How To Survive A Customs Audit (page 2)

-- Logistics Management, 10/1/2005

Page 2 of 4
According to Peter Battaglioli, a customs audit specialist with the law firm Katten Muchin Rosenman LLP, CBP views the absence of any of those five components as "an accident waiting to happen."

In the most basic sense, therefore, Focused Assessments are designed to evaluate the existence and effectiveness of those five components of internal controls.

According to William Mohalley, CBP's Director of Regulatory Audit in Boston, the agency's Focused Assessment program allows CBP to develop an opinion regarding the level of risk posed by a particular company's import practices. It consists of three basic components:

Pre-Assessment Survey (PAS)
Assessment Compliance Testing (ACT), if necessary
Follow up, if necessary

During a Pre-Assessment Survey, the auditors identify any import-related activities that may present a risk of noncompliance with the laws that CBP is responsible for enforcing. They then review the importer's internal control systems to determine whether they are adequate to control that risk. If the PAS does not identify any unacceptable risks, the audit work can be completed at that point. If the PAS does identify unacceptable risks, the importer must then proceed with one of two options.

The first option is to take corrective action, including (if applicable) calculating the amount of revenue lost to the government as a result of the importer's errors. If the company agrees to this option, the auditors will establish a deadline for completion and schedule a follow-up visit.

If the importer does not agree to that option, the auditors will then proceed with Assessment Compliance Testing (ACT). This involves transaction testing to verify the extent of the problems identified in the Pre-Assessment Survey and/or to calculate the loss of revenue to the government.

When testing has been completed and the full extent of the problems has been quantified, CBP will ask the importer to take corrective action on problems it deems to have material impact on regulatory compliance levels. The agency also will advise the company of the amount of additional duties to be paid, if applicable. In such cases, the focused assessment will conclude with a follow-up audit.

Getting Ready

This brings us to the question of how to prepare for and "survive" the audit. It's a bit like facing final exams in college without having read the assigned books, and there's limited utility to cramming.

Importers that have been selected for a Focused Assessment audit are first notified by telephone. CBP will schedule an initial conference to be held at least 45 days later.

Upon receiving notice that they will be the subject of an audit, importers should learn what kinds of records the auditors will be reviewing by reading the detailed information about Focused Assessments on CBP's website. (There's a lot to read—the relevant PDF file is 3,473KB!)

It is particularly important to review and answer the questionnaires concerning internal control andelectronic data processing, which can be found on CBP's website. Importers should trace or flowchart both automated and manual processes for all types of customs transactions. They should also ensure that they have a basic procedures manual in place before the Focused Assessment begins. Continued...

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