Customs and Border Protection's Examination of Importers' Operations: The Focused Assessment

• Author: George Tuttle, III
• Pages: 185-200

CHAPTER 9

Customs and Border Protection’s

Examination of Importers’

Operations: The Focused

Assessment

GEORGE TUTTLE, III1

H OVERVIEW

“We are from the government, and we are here to help you.” This is the senti-

ment behind what is benignly called a “Focused Assessment”—by any other

name, however, it is an audit conducted by U.S. Customs and Border Protection

(CBP). Its objectives are to determine the adequacy of an importer’s internal

controls, ascertain potential risk of noncompliance with CBP laws and regulations,

and encourage the development, as needed, of improved internal compliance poli-

cies and procedures. One other “small” purpose of a Focused Assessment must

be recognized for what it is—the collection of additional duties and fees if there

has been material noncompliance and the assessment of monetar y penalties

where appropriate. For instance, from fiscal years 2008 to 200, CBP’s Office

of Regulatory Audit (hereinafter, “Audit”) completed ,053 audits and identified

and recommended2 the collection of approximately $54.2 million in additional

revenue.3

The Focused Assessment program was introduced in 200, but its roots go

back to the Compliance Assessment (CA) program4 and the Customs Moderniza-

tion Act of 993 (see Chapter , “Introduction and Overview”), and the recogni-

tion of the need for more efficient use of CBP personnel in f ulfilling traditional

revenue and trade functions. CBP is authorized to conduct audits under 9 U.S.C.

§ 509. The statute authorizes CBP to examine and audit records of parties to:

• ascertain the correctness of any entry;

• determine the liability of any person for duty, fees, and taxes due, or

which may be due, the United States;

• determine liability for fines and penalties; or

• ensure compliance with the laws of the United States administered by CBP

Section 509(b) describes specific procedures for conducting a formal audit

authorized under the statute. These procedures are found in sections 63. and

63. of the Customs regulations.5 CBP is also planning numerous important

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186 CHAPTER 9

updates to the program for the government’s fiscal year 205, which will be dis-

cussed herein.6

A Focused Assessment allows CBP to take advantage of the formal statutory

obligation7 placed on impor ters to exercise “reasonable care,” with its implicit

recognition of the need for internal control and monitoring of customs transac-

tions. The premise is straightforward: CBP wants importers to effectively police

themselves so that CBP can focus on and identify the bad guys. If, in CBP’s judg-

ment, the company is doing a good job of compliance through the adoption—

and implementation—of effective internal controls, CBP is willing to lessen its

scrutiny over the company’s import transactions. As a high-level CBP official once

said: “We know from experience that companies with good internal customs con-

trols are much more likely to be compliant and that companies without sufficient

system controls pose a high risk to Customs.”8 Of course, an importer and CBP

will generally have very different views as to what is “sufficient” or “adequate.”9

Nevertheless, an effective internal compliance program is a fundamental necessity

for all importers, and the contours of an effective program are discussed later in

this chapter, in the section on Acceptable/Unacceptable Risk and Development

of Inter nal Controls. When necessary, CBP also uses targeted, “single-issue” or

Quick Response Audits (QRAs) to review specific questions or assess individual

risk areas. What to expect and how to prepare for these are also discussed in this

chapter, in the section on related audit programs.

PRACTITIONER’S TIP: While an importer may have become accustomed to a certain level

of routine review by local CBP personnel (for example, periodic reviews of tariff classification),

the Focused Assessment is, by definition, far more invasive. For an importer that has never been

audited, a Focused Assessment represents a serious endeavor that often warrants consultation,

preparation, and review with subject matter experts, such as a licensed customs broker, financial

expert, and specialized legal counsel. In a Focused Assessment, time is a critical factor. The

importer may wish to clarify gray areas of customs law to establish that it acted with “reasonable

care” or file one or more voluntary prior disclosures (see “Prior Disclosure” in Chapter 11, “U.S.

Customs and Border Protection’s Authority to Assess Monetary Penalties”). If material errors or

omissions are discovered and the importer has not yet filed a prior disclosure, Audit will notify

the importer of its findings and refer the matter for possible imposition of civil penalties under 19

U.S.C. § 1592, thus forestalling the importer’s ability to file a prior disclosure (see Chapter 11,

“U.S. Customs and Border Protection’s Authority to Assess Monetary Penalties”).

H WHAT IS A FOCUSED ASSESSMENT?

A Focused Assessment is a targeted audit of sample import transactions for a

period of time (usually the most recently completed company fiscal year) selected

on the basis of perceived risk. “Risk,” according to CBP, is the “degree of exposure

that would result in loss to the trade, industry, or the public,” both in “ordinary

day-to-day transactions as well as those extraordinary transactions that happen

infrequently or unintentionally.”0 Key considerations of risk exposure in Customs

compliance audits are significance and/or sensitivity of the area (e.g., textiles or

enforcement of IP rights), susceptibility (complex area prone to errors), the exis-

tence of “red flags,” lack of management support, and lack of trained personnel.

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