The Customs Focused Assessment—Part III: Internal Control Best Practices
4/3/2006 - by John Goodrich

In part II of this article we discussed Customs & Border Protection’s (CBP) consideration of your company’s internal controls during a focused assessment. Customs reviews five components of your company’s internal controls:

1. The Control Environment.
2. Risk Assessment.
3. Internal Control Activities.
4. Information and Communication.
5. Monitoring.

In this article, I’ve outlined examples of activities companies have implemented to strengthen their control environments in each of these five areas.

The Control Environment

• Develop a corporate customs compliance policy issued by executive management and signed by all management and staff involved in the importing process.
• Develop a customs department with responsibility for the importing process.
• Structure the company so that the customs department reports at a high and visible level within the organization. Having the import office report to the legal department or tax department would give it visibility to management and authority to act.
• Develop a document formally delegating authority to the customs department to monitor and control the company’s importing activities.
• Designate and empower a senior manager as compliance officer for the organization.
• Make executives aware of key importing metrics such as value of imports, duties paid and duties avoided due to participation in free trade agreements.

Risk Assessment

• Establish quantitative compliance and cost metrics. As an example, monitor a broker’s entry activity such as number of entries, timeliness of entries, numbers of late or rejected entries and reasons for late or rejected entries. Analyze the cause of any entry shortcomings and take action if indicated.
• Cross train staff to ensure continuity during peak times and develop succession plans to allow for advancement and turnover within the department.
• Develop implementation plans when initiating new business with vendors or service providers.
• Review import data in order to track and assess participation in higher risk importing programs and compliance with goals and objectives. If internal data is not available, join ACE or obtain ITRAC data.
• Develop policies and procedures for higher risk import programs such as use of free trade agreements.

Internal Control Activities

• Develop a formal policy and procedure manual that assigns responsibility to specific individuals or job functions.
• Incorporate import control responsibilities within an individual’s job description.
• Perform pre- and or post-entry audits focusing on HTS classification, valuation, duty payments and record keeping.
• Compare landed cost estimates with actual landed costs. A compliance issue might be the cause of any variances.
• Develop a vendor import compliance and procedure manual.
• Document procedures for forwarders and brokers including a detailed item classification list.
• Establish a record-keeping program.

Information and Communication

• Create a cross-functional compliance team to communicate regulatory requirements and collaboratively resolve compliance issues.
• Develop a compliance training and awareness program targeted at all members of the organization involved in importing. Focus skills-based training on key import staff members.
• Communicate progress with achieving compliance goals and objectives with the company.
• Share compliance related information via a company intranet site.
• Monitor the Customs website and participate in CBP sponsored events to ensure information shared within the company is accurate and current.

Monitoring

• Periodically perform an internal audit to ensure that control activities defined within the procedure manual are followed and that they are effective.
• Hire an external auditor to review the import program.
• Adapt the audit to reflect changes in the import program.

The above is intended to be neither a prescriptive nor a comprehensive list of activities your company must undertake to develop effective internal controls. If I were to survey the importing community, I suspect we could add additional creative ideas to the list. Incorporating any of these suggestions, however, should enhance your company’s ability to withstand an audit. More importantly, it will help you fulfill your legal reasonable care obligations.

For more information on the complete focused assessment process, refer to the Customs website.