The Customs Focused Assessment—Part I: An Audit by Any Other Name
2/6/2006
by John Goodrich | Format for Print

"What's in a name? That which we call a rose
by any other word would smell as sweet." 

-Wm. Shakespeare

With apologies to Mr. Shakespeare…

That, which we call “Focused Assessment” smells as sweet as an audit …and indeed it is.

If your company has opted to participate in importing into the USA then it has also volunteered to participate in the Customs and Border Protection (CBP) regulatory audit lottery. This is one lottery you may not wish to win, however.

While CBP has overhauled its audit procedures making them less invasive than in the past, the process can distract your company from the business at hand and put demands on your limited resources.

Like it or not, your company’s name is in the pool of potential audit candidates.

What is a Focused Assessment?

The Focused Assessment (FA) is a risk-based approach to auditing. In the past, Customs would audit an importer for all compliance areas even if the importer was at low risk of a violation. This was a cumbersome process for Customs and the importer. It was not overly effective at increasing regulatory compliance nor did it result in significant revenue recovery for the government.

Today CBP focuses only on those regulatory programs with which the importer has the highest risk of noncompliance. Instead of immediately sampling the importer’s entry records, CBP reviews the importer’s internal control processes to determine if the importer is at risk of significant violations.

While CBP assesses all regulations, it puts an emphasis on compliance with strategic trade initiatives and revenue recovery. 

What is the Focused Assessment process?

Customs has published audit process guidelines on its website. The auditors are given latitude to change the process but, generally, an audit should roll out as follows:

CBP initiates a FA by making a phone call to the importer. At that time the regulatory audit division staff of the CBP Office of Strategic Trade will ask the importer for simple information about their program. Usually the questions are limited to contact information and questions about related companies.

Following the phone call the importer will receive a questionnaire from CBP. The audit team may choose to modify this questionnaire and customize it for the specific importer. CBP has also published a copy of the questionnaire as an informed compliance document at its website.

Along with the questionnaire, the importer may be asked to provide business records in hard or soft copy, such as:

• Import policy and procedure manual.
• Company organization chart.
• Copy of the general ledger or other accounting records.
• Specific customs entries.

Once CBP receives the response to the questionnaire they will analyze it and make an initial risk assessment of the importer.

Should the audit team decide to proceed, they will hold an introductory conference with the importer explaining the process. The conference will be followed by interviews with key import staff. At any time during the audit, CBP may ask to see a representative sample of customs entries to test compliance with a specific focus area.

An importer can expect to be asked to pull two samples for testing—one for valuation and one for classification. Should the audit uncover revenue issues, CBP may request a statistical sample to determine the extent of any revenues owed to the government.

Should the audit disclose any patterns of noncompliance within an importer’s program, the auditor and the importer will agree upon a Compliance Improvement Plan (CIP). The CIP is essentially a time and action plan the importer will follow to improve compliance controls. 

If any revenue issues were found during the audit, the importer would have to pay any unpaid duties, fees or taxes along with interest. Depending on the extent of the non-compliance, the audit could result in additional assessment of penalties.

Why was my company selected for a Focused Assessment?

While your company may have been selected at random it may also have been selected because it met a higher risk profile than other importers. Remember, CBP focuses on strategic trade initiatives and revenue issues. Any of the following higher risk import behaviors might trigger an audit:

1.       Use of free trade agreements or duty preference programs such as NAFTA or GSP.

2.       Your commodity (for example, textiles) is subject to trade restrictions or scrutiny.

3.       The origin country may be prone to misstatement of country or origin or transshipment.

4.       Your company has had a history of compliance related issues.

5.       Your company’s importing has grown rapidly.

6.       Your company does business in an industry such as retail, textiles automotive or steel that has complex import issues and has been subject to strategic trade initiatives.

7.       Your product is subject to antidumping or countervailing duties.

8.       Your vendors have had a history of trade compliance issues.

9.       Your company utilizes headings 9801 and 9802—U.S. goods returned provisions.

Remember, the FA isn’t personal. It merely means that CBP believes your company is at higher risk of noncompliance than other importers. 

Should we engage an attorney?

If it were my company, I would have a customs attorney participate on the very first phone call from CBP. It is common to have the attorney assist you with completion of the questionnaire, to be present at all interviews, and to review all documents prior to submission to CBP.

Yes, they can be expensive, but not having an attorney can be even more costly.

What should we do to prepare for a Focused Assessment?

If you haven’t done so, subject your company to a self-assessment. You can use internal resources or hire a third-party auditor to review your import program.

Should you discover any reportable issues during the self-assessment, you should be able to disclose them to Customs. As part of the voluntary disclosure, your company should only have to pay any duties, fees, taxes and interest owed. Prior to making a voluntary disclosure, you should obtain professional advice from your broker or your attorney.

How can we avoid a Focused Assessment?

Believe it or not, you can avoid the FA process if you choose to participate in the CBP program known as Importer Self Assessment (ISA).  ISA involves partnering with CBP in what might be seen to be a continuous audit process. To determine if your company would benefit from ISA, refer to the guidelines at the CBP website.

If your company has already been notified it will be subject to a FA, you may be prevented from participating in ISA until the FA is completed.

How can we mitigate the impact of a Focused Assessment?

Strategic preparation is key. There are a number of tactical things a company can do to prepare for a FA.  Remember, however, CBP will evaluate your company’s risk of regulatory noncompliance. To mitigate risk an importer must focus not simply on the tactical but also on internal control strategies.

In part II of this article I will discuss how CBP considers your company’s internal controls.

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