Customs Service Compliance Assessments of Selected Importers

Published by the Government Accountability Office on 1999-07-06.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

GAO   United States General Accounting Office
      Washington, D.C. 20548
      General Government Division


      July 7, 1999

      The Honorable Philip M. Crane
      Chairman, Trade Subcommittee
      House Committee on Ways and Means
      House of Representatives

      Subject: Customs Service Compliance Assessments of Selected Importers

      Dear Mr. Chairman:

      As you requested, this letter discusses how the U. S. Customs Service’s Regulatory Audit
      Division is conducting compliance assessment audits in the context of the Customs Service
      Modernization Act, which was enacted in December 1993, as Title VI of P.L. 103-182.
      According to Customs, the act was intended to expand cooperation between importers and
      the Customs Service. One aspect of the act was for Customs to assist importers by assessing
      their compliance with new recordkeeping requirements and their internal control systems.
      Specifically, our objectives were to conduct a preliminary review of the Office of Regulatory
      Audit’s compliance with (1) procedures established by the act and (2) Customs’ policies and
      procedures for conducting the audits to identify any problems that might warrant our further

      We conducted our preliminary review at Customs headquarters in Washington, D.C., and at
      two Regulatory Audit field offices--New York and Chicago. We selected these offices because
      they were two of the three field offices completing the most audits. We reviewed the
      requirements of the Modernization Act regarding compliance assessments and Customs’
      internal policies and procedures for conducting audits. We obtained summary data on 157 of
      the 168 audits conducted under the act through September 30, 1998, as well as detailed
      information on 25 of 28 audits completed in the 2 field offices.

       Because we were reviewing investigative case files for another assignment concurrently, we specifically included only
      Regulatory Audit field offices that were collocated with a Customs’ Office of Investigations field office.
       The list of completed audits that Customs officials originally provided included 160 audits from the Regulatory Audit
      Management Information System as of October 22, 1998. Because they were initiated before the enactment of the act and a large
      number of hours had been charged to them, for purposes of this letter, we excluded 3 of the 160 audits to arrive at a total of 157.
      Subsequently, Customs provided us with additional information as of November 4, 1998, and we determined that 168 audits were
      completed during the period in question, excluding the 3 audits described above.

      Page 1                                                      GAO/GGD-99-100R Customs Service Regulatory Audit Division

    Our preliminary review was conducted from June 1998 to February 1999 in accordance with
    generally accepted government auditing standards. We requested comments on a draft of this
    letter from the Secretary of the Treasury or his designee. On June 4, 1999, Customs’ Director,
    Office of Planning provided us with a written response to this letter; he said that Customs
    does not take exception to the contents of this letter.

    On the basis of the data we reviewed, Customs’ Office of Regulatory Audit appeared to have
    generally complied with (1) the section of the Modernization Act that addresses compliance
    audits and (2) most of its internal policies and procedures. Not all of the audits that we
    reviewed were completed within the time frames defined by Customs’ guidance. However,
    for the audits that we reviewed, the importers often contributed to some of the additional
    time required to complete the audits. Because we noted no serious problems concerning
    Customs’ compliance with the act or its policies and procedures, we do not believe that any
    further work is warranted in that area at this time.

    Our review of 25 cases closed in New York and Chicago indicated that these field offices
    were following procedures established by the act. As required by the act, in all 25 cases, the
    Office of Regulatory Audit

•   informed importers of upcoming audits,
•   provided importers an opportunity for an entrance conference,
•   provided importers the opportunity for a formal exit conference, and
•   provided importers a formal written report of the results of the audit.

    The act also requires Customs to inform importers of the estimated time it would take to
    complete an audit. During the case file review, we found evidence that Customs provided
    time estimates to importers in 12 of the 25 cases. However, neither the act nor Customs
    specifically requires that the provision of this information be documented, so more importers
    may have been informed than the 12 cases for which we found documentation.

    When the new compliance assessment program was initiated in October 1995, Customs
    established a target of 6 months and 1,000 staff hours to complete each audit. After
    completing 63 compliance assessments audits, the Office of Regulatory Audit concluded that
    the process was taking considerably longer than it had initially estimated. Subsequently, in
    November 1997, Customs targeted 9 months for the cycle time and 1,500 staff hours for
    conducting each audit. For our analysis, we used the standard of 9 months and 1,500 hours
    for the cases we reviewed in the two field offices.

    As shown in table 1, nationwide, the median number of months elapsed and the median staff
    hours used to complete the compliance assessment audits exceeded Customs’ target by 9
    months and 209 hours, respectively. Of the 14 cases reviewed in the New York office, only 1
    case was completed in 9 months, but 8 cases were completed in less than 1,500 staff hours.
    Of the 11 cases that we reviewed in the Chicago office, 3 cases were completed in 9 months
    or less, and 3 were completed in less than 1,500 staff hours.

    Page 2                                      GAO/GGD-99-100R Customs Service Regulatory Audit Division

Table 1: Time and Staff Hours Used by the Office of Regulatory Audit to Complete Compliance Audits
                                        Nationwide                   New York                 Chicago
Number of closed cases                           157                         14                       11
Median number of months                            18                        19                       13
to complete audits
Range in months                               5 to 33                   9 to 27                  8 to 24
Median number of staff                         1,709                     1,388                    1,930
hours to complete audits
Range in staff hours                    409 to 6,408              409 to 3,441             744 to 3,069
 The beginning point for the nationwide data varied by case and was the first contact date, the date of the preentrance
conference, or the date of the entrance conference. We used the entrance conference date for our analysis of cases from the
New York and Chicago offices.
Source: GAO analysis of Customs data and case file reviews.

Our review of the case files suggested that importers often contributed to the delays in
completing the compliance audits by (1) failing to provide requested information in a timely
manner or (2) requesting extensions in the audits for various reasons. For example, on July
19, 1996, Customs asked an importer for information needed to conduct the audit. The
importer said the earliest it could have the information would be early September 1996. After
several more delays, the importer provided the information to Customs on November 15,
1996, 4 months after it was initially requested. This case took a total of 23 months to
complete, with 5 and one-half months attributable to delays by the importer.

In another case, Customs first requested information from the importer on September 26,
1996; the fifth request for that same information was made more than 4 months later, on
February 7, 1997. Also, during the course of this audit the importer’s legal counsel requested
a total of 150 days in extensions, the equivalent of about 5 months, for a case that took about
13 months from the entrance conference to report issuance.

Other examples of delays caused by importers involved their failure to complete two
questionnaires—a general questionnaire and an electronic data processing questionnaire--
prior to the entrance conference, as required by the compliance assessment audit procedures.
For example, our file review found that only 6 of the 25 importers returned the 2
questionnaires at or before the entrance conference.

Customs files show that while preparing for the compliance assessment audits, some
importers discovered that they had underpaid duties or tariffs and made payments to
Customs known as voluntary tenders; this was another reason for requesting a delay. This
occurred in 17 of the 25 cases that we reviewed in the New York and Chicago offices, with
about $1.6 million being submitted to Customs. In one case, the importer asked for a 60-day
extension to “perfect” a prior disclosure of money owed; subsequently, the importer asked for

Page 3                                                   GAO/GGD-99-100R Customs Service Regulatory Audit Division

another extension of 60 days to gather detailed information and tender all lost duties relating
to the earlier tender. This case took a total of 13 months, 4 of which were for extensions
granted to the importer.

                                _    _   _    _   _

We are sending copies of this letter to the Honorable Sander M. Levin, Ranking Member of
your Subcommittee; the Honorable Raymond Kelly, Commissioner of Customs; Mr. Robert
Trotter, Assistant Commissioner for Strategic Trade; and Mr. William Inch, Director of the
Regulatory Audit Division.

Major contributors to this letter were Brenda Bridges, Carolyn Ikeda, Charity Goodman,
Ronald Salo, and Rebecca Shea. Please contact me at (202) 512-8777 if you or your staff have
any questions.

Sincerely yours,

Norman J. Rabkin
Director, Administration
 of Justice Issues

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