by Damon Baca
An ounce of prevention is worth a pound of cure.
Truer words were never spoken when it comes to U.S. Customs and Border Protection (CBP) focused assessments or audits. These reviews can be costly, time-intensive events that divert your organization from its primary business pursuits. Thus, it is important to do everything possible to prevent them or minimize their occurrence.
The first important step is to understand that CBP has two priorities: security and revenue collection. CPB places emphasis on securing cargo, performing rigorous denied party screenings and adhering to its rules and regulations as well as those imposed by other federal agencies. And, as the second biggest revenue source for the U.S. government, CBP pays particular attention to the processes in place to pay accurate tariffs and taxes.
Importers must align their priorities with CBP’s. Toward this end, there are several strategies they should implement, including
- Developing a Reputation with CBP
- Establishing a Corporate Compliance Program
- Using Up-to-Date Tariff Codes
- Maintaining Complete and Accurate Records
- Having Third-Party Assessments Done Annually
Developing a Reputation with CBP
It’s essential that your firm be seen as part of the port community. One way to get involved and become known to local CBP officials is to have employees participate in workshops and training conducted by port authorities. It’s a great way to get to know the Customs officers – and an equally important means to demonstrate to the people who matter that you are doing your best to learn the rules and be compliant. Beyond the knowledge that can be gained, being a known entity could be invaluable should an oversight occur.
Likewise, being part of the Customs-Trade Partnership Against Terrorism (C-TPAT) program, a voluntary supply chain security program led by CBP, also sends a strong signal about your company’s commitment to compliance. And, if you achieve C-TPAT certification, it signals to all that you possess a documented process for assessing and minimizing risk throughout your international supply chain. Being certified not only gives you a specific point of contact at CBP (another way of establishing a relationship) but also categorizes your firm as low risk and confers benefits such as expedited cargo processing and fewer examinations.
The power of a good reputation cannot be underestimated.
Establishing a Corporate Compliance Program
In terms of limiting vulnerability to focused assessments and audits, having a corporate compliance program is essential. It’s important to appoint a compliance officer (preferably an executive-level person) and give that individual the ability to be effective in that role. If your company has a C-level executive who is not just responsible for compliance but also conversant in the rules and regulations, it speaks volumes to CBP. Even better, create a compliance department. Whether staffed by a single person or ten, having such a department connotes a high level of concern for compliant importing.
An optimum compliance program should include a written manual, even though Customs does not require companies to have one. The manual should be a physical document that you update regularly that delineates all of your processes and procedures for trade compliance and importing, especially valuation. There are, as you know, different ways to value products and different rules govern each process. Your compliance manual should include all the different valuation models or methodologies you use. Articulating your methodologies in writing not only reflects an understanding of the processes but also an emphasis on accurate payments to the government.
The second important piece of a compliance program is conducting internal training. The program should teach staff the policies, procedures, rules and regulation. Again, a training program conveys both internally and externally that trade compliance is a critical issue for which everyone in the company holds responsibility.
Using Up-to-Date Tariff Codes
Harmonized Tariff Schedule (HTS) codes form the backbone of international trade (HS codes if outside the United States). When a focused assessment or audit occurs, CBP, consistent with its priority of revenue collection, will want to know how you are managing your product database and how you are ensuring the HTS codes are current and correct.
It is imperative to periodically update the HTS codes used. Companies that update manually should establish a policy calling for an HTS code review and update every six months – and incorporate that requirement in their compliance manual. QuestaWeb customers benefit from automatic updates, simplifying compliance efforts.
Maintaining Complete and Accurate Records
Customs will review your records as part of its audit or focused assessment process. Having complete and accurate records is important and sends a powerful message.
Importers must maintain these trade-related records for a period of five years. Many companies maintain paper documents on file for five years and then purge them from the files. Reviewing the age of records and physically removing them can be a labor-intensive process. Notably, QuestaWeb customers have a Customs-approved methodology for automatically managing records electronically. Importers can capture and archive them in their QuestaWeb system and electronically purge them when the five years are up.
Your methodology for managing records should be covered in your compliance manual.
Having Third-Party Assessments Done Annually
It is one thing to establish an internal program featuring all the recommendations discussed. It is quite another to bring in an outside consultant to review your compliance program, procedures, security efforts, HTS codes and more for the purpose of evaluating their comprehensiveness. Periodic third-party assessments – a mock focused assessment done once a year – can be a great way to identify any shortcomings in your processes.
Expending the time and effort to have an outside party conduct mock assessments makes a powerful statement about your company’s commitment to compliance.
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There are no sure-fire ways to avoid a CBP audit or focused assessment. However, by taking the steps outlined here you’ll be doing everything possible to minimize the possibilities of such a review – or perhaps limiting its severity.