Since the mid 1990s the US Customs Service, and its renamed post 9/11 successor, Customs and Border Protection (CBP), have been conducting risk- based Customs Focused Assessment (FA) audits aimed at ensuring that companies that import goods into the United States are doing so in compliance with Customs laws, guidelines and regulations.
In general terms, there is a good possibility that a company that imports over $100 million worth of goods annually will, at sometime, be identified by CBP to undergo an FA audit.
Companies that meet this dollar threshold and those that use free trade agreements such as the NAFTA, that import items that may be subject to quotas, trade restrictions or other scrutiny, as well as companies whose volume of imports is rapidly growing are also more prone to be audited. Firms that have a prior history of compliance difficulties also have a higher probability of being the target of an Customs Focus Assessment audit. Such being the case, importers that fit this profile will be well served to take measures to ensure preparedness if, and when, the day of such an examination arrives.
Prior to a Customs Focused Assessment audit, the CBP uses its criteria to select the firm or firms to be examined. A sampling of the selection criteria employed by Customs and Border Protection includes such things as volume, value and characteristics of imports entered into the United States by a company during a defined period of time. After scrutinizing this information, CBP compiles profile information on the company that can include information from sources such as Dunn & Bradstreet, company websites and public filings such as 10K and 10Q reports.
Prior to being audited by CBP, parties receive a phone call and written written notice from Customs authorities. They are then given a period of up to forty-five days to complete what is known as a Focused Assessmment Internal Control Questionnaire. In addition to the information called for on the questionaire, CBP may also request that the importer provide:
- A written procedure manual that clearly documents company import policies
- The most recent organizational chart
- Accounting records that may include the General Ledger information
- Information on specific customs entry transactions
Thirty to forty-five days after a company recieves notification that it has been selected for a Customs Focused Assessment audit, CBP conducts an advance conference. During this session the importer and representives of CBP discuss any questions that may remain concerning the Focused Assessmment Internal Control Questionnaire. Based upon this conference, the CBP team will determine risk, and whether or not it will proceed with the audit of the selected company.
Should it be conducted in full, the audit process, in essence, is an examination of the internal controls that an importer has in place to ensure that it is conducting its import transactions in accordance with Customs law. If a company is found to be non-compliant results can be problematic. For instance, as a non-compliant entity a company may experience more frequent than usual cargo inspections which create difficulting by holding up the shipment of goods. Also, non-complaint companies may be subject to the required to pay for outstanding duties, taxes and/or fees. Monies due would be assessed any applicable fees or penalties.
Since the consequences of being determined to be non-compliant as the result of a Focused Assessment audit by CBP, companies should be prepared for the possibility that they will be contacted. Actions that may be taken to prepare for such an event may include:
- Having an up-to-date written manual on hand that documents the processes and formalized controls that are in place to track import activities
- Taking special care and measures to minimize the misclassiffication of imported merchandise
- Making sure that valuation of goods is accurate
- Keeping documentation showing that actions have been taken when errors have been made
- Appointing staff or hiring outside help to conduct periodic in-house audits
When dealing with issues related to Customs and Border Protection rules and regulations, and related compliance issues, it is important to keep in mind the importance of having one’s house in order. A Customs Focused Assessment audit should be treated with the same degree of sobriety as those conducted by the IRS.