10 ways to improve your customs compliance levels
Follow these experts' advice and you'll be on your way toward improving your company's compliance with customs regulations.
By Toby B. Gooley, Senior Editor -- Logistics Management, 10/1/2001
Customs compliance is serious business. So serious, says Mary Gill, corporate counsel for Lucent Technologies, that when she was asked to evaluate the company's compliance program, "... the first thing I did was look at the federal sentencing guidelines."
That statement drew sympathetic nods when Gill spoke at the American Association of Exporters and Importers' (AAEI) annual conference in New York in May. Michael D. Laden, president of Target Stores subsidiary Target Customs Brokers Inc. and AAEI chairman, agreed with Gill that compliance with customs regulations was not luxury but a legal obligation. "Every one of those [import] entries is a tax return," Laden pointed out in his presentation on the same panel.
Nevertheless, many companies that import into the United States fail to devote sufficient attention and resources to this area. Some falsely believe that because most duties have been reduced or eliminated, it diminishes their compliance responsibilities, says James K. Dickeson, import/export compliance specialist with Stratus Technologies in Maynard, Mass., and a licensed customs broker. Dickeson draws an analogy with the laws governing driving: "Suppose you're driving on a toll road and you get off that road onto another highway. Does that mean you don't have to pay attention to the speed limit because there are no tolls?"
Another mistake some importers make is to put an inexperienced person in charge of this complex subject. Some fail to assign any resources to compliance, incorrectly assuming that their customs broker can be entirely responsible for that function. Even companies that understand the implications of compliance failures often need to improve their performance—a fact they may not realize until they have undergone a U.S. Customs audit.
How can importers make sure their operations will stand up to scrutiny? Here's advice from the experts on 10 ways to boost any company's customs compliance levels.
1. Get support from the top. Without high-level support, compliance managers won't be able to obtain enough resources, Laden said. Stressing the tax-return angle as well as quantifying duty payments and potential penalties can help show top executives that non-compliance can be costly, he noted. At Target Stores, which is the third-largest importer of containerized cargo in the United States, even senior executives understand customs issues. That's one reason he was able to establish a separate subsidiary devoted to import management (see the accompanying sidebar).
2. Rethink your organizational structure. In most companies, import compliance is placed under traffic, logistics, or other functions that manage the physical movement of goods. Superficially that may seem to make sense, but it doesn't take into account that customs compliance essentially is an exercise in tax reporting, says Logistics columnist Rodney C. Schonland, a customs attorney, customs broker, and compliance manager for a major manufacturer. He recently moved from his company's logistics department to finance, reflecting the reality that most of the information he provides to Customs comes from the accounting side of the corporation.
3. Get other stakeholders on board. In addition to corporate officers, other groups can provide information that is critical for compliance. That's why Target Customs Brokers has formed "strategic alliances" with its parent company's legal, tax, finance, merchandising, distribution, purchasing, internal audit, transportation, and risk-management organizations. Compliance managers often need to consult with designers and engineers, too, Dickeson says, adding that it's important to educate members of all of these organizations because they often don't realize that they play a role in customs compliance.
4. Have a formal compliance-management program. An acceptable compliance program by U.S. Customs' standards defines responsibilities, provides written instructions and formal training, monitors performance against established standards, and includes a system for improving processes, says Gill. "You do not have a compliance program if you do not do this," she emphasizes. Such programs will become even more important when Customs introduces a new kind of audit this fall. Under these "focus assessments," says a former Customs official, auditors will examine importers' compliance processes. "If you don't have anything in place," he warns, "they'll go to a CAT [Compliance Assessment Team] audit."
5. Keep up with changing regulations and train your staff adequately. Customs holds importers legally responsible for knowing about interpretive rulings and changes in regulations. This information is published on U.S. Customs' Web site (www.customs.treas.gov) and in the Federal Register . Importers also can learn about changes from their customs brokers. It's important, too, to provide continuing education for new staff members and experienced personnel alike. Organizations like the World Trade Institute in New York, regulatory training firms, customs brokers, and law firms that specialize in international trade offer training in import operations. Schonland also recommends that importers consider taking preparatory courses for obtaining a customs broker's license—even if they never actually get the license—because these courses focus on import compliance in great detail.
6. Watch out for "hidden" dutiable costs. One area that trips up many companies, says Dickeson, is dutiable costs that fall outside the basic customs-clearance framework. Such things as repairs, post-sale price adjustments, payment of royalties, and the provision of molds, tooling, and design services all affect dutiable value, yet none of that information is likely to appear on the commercial invoice that accompanies a shipment. For that reason, he says, it's critical that compliance managers establish a system for obtaining such information from other internal groups.
7. Make sure parent and subsidiary companies are on the same page. A parent company can be held legally responsible for its subsidiaries' actions, and discrepancies between the information that the two entities provide to Customs can trigger audits. Laden recommended that in the case of a merger or acquisition, compliance managers immediately begin evaluating their new sister company's import procedures and compliance levels, then work to harmonize them with those of the parent company.
8. Work carefully with outside experts. Customs brokers, attorneys, and consultants can be helpful in improving your company's compliance levels. Check references and qualifications carefully because legal liability is involved. Be careful, too, about completely outsourcing compliance activities, cautions Attorney Robert J. Pisani, a former U.S. Customs compliance official and now director of the Global Trade Advisory Group of Katten Muchin Zavis in Washington, D.C. Keep in mind that if your company is the Importer of Record, it will be held responsible for compliance even though it contracted that function to an outside provider. "This is virgin territory," he says. "Legal responsibility for compliance that has been outsourced has not yet been tested in the courts."
9. Automate as much as possible. Not every task can or should be automated, but automating repetitive tasks such as data entry and document creation can greatly reduce the incidence of errors, reports Donald Luther, executive director of the Global Electronic Trade Association (GETA) and a former U.S. Customs official. "Each time someone makes a decision or enters data, there is the potential for a mistake or a lapse in judgment," he notes. Not only does automating such activities prevent recurring errors and promote consistency, but it also can make audits easier, facilitate the creation of reports, improve internal communication, and reduce costs, Luther adds. It's important to make sure that your processes are up to snuff first, though: "If you automate a bad process," he warns, "then you have made that bad process much more dangerous."
10. Manage documents and data with audits in mind. "A lot of people underestimate the importance of file management," Laden said. Often customs investigators will provide nothing more than an entry number and a date, and leave it up to the importer to provide all relevant documents, even if they reside in other departments, he said. Schonland recommends that when importers design their record-keeping systems they decide how they will need to use information in the future, then create a filing system with that in mind.
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