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CBP's Approach to Regulatory Audit & Quick Response Audits

This speech by Peter Daniels from the Office of International Trade Regulatory Audit Division discusses the importance of regulatory audits and quick response audits in ensuring compliance in international trade. The speech covers topics such as risk management, focused assessments, high-risk total imports, priority trade issues, and the importance of internal controls. It also outlines CBP's approach to compliance, the Pre-Assessment Survey (PAS), and the Assessment Compliance Testing (ACT) processes. The speech concludes with the benefits of effective internal controls in CBP programs.

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CBP's Approach to Regulatory Audit & Quick Response Audits

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  1. Office of International Trade Regulatory Audit Division SPEECH TO LIIEA ON REGULATORY AUDIT & QUICK RESPONSE AUDITS- PETER DANIELS- REGULATORY AUDIT

  2. CBP’s Goal: TJ Continue Ensuring Compliance 2007 1995 Risk Management Quick Response Audit Focused Assessment 2

  3. Trade - Focus on High-Risk Total Imports Compliance Threat Priority Trade Issues Material Discrepancies Major Accounts

  4. Textiles/Wearing Apparel Intellectual Property Rights Agriculture Revenue Anti-Dumping/Countervailing Duties Penalties Priority Trade Issues

  5. Importer (Focused Assessment) Quick Response Audit Agriculture IPR Textile Transshipment Referrals Fraud & Money Laundering Bonded Warehouse NAFTA, GSP, CBI, IFT Customs Broker Foreign Trade Zone Drawback Types of Audits

  6. 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. CBP’s Approach to Compliance

  7. 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. Focused Assessment Program Two Distinct Processes:

  8. Reviewing policies and procedures. Interviewing company personnel. Determining if control implementation is documented. Testing the implementation and effectiveness of control using judgmental sampling. Focused Assessment Program Pre-Assessment Survey (PAS) In the PAS, we determine if internal control is implemented and effective by:

  9. 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. Focused Assessment Program Assessment Compliance Testing (ACT)The audit team may proceed to ACT for each review area determined to be an unacceptable risk.

  10. Action(s) to be taken Responsible organization/individual Timetable for implementation 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:

  11. 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. Focused Assessment Program Follow-up Review A follow-up review may be required for PAS and/or ACT to:

  12. Internal Controls are - Continuous Built-in Processes that Provide Reasonable Assurance and are Effected by People 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.

  13. 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.) Benefits of Effective Internal Controls

  14. 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 Best Practices – Internal Controls

  15. 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 Common Internal Control Deficiencies

  16. 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.) Common Internal Control Deficiencies

  17. 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 Common Internal Control Deficiencies

  18. 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 Common Compliance Errors

  19. 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 Common Compliance Errors

  20. 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 What TRADE Can Do

  21. 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 What TRADE Can Do

  22. 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? Evaluate Your Controls…

  23. 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? Evaluate Your Controls…

  24. 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

  25. 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 EXAMPLES OF QRA SUBJECTS

  26. 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 QUICK RESPONSE AUDIT QUESTIONS

  27. 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? QUICK RESPONSE QUESTIONS

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