CBP Conducting "Supply Chain Security Observations" of Non C-TPAT Firms Undergoing FAs

Overview of Focuses Assessments and Quick Response Audits, New SCSOs

During their presentation, CBP officials presented an overview of the two types of audits - Focused Assessments and Quick Response Audits. CBP also informed attendees of the Supply Chain Security Observations they are now conducting for companies undergoing FAs that are not Customs-Trade Partnership Against Terrorism members. Highlights of the presentation include:

Focused Assessments (Most Completed in One Year)

FAs are compliance audits focusing on internal controls. FAs are conducted by CBP on importers its selects based on risk management principles. CBP may consider medium and small size importers for FAs, not just the top 1,000 importers.

CBP has conducted over 1,000 FAs to date and the top three areas of unacceptable compliance are value, duty-free programs, and classification. CBP states that most of the FAs are completed within one year.

CBP officials note that they find, in the course of their audits, the following common internal control deficiencies:

no internal control procedures in place

not monitoring/verifying the broker's work

not maintaining or updating classification database

not requesting CBP assistance//input with new or complex issues

other departments not communicating potential CBP related information to the Import Department

no testing of entries for accuracy

According to CBP, common compliance errors it finds include:

lack of documentation to substantiate various claims (trade preference/agreements, non-dutiable charges, etc.)

price paid or payable is not fully reported

• failure to include assist costs in import values
• additional payments to sellers in excess of prices listed on invoice
• failure to invoice dutiable charges such as royalty costs, selling commissions, packing, and proceeds of resale

revised invoice prices not reported to CBP

inaccurate or incomplete description of articles as a basis for classification

During the presentation, CBP officials also listed the following actions as "best practices" for the trade:

commitment of management

establish compliance goals

develop formal polices and procedures

establish training programs

conduct internal control reviews

create a CBP compliance group

access to executives for needed resources

develop compliance requirements for suppliers

establish a recordkeeping program

partner with CBP

Quick Response Audits (Last Six Months on Average)

QRAs are single-issue audits with a narrow focus designed to address a limited objective within a shorter time period.

CBP auditors conduct QRAs upon request (referral) from another agency or office such as Immigration and Customs Enforcement, a CBP National Targeting group, or a CBP field office. CBP has completed 500 QRAs, which take an average of six months to complete.

According to CBP, examples of QRA subjects include:

improper valuation - undervaluation

possible antidumping duty violations

foreign trade zone - inventory discrepancies

bonded warehouse - missing merchandise

intellectual property right infringements

ICE fraud support - evidence and quantifications

health and safety (food products, toys, lighters, electronics, etc.)

Container Exam Station (CES) - overpricing

CBP Auditors Now Do Supply Chain Security Observations

CBP officials state that CBP now does Supply Chain Security Observations (SCSOs) concurrently during an FA audit of non-C-TPAT companies. During a SCSO, auditors gain an understanding of a company's supply chain security procedures and issue a SCSO report.

The purpose of the SCSO is to provide an observational perspective of the importer's supply chain security procedures and highlight areas of potential concern. The SCSO also informs the importer of potential risk areas in its supply chain.

According to CBP, the CBP auditor's role in an SCSO is as follows:

conduct entrance conference

supply chain security questionnaire (the purpose of which is to obtain information regarding the importer's supply chain management procedures. It contains questions on business partner security, container security, physical access controls, personnel security, procedural security, security training and threat awareness, physical security, and information technology security (the same issues addressed in C-TPAT)

tour of facilities/plant

interview personnel, obtain documentation

summarize results

hold an exit conference (company may provide comments)

issue an SCSO report

CBP officials note that although SCSOs are done concurrently during a FA of non-C-TPAT companies, it is not part of the FA itself.

Copy of CBP presentation available by emailing documents@brokerpower.com.

CBP information on FAs, QRAs, and SCSOs available at http://www.cbp.gov/xp/cgov/trade/trade_programs/audits/.