Customs audits can be a stressful and an expensive process for the import and export operations. Oftentimes, companies are caught by surprise and are unprepared to respond to the many documentation demands from auditors, especially when it involves going back several years on transactions. This article will explore ways to help you better prepare for those audits so that they are processed as quickly and efficiently as possible while ensuring you meet the request.
Let’s begin with the basics of what a customs audit actually is. A customs audit is a process of verifying the accuracy, the authenticity and the compliance of a company’s import and export activities with the designated legislation and regulations. According to article NO 45 of the China Customs Law, “China customs has the authority to check and verify the records within 3 years when import and export goods are released, or within the customs supervision and control period of bonded goods or imported goods with deducted or exempted duties of the account ledgers, vouchers, customs declaration documents and other relevant documents.” Furthermore, new revisions have been made to the customs audit regulations, issued by China’s General Administration of Customs. The updated measures provide guidelines in implementing customs audit regulations by specifying and refining the various items in the operation and implementation of the customs audit regulations.
On the basis of article NO 31, if the auditee fails to prepare or keep customs declarations, import and export documents, contracts, and other documents directly related to their import and export transactions, in accordance with the regulations, the auditee will be ordered by customs to re-prepare all of the documentation within a defined deadline specified by the auditor. If within the allowed timeframe, the auditee fails to submit the requested documentation, a penalty of 10 thousand to 50 thousand RMB will imposed. If the circumstances are serious, customs auditors may revoke the registration authority of brokerage, and the importer/ exporter will be liable to a fine of 1 thousand to 5 thousand RMB. These penalties are imposed in order to keep importers and exporters in compliance with the recordkeeping requirements of the Chinese Customs Law.
The first step in preparing for a customs audit is to fully understand what an audit requires. Typically when importers or exporters receive a customs audit notification, the notification will contain three key pieces of information. This information includes the audit period, the scope of the audit and preparation information. According to customs audit methodology, customs will execute audits at least 3 days from the date the importer or exporter has been notified. Thus, internally preparing a self-audit on your import and export operations is a key starting point in better preparing for the unexpected customs audits.
If customs requires reviewing transactions from 3 years ago, this is typically where companies face the most challenges. To combat not being prepared for the likelihood of a Customs audit with this lengthened audit period, companies should consistently conduct self-audits and maintain their records, so when called upon to support the inquiry, they are prepared and gathering data.
Based on what we know to expect, here are some suggestions on how companies can create internal controls in order to better prepare – specifically from a record keeping perspective.
- Strengthen customs regulation training to ensure internal trade operators and external logistics vendors fully understand the importance of record maintenance of all import and export declarations and any documentation related to the transaction.
- Build up an internal regular self-assessment mechanism that includes easy access and traceability to all import and export records.
- Apply essential Authorized Economic Operator (AEO) level standards to gauge internal controls and trade compliance levels based upon the established required criterions. For example, within the AEO requirements, a standard import and export document archive methodology fulfilled by customs supervision is an area that is reviewed for companies’ participation in the program. This standard will support a customs audit if properly implemented.
- Implement an IT solution that can automate trade transactions through a single platform and link each department and stakeholder to the transaction record. Accuracy becomes easily monitored and visibility to events accessible.
Customs audits can be very time consuming and can result in unexpected fines and penalties. Having a sound process in place that involves self-audits will help reduce a company’s vulnerability to these fines and penalties and will reduce the time and manpower spent in trying to prepare for the requests with only a limited amount of time to review an overwhelming amount of data.
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Customs Law of the people’s republic of China, 2005, access from: http://www.customs.gov.cn/publish/portal0/tab2747/info3420.htm
General Administration of Customs Order No. 230 (About the promulgation of the Measures for the Implementation of the Customs Inspection Regulations of the People’s Republic of China), 2016, access from: http://www.customs.gov.cn/publish/portal0/tab49564/info823478.htm
General Administration of Customs Order No. 225 (Interim Measures on Credit Management of Customs Enterprises of the People’s Republic of China), 2014, access from: http://www.customs.gov.cn/publish/portal0/tab2824/info721523.htm