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Office of International Trade
Regulatory Audit Division
SPEECH TO LIIEA ON REGULATORY AUDIT &
QUICK RESPONSE AUDITSPETER DANIELS- REGULATORY AUDIT
CBP’s Goal:
TJ
Continue Ensuring
Compliance
1995
Focused
Assessment
2007
Quick
Response
Audit
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Trade - Focus on High-Risk
Total Imports
Compliance
Threat
Priority Trade
Issues
Material
Discrepancies
Major
Accounts
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Priority Trade Issues
 Textiles/Wearing Apparel
 Intellectual Property Rights
 Agriculture
 Revenue
 Anti-Dumping/Countervailing Duties
 Penalties
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Types of Audits
 Importer (Focused
Assessment)
 Quick Response Audit
Agriculture
IPR
Textile Transshipment
 Fraud & Money Laundering
 Bonded Warehouse
 NAFTA, GSP, CBI, IFT
 Customs Broker
 Foreign Trade Zone
 Drawback
Referrals
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CBP’s Approach to Compliance
 Key to CBP compliance is for Trade to establish and implement
INTERNAL CONTROLS (Brokers, Importers, FTZs,
Warehouses, Etc.)
 Why Internal Controls?
Mod Act requires reasonable care. Trade has the
responsibility to use “reasonable care in…classifying and
appraising merchandise…
Sarbanes-Oxley Act of 2002 (“SOX”) – Requires internal
controls over financial reporting, operations, and compliance.
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Focused Assessment Program
Two Distinct Processes:
Pre-Assessment Survey (PAS)

Identify risks to CBP and evaluate the adequacy of
internal control over CBP activities to determine if risk
is acceptable.
Assessment Compliance Testing (ACT)

Transaction testing used to measure compliance
and/or determine loss of revenue.
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Focused Assessment Program
Pre-Assessment Survey (PAS)
In the PAS, we determine if internal control is
implemented and effective by:
 Reviewing policies and procedures.
 Interviewing company personnel.
 Determining if control implementation is documented.
 Testing the implementation and effectiveness of control
using judgmental sampling.
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Focused Assessment Program
Assessment Compliance Testing (ACT)
The audit team may proceed to ACT for each review area
determined to be an unacceptable risk.



The company does not maintain adequate control and
ACT testing is necessary to determine the level of
compliance.
The FA team is not able to confirm that internal control
is adequate to control risk to CBP.
Revenue issues exist that cannot be resolved without
addition testing.
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Focused Assessment Program
Compliance Improvement Plan (CIP)


Prepared by the company to address internal control
weaknesses and compliance issues found during the
PAS or ACT.
A CIP includes:
 Action(s) to be taken
 Responsible organization/individual
 Timetable for implementation
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Focused Assessment Program
Follow-up Review
A follow-up review may be required for PAS and/or
ACT to:
 Verify that corrective actions specified in the CIP were
implemented and effective in managing risk to CBP and
correcting the deficiencies identified during the previously
conducted FA.
 Verify the accuracy of the loss of revenue calculations by
the company.
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WHAT ARE INTERNAL CONTROLS?
Processes effected by the company board of directors,
management, and other personnel that are designed to
provide reasonable assurance that specific objectives
are met.
Internal Controls are Continuous Built-in Processes
that Provide Reasonable Assurance
and are Effected by People
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Benefits of Effective Internal Controls
 Are the first line of defense against noncompliance with CBP laws and
regulations.
 Provide predictability concerning CBP-related transactions.
 Demonstrate commitment to compliance.
 Link management objectives and results.
 May reduce duty overpayment and decrease risk.
 Are the foundation for compliance in CBP programs. (C-TPAT, ISA & FA,
etc.)
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Best Practices – Internal Controls
 1. Management Commitment
 2. Establish Compliance Goals
 3. Develop Formal Policies & Procedures
 4. Establish Training Programs
 5. Conduct Internal Control Reviews
 6. Create a CBP Compliance Group
 7. Access to Executives for Needed Resources
 8. Develop Compliance Requirements for Suppliers
 9. Establish a Record Keeping Program
 10. Partner with Customs & Border Protection
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Common Internal Control
Deficiencies
 No Internal Control Procedures In Place
 Internal Control Procedures In Place, But, Not Documented
 Written IC Policies/Procedures are General (Regulatory Requirements
Only)
 Not Documenting Instructions and Communications with Broker
 Not Monitoring/Verifying Broker’s Work
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Common Internal Control
Deficiencies
 Not Maintaining or Updating Classification Database
 Not Requesting CBP Assistance/Input with New or Complex Issues
 Other Departments Not Communicating Potential CBP Related
Information to the Import Department
 Not Tracking and/or Reporting Variances to CBP (Value, Quantity,
etc.)
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Common Internal Control
Deficiencies
 Not Obtaining and Maintaining Proof of Eligibility for Special Trade
Program Claims
 Lack of Knowledge or Specialized Training
 No CBP Reference Materials Available to Employees or Not
Accessed/Used
 No Testing of Entries for Accuracy
 No Periodic Review and Adjustment of Internal Control Procedures
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Common Compliance Errors
 Not Reporting Full and Proper Value
Additions to Price Actually Paid or Payable
Manufacturing Assists
Estimated Non-dutiable Charges
Unreconciled or Incorrectly Reconciled
Improper Basis
 Misclassifying Merchandise
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Common Compliance Errors
 Not Declaring/Paying Proper ADD/CVD
Wrong Orders
Wrong Classification
 Claiming Special Trade Programs or Duty Provisions when Not Eligible
or Not Supported
9801, 9802
GSP, CBI, etc.
NAFTA
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What TRADE Can Do
 Check CBP Web Site: www.cbp.gov
Guidance on Internal Controls (TIPS)
 Best Practices
 Red Flags
 Internal Control Checklist
Model Internal Controls Guide
Audit Program
Guidance - Compliance Improvement Plans
Regulatory Audit Contact
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What TRADE Can Do
 Assess Risks of Noncompliance
 Ensure Control Procedures are Written & Detailed
 Periodically Assess Internal Control, Look for Strengths &
Weaknesses, Make Adjustments
 Test Transactions for Accuracy & Make Corrections When Needed
 Make Sure All Control Procedures Performed are Documented
 Provide Sufficient Training/Resources to Staff
 Contact CBP for Further Guidance When Needed
 Self-Review & Prior Disclosure Before Audit Commencement
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Evaluate Your Controls…
 Are CBP control procedures formally documented to ensure
accuracy of CBP information?
 Are written policies and procedures that relate to CBP
issues approved by Management?
 Are CBP related policies and procedures reviewed and
updated periodically by responsible company officials?
 Within the written control procedures, are duties assigned
to a position rather than a person?
 Are internal controls periodically tested, results documented
and appropriate corrective action taken?
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Evaluate Your Controls…
 Does company identify, analyze, and manage risk rated to
CBP issues?
 Has the company identified any risks related to CBP issues
and implemented control mechanisms?
 Do company employees responsible for ensuring that
accuracy of CBP related information have adequate
knowledge and training?
 Does the company have adequate interdepartmental
communication about CBP?
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QUICK RESPONSE AUDITS
 INTRODUCED TO TRADE JANUARY 6, 2006
 SINGLE ISSUE AUDIT or LIMITED OBJECTIVE REVIEWS
 INTELLECTUAL PROPERTY RIGHTS
 AGRICULTURE
 TEXTILE COUNTRY OF ORIGIN
 SIGNIFICANT FACTORS ADDRESSED
 BACKGROUND INFORMATION
 OBJECTIVE OF AUDIT
 CRITERIA
 METHODOLOGY
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EXAMPLES OF QRA SUBJECTS
 Improper Valuation-Undervaluation
 Possible Anti Dumping Duty Violations
 FTZ- Inventory Discrepancies
 Bonded Warehouse- Missing Merchandise
 IPR Violations
 ICE Fraud Support-Evidence & Quantifications
 Agriculture Import Problems-Food Products (Prohibitive List)
 Prior Disclosure Review
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QUICK RESPONSE AUDIT
QUESTIONS
 How are QRA Candidates chosen?
 Difference between FA & QRA
 Subjects Addressed in QRA
 WHY ISA Approved Importers still subject to QRA
 Typical Document or Information Required Time
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QUICK RESPONSE QUESTIONS
 Can Failure To Respond Invoke Customs Record Rules?
 Does QRA Notice Preclude Prior Disclosure?
 Results Of QRA Can lead to Penalty Actions
 CAN Prior Disclosure Result In A QRA?
 Can A QRA Be Suggested From A Competitor?
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