DHS OIG Says CBP Needs to Watch ISAs & STBs for Revenue Loss

(Customs revenue remains the second largest source of revenue for the U.S. government. In fiscal year 2010, CBP collected an estimated $32 billion in duties, fees, and taxes (revenue), an increase of 9.5% over FY 2009. OIG stated that in the current economic environment, it is imperative CBP ensure that importers comply with federal trade requirements and that government revenues are protected.)

CBP Lacks Tools to Ensure ISA Companies in Compliance & Revenues Protected

In 2010, OIG conducted a revenue audit of the ISA program¹ and found significant issues remain with oversight of the program. OIG's review of the ISA program highlighted several areas where improvement can be made, including establishing and enforcing policies and procedures to document management controls and assessing risks to trade compliance. OIG stated that as a result of issues with these areas, CBP does not have adequate tools to gain assurance that participating importers comply with federal trade requirements and, therefore, that government revenues are being protected.

(See ITT's Online Archives 10092211 for summary of OIG's 2010 audit of the ISA program.)

CBP Has Lost Millions in Revenue from Inaccurate, Incomplete or Missing STBs

In 2011, OIG conducted a revenue audit of the STB process and found significant issues remain with oversight of the program, which protects CBP from revenue loss when importers fail to fulfill their financial obligations. OIG found that from FY 2007 through FY 2010, CBP lost $46.3 million in revenue because of inaccurate, incomplete, or missing bonds. OIG stated that CBP needs to improve internal controls over the STB process and recommended that CBP develop a risk based approach that includes identification, assessment, and mitigation of the risk of revenue loss associated with the single transaction bonding process.

(See today's issue of ITT 11121609 for summary of CBP's plans to establish an STB centralization pilot that was discussed at the December 7, 2011 COAC meeting. See ITT's Online Archives 11080314 for summary of OIG's 2011 audit of the STB program.)

Issues also Exist with the Targeting & Examination of High-Risk Cargo

OIG has also concluded that issues with the targeting and examination of high risk shipments continue to be challenge:

Updated exam guidance needed. OIG noted that developing and maintaining a multi-layered risk based approach to trade security is a significant challenge. OIG stated that CBP needs to update its guidance relating to the physical examinations of high-risk cargo containers that may contain biological, chemical, nuclear, and radiological threats and conduct a risk assessment to determine which pathways pose the highest risk.

More funding needed. DHS is required to screen all cargo destined for the U.S. that is loaded on or after July 1, 2012. Over the past two years, CBP and DHS have raised concerns to Congress about the feasibility of 100% screening and have advocated for continuing to use a risk-based approach to meet the intent of mitigating high risk cargo. However, according to OIG, regardless of whether DHS formally adopts 100% screening or continues to use its risk-based approach to trade security, DHS must ensure that it has adequate resources, infrastructure, and processes. DHS must also be able to reach agreement with the international community to resolve issues concerning corresponding resources, oversight, costs, timing, and enforcement considerations, as well as a process to resolve disagreements as they arise.

Covert test finds passenger aircraft cargo vulnerable. Federal regulations require that, with limited exceptions, passenger aircraft may only transport cargo originating from a shipper that is verifiably "known" either to the aircraft operator or to the indirect air carrier that has tendered the cargo to the aircraft operator. Through covert testing, OIG identified vulnerabilities in the cargo screening procedures employed by air carriers and cargo screening facilities. This demonstrated that TSA does not have assurance that cargo screening methods always detect and prevent explosives from being shipped in air cargo transported on passenger aircraft.

Unqualified highway carriers receiving FAST benefits. The Free and Secure Trade (FAST) program is a commercial clearance program for known low-risk shipments entering the U.S. from Canada and Mexico that allows for expedited processing. OIG stated CBP’s initial enrollment process for carriers needs improvements to ensure that only low-risk carriers are allowed to participate in the FAST program. OIG has found that highway carriers that did not meet all C-TPAT² minimum security requirements have been certified to receive FAST program benefits. Additionally, the CBP Vetting Center and Trade Partnership against Terrorism supply chain security specialists has not always followed established procedures when determining the initial eligibility of highway carriers.

(OIG's report also highlights challenges with CBP's Western Hemisphere Travel Initiative (WHTI), overseas screening of foreign nationals, information technology management, etc. See full report for details.)

¹The ISA program was initiated in 2002 as a voluntary approach to trade compliance. It is based on the premise that importers with strong internal controls achieve the highest level of compliance with federal trade laws and regulations and require less enforcement review and oversight.

²Participation in FAST requires that every link in the supply chain, from manufacturer to carrier to driver to importer is certified under the Customs-Trade Partnership Against Terrorism (C-TPAT) program.

(See ITT's Online Archives 10100839 for summary of a September 2010 DHS OIG report identifying vulnerabilities in TSA's screening of air cargo on passenger aircraft.

See ITT's Online Archives 11111419 for summary of an October 2011 Government Accountability Office report finding TSA needs to strengthen its assessment of foreign all-cargo airports.)

(OIG-12-08, dated November 2011)