GAO Finds Weaknesses in CBP's In-Bond System, Recommends Additional Data be Collected, Etc.

As part of its report, GAO recommends that CBP collect additional information on in-bond shipments, including the six-digit tariff number and a more precise description of the goods, and further identification of the entities involved in the movement of these goods (see below for details).

(The in-bond system allows imported cargo intended for either U.S. or foreign markets to move from one U.S. port to another without being assessed U.S. duties or quotas and without officially entering U.S. commerce.)

GAO Finds CBP Does Not Adequately Monitor and Track In-Bond Goods, Etc.

The GAO's report finds the following regarding in-bonds (partial list):

Despite numerous program reviews and audits that identified problems in CBP's management of the in-bond system, weaknesses persist and continue to impede CBP's ability to ensure proper collection of trade revenue and management of trade risks.

The major weakness is that CBP does not adequately monitor and track in-bond goods. In particular, it does not consistently reconcile in-bond documents issued at the arrival port with documents at the destination port to ensure that the cargo is either officially entered with appropriate duties or quotas applied, or is in fact exported.

CBP records show that many in-bond cargo shipments remained unreconciled, or "open," with one port reporting that 77% of its in-bond transactions were open. In-bond regulations provide unusual flexibility for the trade community, but create challenges for CBP in tracking movements. Also, some CBP ports do not consistently perform in-bond compliance reviews which could identify weaknesses and possible solutions.

The in-bond system is designed to facilitate the flow of trade; however, CBP does not know the extent of the in-bond system's use as a result of lax oversight. Although the in-bond system is estimated to be widely used, CBP cannot assess the extent of program use because it collects little information on in-bond shipments and performs limited analysis of data that it does collect.

The limited information available on in-bond cargo also impedes CBP efforts to manage security risks and ensure proper targeting of inspections.

(In-bond goods transit the U.S. with a security score based on manifest information and do not use more accurate and detailed entry type information to re-score until and unless the cargo enters U.S. commerce. As a result, some higher risk cargo may not be identified for inspection, and scarce inspection resources may be used for some lower risk cargo.)

Ports Not Consistently Performing Required Compliance Measurement "Tinman" Reviews

In 1998, CBP instituted a compliance measurement program known as "Tinman" to help track in-bond movements, protect revenues, and perform risk assessments. However, ports do not consistently perform the reviews required under the program and CBP headquarters does not collect national data describing the results of these reviews.

While conducting port visits, GAO found that some ports just recently began conducting physical examinations and completing post-audits required under Tinman because they previously did not have the resources available to support these duties after September 11, 2001.

(Tinman was designed to improve the tracking and monitoring of in-bond cargo by initiating compliance examinations of cargo and post-audits. Every week, ports are supposed to query the system to determine if a Tinman exam has been designated. No policies or procedures exist at the headquarters level to monitor or use the results of the Tinman inspections and audits to improve the management of the system.)

GAO Recommends CBP Collect Additional Information on In-Bonds, Etc.

GAO's report recommends that the CBP Commissioner take action in the following three areas (partial list of examples of recommended actions provided):

1. Collect and use additional information on in-bond shipments to enable more informed decisions:

For all in-bond goods to be eligible for a consumption entry into the U.S., require additional information on the in-bond form (CBP Form 7512) at the time of arrival.

This information should include data elements that provide a more precise description of the cargo and that further identify the entities involved in the movement of these goods. As part of this effort, CBP should - 6 months after implementation of new data requirements - report to Congress whether the enhanced data obtained are adequate to address security and trade concerns for in-bond transactions or whether current CBP authority should be adjusted.

For all goods to be exported, revise CBP Form 7512 to include the six-digit Harmonized Tariff Schedule (HTS) number

1. Assess the systemic problems associated with identifying open in-bonds and take steps to resolve these problems:

Revise in-bond regulations to reduce the time allowed for transporting cargo and to limit the ability of carriers to change the final destination for cargo without CBP knowledge.

Develop a more systematic enforcement strategy to increase bondholder compliance in closing out open in-bond transactions within required time frames.

1. Ensure that the compliance measurement system (Tinman) is performed to improve CBP's in-bond management.

(GAO notes that the Department of Homeland Security (DHS) agreed with most the recommendations in these three areas.)

SAFE Port Act Requires CBP Report on In-Bond System by June 30, 2007

The Security and Accountability for Every (SAFE) Port Act of 2006 requires that CBP submit a report to several congressional committees by June 30, 2007, including an assessment of whether ports of arrival should require additional information for in-bond cargo, a plan for tracking in-bond cargo in the Automated Commercial Environment (ACE) system, and an assessment of how to ensure reconciliation of in-bond cargo between arrival port and destination port.

The report must also contain an assessment of the feasibility of reducing transit time while traveling in-bond, an assessment of the resources needed to complete the reconciliation of in-bond entries, and an evaluation of the criteria for targeting and examining in-bond cargo.

¹There are three types of in-bond movements: "Immediate Transportation" (IT), "Transportation and Exportation" (T&E), and "Immediate Exportation" (IE).

(See ITT's Online Archives or 10/12/06 news, 06101205, for Part VI of BP's summary on the SAFE Port Act, which includes information regarding the report on in-bond cargo, etc.

See ITT's Online Archives or 02/28/07 news, 07022805, for BP summary announcing that carriers who transmit in-bond shipments via ACE must electronically transmit the arrival of the in-bond at the destination port, etc.

See ITT's Online Archives or 05/08/07 and 05/10/07 news, (Ref:) and 07051005, for BP summary announcing that e-Manifest: Truck participants could no longer use shipment control numbers as in-bond numbers, and in the future CBP will be expanding ACE in-bond capabilities for e-Manifest: Truck participants, respectively.)

GAO report entitled "INTERNATIONAL TRADE: Persistent Weaknesses in the In-Bond Cargo System Impede Customs and Border Protection's Ability to Address Revenue, Trade, and Security Concerns" (GAO-07-561, dated April 2007) available at http://www.gao.gov/new.items/d07561.pdf

BP Note

GAO notes that to address some of the issues surrounding open in-bond transactions, in March 2006, CBP issued several directives to the field describing systemic changes made to the in-bond section in Automated Commercial System (ACS). The first of these changes requires second-leg in-bond records² to reference the first leg of the in-bond movement so that when the second in-bond transaction is closed, the first in-bond transaction will be closed as well.

The second change requires the bill-of-lading field on the in-bond form to be filled in to facilitate the tracking of in-bond shipments and ensure that the bill of lading and in-bond transactions are posted and closed out. Furthermore, in June 2006, CBP issued a directive requiring ports to track in-bond transactions in a timely manner by monitoring records that appear on the system's monthly in-bond status reports.

²Cargo for which a second in-bond is issued after it reaches the port where it is expected to enter U.S. commerce or be exported.