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International Trade

Reasonable care and best practices for post-entry audits

Karen Lobdell  

Karen Lobdell  

No one likes the word “audit.” Just mentioning the word increases stress levels of even the most competent trade compliance professional. Envisioning what hidden vulnerabilities may lie waiting in the vast pile of import entry declarations is not a pleasant experience. With our rapidly changing regulatory trade environment, it would be easy to inadvertently make a mistake or postpone audits due to scarce resources.

However, a risk-based post-entry audit, done correctly, can not only protect a company’s import business but also potentially uncover hidden cost savings opportunities.

Exercising “reasonable care” with post-entry auditing

Under U.S. Customs law (19 U.S.C. 1484), the Importer of Record is legally responsible for exercising “reasonable care” for its imported merchandise. This includes, but is not limited to, correct classification and valuation of goods and any other information necessary for U.S. Customs and Border Protection (CBP) to properly assess duties, collect statistics, and meet other legal requirements.

Included in the concept of reasonable care is the responsibility to audit your customs entries. A post-entry audit will test the accuracy of import entry declarations (whether self-filed or filed by a broker) to identify any discrepancies with customs laws and regulations. Done timely, the audit will allow for an amended entry or possible corrections facilitated by tools such as Post Summary Corrections.

The risk you take with spot checks

Failure to comply and/or address errors on entry declarations can result in numerous risks, such as:

  • Overpayment or underpayment of duties
  • Fines and penalties
  • Inefficiencies
  • Duplicative costs
  • Loss of import/export privileges
  • Personal fines or imprisonment

Despite this requirement under reasonable care, many companies today do not rigorously audit entry data. In fact, most companies are only performing spot checks on a very small percentage of all entries. By not having a comprehensive post-entry audit program in place, companies are more at risk for delays in the supply chain, fines, penalties, and/or sanctions. And if they have found an error and must pay more in duty, the company may not be in a position to pass along those costs to its customers or raise prices because of contractual obligations.

Best practices for post-entry auditing

Regular auditing and monitoring of the effectiveness of internal controls are essential to successful risk mitigation and are seen as leading best practices. This procedure will assist an importer in drawing an accurate picture of a company’s import operations and compliance levels. The best way to find out what is going on with day-to-day operations is to test.

So how much testing is enough – and what should a company test?

Although the answer is not the same for every company, some of the key areas to test can include classification, valuation, country of origin, and free trade agreements. Depending on the nature of your business, there could be other areas to consider such as anti-dumping/countervailing duties, Chapter 98 tariff provisions, GSP, and Partner Government Agency (PGA) requirements. The bottom line is that you need to effectively manage what is typically a limited number of resources on those areas deemed as the greatest risk for noncompliance.

What if you aren’t sure where the risk of noncompliance exists? Post-entry audits can also help you identify those vulnerabilities. A systematic approach of gathering and analyzing data to determine likelihood of risk of noncompliance is a good start.

Leveraging technology for a robust post-entry review process

Most will agree that technology can be helpful, particularly in coping with resource constraints. Global trade management software is an effective way to conduct thorough and targeted audits of entry declarations. This is especially valuable for importers that are dealing with large volumes of entries.

A robust solution will provide the ability to audit 100% of your entries based on validations that are most appropriate to a company’s areas of risk vs. a more elementary statistical sample set. With the proper solution, a company can supplement that effort by using the software to conduct automated random audits that focus on a more specific sample set – for example, targeting only entries by a specific broker or for a specific HS number or mode of transportation. Combining these approaches is a winning best practice – especially useful for importers in U.S. CBP’s Importer Self-Assessment (ISA) Program.

Of course, even the best systems will not help a company overcome bad data. Importers still need to focus on the process and controls in place to feed the systems. If you don’t have the data right, none of it will work.

Timely and robust monitoring of entries is an essential part of monitoring the effectiveness and efficiency of a company’s import operations. It helps to identify control weaknesses, evaluate employee performance, and identify training needs. Based on test results, control activities can then be updated to ensure that risks are eliminated or significantly reduced going forward.

Consider implementing a tool that can provide a comprehensive, automated post-entry review process. From helping to eliminate the most common errors to identifying discrepancies between the entry and supporting shipment data, software can help reduce the complexities and time spent in staying compliant.

 

With ONESOURCE Entry Verification, you can validate 100% of entries 100% of the time. Contact us today to learn more about how you can streamline and improve your post-entry review process.

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