The word “audit” is a powerful one in that it makes businesses owners and private individuals alike shutter. And while no one wants to be audited in any way, shape, or form; some types of audits can be beneficial and even go a long way toward protecting your business. An import audit is one such type.
If you import or are thinking of starting to import, here is what you need to know, and how you can prepare for an audit, should your company be selected for one:
What is an import audit?
The U.S. Customs and Border Protection (CBP) conducts Compliance and Focused Assessment reviews on import companies as part of an informed compliance strategy. The audit review collects and analyzes data to determine the probability of noncompliance.
Why is an import audit important?
There are several purposes for an import audit other than ensuring compliance with laws and regulations. Import audits help to protect American businesses from unfair trade practices that are associated with intellectual property rights, countervailing duties (AD/CVD), and anti-dumping; and enable legitimate trade through partnerships and cognizant compliance activities. Additionally, import audits protect government revenue as well as U.S. consumers from unsafe goods.
Best practices to reduce risk of import noncompliance
The best way to reduce your company’s risk of being noncompliant is to stay informed. Continuing education courses on Import Audit Compliance can provide a full understanding of what your responsibilities are, as well as how you can pass a Customs Audit, and keep you up to date on any changing Focused Assessment Rules.
During an audit, importers are welcome to and even expected to identify problems and make voluntary disclosures. By making these disclosures, you are creating a “safe harbor” with regard to any customs errors and incorrect information on the filing of import or drawback entry. This action can reduce potential penalties, and help to keep your business well within compliance.
Common items that importers struggle with include:
- Unable to support Non-dutiable cost (C.I.F.) deductions
- Unable to support claims of American goods returned and use of American components in foreign-made goods
- Misclassifications of merchandise
- Valuation of related party transactions errors
- Unable to support claims of non-dutiable buying commissions
- Not producing required records in a timely manner
- Payments to foreign sellers and third parties, engineering or product modifications, and royalty and license fees
- Providing un-reimbursed equipment, materials and components to foreign producers
What to do if you receive a notice of an audit
Should your company receive notice of an audit, contact an attorney who is familiar with customs compliance so as to prepare for the audit. This will help the process go smoothly and decrease the risk of penalties and fines.
To prepare for an audit review, get an early start on the following:
- Prepare your in-house procedures and controls in such areas as record-keeping, classification, and valuation by making sure they are in writing and that your company’s transactions are well documented
- Be sure that your documentation shows all corrective actions that have been implemented
- Review the audit questionnaire and prepare your response in advance
Some of the common items that are reviewed by Customs in an audit include:
- Customs entry records
- General ledger accounts
- Foreign vendor payments
- Inventory and disbursement records
- Correspondence with foreign suppliers
By preparing in advance and implementing corrections beforehand, your import audit review can be completed in a timely fashion, save you time and money, and help to ensure less government intrusion in the future. It is important to note that unless your company passes the audit with flying colors, there will be a follow-up visit within six to eight months to confirm that you have implemented all corrections.
Compliance and Focused Assessment reviews, or import audits, help to protect American businesses, consumers, and government revenue. By implementing best practices to reduce your company’s risk of noncompliance, you are helping to protect fair trade as well as your business. By understanding the common noncompliance issues that most importers struggle with, you can avoid these same problems, and hopefully avoid an audit.