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There is nothing like the word ‘audit’ to make a shiver run down your spine. Whether it’s for taxes, financial practices, internal controls, or any of the other regulatory processes that are supervised by external bodies, no one likes having their business put under a microscope. But every industry has standards that protect all stakeholders from mistakes, malpractice, or unfair activities, and audits are the only way governing bodies can ensure that regulations are being followed.
U.S. Customs and Border Protection (CBP) is no different. They regularly audit businesses that import goods into the US to evaluate how well they are complying with import rules and regulations. CPB audits also serve as a means for US customs to generate revenue by identifying situations where duties have been underpaid and, if necessary, issuing penalties or fines.
Another motivation for CBP audits is to gather data about companies to assess the probability of their non-compliance. As a result, a CBP audit entails examining both a business’s internal controls and conducting a risk assessment. This involves scrutinizing not only the imported goods and corresponding duty payments but also inspecting company documents, including import entries, financial records, as well as their customs procedures.
Read more to find out about CBP audits and how to best prepare yourself for one.
How Often Does the CPB Actually Audit?
The CPB conducted 430 audits in 2022, relatively consistent with the previous four years. While that may not seem like much, they collected approximately $77.7 million as a result of these audits. They also made over 46,000 seizures of goods. Despite this fairly regular annual pattern, the CPB is determined to increase the number of audits they conduct.
The CPB has publicly stated that they aim to eventually audit every importer
The CPB has publicly stated that they aim to eventually audit every importer, so it seems likely that it is only a matter of time before they come knocking on your door. They are making changes in their auditing practices to try and make this a reality. This includes:
- Increasing the number of audits they conduct.
- Using penalties more frequently and raising their amounts.
- Introducing smaller, more targeted audits.
- Following up primary audits after 12 to 18 months to make sure that recommended changes have been implemented.
Several things can happen if you are audited and are found to have violated any of the regulations. For small mistakes, gaps in your procedures, or problems with recordkeeping you can be given recommendations (these are generally more than just recommendations though, and you will be expected to follow through with them). The idea is to ensure that you reduce the likelihood that you will break any rules going forward.
For bigger or intentional violations, you can be given duty adjustments going back four years, along with additional financial penalties. These penalties are graduated, starting much lower for less severe and once-off infractions, and getting more onerous for serious or frequent contraventions.
While this can seem worrying, there are ways to ensure you mitigate your risks of making errors. Being meticulous with your recordkeeping and establishing proper internal controls and processes is the best way of making sure you are audit ready. Understanding the type of audit and the audit procedures is also critical in ensuring you have a pain-free experience.
Types of CPB Audits
The Focused Assessment (FA) is the most common type of CPB audit. It has two phases – the Pre-Assessment Survey (PAS) and the Assessment Compliance Testing (ACT). During the PAS, an auditor examines a range of company documentation such as customs entry records, select general ledger accounts, and foreign vendor payments. Once this has been done, an audit team will write a report evaluating the firm’s internal controls and make a judgment as to how sufficient these controls and processes are.
Only if the company fails to achieve acceptable standards will CBP proceed to the second stage – the ACT phase. Here the audit team will highlight the areas that it believes are potentially problematic, and will then make a closer inspection identifying instances of non-compliance and calculating their loss of revenue.
Quick Response Audits
Quick response audits (QRA) are a more recent development. They are audits with a much more narrow focus, concentrating on a specific single issue (they are also known as single-issue audits). Because of this, they are much quicker. They generally occur when the CPB has received referrals from within the agency or from Homeland Security, and are usually related to more high-risk transactions. Like with the FA process, a QRA involves the review of selected documents and entries to understand the company’s importing process and will identify areas of non-compliance and unacceptable risk.
A Rundown of the CBP Audit Process
Step 1: Deciding Who to Audit
The CBP selects a company for audit based on several criteria such as import volumes, whether they are using specialized duty programs, how much duty they have paid historically, and what their prior record of compliance is. Once they’ve selected an audit candidate, the CBP will create an extensive and detailed company profile covering their background and customs history.
Step 2: Sending a Notice of Audit
The CBP is required by law to provide the importer with advanced notice of the upcoming audit as well as how long they expect it to take. They will likely send the company a questionnaire about the importer’s internal procedures so they can start the audit with some degree of background and preparation.
Step 3: The Entry Conference
Before starting the audit, the CBP will arrange an entry conference with the importer where they will explain the purpose of the audit, its scope, the process they will use, and how long they estimate it will take to complete.
Step 4: The Audit
The auditors will select, from their records, specific import transactions from the importer’s prior financial year. They will then request documents from the company to compare this reported information to the company’s internal records. Auditors also select financial transactions to establish whether or not specific transactions or charges were correctly declared. CBP will assess the level of compliance (acceptable vs. unacceptable) based on the results of this review.
Step 5: The Closing Conference
Once the CBP has completed the audit it will schedule a closing conference to present and explain its findings to the importer. They will state whether the company was found to be compliant, and if problems were identified they will request that the importer put a corrective plan in place. They will also disclose any penalties or fines. CBP will provide a report to the importer with all of these details.
Here’s how to get audit-ready
Getting Audit ReadyThe best way to prepare for a customs audit is to strengthen your import compliance procedures and internal controls. To that end, importers should conduct internal audits and risk assessments to determine which areas pose the highest risks for non-compliance.
Here’s how to get audit-ready:
- Keep your customs documentation up-to-date and in one place. Make sure they are easily accessible.
- Review your compliance process to make sure you have the proper systems and controls in place.
- Check that all financial statements and agreements are accessible.
- Make sure you have documented what methodology you use for assigning your HTS codes and tariff classifications. Support this with evidence of previous rulings, third-party opinions, or specification sheets.
- If you’re claiming benefits based on The North American Free Trade Agreement (NAFTA) or any other free trade agreement, make sure the necessary information is correct and that you can easily access all supporting records should you need to.
Having The Right Customs Platform Keeps You Prepared 24/7
Eezyimport is a DIY online customs solution that allows you to easily navigate US customs processes. Our leading-edge platform takes you through a fully digitized process and saves all documents and correspondence in one place – meaning our customers are audit-ready at all times, without having to even think about it.