognition is based on Domestic PT (Step 1)

1. Pilot Common PT programme

2. Solidify core team in each Member

State

3. Solid infrastructures

– Legislation

– Policy

– Process / SOPs

4. MS have companies who meet all

domestic PT standards

5. MS have Compliance Monitoring

program (to Maintain PT standards)

STEP 1

Formal MS Domestic PT

STEP 2

SACU Regional “Mutual

Recognition” PT

• Pilot “to learn by testing” common SACU

requirements, communication,

interconnectivity, common standards

verification & governance

• Ensure enabling IT Connectivity, data

sharing & ability to Identify PT clients

• Formalise SACU PT through MR of

domestic programmes & governance

MR Terms of Reference

Alignment of MS Policies,

capabilities, & governance

Evaluation & monitoring processes

Signing of MR Agreements

Step 1: Work plan for MS Piloting SACU-wide infrastructure

MS confirms PT owner, &

core team

MS Policy team confirms

Pilot infrastructures

– Policies

– Processes

– SOPs & templates, Forms

MS report all non

implementable aspects of

RSA Policies, processes,

SOPs to SACU for tracking

MS’s Exco sign-off MS

Policies & Pilot materials

Establish Pilot

Policy & templates

Prepare each MS

To Pilot

Kick-off

Pilot Audits

Deploy dedicated Pilot PT

resources for Risk & Audit

Identify & engage “clients”

to include in the SACU pilot

Create risk profiles

Perform team training:

– Policy, SOPs & templates

– Practical field training with

SARS team

Amend PT team HR / KPIs

MS’s Exco sign-off MS

Policies & Pilot materials

Invite clients to Pilot kick-off mtg

Initiate self-assessment process

Mobilise dedicated Audit team,

in preparation for Audit

Arrange Audit “kick-off” Meeting

Walk-through client systems &

Self Assessment Questionnaire

Perform systems Audit,

evaluate & improve compliance

Create Audit Reports & files

Feedback to formalise MS

Align SACU Policy

Policy workshops Training on PT processes & SOPS

at SARS Venues in S Africa

Finalise domestic benefits Stakeholder forum Receive SARS assistance

Short term “Pilot” vs Long term implementation: Discussion

Short-term considerations Long-term implementation

• Benefits testing and feasibility? Bonds Lower Risk scoring Whole of supply chain facilitation

• Processing of declarations / systems

• Exchange of information

Company profiles / risks With OGA’s / CBRA’s Pilot SAD 500’s

• Identification of clients

System Physical / stickers

• Legal roadmap and programme

• Mutual Recognition framework, Common legal criteria and standards

• C2C Exchange of information Data Block Systems identification

• Vetting & implementation, monitoring &

reciprocation

• Benefits: including Facilitated release exporter to importer end to end

• Structures to support regional PT

National Pilots, then formalise National PT legislation

Regional PT enablement, Legislation, Systems, Processes

SACU Preliminary legal context

Regional Pilot considerations Long-term implementation

• RSA: No Benefits testing until formal legislation

• Other MS: ok to test benefits prior to implementation

• RSA: No circumnavigation of Processing systems via emails

• Other MS: Will consider testing benefits when “ready” to do so

• RSA: No Exchange of company specific information unless company permission is given, and or SACU protocol section E is ratified / MOU signed

• All: No use of stickers for Proposed regional pilot at this point -

• MS to implement & bed-down Domestic Programmes 1st, then seek regional pilot

• Further Legal meetings to expand and plan the implementation roadmap and programme Common legal criteria and

standards Include vetting of standards,

implementation & monitoring • Alignment to C2C Exchange of

information Project Data Block Systems identification

• Development of a Mutual Recognition

framework - proposal is for RSA to develop for discussion

Step 2: A regional Pilot facilitates & tests the formal journey to create a Regional SACU Programme with Mutual Recognition

STEP 2

SACU Regional “Mutual Recognition” PT

1. Identify gaps between

countries Policy &

capability

2. Agree on shared

responsibilities Technical,

Joint Risk rules, Threat

Assessment, Governance

3. IT and data connectivity &

alignment to enable

SACU PT

MR

Terms of

Reference

Alignment Sign SACU MR

Agreements

1. Set-up SACU Joint

Working Group

2. Agree TOR

3. Define Mutual

Recognition

4. Agree roadmap,

process & governance

5. PT Utility block

1. Amend Legislation in

each country to enable

MR

2. Political agreements

3. Terms to Include

technical, policy, &

evaluation parts

4. Ensure SACU level

structures are in place

Controlled learning by sharing / testing draft methodologies, operating requirements

verification & governance for implementation of any specific regional PT features

Regional Pilot

Situation: Regional Capacity Building Initiatives Supported development of the SIDA funded SACU AEO program, by helping to develop a set of SACU PT policies, processes and Standard operating procedures and providing capacity building for a Preferred Trader implementation plan in joint association with the WCO.

• SACU PT legislative & Policy framework ; SACU PT Accreditation Policy; PT Audit Policy; PT Risk

Policy

• SACU capacity building assistance / Training programs already hosted in RSA

• 2013 SACU work plan developed by SARS/WCO for SACU

• Assisted SACU Member States develop their own PT project plans

• PT approach used to build an Excise PT model and Audit unit ready to pilot.

• ALL SACU countries have now engaged their own clients for domestic & regional consideration.

• SACU legal meeting (May 2014): Provide high-level context to PT Programme and journey to full AEO. Review each MS’s and SACU region’s legal “room for maneuvers” in a legislative context. For establishing legal agreements including Mutual Recognition, Info Exchange & For Vetting the MRA

• Completed the scoping of AEO Safety and Security program and developed an AEO implementation plan, with the assistance of the EU, supported by the TDCA Dialogue Facility;

• EU AEO files and dialogue documentation: Phase 1, 2,3 and 4

• SARS AEO Benchmark study and reports on EU AEO

• EU AEO National Treasury report

• Legislative requirements for AEO and Gap document

Challenges

• MS political will not cascaded

• Low compliance environment in Africa, requires significant initial investment

• Lack of Risk and Audit based technical skills & structures to support AEO Compliance & Security type programs

• Maintaining focus on developing a sustainable quality of Assurance audit work

• Providing coordinated capacity building support to multiple countries of differing maturity & competencies

• Maintaining, development & consistency of staff in the program – PM, Audit, Risk

• Dependency of trade on their Agents & operators

• Working with 5 different operational models, in different levels of modernization

• Keeping scope realistic, and restricting benefits promised to achievable ones

• Building solid legislative framework for domestic and regional Mutual Recognition

• Maintaining alignment of policies and templates across domestic MS, without any shared legislative framework, oversight or direct accountability to conform

• Coordinating delivery and timelines across 5 countries

Reflections 1. Countries need to build solid, stable and

reliable domestic programmes first,.

2. MR is valuable, but over focus on developing regional type activities can distract from putting the basics in place on which a regional program is dependent

3. International Benchmarks are very valuable to learn from and align to gain best practice standards

4. Benchmarks can be misleading to follow other countries programmes or approaches – especially where legislation is different

5. Countries must consider their own strategic context and requirements when developing their Accreditation and AEO programmes

6. The overall tool in RSA has also been very effective in assisting valuation compliance and revenue generation

7. Pilots are very valuable to help develop competencies and for learning – however they require careful handling and should not be considered a “playground”

1. Important to undertake a fair and transparent method for voluntary inclusion, and terms of involvement of Pilot economic operators;

2. Benefits should be carefully handled so as not give an unfair / anti-competitive advantage in an unlawful context b) not create concessions to trade that are not firm commitments from Customs

3. No WCO Mutual Recognition framework is available which makes individual country development challenging, especially for developing countries

4. SAFE requires development of Pillar 1 Exchange of Information, risk engines and advanced electronic information to support operationalization of AEO Mutual Recognition – these activities require complex legal agreements, systems and data developments to identify, match and protect data security for the AEO Programme. This can ultimately restrict the long-term MR reciprocation in an operational context

Presented by

Mohamed Ally

Executive: Customs Operations

Thank You

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